Texas Coast Utilities Coalition v. Railroad Commission of Texas and Centerpoint Energy Resources Corp. D/B/A Centerpoint Energy Entex and Centerpoint Energy Texas Gas

IN THE SUPREME COURT OF TEXAS
444444444444
NO. 12-0102
444444444444

TEXAS COAST UTILITIES COALITION, PETITIONER,
v.

RAILROAD COMMISSION OF TEXAS AND CENTERPOINT ENERGY
RESOURCES CORP. D/B/A CENTERPOINT ENERGY ENTEX AND
CENTERPOINT ENERGY TEXAS GAS, RESPONDENTS
4444444444444444444444444444444444444444444444444444
ON PETITION FOR REVIEW FROM THE
COURT OF APPEALS FOR THE THIRD DISTRICT OF TEXAS
4444444444444444444444444444444444444444444444444444

Argued September 10, 2013

JUSTICE BOYD delivered the opinion of the Court.

The sole issue in this appeal is whether the Railroad Commission of Texas had authority to

adopt a gas utility rate schedule that provided for automatic annual adjustments based on increases

or decreases in the utility’s cost of service. We agree with the court of appeals that the Commission

acted within its authority, and affirm.

I.
Background

CenterPoint Energy Resources Corporation is a gas utility1 that distributes natural gas to

customers located within the Texas Coast Division.2 In 2008, CenterPoint filed a “statement of

1
Generally, a “gas utility” is an individual or entity that transmits or distributes natural gas for compensation
within the state. See TEX. UTIL. CODE § 101.003(7).
2
The Texas Coast Division is a service region that includes parts of Waller, Austin, Fort Bend, Wharton,
Matagorda, Brazoria, Galveston, Harris, and Chambers counties.
intent” to raise its rates with each of the Division’s forty-seven municipalities, which have original

jurisdiction to set rates within their respective boundaries, and with the Commission, which has

original jurisdiction to set rates in the Division’s areas that are not within any municipal boundaries.3

Thirty-eight of the municipalities approved the proposed rate schedule, but the remaining nine cities4

denied it. CenterPoint appealed the denials to the Commission, which consolidated the appeals with

its own related case covering the areas outside of municipal boundaries. The nine cities formed the

Texas Coast Utilities Coalition, through which they jointly appeared in the consolidated rate case.

A group of state agencies that are CenterPoint customers also intervened, joining the Coalition’s

opposition to the proposed rate increase. After a three-day contested case hearing, the Commission

rejected some aspects of the proposed rate schedule and accepted others, ultimately approving a rate

increase to allow CenterPoint to generate $1.2 million in additional annual revenue, but not the $2.9

million that CenterPoint had proposed.

CenterPoint’s proposed rate schedule included a “cost of service adjustment” (COSA) clause,

which permitted the rate to increase or decrease annually without the necessity of an additional full

rate case. The Commission concluded that CenterPoint’s original proposed COSA clause was “not

reasonable,” but accepted a revised COSA clause as part of the final rate schedule. Under the

revised COSA clause, the amount of the annual adjustment is calculated by adding the amounts of

3
See TEX. UTIL. CODE § 104.102 (requiring utility to file a statement of intent with each affected regulatory
authority). CenterPoint also published a notice of intent to increase its rates in various newspapers distributed within
the Texas Coast Division.
4
The nine cities are Angleton, Baytown, Clute, Freeport, League City, Pearland, Shoreacres, West Columbia,
and Wharton. Generally, the term “municipality” includes towns and villages as well as cities. See Edinburg Hosp.
Auth. v. Treviño, 991 S.W.2d 76, 84 (Tex. 1997) (citing TEX. LOCAL GOV’T CODE § 1.005(3) and TEX. GOV’T CODE
29.001). Although not every “municipality” is a “city,” the distinction is not material in this case, and we will use the
terms interchangeably.

2
CenterPoint’s operating expenses, return on investment, and Texas franchise tax liability from the

preceding calendar year, subtracting the amount of CenterPoint’s non-gas and other revenues, and

then dividing the result by the Texas franchise tax statutory rate.5 The quotient is then converted

to a per-customer adjustment by dividing it by the average number of customers in each customer

class (residential customers, general service-small volume customers, and general service-large

volume customers). CenterPoint then divides the amount of the per-customer adjustment by twelve

and either adds the result to or subtracts it from each customer’s monthly gas bill. Any resulting

increase or decrease, however, is capped at 5% of the customer charge that was in effect at the end

of the preceding calendar year.

To effectuate the annual adjustment, the COSA clause requires CenterPoint to file with the

Commission and each affected municipality, by May 1 of each year, sworn statements and schedules

containing the information necessary to calculate the adjustments to be applied to customer bills on

or after August 1 of that year. The Commission and municipalities would thus have at least ninety

days to review and object to the schedules and proposed adjustments, and CenterPoint must

reimburse “their reasonable expenses for such review in an aggregate amount not to exceed

$100,000.” Meanwhile, within forty-five days after filing the schedules, CenterPoint is required to

publish a notice of the proposed adjustments in the Houston Chronicle describing the proposed rate

revision, the effect that the revision is expected to have on each customer class and on average

5
The “return on investment” component of this calculation is a fixed amount that the Commission set through
the rate case proceeding to ensure that CenterPoint receives a return that is reasonable but not greater than reasonable.
Here, the Commission set the amount based on an 11.8% return. The Coalition and state agencies do not contest the
reasonableness of this figure. The Texas franchise tax rate is set by the State.

3
customer bills within that class, the service areas where the adjustments will apply, and the means

by which customers can obtain additional information.

The COSA clause includes several provisions intended to ensure that the Commission and

municipalities retain the ability to review and object to the automatic adjustments. First, the clause

provides that the Commission and any municipality that objects to the adjustment by the end of the

ninety-day review period can “take action to deny such adjustment, and [CenterPoint] shall have the

right to appeal” the denial. Second, the clause provided that the COSA is effective only for an initial

implementation period of three years, after which CenterPoint, the Commission, or an affected

municipality can object to its renewal.6 Third, the clause provides that it “does not limit the legal

rights and duties” of the Commission or any municipality, and “[n]othing herein shall abrogate the

jurisdiction of [the Commission or a municipality] to initiate a proceeding at any time to review

whether rates charged are just and reasonable.” Finally, the clause provides that its provisions “are

to be implemented in harmony with the Gas Utility Regulatory Act.”

In its final order approving the new rate schedule, the Commission expressly found that “it

is reasonable to allow CenterPoint to implement the revised cost of service adjustment clause.” In

support of this finding, the Commission found that, under the COSA clause, the Commission and

municipalities can “examine the prudence of additions made to rate base as part of the annual COSA

filing,” will “ultimately determine[] the reasonableness and necessity of expenses to be recovered

in the COSA,” are permitted to “conduct a hearing on the COSA filing,” and can “grant in part and

deny in part the utility’s request to implement a COSA adjustment.” In its conclusions of law, the

6
Due to the Coalition cities’ objections, the COSA clause was effective only for the first three years
(2008–2011) and was not renewed.

4
Commission determined that approval of a COSA tariff “lies within the Commission’s jurisdiction,

. . . does not conflict with the rate-setting provisions of [the Gas Utility Regulatory Act], . . . [and]

does not prevent a utility or a regulatory authority from exercising the statutory right to initiate a rate

case.”

The Coalition and the state agencies that had intervened filed this action for judicial review

of the Commission’s order, challenging the Commission’s authority to adopt the COSA clause as

part of CenterPoint’s rate schedule.7 The district court held that the Commission “did not have

statutory authority” to adopt the COSA clause and remanded the matter to the Commission. The

Commission and CenterPoint appealed, and the Austin Court of Appeals reversed, concluding that

the Commission did not exceed its statutory authority. See R.R. Comm’n of Tex. v. Tex. Coast Utils.

Coal., 357 S.W.3d 731 (Tex. App.—Austin 2011, pet. granted). The Coalition and the state

agencies petitioned this Court for review, which we granted.

II.
Statutory and Regulatory Framework

The Coalition and state agencies raise both procedural and jurisdictional challenges to the

Commission’s authority to adopt the COSA clause. Before addressing their specific arguments, we

will provide context to the issues by briefly addressing the source of the Commission’s authority,

the purpose of the Gas Utility Regulatory Act, the jurisdiction that Act grants to the Commission

and to municipalities, the procedures that they must follow when approving rates, the substantive

requirements that those rates must meet, and the Commission’s historical practices and rules relating

to COSA clauses.
7
Other issues raised in the trial court are not at issue here.

5
A. The Source of Commission Authority

Although the Texas Constitution specifically mentions the Railroad Commission, see TEX.

CONST. art. XVI sec. 30(b), it does not create the agency but instead merely authorizes the

Legislature to do so. City of Denison v. Mun. Gas Co., 3 S.W.2d 794, 798 (Tex. 1928). Based on

this constitutional authority, the Legislature has established the Commission through chapter 81 of

the Natural Resources Code. TEX. NAT. RES. CODE §§ 81.001–.156. As a statutorily created body,

the Commission has no inherent authority, and instead has only the authority that the Legislature

confers upon it. Pub. Util. Comm’n of Tex. v. City Pub. Serv. Bd. of San Antonio, 53 S.W.3d 310,

315 (Tex. 2001). Its authority includes the powers that a statute expressly grants (express authority)

and also the powers “reasonably necessary to carry out the express responsibilities given to it by the

Legislature” (implied authority). Id. But “reasonably necessary” does not mean merely

“expedient.” The Commission “may not . . . exercise what is effectively a new power, or a power

contradictory to the statute,” even if it “is expedient for administrative purposes.” Id. at 316; see

also Pub. Util. Comm’n of Tex. v. GTE-SW., Inc., 901 S.W.2d 401, 407 (Tex. 1995).

B. The Express Purpose of GURA

One statute through which the Legislature has granted authority to the Commission is the

Gas Utility Regulation Act (GURA). TEX. UTIL. CODE §§ 101.001–105.051. Through GURA,

Texas “to date has continued to impose a comprehensive regime of traditional rate regulation on gas

utilities.” CenterPoint Energy Entex v. R.R. Comm’n of Tex., 208 S.W.3d 608, 616 (Tex.

App.—Austin 2006, pet. dism’d). As a result, gas utilities in Texas “are by definition monopolies

in the areas they serve” and are thus immune from “the normal forces of competition that regulate

6
prices” in the open market. TEX. UTIL. CODE § 101.002(b). To protect the public from harms often

associated with monopolies, the Legislature enacted GURA to authorize governmental entities to

act “as a substitute for competition.” Id. The express purpose of GURA is to “establish a

comprehensive and adequate regulatory system for gas utilities to assure rates, operations, and

services that are just and reasonable to the consumers and to the utilities.” Id. § 101.002(a). The

Legislature has instructed courts to construe GURA “liberally to promote the effectiveness and

efficiency of regulation of gas utilities,” except to the extent a liberal construction would render the

statute invalid. Id. § 101.007.

C. Regulatory Jurisdiction Under GURA

In GURA, the Legislature broadly granted the Commission “all the authority and power of

this state to ensure compliance with the obligations of gas utilities in this subtitle.” Id. § 104.001(a).

Regarding the utilities’ “rates and services,” however, GURA grants authority to municipalities as

well as to the Commission. Specifically, municipalities have exclusive original jurisdiction over the

rates and services of gas utilities that distribute gas within their municipal boundaries, id. § 103.001,

while the Commission has exclusive original jurisdiction over rates and services in areas that are

near municipalities but outside of municipal boundaries, commonly referred to as the “environs.”

Id. § 102.001(a)(1).8 GURA expressly authorizes municipalities and the Commission (which it

refers to collectively as “regulatory authorities,” see id. § 101.003(13)) to “establish and regulate”

rates within their respective jurisdictions. Id. § 104.001(b). The municipalities’ original

jurisdiction, however, is subject to the Commission’s jurisdiction over appeals from the

8
By Commission rule, “environs” are “unincorporated areas adjacent to or near incorporated cities and towns.”
16 TEX. ADMIN. CODE § 7.115(14).

7
municipalities’ rate orders. Id. § 102.001(b). When a party appeals a municipality’s order to the

Commission, the Commission reviews the decision de novo and must enter a final order establishing

the rates the municipality should have set. Id. § 103.055(a), (c).

D. Rate Case Proceedings Under GURA

GURA sets forth specific procedures that a gas utility must follow before it can increase its

rate. The utility must first file a statement of intent to increase its rate with each regulatory authority

that has original jurisdiction over the rate at issue, and must publish notice to its customers of the

proposed increase. Id. §§ 104.102, 104.103. The regulatory authority may hold a hearing to assess

the propriety of the proposed increase, and must do so if an affected person complains or if the new

rate would increase the utility’s revenues by the greater of $100,000 or 2-1/2 percent (which GURA

calls a “major change”). Id. §§ 104.101, 104.105. At the hearing, the utility has the burden of

proving that its proposed new rate meets GURA’s substantive requirements. Id. § 104.008(1).9

Generally, a municipality may postpone the effective date of the proposed new rate until it

completes the hearing and renders its decision, but only for ninety days from the utility’s proposed

effective date. Id. § 104.107(a)(1). Similarly, the Commission may postpone the effective date for

a period of 150 days. Id. § 104.107(a)(2). If the regulatory authority fails to render a final decision

by the postponed effective date, it is considered to have approved the proposed new rate. Id. §

104.107(c). If the regulatory authority rejects the utility’s proposed rate, it must enter an order

establishing the rate the utility must charge. Id. § 104.110(a)(1). Any party to the proceeding may

9
If a party initiates the proceeding with a proposal to reduce the existing rate, the utility has the burden to prove
that the existing rate is just and reasonable and should not be reduced. TEX. UTIL. CODE § 104.008(2).

8
seek judicial review of the Commission’s final order, and the courts will review the order under the

substantial evidence rule. Id. § 105.001.10

E. Computation of Rates Under GURA

GURA sets forth detailed substantive requirements that a gas utility’s rates must meet.

Ultimately, the regulatory authority must “ensure” that the rate “is just and reasonable.” Id. §

104.003(a). More specifically, the rate must be calculated to “establish the utility’s overall revenues

at an amount that will permit the utility a reasonable opportunity to earn a reasonable return on the

utility’s invested capital used and useful in providing service to the public in excess of its reasonable

and necessary operating expenses.” Id. § 104.051. Rates must “not be unreasonably preferential,

prejudicial, or discriminatory but must be sufficient, equitable, and consistent in application to each

class of consumer.” Id. § 104.003(a).

A rate calculation begins with the utility’s “rate base,” which essentially reflects the amount

of the utility’s investment in its gas distribution system. See id. § 104.053.11 The rate base is then

adjusted for the cost of capital (i.e., the cost of borrowing money or selling equity) and the utility’s

operating costs, to determine the rate needed to produce a “fair return” on the utility’s investment.

See id. §§ 104.052, 104.055(a); see also id. §§ 104.051–.059. The final rate schedule may consist

of several components. The schedule approved here, for example, sets CenterPoint’s rate as the sum

of three figures: (1) a base rate (not to be confused with the “rate base”), which is a specified amount

per customer plus a volumetric charge that varies from month to month based on the customer’s
10
Because the issue in the case is whether the statute authorizes the Commission’s decision, not whether the
evidence supports it, the substantial evidence rule is not implicated.
11
The “adjusted value of invested capital used and useful to the utility in providing service” is “computed on
the basis of a reasonable balance between . . . (1) original cost, less depreciation” and “(2) current cost, less
depreciation.” Id. § 105.053(a)(1), (2).

9
usage; (2) a “tax adjustment” tariff, which passes through to customers the cost of CenterPoint’s

municipal franchise tax liabilities;12 and (3) a “purchased gas adjustment” (PGA) tariff, which passes

through to customers fluctuations in CenterPoint’s cost to purchase the gas it distributes to

customers.13 The COSA clause that the Coalition and state agencies challenge in this case affects

the base rate component, by increasing or decreasing the specified amount billed per customer.

F. The Commission and COSA Clauses

The inclusion of a COSA clause in a gas utility rate schedule is not uncommon in Texas.

The Commission appears to have first approved such a clause in 1978, more than thirty-five years

ago. See Railroad Commission Order, Docket Nos. 1144, 1145 (April 3, 1978). Like the COSA

clause at issue in this case, the 1978 COSA clause provided for automatic annual adjustments based

on increases or decreases in the utility’s costs during the previous calendar year,14 required the utility

to provide advance notice of the amount of the proposed adjustments, and preserved the

Commission’s “right to accept, reject or suspend” the proposed adjustments. For at least the past

twenty years, hundreds of municipalities have also approved rate schedules that include COSA

12
Under Rate Schedule No. FFA-1, applicable to CenterPoint under the Commission’s order, CenterPoint is
to “adjust Customer’s bill each month in an amount equal to the municipal franchise fee payable for the Gas Service
provided to Customer by [CenterPoint].” For a discussion of franchise taxes imposed on gas utilities and passed on to
customers, see S. Union Co. v. Cty. of Edinburg, 129 S.W.3d 74 (Tex. 2003).
13
Under Rate Schedule No. PGA-7, applicable to CenterPoint under the Commission’s order, the “Monthly Rate
contained in [CenterPoint’s] total billing to residential and general service customers shall include the cost of natural
gas purchased for resale hereunder,” which is calculated for each rate period as: (CenterPoint’s best estimate of the cost
of natural gas to be purchased for resale) x (the percentage of the amount of gas purchased for resale that was actually
sold to customers) ± (any surcharge or surcredit for previous over- or under-recovery of gas purchase costs), rounded
to the nearest $0.0001. CenterPoint may propose a new PGA factor in a PGA filing, without filing a notice of intent to
increase rates, and the proposed PGA rate will become effective the next month unless the regulatory authority takes
action to oppose it.
14
The 1978 COSA clause was not as detailed as the COSA clause at issue here, but similarly adjusted rates
based on fluctuations in the utility’s “costs of providing gas service (including depreciation but excluding cost of gas,
gross receipts taxes, income taxes and return).”

10
clauses, just as the thirty-eight cities that approved CenterPoint’s original proposed rate did in this

case.

Consistent with and indicative of the common usage of COSA clauses in Texas, the

Commission has adopted rules addressing such provisions. In one rule, the Commission has defined

a COSA clause as “any rate provision other than a purchased gas adjustment clause provided for in

§ 7.5519 of this title (relating to Gas Cost Recovery), which operates to increase or decrease rates

without prior consent or authority of the appropriate regulatory authority.” 16 TEX. ADMIN. CODE

§ 7.115(10). In a separate rule, the Commission has required utilities that propose a rate change in

the environs based on a COSA clause effective in an adjacent municipality to submit with their

proposal a copy of the COSA clause, “all calculations used to derive the cost of service adjustment,”

and information describing “the effect of the proposed rates on each affected customer class.” Id.

§ 7.210(b)(1), (2). And in yet another rule, the Commission has provided that a COSA clause

effective in an adjacent municipality “shall not be applicable or put into effect for the affected

environs area, although the utility may request the same rates that are in effect in the adjacent

municipality for the affected environs area.” Id. § 7.220(c). In spite of these rules and the

longstanding common usage of COSA clauses,15 the Coalition and state agencies contend that the

Legislature has not granted the Commission authority to include COSA clauses in Texas gas utility

rate schedules. We now address their arguments in support of this contention.

III.

15
Although we need not rely on the doctrine of legislative acceptance in this case, we note that during these
thirty-five years the Legislature has not amended GURA or taken other action to prohibit the Commission or
municipalities from including COSA clauses in utilities’ rate schedules. Cf. Tex. Dep’t of Protective & Regulatory Servs.
v. Mega Child Care, Inc., 145 S.W.3d 170, 176 (Tex. 2004) (discussing the doctrine of legislative acceptance).

11
 Discussion

As mentioned, the rate schedule the Commission approved for CenterPoint includes three

main components—a base rate, a tax adjustment, and a PGA tariff—and the COSA clause is

included as part of the base rate. The Coalition and state agencies do not challenge the tax

adjustment or the PGA tariff. They also do not contend that CenterPoint failed to provide a timely

statement of intent or otherwise failed to comply with GURA’s procedural requirements in the rate

case that resulted in the Commission’s final order. Instead, they contend that (1) GURA does not

expressly or impliedly authorize the Commission to include the COSA clause as a component of

CenterPoint’s base rate, and (2) the COSA clause violates GURA by allowing Centerpoint to avoid

GURA’s procedural requirements for future rate increases and by depriving municipalities of their

original jurisdiction over those proceedings. Based on the language of GURA,16 we disagree with

both arguments.

A. GURA Expressly Authorizes the Commission to Establish “Rates,” Including COSA
Clauses.

16
Because the Legislature determines and declares the Commission’s authority, we resolve this case by
construing and applying Texas statutes to determine whether the Legislature intended to give the Commission authority
to adopt a COSA clause. The construction of a statute is a question of law that we review de novo. R.R. Comm’n of Tex.
v. Tex. Citizens for a Safe Future & Clean Water, 336 S.W.3d 619, 624 (Tex. 2011). “Ordinarily, the truest
manifestation of what legislators intended is what lawmakers enacted, the literal text they voted on.” Alex Sheshunoff
Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644, 651 (Tex. 2006).
“We have long held that an agency’s interpretation of a statute it is charged with enforcing is entitled to ‘serious
consideration,’ so long as the construction is reasonable and does not conflict with the statute’s language.” Tex. Citizens,
336 S.W.3d at 624. Relying on these holdings, the court of appeals in this case decided to “defer” to the Commission’s
construction that GURA authorizes the inclusion of COSA clauses. Tex. Coast Util. Coal., 357 S.W.3d at 745. The
parties and certain amici disagree whether such deference was appropriate in this case, and some urge that we use this
case as an opportunity to add clarity to the so-called agency deference doctrine. Because we independently conclude
that GURA grants the Commission authority to adopt the COSA clause, we need not “defer to” the Commission’s
construction or give it “serious consideration,” and we do not agree that this is an appropriate case to provide any clarity
that may be needed.

12
 GURA expressly grants the Commission the authority to “establish and regulate rates of a

gas utility,” TEX. UTIL. CODE § 104.001(a); to “determine the propriety of [an] increase [in rates],”

id. § 104.105(a); to “enter an order establishing the rates [a utility] shall charge or apply for [its

services]” in areas outside of municipal boundaries, id. § 104.110(a)(1); and on appeal from a

municipality’s rate order, to “enter a final order establishing the rates [the Commission] determines

the municipality should have set,” id. § 103.055(b). The Legislature has thus expressly granted the

Commission authority to establish gas utility rates. The question, then, is whether the COSA clause

constitutes a “rate.”

GURA defines a “rate” as:

(A) any compensation, tariff, charge, fare, toll, rental, or classification that is
directly or indirectly demanded, observed, charged, or collected by a gas
utility for a service, product, or commodity described in the definition of gas
utility in this section; and

(B) a rule, regulation, practice, or contract affecting the compensation, tariff,
charge, fare, toll, rental, or classification.

Id. § 101.003(12). Considering both subsections of this definition, and reading them in conjunction

with the express authority to “establish rates,” we conclude that GURA expressly authorizes the

Commission to establish both that which a utility “demand[s], observe[s], charge[s], or collect[s]”

for distributing gas and that which “affect[s]” that which the utility “demand[s], observe[s],

charge[s], or collect[s].”

The Austin Court of Appeals has concluded that, through subsection (B) of this definition,

the Legislature “has recognized that a rate may consist not merely of a fixed dollar amount but may

instead be a rule ‘affecting’ the charge, a term contemplating the use of variables.” CenterPoint

13
Energy Entex v. R.R. Comm’n of Tex., 208 S.W.3d 608, 618 (Tex. App.—Austin 2006, pet. dism’d).

We generally agree. The rate schedule establishes Centerpoint’s “charges” and “compensation,” and

the COSA clause provides that the charges and compensation will adjust annually to account for

differences between CenterPoint’s estimated and recorded expenses. By including the COSA clause

in the rate schedule, the Commission has “established” a “practice”17 that “affects” CenterPoint’s

charges and compensation. We thus conclude that the COSA clause constitutes a “rate” under

subsection (B),18 and GURA expressly authorizes the Commission to establish it.

The Coalition and state agencies raise a number of arguments against this construction of the

statute. For the reasons explained below, we do not find them convincing.

1. The Role of a Definition

Citing to our decision in State v. Public Utilities Commission, 344 S.W.3d 349 (Tex. 2011),

the state agencies argue that a statutory definition cannot serve as a source or basis of agency

authority. In that case, the court of appeals had concluded that the Texas Public Utility Commission

(PUC) did not exceed its authority when it relied on the Utility Code’s definition of “market value”

as an alternative basis for determining the market value of stranded costs. See CenterPoint Energy

Houston Elec., LLC. v. Gulf Coast Coal. of Cities, 252 S.W.3d 1, 27 (Tex. App.—Austin 2008),

rev’d in part and aff’d in part sub nom, State v. Pub. Util. Comm’n, 344 S.W.3d 349, 356 (Tex.

17
Because we conclude that the COSA clause is a “practice,” we need not decide whether it is a “rule” or
“regulation.”
18
We also note, without deciding, that the COSA clause could also constitute a “rate” under subsection (A).
See TEX. UTIL. CODE § 101.003(12)(A). No one disputes that the COSA is a “tariff.” The clause expressly identifies itself
as such, and the Commission refers to it as a “tariff” throughout its order. And at least when the adjustment is
positive—i.e., when it increases the amount customers must pay—it results in a “charge” to CenterPoint’s customers
and “compensation” to CenterPoint for a “service, product, or commodity.” The language of subsection (A) does not
limit that prong of the definition to fixed amounts. See id.

14
2011). We disagreed and held that the PUC could not rely on the statutory definition as an

alternative basis when the Utility Code’s substantive provision expressly “specifies the permitted

methods for determining market value.” 344 S.W.3d at 360. The state agencies contend that, like

the PUC in that case, the Commission in this case cannot “derive authority from a statutory

definition in abrogation of the substantive law.” But the Commission does not contend, and we do

not hold, that the statutory definition of “rate” grants authority to the Commission; rather, the

Commission contends, and we hold, that GURA’s substantive provisions grant the Commission the

power to “establish rates.” The definition of “rates” gives meaning to this substantive grant of

authority.

2. The GRIP Statute

The Coalition and state agencies also argue that our construction ignores other provisions

of GURA and thus ignores the context of the provisions that grant authority to establish rates and

that define the term “rate.” See, e.g., Zanchi v. Lane, 408 S.W.3d 373, 376 (Tex. 2013) (“A word’s

meaning cannot be determined in isolation, but must be drawn from the context in which it is

used.”). Specifically, they point to section 104.301 of GURA, commonly known as the “GRIP”

(Gas Reliability Infrastructure Program) statute, which the Legislature enacted in 2003. TEX. UTIL.

CODE § 104.301. The GRIP statute authorizes a gas utility that has filed a rate case within the

preceding two years to “file with the regulatory authority a tariff or rate schedule that provides for

an interim adjustment in the utility’s monthly customer charge or initial block rate to recover the

cost of changes in the investment in service for gas utility service,” without initiating a rate case.

Id. § 104.301(a). The legislative purpose behind the GRIP statute was to provide utilities with a

15
five-year window in which to increase their rates to account for new capital investments in

infrastructure without having to file a rate case, thus encouraging utilities to invest in Texas’s gas

pipeline infrastructure in the face of “continuing growth in the state” and a desire to “enhance safety

by replacing aging facilities.” Atmos Energy Corp. v. Cities of Allen, 353 S.W.3d 156, 157–58 (Tex.

2011).

The Coalition argues that the GRIP statute demonstrates that the Legislature “knows

perfectly well how to adopt provisions that streamline the ratemaking process,” and would have

adopted a similar provision for COSA clauses if it intended to authorize the Commission to use such

clauses. They also argue that there would have been no need for the GRIP statute if the

Commission’s authority to “establish rates” already included the authority to adopt variable,

formulaic rates. But these arguments incorrectly assume that the GRIP statute provides the same

kind of authority as the provisions that authorize the Commission to “establish rates.” To the

contrary, the GRIP statute does not authorize the Commission (or a municipality) to approve and

include an adjustment mechanism in a rate schedule. Rather, it authorizes the gas utility to file a

tariff adjusting its own rates without obtaining the regulatory authority’s approval, including any

approval in the utility’s original rate schedule. Atmos Energy, 353 S.W.3d at 157 (explaining that

the GRIP statute “permits a gas utility to file a new tariff adjusting its base rates to recover the costs

of new capital investment made in the preceding calendar year, without the necessity of filing a rate

case”). Thus, unlike COSA clause adjustments, the GRIP statute permits adjustments that the

Commission has not approved through a full rate case. See id. at 158 (recognizing that the GRIP

statute allows a utility to “begin recovering the costs of new investment not already covered by a

16
final rate” (emphasis added)). The GRIP statute thus authorizes adjustments that are outside of, and

materially different from, the Commission’s general authority to “establish rates.” The Legislature’s

decision to enact the GRIP statute thus does not contradict its prior grant of authority to the

Commission to establish practices like COSA clauses.

3. PGA Tariffs

The Coalition and state agencies also contend that our construction of the Commission’s

statutory authorization to “establish rates” ignores our prior constructions of GURA, and that of

Texas courts of appeals, particularly those concerning PGA tariffs. A PGA tariff is a common

component of a rate schedule that provides for automatic adjustments in customer charges based on

fluctuations in a utility’s cost to purchase the gas it distributes. See CenterPoint Energy Entex v.

R.R. Comm’n of Tex., 208 S.W.3d 608, 612 (Tex. App.—Austin 2006, pet. dism’d) (describing PGA

tariffs as “an automatic escalator mechanism devised by utility regulators to deal with rapid

fluctuations in the cost of natural gas[, which] operates to increase or decrease the revenue of the

gas company by exactly the amount of its increased or decreased costs of gas charged the gas

company by its suppliers”). As we have noted, the CenterPoint rate schedule at issue here includes

a PGA tariff, and the Coalition and state agencies do not contest this aspect of the Commission’s

order.19 Instead, they contend that Texas courts have authorized PGA tariffs only “as a matter of

19
Although they do not challenge the use of the PGA, the Coalition does point out that GURA does not
specifically reference the use of fuel cost adjustments, whereas the Public Utility Regulatory Act (PURA) does. See TEX.
UTIL. CODE §§ 36.201, 36.203 (providing for “the timely adjustment of a utility’s fuel factors, with or without a
hearing”). The Austin Court of Appeals has addressed this point:

[T]he legislature enacted the provision granting the [PUC] authority to review and reconcile the
prudence of fuel costs at a time when it had prohibited the PUC from allowing electric utilities to use
automatic fuel cost adjustment clauses like PGAs. By contrast, Texas courts by that time had approved
the use of PGA clauses by gas utilities. Against this legal backdrop, the legislature understandably

17
agency policy and common law,” not based on the language of the statute. From that contention,

they reason that judicial approval of PGA tariffs on policy and common law grounds would have

been unnecessary if, as we hold today, the statutory authority to “establish rates” already includes

the authority to approve clauses that provide for automatic adjustments based on cost fluctuations.

We disagree with this argument because we disagree with its foundational contention that

courts have approved PGA tariffs based only on policy reasons and not on the language of the

statute. To the contrary, when this Court addressed PGA tariffs nearly forty years ago, we

characterized the tariff as “a charge” and as “a component of the rate” that the statute authorized.

San Antonio Indep. Sch. Dist. v. City of San Antonio, 550 S.W.2d 262, 266 (Tex. 1976). Quoting

from an earlier Attorney General opinion, we described a PGA tariff as “a lawful exercise of the

municipality’s rate regulation power” to “establish[] a rate schedule.” Id. at 266–67 (quoting

Attorney General Op. H-741 (Nov. 20, 1975)). A few years later, we recognized that PGA tariffs

are justified based on the statute’s “mandate[] that the Commission structure a system that will

permit the utility to recover all of its operating expenses.” R.R. Comm’n of Tex. v. High Plains

Natural Gas Co., 628 S.W.2d 753, 753 (Tex. 1981). More recently, and similar to the construction

we adopt today, the Austin Court of Appeals held that a PGA tariff included as part of the base rate

in a rate schedule constitutes a “‘rule’ [that] fits squarely within [subsection B of] the statutory

definition of ‘rate,’” and thus the “gas rate consists of its entire rate schedule, which may result in

provided a method for timely review and adjustment of an electric utility’s fuel costs as an alternative
for fuel factor adjustment clauses while including no such provision regarding gas utilities.

CenterPoint Energy Entex, 208 S.W.3d at 620 (citations omitted).

18
differing customer charges month-to-month.” CenterPoint Energy Entex, 208 S.W.3d at 619.20 As

we read these cases, Texas courts have long held that the statutory language authorizes the inclusion

of PGA tariffs in rate schedules.

It is true, as the Coalition and state agencies point out, that the courts have explained and

discussed the policy reasons that justify PGA tariffs. This Court has noted, for example, that PGA

tariffs were first “enacted at a time of rapid and enormous increases in the cost of fuel,” San Antonio

Indep. Sch. Dist., 550 S.W.2d at 266, and the Austin court has noted that “fuel costs are particularly

subject to dramatic and unforeseeable changes” and “constitute such a large proportion of a utility’s

total costs that any substantial regulatory lag in approving rate increases to reflect fuel cost increases

can cause the rapid financial ruin of an otherwise healthy utility.” CenterPoint Energy Entex, 208

S.W.3d at 617. But the courts have not cited—indeed, they could not cite—these policy concerns

as justification for a judicial grant of authority to an executive branch agency. As we have

explained, statutorily created agencies like the Commission have only the authority that the

Legislature confers upon them by statute. Pub. Util. Comm’n of Tex., 53 S.W.3d at 315. It is thus

irrelevant to our analysis whether the same policy concerns that justify a PGA tariff also justify

COSA clauses. Even if, as the Coalition and state agencies contend, they do not, our task is simply

20
The Austin court concluded that a PGA tariff included within a rate schedule constitutes a “rule” under
subsection B of the statutory definition of rate. CenterPoint Energy Entex, 208 S.W.3d at 619. We have concluded that
the COSA clause constitutes a “practice” under subsection (B), and have thus declined to determine whether it is also
a “rule” or “regulation.” See supra note 17. Also, as the Coalition and state agencies point out, the Austin court stated
that “Texas has never expressly addressed the use of PGA clauses in a statute.” CenterPoint Energy Entex, 208 S.W.3d
at 613. We agree that the statute does not “expressly” address PGA clauses, but that is different than holding that the
statute does not “expressly” authorize the Commission to adopt such clauses by authorizing it to regulate and establish
rules and practices that affect compensation and charges. By concluding that the inclusion of a PGA tariff in a rate
schedule “fits squarely within” the statute’s definition of a rate, the Austin court found that such clauses are authorized
by statute, and not merely by common law based on judicial policy choices. See id.

19
to determine whether the statute authorizes the Commission to include such clauses in a gas utility’s

rate schedule.21 Our conclusion that it does is not inconsistent with our state courts’ prior

discussions of PGA tariffs.

4. Commission Rules

Finally, the Coalition and state agencies argue that the Commission’s own rules conflict with

our construction of GURA. Specifically, as we have noted, the Commission has adopted three rules

regarding COSA clauses: one defining a COSA clause, one requiring additional filings when a utility

proposes a rate change in the environs based on a COSA clause effective in an adjacent

municipality, and a third providing that a COSA clause effective in an adjacent municipality “shall

not be applicable or put into effect for the affected environs area, although the utility may request

the same rates that are in effect in the adjacent municipality for the affected environs area.” 16 TEX.

ADMIN. CODE §§ 7.115(10), 7.210(b), 7.220(c). The Coalition contends that the third rule, 7.220(c),

prohibits the use of a municipality-approved COSA clause in adjacent environs, and instead

“requires the Commission to review increases in base rates for customers in the environs using the

traditional cost of service basis.”

Disagreeing with the Coalition’s construction of rule 7.220(c), the court of appeals held that,

“rather than prohibiting the use of cost-of-service adjustment clauses for environs rates, this section

simply provides that such clauses are subject to review by the Railroad Commission and will not be

21
See, e.g., Combs v. Health Care Servs. Corp., 401 S.W.3d 623, 629 (Tex. 2013) (“[W]e read unambiguous
statutes as they are written, not as they make the most policy sense. If a statute is worded clearly, we must honor its plain
language, unless that interpretation would lead to absurd results.”); City of Round Rock v. Rodriguez, 399 S.W.3d 130,
139 (Tex. 2013) (“In Texas, however, the Legislature must make this policy determination. Our role in statutory
construction is merely to give effect to the Legislature’s intent by examining the plain meaning of the statute.” (citations
omitted)).

20
automatically applicable as adjacent municipality rates.” Tex. Coast Util. Coal., 357 S.W.3d at 746

(emphasis in original). We agree. Although, as the Coalition notes, the terms “shall not” are

typically prohibitive, we cannot read the terms in such a manner within the context of this rule. The

rule first provides that when a utility proposes an increase in an environs rate pursuant to a COSA

clause in effect in an adjacent municipality, the Commission “shall review” that increase “on a cost

of service basis.” 16 TEX. ADMIN. CODE § 7.220(c). It then provides that the COSA “in effect in the

adjacent municipality shall not be applicable or put into effect for the affected environs area,

although the utility may request the same rates that are in effect in the adjacent municipality for the

environs area.” We read the rule to mean that the municipality-approved COSA clause will not be

automatically effective in the environs but will be subject to the Commission’s own independent

review to ensure that the cost of service justifies the clause. The rule expressly provides that the

utility “may request the same rates that are in effect in the adjacent municipality,” and those rates

would include any COSA clause. We agree with the Commission and the Austin court that this rule

does not prohibit the Commission from adopting a COSA clause as part of the rate applicable to the

environs, but instead ensures that such a clause will be permitted only after the Commission has

determined that including it in the rate is appropriate.

We thus reject the Coalition’s and state agencies’ arguments that our construction of GURA

finds a grant of authority in a statutory definition or is inconsistent with the GRIP statute, prior court

holdings regarding PGA tariffs, or the Commission’s rule 7.220(c). We conclude that, by granting

the Commission the authority to establish “rates,” and defining “rates” to include “practices” that

21
affect a utility’s compensation and charges, GURA expressly grants the Commission authority to

include a COSA clause in a gas utility’s rate schedule.

B. The COSA Complies with GURA’s Mandates.

Although GURA expressly authorizes the Commission to establish practices that, like a

COSA, affect a utility’s compensation and charges, both the Commission and the COSA must still

comply with all of GURA’s procedural, substantive, and jurisdictional mandates. See, e.g., Pub.

Util. Comm’n of Tex., 53 S.W.3d at 323 (holding that PUC had authority to establish rates for

investor-owned utilities’ use of each other’s transmission facilities, but the “access fee” portion of

rate was inconsistent with Public Utility Regulatory Act and therefore exceeded the PUC’s statutory

authority); R.R. Comm’n of Tex. v. Lone Star Gas Co., 844 S.W.2d 679, 685, 688 (Tex. 1992)

(observing that Commission must exercise its authority “consistent with the laws of this state” and

“consistent with its statutory authority”). Thus, in addition to granting authority to the Commission,

GURA also limits the exercise of that authority to practices and rates that satisfy GURA’s

requirements. The Commission may not, for example, establish a practice that does not ensure that

the rate is “just and reasonable,” see TEX. UTIL. CODE § 104.003(a), or that is not calculated to

“establish the utility’s overall revenues at an amount that will permit the utility a reasonable

opportunity to earn a reasonable return on the utility’s invested capital used and useful in providing

service to the public in excess of its reasonable and necessary operating expenses,” id. § 104.051.

The Coalition and state agencies argue that the CenterPoint COSA clause violates the

purpose and provisions of GURA in two ways. First, they contend that the COSA clause allows

CenterPoint to change its rates without complying with GURA’s notice and hearing procedures. See

22
id. §§ 104.101–.112. Second, they contend that the COSA clause usurps the municipalities’

exclusive original jurisdiction over CenterPoint’s rates within municipal borders. See id. § 103.001.

We disagree with both contentions.22

1. Rate Changes Must Be Approved, But They Need Only Be Approved Once.

Under GURA, a utility that wishes to increase its rate must timely file a statement of intent,

and the regulatory authority or any affected person may initiate a full rate case by contesting the

proposed increase. See id. §§ 104.102(a), 104.105. The Coalition and state agencies contend that

the COSA clause allows CenterPoint to increase its rate without complying with these procedures.

Noting that GURA’s definition of “rate” includes both (A) “any compensation [or] charge” that the

utility demands, charges, or collects, and (B) a practice that affects the compensation or charge, see

id. § 101.003(12), the Coalition and state agencies contend that both the charge and the practice are

a “rate,” and thus GURA requires that the utility comply with the procedural requirements before

it can increase either.23 “Thus,” the Coalition argues, “to increase a ‘charge’ the utility must abide

by the same criteria that apply to increasing a ‘rate.’”

Generally, we agree with the Coalition that a “charge” is a “rate”—the statute expressly says

so—and when a utility wishes to change its rate (whether the rate is a “charge” or a “practice” or

some other term that falls within the statutory definition of a “rate”) the utility must comply with

22
No party contends that the COSA clause constitutes an improper delegation of the Commission’s authority
to CenterPoint. Cf. Tex. Workers’ Comp. Comm’n v. Patient Advocates of Tex., 136 S.W.3d 643, 653–54 (Tex. 2004)
(considering whether Texas Worker’s Compensation Commission’s dispute and audit rules constituted improper
delegation of its authority to private entities); San Antonio Ind. Sch. Dist., 550 S.W.2d at 266–67 (rejecting contention
that fuel adjustment charge constituted an improper delegation of ratemaking power to city).
23
The Coalition argues: “In other words, in the court [of appeal]’s view, it is possible to have a ‘rate’ that allows
for increases in the amount of money the utility collects through ‘charges,’ but which does not constitute an increase in
a ‘rate.’ This result does not withstand scrutiny.”

23
the statutory notice and rate case procedures. But we disagree with the Coalition’s conclusion. Once

a rate is approved pursuant to a proper rate proceeding, it need not be re-approved each time it is

applied. This is true whether the “rate” approved by the Commission is a fixed dollar amount (like

a flat, per-customer fee) or a formula with fixed inputs (like a charge calculated by multiplying a

fixed dollar amount by a customer’s units of usage) or a formula with variable inputs (like a COSA

or a PGA or pass-through tax tariffs). The total amount of money billed to a utility’s customers and

collected by the utility changes on a month-to-month basis because even if all other factors were

constant, customer usage generally varies from month to month. So we disagree with the Coalition

to the extent it construes the terms “compensation” and “charge” (as used in subsection (A) of the

definition of “rate”) to mean the amount that a customer is required to pay (that is, the amount the

customer is billed) in any given month. Gas bills routinely change from month to month based on

the amount of gas the customer uses, because the “charge” is typically a specified amount per

hundred cubic feet that the customer uses. The “compensation” and “charge,” in other words, are

not the amount a customer must pay each month, but the basis by which that amount is determined.

More importantly, although we agree that the COSA clause may change the basis by which

the amount of a customer’s bill is determined (i.e., it may change the “charge,”), and that change

may result in an increase in the amount of the customer’s bill, we do not agree that the change

results in an increase in the “rate.” The Commission’s rate-making authority includes the authority

to establish “practice[s]” that “affect[]” the basis by which the amount of a customer’s bill is

determined, and it is not possible for such a practice to “affect” the basis without changing it in some

way. Application of a “practice” that “affect[s]” a “charge” necessarily changes the charge in some

24
manner; if every application of a previously approved “practice” required new rate case proceedings,

approval of the practice itself would be meaningless. The inclusion of subsection (B) in the

definition of “rate” would be meaningless if the effect of subsection (A) were to require notice and

a rate case to validate each application of the rule or practice that “affects” the basis by which the

amount of a customer’s bill is determined. We cannot construe GURA in a manner that renders

subsection (B) superfluous. See Atmos Energy, 353 S.W.3d at 162 (“We presume that every word

of a statute has been included or excluded for a reason.”).

The Coalition and state agencies, however, contend that our construction renders subsection

(A) superfluous. We disagree. As we read the statute, a rule or practice that affects a charge is

simply a part (generally, a formulaic part, rather than a fixed or volumetric part) of the basis by

which the amount of a customer’s bill is determined. If the rate schedule does not include a COSA

clause or other such rule or practice that affects the charge, the fixed or volumetric basis by which

the amount of the bill is determined is still the “rate,” because it is the “compensation” or “charge”

under subsection (A). But when the Commission adopts a rule or practice that “affects” the

compensation or charge, it has established not two rates (each of which must be approved through

separate rate proceedings), but one. Both the charge and the practice are part of the one “rate,” and

together they establish the basis by which the amount of the customer’s bill is to be determined.

CenterPoint and the Commission complied with GURA’s procedural requirements in connection

with the rate case that resulted in the order establishing CenterPoint’s rate, which includes the COSA

clause. By definition, the COSA clause “affects” the compensation and charges that CenterPoint

25
can demand, charge, and collect, and GURA does not require a new rate case each time it does so.

2. Municipal Jurisdiction

Finally, the Coalition argues that the COSA clause violates GURA by usurping

municipalities’ exclusive original jurisdiction to establish rates within their borders. GURA

expressly “does not authorize the railroad commission to . . . affect the jurisdiction, power, or duty

of a municipality” that has not ceded its original jurisdiction to the Commission, except as otherwise

provided in GURA. See id. § 102.002(2). The Coalition contends that the COSA clause affects the

municipalities’ exclusive original jurisdiction by allowing CenterPoint’s compensation and charges

to change without allowing the municipalities to review the change as GURA provides.

For example, the Coalition complains that the COSA clause alters GURA’s requirements

regarding which test year serves as the basis of the rate calculations. “Ratemaking begins with an

historic test year,” from which data regarding the utility’s expenses and revenues is gathered and

then “adjusted to more accurately reflect costs [that] will be incurred in the future.” Pub. Util.

Comm’n v. GTE-Southwest, 901 S.W.2d 401, 411 (Tex. 1995). GURA defines a test year as “the

most recent 12 months [prior to the rate case proceeding] . . . for which operating data for a gas

utility are available.” TEX. UTIL. CODE § 101.003(16). An appeal from a municipality’s rate order

is “based on the test year presented to the municipality adjusted for known changes and conditions

that are measurable with reasonable accuracy.” Id. § 103.055(a). Thus, under GURA, the utility’s

rate is typically based on costs incurred during the year prior to the rate case. By contrast, under the

COSA clause, CenterPoint’s rate could be adjusted each year, based on the preceding calendar

26
year’s cost data. By adjusting the rate based on more recent cost data, the COSA clause may reduce

“regulatory lag,”24 see Tex. Coast Util. Coal., 357 S.W.3d at 738 (discussing the COSA clause’s

effect of allowing CenterPoint’s rates “to ‘self-correct’ without the cost and regulatory lag of a

conventional rate case”), and allow the utility’s actual revenues to more closely match the rate of

return that the Commission set at the ratemaking hearing. But, as the Coalition points out, by

incorporating data regarding costs incurred in successive years, the COSA clause permits

adjustments based on data that has not been subjected to the municipality’s review through a full rate

case. The Coalition argues that this prohibits municipalities from fulfilling their statutory duty as

regulators under GURA, and “could easily lead to a rate design that is no longer fair and equitable

to all customer classes.”

Similarly, the Coalition complains that the COSA clause (1) requires a municipality to

conduct its review of proposed adjustments contemporaneously with, instead of prior to, the

Commission’s review; (2) deprives the municipality of its statutory right to postpone the effective

24
This Court has previously recognized the Commission’s discretion in dealing with “regulatory lag” when
acting within the authority the Legislature has delegated to it. See R.R. Comm’n of Tex. v. Lone Star Gas Co., 656
S.W.2d 421, 425 (Tex. 1983). In Lone Star Gas, the Commission entered an order setting new rates and making them
effective from a date approximately one year before the order was entered. Id. at 423. Lone Star sought judicial review,
asking the courts to require an even earlier effective date. See id. Reversing the court of appeals’ judgment, which
“created a judicial requirement that agencies make orders effective within sixty days of [the] hearing,” we stated that,
“[a]lthough we believe that agencies should conduct their business in a prompt manner, any mandatory requirement
should come from the legislature.” Id. at 424. We held that utilities did not have an absolute right to be compensated for
losses due to regulatory lag, and that “[a]ny change in protection for the utility against undue regulatory lag should come
from the legislature.” Id. at 427. Relying on this holding, the Coalition contends that the Commission lacks authority
to adopt a COSA because the Legislature has not specifically authorized COSAs as a means of addressing regulatory
lag. We have noted that some degree of regulatory lag is “inherent in the process,” see Lone Star Gas, 656 S.W.2d at
425, and we agree with the Coalition that regulatory lag is a risk generally born by utility investors. But our holding in
Lone Star Gas rejected judicial interference with the Commission’s discretion over its rate-setting responsibilities, so
long as the Commission exercises its discretion within the bounds of its statutory authority. See id. As we have already
held that GURA expressly authorizes the Commission to include COSA clauses in rate schedules, Lone Star Gas
provides no basis to reject that authority simply because the clauses may reduce regulatory lag.

27
date of a new rate for up to ninety days to complete the hearing and render its decision;25 (3)

deprives the municipality of its right under GURA to stay the effect of the new rate pending an

appeal;26 and (4) arbitrarily caps the amount of recoverable review expenses at $100,000 for all

regulatory authorities that the adjustment affects.27 Although we have briefly noted responses to

some of the Coalition’s complaints, the conclusive response to all of these complaints is that the

COSA clause need not provide for a full GURA rate case prior to an annual adjustment in

CenterPoint’s rate because the COSA clause and the adjustment are the product of a full rate case,

25
See TEX. UTIL. CODE § 104.107(a)(1).
26
In a rate case, a utility seeking to increase its rates may put the proposed rate into effect “by filing a bond with
the regulatory authority if the regulatory authority fails to make a final determination within 90 days from the date the
proposed increase would otherwise be effective.” See TEX. UTIL. CODE § 104.109(a). PURA has a similar provision
authorizing electric utilities to “bond-in” proposed rates: section 36.110. See id. § 36.110. The Coalition relies on Ark.
La. Gas Co. v. R.R. Comm’n of Tex., 586 S.W.2d 643, 644 (Tex. Civ. App.—Austin 1979, writ ref’d n.r.e.), in which
the Austin Court of Appeals addressed a predecessor of section 36.110, Tex. Rev. Civ. Stat. art. 1446c, § 43(e). The court
construed section 43(e) to authorize utilities to “bond-in” their proposed rate if the municipality with original jurisdiction
failed to issue an order on their proposed rate increase within ninety days but did not authorize utilities to “bond-in” their
proposed rate during the time period after the municipality issued an order, while the order was pending on appeal before
the Public Utility Commission. Id. at 646. But the Austin court abandoned that construction of section 43(e) after the
Legislature amended PURA in 1983, holding that the amended version permitted utilities to implement bonded rates
during the pendency of an appeal before the Commission. See Tex. Util. Elec. Co. v. Pub. Util. Comm’n, 881 S.W.2d
387, 401–02 (Tex. App.—Austin 1994) aff'd in part, rev’d in part per curiam, Pub. Util. Comm’n of Tex. v. Tex. Util.
Elec. Co., 935 S.W.2d 109 (Tex. 1996). This Court affirmed that holding. See Texas Util. Elec., 935 S.W.2d at 110
(affirming in all respects except one issue relating to tax expenses).
27
Under the COSA clause, CenterPoint is required to reimburse municipalities for their “reasonable expenses”
in conducting a review of its annual rate adjustment “in an aggregate amount not to exceed $100,000,” which aggregate
amount includes the reasonable expenses of all regulatory authorities conducting such a review. The Coalition complains
that this cap is “arbitrary,” but it provides no elaboration or legal authority in support of this assertion. To the extent the
Coalition intended to argue that the Commission lacks authority to place a limitation on municipalities’ reimbursable
expenses, we note that the Austin Court of Appeals has held that, in a full rate case, the Commission has authority to
review rate-case-expenses for which a municipality seeks reimbursement and to decline reimbursement for any expenses
beyond what it determines to be reasonable. Cities of Port Arthur, Port Neches, Nederland & Groves v. R.R. Comm’n
of Tex., 886 S.W.2d 266, 269 (Tex. App.—Austin 1994, no writ). After-the-fact review of the reasonableness of expenses
is different, of course, from a before-the-fact cap on expenses, and the Commission may have authority to engage in one
but not the other. But the review of a utility’s proposed rate increase is also different from a review of a utility’s
reporting of financial data to be considered in a previously approved rate formula. The Coalition provides no analysis
or authority addressing these differences or how they relate to any provision of GURA—the sole source of the
Commission’s authority. To the extent the $100,000 cap may have been arbitrary and unreasonable as applied in this
particular case, the issue raised before the Court is not whether the Commission abused its discretion in approving this
particular COSA, but rather whether the Commission lacked authority to approve a COSA at all.

28
in which the municipalities were afforded all of the jurisdiction, powers, and duties that GURA

grants to them.

We note that, under the COSA clause, municipalities retain the authority to deny an annual

adjustment (just as it could deny a proposed rate increase) and to participate in any appeal of that

decision to the Commission (just as it could in a rate case). See id. §§ 103.051–.056. Similarly, the

COSA clause expressly provides that the municipalities and the Commission retain their authority

to initiate a ratemaking proceeding to decrease CenterPoint’s rate if they determine that the

adjustment results in a rate that is not “just and reasonable” or a return on investment in excess of

what is “reasonable.”28 See id. §§ 104.003, 105.051. Absent a denial or the initiation of a

ratemaking proceeding, the adjustment will occur in accordance with a rate that is already the result

of a full rate case. Although that rate allows the municipalities to review the adjustment, the review

does not require a full rate case, and thus GURA does not require that the review afford

municipalities jurisdiction, powers, and duties as if it did.

Ultimately, we reject the Coalition’s jurisdictional argument because, as we concluded in the

preceding section, GURA’s requirements do not apply each time a “practice” that the Commission

approved through a full rate case “affects” the utility’s compensation or charge. The

“compensation” and “charge” and the practice that affects them, as we have said, are all part of the

one rate. The COSA clause does not “affect” municipalities’ jurisdiction, powers, and duties related

28
CenterPoint concedes that the COSA does not insulate it from the municipalities’ original ratemaking
jurisdiction, as “[n]othing in the COSA tariff deprives cities of their right under GURA to initiate a full, general rate case
any time they believe it does not result in rates that are just and reasonable.” The Commission agrees that cities may
initiate a full rate case at any time and all of the requirements of a full rate case will apply. The COSA itself states that
“[n]othing herein shall abrogate the jurisdiction of the regulatory authority to initiate a proceeding at any time to review
whether rates charged are just and reasonable.”

29
to rate changes because it does not cause a rate change. Rather, it is a “practice” that “affects” the

utility’s “compensation” and “charge,” and GURA expressly authorizes the Commission to establish

such a rate.

IV.
Conclusion

On the sole issue before us, we conclude that GURA granted the Commission authority to

enter the final order in this case, including the COSA clause, to establish the rate CenterPoint may

charge its customers in the applicable areas of the Texas Coast Division. The Commission and

CenterPoint did not challenge the district court’s judgment “on the alternative ground relating to the

Commission’s findings regarding payments to affiliates,” and thus the court of appeals reversed the

district court’s judgment concerning the Commission’s authority but remanded the case to the

district court. Having affirmed the court of appeals judgment, we remand the case to the trial court

for further proceedings consistent with this opinion.

__________________________
Jeffrey S. Boyd
Justice

Opinion delivered: January 17, 2014

30