Reliant Energy, Incorporated v. Public Utility Commission of Texas Office of Public Utility Counsel And Steering Committees for the Cities Served by TXU Electric and Central Power and Light Company

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-01-00195-CV

Reliant Energy, Incorporated, Appellant

v.

Public Utility Commission of Texas; Office of Public Utility Counsel; and Steering
Committees for the Cities Served by TXU Electric and Central Power
and Light Company, Appellees

DIRECT APPEAL FROM PUBLIC UTILITY COMMISSION OF TEXAS

In this direct appeal, we must determine whether the Public Utility Commission of

Texas (the “Commission”) erred in promulgating price-to-beat rules that fail to ensure an initial fuel

factor above market costs. Reliant Energy, Incorporated (“Reliant”) brings this suit challenging the

validity of these rules. Because the Commission acted within its authorized powers, we uphold the

price-to-beat regulations as enacted.

BACKGROUND

In 1999, the Texas Legislature amended the Public Utility Regulatory Act (“PURA”)

and enacted Chapter 39 “to protect the public interest during the transition to and in the establishment

of a fully competitive electric power industry.”1 Tex. Util. Code Ann. § 39.001(a) (West. Supp.

1
Pursuant to this goal, the Legislature also amended section 11.002 to provide the Public Utility
Commission of Texas with “authority to make and enforce rules necessary to protect customers . . .
consistent with the public interest.” Tex. Util. Code Ann. § 11.002(c) (West Supp. 2001).
2001). As part of the utility industry deregulation, the Legislature created a statutory scheme

whereby the regulated utility industry would be separated or “unbundled” into three distinct entities:

(1) power generation companies; (2) retail electric providers (“REPs”); and (3) transmission and

distribution utilities. Id. § 39.051. Once the statute goes into effect, electric providers formerly

affiliated with regulated utilities will be required to provide electricity to residential and small

commercial customers at a rate of six percent less than the rate in effect on January 1, 1999, adjusted

to reflect the fuel factor as determined by the Commission. 2 Id. §§ 39.202, .406. This price is

referred to as the “price-to-beat.”3 Id. § 39.202. In enacting the price-to-beat statute, the Legislature

intended for new REPs not affiliated with the regulated utility industry to enter the market and

compete for customers with affiliated REPs, those that were formerly part of the bundled utility

companies.

The Commission was mandated to effectuate an across the board six percent reduction

to the base rate portion of the price-to-beat. Id. § 39.202(b). As part of the goal to promote

competition, the Commission was given the express authority to make adjustments to the fuel factor

portion of the price-to-beat. Id. Once established, the price-to-beat is to remain in effect for five

2
“Fuel factor” is a term of art that is not statutorily defined. However, the Commission has
prescribed to it a particular meaning in its substantive rules. See Tex. Gov’t Code Ann. § 311.011
(West 1998); P.U.C. Subst. R. 25.237. Rule 25.41(g) mandates utilities to utilize substantive rule
25.237, its existing fuel factor rule, to set the initial price-to-beat fuel factor. See P.U.C. Subst. R.
25.237(c) (requiring utilities to prove that the expenses to be recovered through the fuel factor are
reasonable estimates of their eligible fuel expenses during the period the factor is to be in effect).
3
The price-to-beat is comprised of two components, the base rate and the fuel factor rate, and
is defined as the cost at which an affiliated retail electric provider must make electricity available to
residential and small commercial customers on a bundled basis. Tex. Util. Code Ann. 39.202(a)
(West Supp. 2001). Bundled basis refers to the rates charged before deregulation.

2
years, unless the affiliated REP loses forty percent of its customers.4 Id. § 39.202(a), (e). In

determining whether the forty percent threshold has been met, the Commission excludes customers

that are dropped by the affiliated REP to a provider of last resort (“POLR”). P.U.C. Subst. R. 25.41

§ (i)(1)(A)-(B), (i)(2). By statute, POLRs are required to offer standard retail service packages for

certain customers, as designated by the Commission, at a fixed, nondiscountable rate. Tex. Util.

Code Ann. § 39.106(b).

DISCUSSION

In three issues, Reliant challenges the Commission’s scope of authority under PURA,

both express and implied. Reliant first contends that PURA requires the Commission to implement,

as part of the Legislative scheme to ensure a competitive market after deregulation, an initial price-to-

beat fuel factor above market costs so as to secure immediate profits for new entrants into the retail

electricity market. Reliant also contests the validity of the Commission’s decision, when evaluating

whether incumbent utility providers have lost forty percent of their residential and small commercial

customers, to exclude from market share calculations customers served by a POLR. Finally, Reliant

contends that rule 25.41, as promulgated by the Commission, violates the reasoned justification

requirement of Texas Government Code section 2001.033. See Tex. Gov’t Code Ann. § 2001.033

(West 2000).

4
In determining whether a REP has lost forty percent of its customer base, the Commission will
consider whether the REP can show that the electric power consumption of the relevant customer
group served by nonaffiliated REPs meets or exceeds forty percent of the total number of kilowatt-
hours consumed by residential customers and forty percent of the difference between the total number
of kilowatt-hours consumed by small commercial customers served by the affiliated electric utility
during the calendar year 2000 minus the aggregated load served by the affiliated REP. Tex. Util.
Code Ann. § 39.202(e).

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 In determining whether the Commission’s rule is valid, we must first ascertain whether

the Legislature expressly gave the Commission the power to guarantee nonaffiliated retail electric

providers an initial profit. See Public Util. Comm’n v. City Public Serv. Bd. of San Antonio, 44 Sup.

Ct. J. 1014, 2001 Tex. LEXIS 71, at *15 (Tex. June 28, 2001). If no express authority is set forth,

we must then consider whether that power is reasonably necessary for the Commission to fulfill the

express function and duties prescribed by the Legislature. Id. Where such authority exists, a rule

need only be based on a legitimate position of the agency to be upheld. Chrysler Motors Corp. v.

Texas Motor Vehicle Comm’n, 846 S.W.2d 139, 142 (Tex. App.—Austin 1993, no writ) (citing

Bullock v. Hewlett-Packard Co., 628 S.W.2d 754, 756 (Tex. 1982)).

Administrative Rule Making

Reliant contends that the Commission’s substantive rule 25.41 is void because the

Commission failed to include in it any mechanism to guarantee initial headroom.5 This omission,

argues Reliant, invalidates the rule because a rule that does not ensure sufficient initial headroom

“fails to accomplish the legislative goal of promoting competition.” State administrative agencies

have only those powers expressly conferred upon them by the Legislature. City Public Serv. Bd. of

San Antonio, 2001 Tex. LEXIS 71, at *15 (citing Public Util. Comm’n v. GTE-Southwest, Inc., 901

S.W.2d 401, 407 (Tex. 1995); State v. Public Util. Comm’n, 883 S.W.2d 190, 194 (Tex. 1994)).

But an agency may also have implied powers—those that are reasonably necessary to carry out the

express responsibilities given to it by the Legislature. Id. (citing GTE-Southwest, 901 S.W.2d at 407).

5
“Headroom” refers to the margin between the price-to-beat and the new retailer’s costs of
providing electricity.

4
However, the law prohibits agencies from exercising what is effectively a new power, or a power

contradictory to the statute, based merely on a claim that the power is expedient for administrative

purposes. Id. (citing GTE-Southwest, 901 S.W.2d at 407 (quoting Sexton v. Mt. Olivet Cemetery

Ass’n, 720 S.W.2d 129, 137-38 (Tex. App.—Austin 1986, writ ref’d n.r.e.))).

Here, Texas Utility Code section 39.202 dictates how the Commission is to determine

the price-to-beat. See Tex. Util. Code Ann. § 39.202(a), (b). The statute requires the Commission

to set the price-to-beat at a rate “six percent less than the affiliated electric utility’s corresponding

average residential and small commercial rates, on a bundled basis, that were in effect on January 1,

1999, adjusted to reflect the fuel factor,” as determined by the Commission. Id. § 39.202(a).

Because there is nothing in the statutory language pertaining to headroom, we must look to the entire

statutory scheme to determine whether the Commission was required to consider headroom in setting

the initial price-to-beat. See State v. Public Util. Comm’n, 883 S.W.2d at 196.

In ascertaining the scope of an agency’s authority, we give great weight to the

contemporaneous construction of a statute by the administrative agency charged with its enforcement.

Id. at 197 (citing Dodd v. Meno, 870 S.W.2d 4, 7 (Tex. 1994); Tarrant Appraisal Dist. v. Moore,

845 S.W.2d 820, 823 (Tex. 1993)). We recognize that the Legislature intends an agency created to

centralize expertise in a certain regulatory area “be given a large degree of latitude in the methods

it uses to accomplish its regulatory function.” Id.

According to the Commission, rule 25.41 reflects a reasonable balance between the

competing interests of REPs and customers—namely, fostering competition while simultaneously

providing customers a prompt reduction from regulated rates. Reliant does not contest the

Commission’s power to establish the initial price-to-beat. Instead, Reliant contends that the

5
Commission was required to include in rule 25.41 a mechanism guaranteeing that the price-to-beat

would be above market cost and that, in failing to do so, it ignored the legislative goals underlying

PURA and deregulation—establishing a competitive electricity market.

PURA encompasses competing policy considerations: electric consumers’ interest in

lowering costs versus electric retailers’ interest in establishing competition. This Court does not

decide matters of policy. Our role is limited to evaluating whether the Commission acted contrary

to the statute. Reliant argues that in setting the initial price-to-beat, “the Commission could have

provided a mechanism that would have established an adequate margin between the price-to-beat and

the market cost of power,” yet “the final rule contained no provision ensuring adequate initial

headroom.” Reliant concedes that the Commission had the authority to set the initial price-to-beat.

Although the Commission could ensure adequate initial headroom, nothing in the statute requires it

to do so; neither can such a requirement be found upon examination of the entire statutory scheme.

Therefore, we cannot say that the Commission erred by not including a provision guaranteeing new

entrants adequate initial headroom to secure a profit. Accordingly, Reliant’s first issue is overruled.

Provider of Last Resort

Reliant next contends that, because the PURA provides no basis for excluding POLR

customers from the target forty percent affiliated REP reduction rate calculation, rule 25.41 is invalid.

Here, Reliant asserts that, to the extent the Commission exercised an implied power to insert a non-

statutory exclusion in the rule, the Commission overstepped its authority. In deciding whether the

Commission exceeded its authority, we ask if the rule is in harmony with the general statutory

objectives. Chrysler Motors Corp., 846 S.W.2d at 141. The stated purpose of PURA Chapter 39

6
is to facilitate the transition between the regulated and deregulated utility market. See Tex. Util.

Code Ann. § 39.001(a).

Reliant argues that excluding POLR customers from the forty percent target

calculation thwarts the overall intent of PURA section 39.202(e), which, Reliant asserts, “is simply

to ensure that a threshold percentage of the residential and small commercial loads formerly served

by integrated utilities is served by entities other than the affiliated REP before price-to-beat

restrictions are lifted.” The Commission responds by claiming that the POLR provision directly

serves the legislative purpose of the statute by counting only those customers lost to new REPs

through the competitive process.

In construing the Commission’s authority, we must look to the statute as a whole, not

section 39.202(e) in isolation. It is undisputed that the intent of PURA is to provide a smooth

transition from a regulated utility industry to a deregulated one. We cannot require the Legislature

to include every detail and anticipate all unforeseen circumstances in statutes delegating authority to

the Commission. To do so would defeat the purpose of delegating legislative authority. Railroad

Comm’n v. Lone Star Gas Co., 844 S.W.2d 679, 689 (Tex. 1992). One of the bill’s sponsors,

Representative Wolens, commented at the House floor discussion on May 20, 1999 that the

deregulation statute is intended to give competitors an opportunity to enter and compete in the

electricity market. He explained that the forty percent provision was to be used as a tool to ascertain

market power: “We say that as a matter of market power, if the incumbent loses 40% of their

customers, competition begins and then they can lower their price.”

These comments bolster the Commission’s argument that the forty percent provision

was intended to be used as an indicator for a functioning competitive market. Excluding customers

7
served by a POLR is consistent with the overall legislative scheme of calibrating the competitive

market place. A rule need only be based on a legitimate position of the agency to be upheld; it “need

not be wise, desirable, or even necessary.” Chrysler Motors Corp., 846 S.W.2d at 142. Thus, to the

extent that the Commission exercised an implied power in excluding POLRs from the threshold forty

percent determination, we cannot say such action is incongruent with the legislative purpose of

promoting competition. Therefore, we overrule Reliant’s POLR issue.

Reasoned Justification

One of the stated purposes of the APA is to provide for public participation in the

rulemaking process. See Tex. Gov’t Code Ann. § 2001.001. Accordingly, sections 2001.021-.034

establish a system of informal or “notice-and-comment” rulemaking. Id. §§ 2001.021-.034; see also

Unified Loans, Inc. v. Pettijohn, 955 S.W.2d 649, 651 (Tex. App.—Austin 1997, no pet.). In order

to adopt a rule, an agency must provide: (1) public notice; (2) an opportunity for and full

consideration of comments; and (3) a reasoned justification for the rule enacted. See Tex. Gov’t

Code Ann. §§ 2001.023, .029, .033 (West Supp. 2001); see also McCarty v. Texas Parks & Wildlife

Dep’t, 919 S.W.2d 853, 854 (Tex. App.—Austin 1996, no writ).

Reliant does not take issue with whether the Commission satisfied the requirements

that it provide public notice and an opportunity for comments before adopting the price-to-beat

rules.6 The controversy instead concerns whether the Commission provided a reasoned justification

6
Proposed rule 25.41, relating to the price-to-beat, was published in the Texas Register on
November 20, 2000. Initial comments on the rule were filed December 11, 2000 by approximately
thirteen interested organizations. Reply comments were filed on January 2, 2001. The Commission
held public hearings on proposed rule 25.41 on January 11th and 22nd, 2001. Representatives from
approximately fifteen interested parties and organizations attended the January 11th hearing while

8
for rule 25.41. This is the first time that we have been explicitly called upon to construe the reasoned

justification requirements since the 1999 amendments to the APA. After a careful review of the

changes to section 2001.033, we conclude that the Legislature did not intend to effectuate a material

change.

To satisfy the reasoned justification requirement, an agency’s order adopting a rule

must explain how and why the agency reached the conclusion it did. See National Ass’n of Indep.

Insurers v. Texas Dep’t of Ins., 925 S.W.2d 667, 669 (Tex. 1996) (“NAII”). A reasoned justification

must include: (1) a summary of comments the agency received from interested parties; (2) a summary

of the factual basis for the rule; and (3) the reasons why the agency disagrees with a party’s

comments. Tex. Gov’t Code Ann. § 2001.033(1); see also Texas Hosp. Ass’n v. Texas Workers’

Comp. Comm’n, 911 S.W.2d 884, 886 (Tex. App.—Austin 1995, writ denied).

In addition to these three criteria, the agency must provide a reasoned justification for

the rule as a whole. See Texas Hosp. Ass’n, 911 S.W.2d at 886 (citing Railroad Comm’n v. Arco

Oil & Gas Co., 876 S.W.2d 473, 492 (Tex. App.—Austin 1994, writ denied); Chrysler Motors

Corp., 846 S.W.2d at 143). By requiring an agency to expressly state a reasoned justification for a

rule, the Legislature sought to bring the decisionmaking process into the open. See Arco, 876 S.W.2d

at 480; see also NAII, 925 S.W.2d at 669 (“Requiring an agency to demonstrate a rational connection

between the facts before it and the agency’s rules promotes public accountability and facilitates

judicial review.”).

only about eight were present at the hearing on the 22nd. Reliant participated in both public hearings
and the initial comment proceeding. The final order was issued March 20, 2001.

9
 An agency rule not adopted in substantial compliance with the rulemaking provisions

of the APA section is voidable. Tex. Gov’t Code Ann. § 2001.035(a). The reasoned justification

requirement imposed by section 2001.033 confines a reviewing court’s inquiry to the face of the order

finally adopting the rule. See Arco, 876 S.W.2d at 480 (citing Ron L. Beal, The Scope of Judicial

Review of Agency Rulemaking: The Interrelationship of Legislating and Rulemaking in Texas, 39

Baylor L. Rev. 597, 690 (1987)); see also Methodist Hosps. v. Industrial Accident Bd., 798 S.W.2d

651, 659 (Tex. App.—Austin 1990, writ dism’d w.o.j.). In Methodist Hospitals, this Court held that

the

question of substantial compliance . . . is a question of law to be determined solely
from the face of the [adopting] order . . . . So much is necessarily implied by the
statute itself. Substantial compliance is not a question of fact, to be determined by
evidence adduced subsequently in a reviewing court, concerning whether the agency
had unstated factual bases for its rule or unstated reasons for disagreeing with party
submissions and proposals, and what these were in fact, or whether any stated factual
bases or reasons for disagreeing were in fact considered and accepted by the agency
on sufficient evidence.

798 S.W.2d at 659 (emphasis in original).

Therefore, to substantially comply with the reasoned justification requirement, the four

corners of the agency’s final notice must present the agency’s justification in a “relatively clear,

precise, and logical fashion.”7 Arco, 876 S.W.2d at 492. Furthermore, an agency’s order must

7
See also Ron L. Beal, The Scope of Judicial Review of Agency Rulemaking: The
Interrelationship of Legislating and Rulemaking in Texas, 39 Baylor L. Rev. 597, 688 (1987)
(“[T]he test of substantial compliance should not allow an agency to ‘fill in the blanks’ with
meaningless rhetoric and thereby frustrate the legislative intent of reasoned decision making. The
legislative intent undisputably requires a focused analysis by the agency of all relevant factual, policy
and legal issues resulting not only in a justification, but a reasoned justification of the rule.”).

10
accomplish the legislative objectives underlying the reasoned justification requirement and come fairly

within the character and scope of each of the statute’s requirements in specific and unambiguous

terms. See NAII, 925 S.W.2d at 669 (citing Arco, 876 S.W.2d at 491; Methodist Hosps., 798 S.W.2d

at 654). The essential legislative objective of the reasoned justification requirement is

to give notice of the factual, policy, and legal basis for the rule, as adopted or
construed by the agency, in light of all the evidence gathered by the agency and
submitted by interested parties during the comment period. This overall objective can
be broken down into two fundamental goals of the reasoned justification requirement:
(1) to ensure the agency fully considered the comments submitted and (2) to provide
the factual basis and rationality of the rule as determined by the agency.

Arco, 876 S.W.2d at 491.

We review a challenge to the reasoned justification requirement using an “arbitrary

and capricious” standard, with no presumption that facts exist to support the agency’s order. See

Texas Hosp. Ass’n, 911 S.W.2d at 887; see also Arco, 876 S.W.2d at 490-91. In applying an

arbitrary and capricious test to agency rulemaking, we examine whether the agency’s explanation of

the facts and policy concerns it relied on when it adopted the rule demonstrates that the agency

considered all the factors relevant to the objectives of the agency’s delegated rulemaking authority,

and engaged in reasoned decisionmaking. See Arco, 876 S.W.2d at 491. An agency acts arbitrarily

if in making a decision it commits any of the following errors: (1) omits from its consideration a factor

that the Legislature intended the agency to consider in the circumstances; (2) includes in its

consideration an irrelevant factor; or (3) reaches a completely unreasonable result after weighing only

relevant factors. Statewide Convoy Transps. Inc. v. Railroad Comm’n, 753 S.W.2d 800, 804 (Tex.

11
App.—Austin 1988, no writ); see also Bullock v. Hewlett-Packard Co., 628 S.W.2d 754, 756 (Tex.

1982) (stating a rule is arbitrary and capricious when it lacks a legitimate reason to support it).

As set out in the Utility Code, the Commission’s statutory mandate is “to protect the

public interest during the transition to and in the establishment of a fully competitive electric power

industry.” Tex. Util. Code Ann. § 39.001. The Legislature delegated to the Commission the power

to adopt rules pursuant to this mandate. Id. § 11.02(c). In particular, the Commission must set the

price-to-beat by decreasing base rates by six percent and adjusting the fuel factor to account for

changes in the market. Id. § 39.202. Thus, within the four corners of the Commission’s order

adopting the price-to-beat rules, we must be able to determine that the Commission considered and

found facts to support its decision that the initial price-to-beat need not include sufficient headroom

to ensure nonaffiliated REPs would realize a profit.

To determine whether the Commission’s order adopting the price-to-beat rules

satisfies the reasoned justification requirement of the APA, we consider each substantive element set

out in the statute. See Tex. Gov’t Code Ann. § 2001.033; see also Methodist Hosps., 798 S.W.2d

at 659. The first element is “a summary of comments received from parties interested in the rule that

shows the names of interested groups or associations offering comment on the rule and whether they

were for or against its adoption.” Id. The Commission’s order sets out expressly and at some length

the information required by the first element. Because Reliant does not complain that the summary

of comments is absent from the order; we need not consider this item further.

The crux of Reliant’s challenge concerns the second and third elements of the reasoned

justification requirement: “a summary of the factual basis for the rule as adopted which demonstrates

a rational connection between the factual basis for the rule and the rule as adopted” and “the reasons

12
why the agency disagrees with party submissions and proposals.” Id. Reliant contends that the

adopting order fails to explain why the Commission rejected proposed solutions that would have

remedied the problem of inadequate headroom. In particular, Reliant argues that the order fails to

demonstrate an adequate consideration of lack of an initial headroom amount that would ensure a

profit margin and encourage competition. Reliant contends that the statements of justification in the

adopting order are merely conclusory and do not substantially comply with the reasoned justification

requirement of the APA. Reliant recognizes that the Commission did consider that the initial

headroom might be below market value.8 Reliant goes on to comment, however, that the “rule should

have been drafted in a way that would have avoided this problem.”

The order acknowledges that determining the appropriate mechanism to use in

adjusting the fuel factor portion of the price-to-beat “was by far the most controversial aspect of” rule

25.41. The Commission urges that several portions of the order adopting the price-to-beat rule

satisfy the reasoned justification requirement. Specifically, the order recognizes that the

lack of headroom demonstrates that the economics of serving [price-to-beat]
customers make[s] it unlikely that . . . customers will benefit from competition. It is
illogical to remedy this problem by increasing the [price-to-beat] to a level that
exceeds the rate that these customers would have paid with continued regulation in
order that they can benefit from competition.

This language precisely states the reasons why the new rules were adopted, namely to ensure

customers will realize a rate reduction after deregulation.

8
In its brief, Reliant comments, “The Commission undoubtedly realized that the margin between
an affiliated REP’s commodity costs and its price-to-beat may be negative.”

13
 Additionally, the Commission points out that rule 25.41(g) authorizes the Commission

to make fuel factor adjustments in three situations: (1) if the affiliated REP demonstrates that the

existing fuel factor does not adequately reflect significant changes in the market price of natural gas

and purchased energy; (2) upon a finding by the Commission that the affiliated REP will be unable

to maintain its financial integrity; or (3) the Commission may adjust the price-to-beat under PURA

section 39.262, the “true-up” provision. The Commission contends that these provisions justify its

decision not to increase the initial headroom in the price-to-beat rule because they provide viable

alternatives to setting an artificially high price-to-beat as a means of ensuring competition.

These comments provide a reasoned justification for the Commission’s conclusion that

the alternative mechanisms proposed in lieu of creating greater headroom are more efficacious to

accomplish the dual legislative purpose of providing customer savings and encouraging retail

competition. The Commission analyzed whether other measures would adequately ensure

competition and its order explains why requiring sufficient initial headroom to ensure profitability is

unnecessary to the legislative scheme of developing competition and protecting consumers. See

Methodist Hosps., 798 S.W.2d at 659. Thus, this portion of the rule satisfies the reasoned

justification requirements.

Reliant next argues that the order fails to justify the rejection of an electricity

commodity index requested by Reliant and other parties. The Commission argues that its responses

to arguments made by interested parties fully explain the reasons it concluded that the rule as enacted

adequately encourages competition. For example, in its order, the Commission explained:

It is not appropriate to move to such an index until the stranded costs of the affiliated
PGC are finalized as any stranded cost charges . . . will not be finalized until stranded

14
 costs are finalized. At that time, if the price to beat for an affiliated REP is in danger
of being below market because of high market prices for generation, the return of any
excess mitigation, or negative stranded costs if the commission determines that it has
the authority to require the return of negative stranded costs, can be used to address
concerns about headroom and thereby mitigate the effects of high market prices on
price to beat customers. Subsection (g)(1)(F) has been added to allow for this
transition and prescribes these preconditions and the methods by which an affiliated
REP must transition to the use of an electricity index.

Thus, the Commission was convinced that adequate safeguards exist for offsetting changes in market

conditions so that the price-to-beat need not be adopted to the exclusion of all other remedies. These

statements secure the legislative objectives that underlie the reasoned justification requirement. While

the reasoned justification requirement does not demand that an agency provide detailed findings of

fact and conclusions of law, see Chrysler Motors Corp., 846 S.W.2d at 143, an agency must provide

more than a general reference to statutory authority, Arco, 876 S.W.2d at 494; see also Beal, 45

Baylor L. Rev. at 33 (“Mere reiteration of the statutory language does not ensure that the agency

relied on and informed interested parties of the underlying factual basis for the rule, according to the

legislative objective.”). Here, the Commission satisfied this burden, having noted in its order its

reasons for disagreeing with the submissions and proposals it received.

Reliant’s final contention is that, in rejecting a move to an electric commodity index,

the Commission failed to justify its disregard for the balanced plan the Legislature crafted to stimulate

competition in the period before the 2004 true-up and to protect affiliated REPs from devastating

losses. This argument is inextricably linked to the Commission’s rejection of an electricity index. In

its order, the Commission explained that it disagreed with Reliant’s position because after “2002, the

market price of [electricity] generation will likely be set by gas-fired generation, and as such, it is

appropriate to apply the changes in the market price of natural gas and purchased energy to the entire

15
fuel factor in order to maintain the level of headroom in the price to beat.” The Commission’s

reasons for its rejection of an electric commodity index is directly responsive to Reliant’s expressed

concerns and satisfies the reasoned justification requirement.

CONCLUSION

Having overruled Reliant’s three issues, we sustain the validity of rule 25.41 as

enacted by the Commission.

Jan P. Patterson, Justice

Before Justices Kidd, Yeakel and Patterson

Affirmed

Filed: November 15, 2001

Publish

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