NO. 07-10-00108-CV
IN THE COURT OF APPEALS
FOR THE SEVENTH DISTRICT OF TEXAS
AT AMARILLO
PANEL A
NOVEMBER 4, 2011
SOUTHWESTERN ELECTRIC
POWER COMPANY, ET AL., APPELLANTS
v.
PUBLIC UTILITY COMMISSION OF TEXAS, APPELLEE
FROM THE 261ST DISTRICT COURT OF TRAVIS COUNTY;
NO. D-1-GN-008-003871; HONORABLE LORA J. LIVINGSTON, JUDGE
Before CAMPBELL and HANCOCK and PIRTLE, JJ.
OPINION
Southwestern Electric Power Company (SWEPCO) and Texas Industrial Energy
Consumers (TIEC) appeal from the trial court’s judgment affirming an order of the Public
Utility Commission of Texas (the PUC) granting a certificate of convenience and
necessity (CCN) to SWEPCO. We will affirm.
Factual and Procedural History
The PUC Order
On August 12, 2008, the PUC entered an order with which nearly all concerned
parties were dissatisfied. By a 2-1 vote, the PUC granted SWEPCO an amendment to
its existing CCN permitting SWEPCO to build a coal-fired ultra-supercritical generating
plant, referred to as the Turk plant, a few miles northeast of Texarkana, in Arkansas.
The PUC granted the amendment subject to specified conditions and caps on the future
recovery of yet-to-be-incurred costs.
The Turk plant is planned as a generation facility that will serve both SWEPCO’s
retail and wholesale customers in three states. Because SWEPCO intends to serve
captive retail customers in Texas, it was required to seek a CCN from the PUC. See 16
TEX. ADMIN. CODE § 25.101(b)(2) (2011) (Pub. Util. Comm’n of Tex., Certification
Criteria). In this context, SWEPCO is a hybrid entity–an electric utility monopoly
obligated to serve captive Texas ratepayers in certain areas of the state and a power
generation company competing in the multistate wholesale market.
Litigation in the Trial Court
SWEPCO was displeased with the cost caps and, therefore, sought judicial
review of their legality. TIEC sought judicial review contesting the PUC’s determination
of the necessity of the Turk plant. The two cases were consolidated. In the trial court,
SWEPCO unsuccessfully contested the PUC’s authority to impose the two caps at
2
issue. Equally unsuccessful, TIEC argued that the PUC improperly considered
SWEPCO’s wholesale load in determining the need for the Turk plant.
Just before the hearing in the trial court, SWEPCO filed a letter questioning
whether its own issues relating to the cost caps were ripe for judicial review. SWEPCO
pointed out that any effect from the caps would be felt only if (1) the plant was built and
used to serve retail customers, (2) its prudent costs exceeded the cap and/or yet-to-be-
passed legislation resulted in carbon containment costs in excess of the cap, and (3)
the then-current PUC in some future rate case determined to follow the cost cap
provisions. So, SWEPCO argued to the trial court, the issues might not be ripe and it
might be asking the trial court to enter an unconstitutional advisory opinion.
The trial court suggested SWEPCO file a nonsuit in the case if it maintained that
subject-matter jurisdiction was lacking. SWEPCO declined, and the trial court
concluded that it did have subject-matter jurisdiction. The trial court affirmed the PUC
order in all respects by judgment signed February 10, 2010.1 This appeal followed and
was originally filed in the Third Court of Appeals but, pursuant to the Texas Supreme
Court’s docket equalization efforts, was transferred to this Court. See TEX. GOV’T CODE
ANN. § 73.001 (West 2005).
1
As a prerequisite to obtaining judicial review of an administrative order, the
appealing party must have filed a motion for rehearing in the underlying administrative
proceeding. See TEX. GOV’T CODE ANN. § 2001.145(a) (West 2008); Hammack v. Pub.
Util. Comm’n of Tex., 131 S.W.3d 713, 732 (Tex.App.—Austin 2004, pet. denied). It
appears that this prerequisite was satisfied.
3
Appeal
SWEPCO’s appeal stems from its request for a CCN amendment from the PUC,
required when a utility in a still-regulated portion of the State provides service to a
captive retail customer base. The PUC granted SWEPCO’s CCN but did so with
conditions the imposition of which, SWEPCO contends, was beyond the PUC’s
authority. TIEC appeals the same order, contending that the PUC did not have the
authority to enter the order based on consideration of SWEPCO’s wholesale load rather
than solely on the capacity to serve captive retail customers. The PUC maintains that it
has broad regulatory authority, broad enough to authorize it to grant the CCN
amendment and to do so with the particular restrictions, especially in light of the
complex transition-to-full-deregulation climate and considering that SWEPCO is a hybrid
entity serving captive retail customers and competing in the wholesale market.
With that said, we must consider the following issues: (1) whether the PUC had
the authority to consider SWEPCO’s wholesale load in determining whether to grant the
CCN and, if so, (2) whether the PUC had the authority to impose caps on what costs
SWEPCO could recoup through rates applicable to captive Texas ratepayers. As a
preliminary matter, though, we must decide (3) whether the issues concerning
imposition of the cost caps are ripe for judicial review.
4
Ripeness
SWEPCO raises this issue, contending, as it did below, that the issue concerning
the cost caps may not yet be ripe for review.2 We address the issue of this Court’s
subject-matter jurisdiction first because, if we do lack jurisdiction to review the matter,
review of the cost caps issue would be precluded. See Patterson v. Planned
Parenthood of Houston & Se. Tex., Inc., 971 S.W.2d 439, 442 (Tex. 1998); Garrett
Operators, Inc. v. City of Houston, No. 01-09-00946-CV, 2011 Tex. App. LEXIS 3583, at
*6 (Tex.App.—Houston [1st Dist.] May 12, 2011, pet. filed).
SWEPCO contends that the contingencies built into the cost caps render the
issues concerning the caps unripe. SWEPCO first points out that it has not sustained a
concrete injury as a result of the cost caps. By its own admission, the construction cost
estimates at the time of briefing was in excess by four percent of the caps, but, as it
emphasized, those figures are simply estimates. Then, with respect to the cost caps
relating to carbon dioxide emission control, SWEPCO contends that Congress has yet
to pass federal legislation to govern this aspect of the plant’s operation and, therefore,
no one can determine the costs of compliance or, consequently, whether the cost caps
2
SWEPCO’s position on ripeness has been somewhat equivocal in that it
advances the issue but, ultimately, maintains that, because this proceeding is a review
of an agency action, the issue is ripe for review. It also urges, however, that both the
Texas Supreme Court and the Austin Court of Appeals have issued opinions that would
support the conclusion that the cost caps issue is not ripe. See Pub. Util. Comm’n of
Tex. v. Houston Lighting & Power Co., 748 S.W.2d 439, 442 (Tex. 1987); Reliant
Energy, Inc. v. Pub. Util. Comm’n of Tex., 153 S.W.3d 174, 183 (Tex.App.—Austin
2004, pet. denied). It also concedes, after urging that the legality of the cost caps is a
question of law based on statutory construction and, thus, ripe for review in terms of
prudence, that delay will likely not cause harm to SWEPCO so long as SWEPCO can
later challenge the enforcement, if any, of the cost caps.
5
would negatively impact SWEPCO. SWEPCO relies on the doctrine of ripeness along
with notions of judicial restraint to urge this Court to refrain from addressing the cost
caps issue until such time that the negative impact of the cost caps, if any, are felt by
SWEPCO.
Standard and Scope of Review
As an element of subject-matter jurisdiction, ripeness is reviewed de novo. See
State v. Holland, 221 S.W.3d 639, 642 (Tex. 2007). The Texas Supreme Court has
directed that we review all available information, including intervening events after a
lower court’s decision.3 Perry v. Del Rio, 66 S.W.3d 239, 250 (Tex. 2001).
Applicable Law: Ripeness and Finality
In the context of review of an agency order, the issues of ripeness and of finality
of the agency order are very nearly inextricably intertwined in the cases addressing
them. The Austin court has recognized this interchangeable use: “[s]ome decisions
speak of finality as a requirement for an administrative order to be ‘ripe’ for judicial
review.” Tex. Utils. Elec. Co. v. Public Citizen, Inc., 897 S.W.2d 443, 446 (Tex.App.—
Austin 1995, no pet.) (citing Browning-Ferris, Inc. v. Brazoria County, 742 S.W.2d 43,
48–49 (Tex.App.—Austin 1987, no writ)).
3
For this reason, it is worth noting that a considerable amount of ongoing
litigation elsewhere surrounding the construction of the Turk power plant would open up
the possibility that any effect of the cost caps may not be realized until well into the
future, if at all. However, that issue, as we will discuss, is to be distinguished from the
issue whether the PUC had the authority to impose those caps.
6
It would appear from the interchangeable use of the notions of “finality” and
“ripeness” that a final order of this type from an agency will almost always present
issues which are ripe for review, outside the more traditional notions of ripeness.
However, there is no single rule that is dispositive of all finality/ripeness problems. We
do, though, find some guidance from cases addressing ripeness in this particular
context. We also keep in mind that a flexible approach must be employed, recognizing
the need to both “minimize disruption of the administrative process and to afford
regulated parties and consumers with an opportunity for timely judicial review of actions
that affect them.” Tex.-New Mex. Power Co. v. Tex. Indus. Energy Consumers, 806
S.W.2d 230, 232 (Tex. 1991).
At least one case has addressed the issue of a conditional amended CCN in
terms of finality and ripeness. See id. In this case, the PUC made the amended CCN
conditional on the utility obtaining the required permits from other agencies. Id. at 231.
The Texas Supreme Court called for “a more pragmatic and flexible approach” to
evaluating the finality of an agency’s order. The court outlined the following “pragmatic
and flexible” test:
Although there is no single rule dispositive of all questions of finality,
courts should consider the statutory and constitutional context in which the
agency operates and should treat as final a decision “which is definitive,
promulgated in a formal manner and one with which the agency expects
compliance.” 5 J. Stein, G. Mitchell & B. Mezines, Administrative Law 48-
10 (1988). Administrative orders are generally final and appealable if
“they impose an obligation, deny a right or fix some legal relationship as a
consummation of the administrative process.” Sierra Club v. United
States Nuclear Regulatory Comm’n, 862 F.2d 222, 224 (9th Cir. 1988).
7
Id. at 232. The court observed that the PUC order at issue imposed a clear obligation
on the utility and fixed its legal relationship and that certainly the PUC expected
compliance. Id. at 233. The court concluded that the amended CCN, even though it
contained some conditions, was final and appealable. Id. The court reiterated its
recognition that the presence of a condition in a challenged order does not necessarily
destroy its finality. Id. at 231. From this case, we see that the mere presence of a
condition or a contingency in the agency order will not render the order non-final or
unripe.4 The “pragmatic and flexible approach” taken in Texas-New Mexico Power
suggests that the issue concerning the cost caps is a ripe and final, appealable issue.
The Austin court applied Texas-New Mexico Power in a related context. See
Office of Pub. Util. Counsel v. Pub. Util. Comm’n of Tex., 843 S.W.2d 718, 724
(Tex.App.—Austin 1992, writ denied).5 This was a ratemaking case6 rather than a CCN
4
But see Houston Lighting & Power Co., 748 S.W.2d at 442. In Houston
Lighting, the Texas Supreme Court held that issues related to the PUC’s allocation of
costs of still-pending litigation were not ripe for review. See id. The court directed the
PUC to refrain from deciding the issue concerning the allocation of costs of litigation
until such time as the litigation was resolved. See id. We note that Houston Lighting
was decided prior to Texas-New Mexico Power and the issue involved the outcome of
then-pending litigation, an issue both unresolved and outside any concerns surrounding
construction, operation, or generation. So, we consider Houston Lighting somewhat
factually distinguishable and to the extent that it is not and, instead, is directly
applicable, we note our concern regarding Houston Lighting’s precedential value in light
of Texas-New Mexico Power.
5
See TEX. R. APP. P. 41.3 (precedent in transfer cases).
6
Utility ratemaking, like the CCN process, is governed by the Public Utility
Regulatory Act (PURA). See TEX. UTIL. CODE ANN. §§ 36.001–.353 (West 2007 & Supp.
2010). One goal of the electric utility ratemaking process is to permit the utility “a
reasonable opportunity to earn a reasonable return.” Id. § 36.051 (West Supp. 2010);
Pioneer Natural Res. USA, Inc. v. Pub. Util. Comm’n of Tex., 303 S.W.3d 363, 366
(Tex.App.—Austin 2009, no pet.). To achieve this goal, the PUC “must quantify the
8
case. Id. at 720. So, progress and construction were further along than in the instant
case, and the purpose of the case was somewhat different. The PUC’s order resolved
the issues concerning construction expenditures and specified which expenditures were
recoverable and could be passed on to ratepayers. Id. One of the two facilities at issue
was constructed and operational, but the other was not. Id. at 721. The PUC’s order
applied to both, however, effectively determining, at least, a portion of the construction
prudence issue “outside the confines of a rate case.” Id. at 723. The Austin court held
that, because PUC’s order established a legal relationship among the parties, the
issues were ripe for review. Id. at 723–24; see City of Austin v. Tex. Comm’n on Envtl.
Quality, 303 S.W.3d 379, 385 (Tex.App.—Austin 2009, no pet.). To be final, the order
at issue need not resolve all potential related controversies. Office of Pub. Util.
Counsel, 843 S.W.2d at 723–24.
So, while no single rigid rule controls all questions of finality, the Texas Supreme
Court’s flexible, pragmatic approach demonstrates that, at the very least, a decision by
an agency is final if it is (1) definitive, (2) promulgated in a formal manner, and (3) one
with which the agency expects compliance. See Tex.-New Mex. Power, 806 S.W.2d at
232. We should also consider “the statutory and constitutional context in which the
agency operates.” Id. “Administrative orders are generally final and appealable if ‘they
utility’s invested capital used and useful in providing service to the public, the
appropriate rate of return on that invested capital, and the utility’s reasonable and
necessary operating expenses.” Pioneer Natural Res., 303 S.W.3d at 366; see TEX.
UTIL. CODE ANN. § 36.051; Central Power & Light Co. v. Pub. Util. Comm’n of Tex., 36
S.W.3d 547, 552–53 (Tex. App.—Austin 2000, pet. denied).
9
impose an obligation, deny a right or fix some legal relationship as a consummation of
the administrative process.’” Id. (quoting Sierra Club, 862 F.2d at 224).
At first glance, Atmos Energy Corp. v. Abbott, 127 S.W.3d 852, 858 (Tex.App.—
Austin 2004, no pet.), could be read to support the conclusion that the issue is not ripe,
as SWEPCO suggests. However, it is important to note that Atmos Energy dealt with a
declaratory judgment rather than review of an agency’s order. Atmos Energy and the
instant case are distinguishable, then, in terms of procedural postures, injuries
complained of, and remedies sought. But see Office of Pub. Util. Counsel, 843 S.W.2d
at 723–24 (drawing on analogy between review of agency order and review of
declaratory judgment). We see these same distinctions in the case cited by SWEPCO
in a post-submission letter brief. See Robinson v. Parker, 54 Tex. Sup. Ct. J. 1640,
2011 Tex. LEXIS 637 (Aug. 26, 2011). From the majority of the cases, it appears that
ripeness is examined somewhat differently in the administrative context than it is when
declaratory relief is sought relating to as-yet unrealized events.
Analysis
Looking at the issue as relating to a function of an administrative agency rather
than a declaratory judgment and treating the issue as one in which the PUC has already
taken the complained-of action and the imposition of the caps is, in itself, the alleged
injury, we conclude that the issue is ripe for judicial review. Further, under the most
procedurally similar case of Texas-New Mexico Power, the PUC’s order in the instant
case satisfies the “more pragmatic and flexible” test for ripeness. That is, the PUC’s
order establishes a legal relationship and imposes rights and obligations with which, it
10
seems, the PUC expects compliance. Further, as the Austin court has observed, the
order at issue need not resolve all potential related controversies to be considered final.
See Office of Pub. Util. Counsel, 843 S.W.2d at 723–24. While there is authority that
could be read to support the conclusion that the issues concerning imposition of the
cost caps are not yet ripe for review, we conclude that the majority, and most
procedurally similar, of the cases addressing ripeness of an agency order in a similar
procedural posture support the conclusion that the issues are, indeed, ripe for our
review. We overrule SWEPCO’s issue.
Consideration of Wholesale Load
TIEC maintains that the PUC improperly took SWEPCO’s wholesale load into
consideration when it granted SWEPCO’s CCN.7 More specifically, TIEC maintains that
the PUC lacked the authority to consider SWEPCO’s wholesale load in determining
whether the Turk plant was necessary. By doing so, TIEC contends, the PUC permitted
SWEPCO the ability to subsidize its wholesale contracts by passing along excess costs
to captive Texas ratepayers in certain regions of the state. The PUC responds that it
does have the authority to consider the wholesale load and, in response to TIEC’s
concerns regarding subsidizing, maintains that it built in the cost caps so that SWEPCO
would have market-like incentives to keep costs down and restrictions on what costs
could be passed along to the captive Texas ratepayer. The PUC reads relevant
7
One of the three PUC commissioners dissented to the order granting the
amended CCN, agreeing with TIEC’s position that the majority improperly considered
SWEPCO’s wholesale load when determining that the Turk plant was necessary.
11
statutory provisions to grant it authority to consider SWEPCO’s wholesale load.8
SWEPCO agrees, maintaining that the PUC acted within its broad authority when
determining the necessity of the Turk plant, even considering that a portion of the
electricity generated by the plant would go to fulfill SWEPCO’s wholesale contracts.9
Standard of Review
TIEC’s contention calls on us to review an agency’s interpretation of its authority.
As directed by the Texas Supreme Court, we “must determine the scope of the [PUC]’s
authority under the [PURA], both express and implied, and must determine whether the
[PUC]’s actions comported with this grant of authority.” State v. Pub. Util. Comm’n of
Tex., 883 S.W.2d 190, 194 (Tex. 1994) (citing TEX. GOV’T CODE ANN. § 2001.174).
Section 2001.174 of the Texas Government Code, in pertinent part, provides the
following standard to be applied in this context:
If the law authorizes review of a decision in a contested case under the
substantial evidence rule or if the law does not define the scope of judicial
review, a court may not substitute its judgment for the judgment of the
state agency on the weight of the evidence on questions committed to
agency discretion but:
(1) may affirm the agency decision in whole or in part; and
8
To clarify, we will frequently cite to three codes throughout our opinion: the
Texas Utilities Code, the Texas Government Code, and the Texas Administrative Code.
The relevant portions of the Texas Utilities Code will be referred to as PURA. See TEX.
UTIL. CODE ANN. §§ 11.001–66.017 (West 2007 & Supp. 2010). The PURA is the PUC’s
enabling statute. See Coastal Habitat Alliance v. Pub. Util. Comm’n of Tex., 294
S.W.3d 276, 281 n.5 (Tex.App.—Austin 2009, no pet.).
9
However, as we have mentioned and will discuss further, SWEPCO maintains
that the PUC stepped outside its admittedly broad regulatory authority by imposing caps
on what SWEPCO could recoup in terms of construction and emission controls.
12
(2) shall reverse or remand the case for further proceedings if substantial
rights of the appellant have been prejudiced because the administrative
findings, inferences, conclusions, or decisions are:
(A) in violation of a constitutional or statutory provision;
(B) in excess of the agency’s statutory authority;
TEX. GOV’T CODE ANN. § 2001.174 (West 2008).
With that in mind, we employ the general standards for statutory construction.
Statutory construction is a question of law we review de novo. See Bragg v. Edwards
Aquifer Auth., 71 S.W.3d 729, 734 (Tex. 2002). In construing a statute, we must
ascertain the legislature’s intent in enacting the statute. CenterPoint Energy Houston
Elec., L.L.C. v. Gulf Coast Coalition of Cities, 252 S.W.3d 1, 16 (Tex.App.—Austin
2008), rev’d in part, aff’d in part sub nom. State v. Pub. Util. Comm’n of Tex., 344
S.W.3d 349 (Tex. 2011). In making this determination, courts look to the plain meaning
of the words used in the statute. See id. When determining legislative intent, the entire
act, not isolated portions, must be considered. Jones v. Fowler, 969 S.W.2d 429, 432
(Tex. 1998). We also consider the “object sought to be attained” by enacting the
statute, the “circumstances under which the statute was enacted,” the “consequences of
a particular construction,” and the interpretations of the statute made by an agency.
TEX. GOV’T CODE ANN. § 311.023 (West 2005); see City of Austin v. Sw. Bell Tel. Co., 92
S.W.3d 434, 442 (Tex. 2002). We construe the text of an administrative rule under the
same principles applicable to a statute. Phillips Petro. Co. v. Tex. Comm’n on Envtl.
Quality, 121 S.W.3d 502, 507 (Tex.App.—Austin 2003, no pet.)
The PUC is an administrative agency, a creature of legislation, and, therefore,
“has no inherent authority.” Pub. Util. Comm’n of Tex. v. City Pub. Serv. Bd., 53 S.W.3d
13
310, 316 (Tex. 2001). The PUC possesses only those powers “expressly conferred
upon it.” Id. When conferring a power upon an agency, the Legislature also “impliedly
intends that the agency have whatever powers are reasonably necessary to fulfill its
express functions or duties.” Id.; see Tex. Natural Res. Conserv. Comm’n v. Lakeshore
Util. Co., 164 S.W.3d 368, 377–78 (Tex. 2005). However, an agency may not “exercise
what is effectively a new power, or a power contradictory to the statute, on the theory
that such a power is expedient for administrative purposes.” City Pub. Serv. Bd., 53
S.W.3d at 316.
Deference Due the PUC’s Statutory Interpretation
We must apply the foregoing standards for statutory construction in light of the
deference due to an agency’s interpretation of its governing provisions, and, for
guidance in that undertaking, we look to the Texas Supreme Court’s most recent
application of deference to agency interpretation. See R.R. Comm’n of Tex. v. Tex.
Citizens for a Safe Future and Clean Water, 336 S.W.3d 619 (Tex. 2011). The Austin
court had remanded the case to the Railroad Commission so that it could reconsider its
“public interest” determination using a broader definition of “the public interest.” See
Tex. Citizens, 254 S.W.3d 492, 503 (Tex.App.—Austin 2007, rev’d). On discretionary
review, the Texas Supreme Court squarely addressed the issue presented as a
statutory construction issue in which an agency interpretation was challenged. See
Tex. Citizens, 336 S.W.3d at 623–25.
The court observed that, although the principle had been stated in different ways
throughout the years, “[w]e have long held that an agency’s interpretation of a statute it
14
is charged with enforcing is entitled to ‘serious consideration.’”10 Id. at 624. In clarifying
what the “serious consideration” inquiry involved, the court concluded that “we will
generally uphold an agency’s interpretation of a statute it is charged by the Legislature
with enforcing, ‘so long as the construction is reasonable and does not contradict the
plain language of the statute.’” Id. at 625 (quoting First Am. Title Ins. Co. v. Combs, 258
S.W.3d 627, 632 (Tex. 2008)).
The court recognized that the parties in Texas Citizens advanced two competing
interpretations, both with some merit. Id. at 628. However, the court concluded, “[i]t is
precisely when a statutory term is subject to multiple understandings that we should
defer to an agency’s reasonable interpretation.” Id. This deference is due especially
when the subject matter of the provision at issue lies within the agency’s specialized
expertise. Id. at 630; USA Waste Servs. of Houston, Inc. v. Strayhorn, 150 S.W.3d 491,
494 (Tex.App.—Austin 2004, pet. denied). We see that this deference becomes even
more appropriate when the statutory scheme at issue concerns a complex subject
matter. See R.R. Comm’n of Tex. v. Coppock, 215 S.W.3d 559, 563 (Tex.App.—Austin
2007, pet. denied).
10
The Texas Supreme Court’s deference to the agency interpretation in Texas
Citizens is consistent with its longstanding position on the deference to be given to a
specialized agency’s interpretation of relevant statutes: “When an administrative
agency is created to centralize expertise in a certain regulatory area, it is to be given a
large degree of latitude in the methods it uses to accomplish its regulatory function.”
State v. Pub. Util. Comm’n of Tex., 883 S.W.2d at 197; see also Tex. Mun. Power
Agency v. Pub. Util. Comm’n of Tex., 253 S.W.3d 184, 202 (Tex. 2007) (Brister, J.,
dissenting); City of Corpus Christi v. Pub. Util. Comm’n of Tex., 572 S.W.2d 290, 297
(Tex. 1978).
15
The court reversed the Austin court’s decision and, after examining the relevant
statutory scheme, concluded that the Railroad Commission’s interpretation of “public
interest” was reasonable and, therefore, entitled to deference. Texas Citizens, 336
S.W.3d at 633. Ultimately, we learn from Texas Citizens that our task is to determine
whether the agency’s construction violates the plain meaning of relevant provisions and
whether its interpretation is a reasonable one, not whether it is the only one or the best
one. See id. That task begins by looking at the statutory language itself. Id.
Provisions related to the PUC’s Authority
The PURA gave the PUC exclusive jurisdiction to regulate utility rates,
operations, and services. Sw. Elec. Power Co. v. Grant, 73 S.W.3d 211, 216 (Tex.
2002) (citing TEX. UTIL. CODE ANN. §§ 32.001(a), 36.001(a) (West 2007), and Houston
Lighting & Power Co. v. Auchan USA, Inc., 995 S.W.2d 668, 674 (Tex. 1999)). The
PURA also gives the PUC “the general power to regulate and supervise the business of
each public utility within its jurisdiction and to do anything specifically designated or
implied by this title that is necessary and convenient to the exercise of that power and
jurisdiction.” TEX. UTIL. CODE ANN. § 14.001 (West 2007); State v. Pub. Util. Comm’n of
Tex., 883 S.W.2d at 197 (quoting predecessor to Section 14.001).
The Texas Administrative Code echoes the broad power given by Section 14.001
when expressing the PUC’s mission:
The mission of the PUC is to assure the availability of safe, reliable, high
quality services that meet the needs of all Texans [at] just and reasonable
rates. To accomplish this mission, the PUC shall regulate electric and
telecommunications utilities as required while facilitating competition,
operation of the free market, and customer choice.
16
16 TEX. ADMIN. CODE § 25.1 (2011) (Pub. Util. Comm’n of Tex., Purpose and Scope of
Rules) (emphasis added).
The Texas Utilities Code charges the PUC with protecting the public interest and
grants the PUC authority to do so:
Significant changes have occurred in the telecommunications and electric
power industries since the [PURA] was originally adopted. Changes in
technology and market structure have increased the need for minimum
standards of service quality, customer service, and fair business practices
to ensure high-quality service to customers and a healthy marketplace
where competition is permitted by law. It is the purpose of this title to
grant the Public Utility Commission of Texas authority to make and
enforce rules necessary to protect customers of telecommunications and
electric services consistent with the public interest.
TEX. UTIL. CODE ANN. § 11.002(c) (West 2007); see State v. Pub. Util. Comm’n of Tex.,
883 S.W.2d at 194–95. More specifically, the PUC bears the burden of protecting the
public interest during the process of deregulating the electricity industry:
The legislature finds that the production and sale of electricity is not a
monopoly warranting regulation of rates, operations, and services and that
the public interest in competitive electric markets requires that, except for
transmission and distribution services and for the recovery of stranded
costs, electric services and their prices should be determined by customer
choices and the normal forces of competition. As a result, this chapter11 is
enacted 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(a) (West 2007). We add that courts acknowledge the
PUC’s discretion with respect to serving the public interest. In explaining the PUC’s role
11
Chapter 39 is entitled “Restructuring of Electric Utility Industry.”
17
as the telecommunications regulatory body and its relationship as such to the public, the
Austin court made the following observation which we find instructive:
Public interest determinations are dependent upon the special
knowledge and expertise of the [PUC]. It is the [PUC]’s task to assess
competing policies and determine what is in the public interest. The
legislature intended the [PUC] to make whatever accommodations and
adjustments necessary when determining what is in the public interest. In
balancing these considerations, the agency is required to exercise its
expertise to further the overall public interest.
It is within the [PUC]’s authority to decide what public interest
means in a particular case. The [PUC] has wide discretion in determining
what factors to consider when deciding whether something serves the
public interest.
Pub. Util. Comm’n of Tex. v. Tex. Tel. Ass’n, 163 S.W.3d 204, 213 (Tex.App.—Austin
2005, no pet.) (internal citations omitted).
In addition to the PUC’s general authority, the Legislature granted the PUC
specific authority and duties in regard to the CCN process. For instance, the
Legislature has outlined the factors that the PUC may consider in making the decision
to grant or deny a CCN:
(a) The commission may approve an application and grant a certificate
only if the commission finds that the certificate is necessary for the
service, accommodation, convenience, or safety of the public.
(b) The commission may:
(1) grant the certificate as requested;
(2) grant the certificate for the construction of a portion of the
requested system, facility, or extension or the partial exercise of the
requested right or privilege; or
18
(3) refuse to grant the certificate.
(c) The commission shall grant each certificate on a nondiscriminatory
basis after considering:
(1) the adequacy of existing service;
(2) the need for additional service;
(3) the effect of granting the certificate on the recipient of the
certificate and any electric utility serving the proximate area; and
(4) other factors, such as:
(A) community values;
(B) recreational and park areas;
(C) historical and aesthetic values;
(D) environmental integrity;
(E) the probable improvement of service or lowering of cost
to consumers in the area if the certificate is granted; and
(F) to the extent applicable, the effect of granting the
certificate on the ability of this state to meet the goal
established by Section 39.904(a) of this title.12
TEX. UTIL. CODE ANN. § 37.056 (West 2007). The Austin court has observed that
Section 37.056 states the factors for the PUC’s consideration in the “broadest possible
terms.” See Pub. Util. Comm’n of Tex. v. Texland Elec. Co., 701 S.W.2d 261, 266 (Tex.
App.—Austin 1985, writ ref’d n.r.e)
The Texas Administrative Code contains the following provision specifically
related to the CCN process. In pertinent part, it provides the following:
12
Section 39.904(a) declares the State’s goals of moving toward renewable
energy technology. See TEX. UTIL. CODE ANN. § 39.904(a) (West Supp. 2010).
19
Certificates of convenience and necessity for new service areas and
facilities. Except for certificates granted under subsection (e) of this
section, the commission may grant an application and issue a certificate
only if it finds that the certificate is necessary for the service,
accommodation, convenience, or safety of the public, and complies with
the statutory requirements in the Public Utility Regulatory Act (PURA) §
37.056. The commission may issue a certificate as applied for, or refuse
to issue it, or issue it for the construction of a portion of the contemplated
system or facility or extension thereof, or for the partial exercise only of the
right or privilege. The commission shall render a decision approving or
denying an application for a certificate within one year of the date of filing
of a complete application for such a certificate, unless good cause is
shown for exceeding that period.
16 TEX. ADMIN. CODE § 25.101(b).
The Legislature has recognized the changing climate of the electric utility industry
and specifically found that development of a competitive wholesale electric market is in
the public interest as is a set of rules and policies designed to protect the public’s
interest in a more competitive market:
The wholesale electric industry, through federal legislative, judicial, and
administrative actions, is becoming a more competitive industry that does
not lend itself to traditional electric utility regulatory rules, policies, and
principles. As a result, the public interest requires that rules, policies, and
principles be formulated and applied to protect the public interest in a
more competitive marketplace. The development of a competitive
wholesale electric market that allows for increased participation by electric
utilities and certain nonutilities is in the public interest.
TEX. UTIL. CODE ANN. § 31.001(c) (West 2007).13
13
The general outline of Texas’s scheme for the transition from a regulated
electric utility industry to a competitive marketplace has been addressed in detail. See
Reliant Energy, Inc., 153 S.W.3d at 182 (citing Reliant Energy, Inc. v. Pub. Util. Comm’n
of Tex., 101 S.W.3d 129, 133–36 (Tex. App.—Austin 2003) rev’d in part sub nom.
20
Analysis
The PUC’s construction of relevant provisions is one that permits it to consider
an entity’s unregulated wholesale load when determining whether to grant the CCN.
SWEPCO contends that the PUC’s construction is a reasonable one.
The Legislature has found that a competitive market is in the public’s interest and
that it is also in the public interest to have rules in effect to protect the public as the
competitive market develops. See id. The PUC has been charged with fostering “a
competitive wholesale electric market that allows for increased participation by electric
utilities” and, at the same time, protecting the public interest. See id.; see also id. §§
11.002(c), 39.001. So, while the PUC’s role with respect to the wholesale market is
distinct from its role with respect to the still-regulated portion of the industry, the PUC is
not required to turn a blind eye to the wholesale market considerations. See Tex.
Commercial Energy, L.L.C. v. TXU Energy, Inc., 413 F.3d 503, 506 & n.1 (5th Cir. 2005)
(on PUC’s role in Texas). We see the complexity of the PUC’s role when it is charged
with both regulating electric utilities as required “while facilitating competition, operation
of the free market, and customer choice.” 16 TEX. ADMIN. CODE § 25.1.
With respect to the CCN process, the PUC is given a lengthy list of broadly-
stated considerations that go into its determination. See TEX. UTIL. CODE ANN. § 37.056.
The PUC must apply this broadly-stated set of considerations in light of its general
regulatory authority and its duty to consider and protect the public interest and in the
CenterPoint Energy Inc. v. PUC, 143 S.W.3d 81 (Tex. 2004), and Reliant Energy, Inc. v.
Pub. Util. Comm’n of Tex., 62 S.W.3d 833, 835–36 (Tex. App.—Austin 2001, no pet.)).
21
context of a legislatively-recognized changing climate of the electric utilities industry.
See id. §§ 11.002(c), 14.001, 31.001(c), 39.001(a). The PUC is given the authority to
“do anything specifically designated or implied by [PURA] that is necessary and
convenient to the exercise of” its broad regulatory jurisdiction. Id. § 14.001. The PUC is
then charged with protecting the public interest, specifically so when it is directed to
apply the rules put into place to “protect the public interest during the transition to and in
the establishment of a fully competitive electric power industry.” Id. § 39.001(a).
Based on our examination of the relevant statutes operating among complex,
diverse considerations involving a hybrid entity in an evolving industry, we cannot say
the PUC’s interpretation of its authority is unreasonable, nor does it appear to run
contrary to the provisions that address the PUC’s authority. We, therefore, defer to the
PUC’s interpretation that would permit it to consider wholesale load in making its
determination whether the Turk plant is necessary. See Tex. Citizens, 336 S.W.3d at
625. Accordingly, we overrule TIEC’s point of error.
Imposition of Cost Caps
As stated, the PUC granted SWEPCO’s CCN amendment but did so with
restrictions attached. Most of those restrictions and conditions are not contested as
they are conditions typically associated with new generation facilities. But the PUC
attached two cost caps which SWEPCO maintains were beyond the PUC’s authority.
Those two conditions are as follows: (1) construction costs in excess of $1.522 billion
22
could not be considered for inclusion in rate base,14 and (2) carbon mitigation costs in
excess of $28 per ton of carbon dioxide would be excluded from rates in Texas.
SWEPCO maintains that the PUC lacks the authority to impose such restrictions,
or, at least, it lacks the authority to do so at this time.15 SWEPCO’s contention appears
to be premised on the notion that the cost caps built into the CCN are more properly an
issue belonging in a rate case. The PUC asserts the same discretion that would permit
it to consider SWEPCO’s wholesale load in this complex deregulation climate would
permit it to impose cost caps to address the attendant concerns, those voiced by TIEC
in the preceding issue, regarding subsidizing. That is, if the PUC may consider the
wholesale load, then it may also consider ways of minimizing risks inherent in such
consideration.
Standard and Scope of Review
Since this issue also deals with the PUC’s construction of its own authority, we
will apply the same standard of review we applied to the TIEC’s contention concerning
the wholesale load issue. We also grant the same deference to an agency’s reasonable
interpretation of its governing provisions. See Tex. Citizens, 336 S.W.3d at 625.
14
The PUC concluded that “it is unreasonable to expect Texas retail consumers
to be responsible for the Texas jurisdictional allocation of any additional costs that
exceed $1.522 billion.”
15
One of the three commissioners agreed that the majority’s imposition of the
cost caps was improper and that the matter should be addressed in a ratemaking
proceeding.
23
Applicable Law: Not “Necessarily a Ratemaking Proceeding”
The Texas Supreme Court, the Austin Court of Appeals, and the PUC itself have
acknowledged that ratemaking proceedings are distinct from other types of
proceedings. See State v. Pub. Util. Comm’n of Tex., 883 S.W.2d at 198; City of El
Paso v. Pub. Util. Comm’n of Tex., 609 S.W.2d 574, 579 (Tex.Civ.App.—Austin 1980,
writ ref’d n.r.e.). However, there appears to be room for some overlap: the Texas
Supreme Court concluded that not “all regulatory decisions that will have subsequent
effects on rates are necessarily ‘ratemaking’ proceedings under PURA.” State v. Pub.
Util. Comm’n of Tex., 883 S.W.2d at 198; see Office of Pub. Util. Counsel, 843 S.W.2d
at 723.
Reviewing the PUC’s Authority
The provisions cited in discussion of the wholesale load issue are relevant to this
issue as well. We emphasize that the PURA specifically permits the PUC to “grant the
certificate for the construction of a portion of the requested system, facility, or extension
or the partial exercise of the requested right or privilege.” TEX. UTIL. CODE ANN. §
37.056; see also 16 TEX. ADMIN. CODE 25.101(b) (“The commission may issue a
certificate . . . for the construction of a portion of the contemplated system or facility or
extension thereof, or for the partial exercise only of the right or privilege.”). We also
keep in mind that, within the transition to a fully competitive electricity industry, the
legislature has placed on the PUC “a uniquely difficult task.” Tex. Bldg. Owners &
Managers Ass’n v. Pub. Util. Comm’n of Tex., 110 S.W.3d 524, 532 (Tex.App.—Austin
24
2003, pet. denied) (characterizing the PUC’s duty in balancing rights within the
telecommunications industry).
Further, it is well-established 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. See State v. Public Util. Comm’n,
883 S.W.2d at 197; City of Corpus Christi, 572 S.W.2d at 297; City of Garland v. Pub.
Util. Comm’n of Tex., 165 S.W.3d 814, 819 (Tex.App.—Austin 2005, pet denied); see
also City of Corpus Christi v. Pub. Util. Comm’n of Tex., 51 S.W.3d 231, 262 (Tex.
2001) (recognizing “that an administrative agency is entitled to considerable procedural
flexibility”).
Analysis
We again note that the Legislature granted the PUC broad regulatory authority,
and the breadth of this authority is reflected in the PUC’s mission. See TEX. UTIL. CODE
ANN. § 14.001; 16 TEX. ADMIN. CODE § 25.1 We also note that the PUC is specifically
authorized to grant a CCN in part. See TEX. UTIL. CODE ANN. § 37.056(b)(2); 16 TEX.
ADMIN. CODE 25.101(b). As the PUC operates within its general and specific areas of
authority, it must bear in mind another aspect of its legislative authority: to protect the
public interest. See TEX. UTIL. CODE ANN. §§ 11.002(c), 31.001(c), 39.001. The PUC’s
interpretation that would allow it to impose cost caps to shield captive Texas ratepayers
from costs in excess of an amount the PUC deemed reasonable is a reasonable
interpretation of the PUC’s own authority in light of these provisions. Its interpretation is
not only consistent with these provisions but also internally consistent with its
25
interpretation of its authority relating to consideration of wholesale load. That is, if it is
within the public interest to foster a competitive free market and the PUC has the
authority to consider the wholesale load when determining necessity for a facility, then it
would follow that the PUC could impose cost caps as a means of fulfilling its
legislatively-mandated duty that it protect the public interest during the deregulation
process and the transition to a competitive market. See id. § 31.001(c).
Without question, the PUC can impose certain conditions in the CCN. See Tex.-
New Mex. Power, 806 S.W.2d at 233. We have been asked to determine whether it can
impose these particular conditions when they so closely resemble part of the
ratemaking process.16 Based on the following considerations, the PUC’s construction of
PURA provisions was reasonable: the breadth of legislature’s grant of the PUC’s
authority, the specific attention the PURA scheme places on the deregulation climate,
the specific authority granted to the PUC within that climate, and the authority to grant
CCN requests in part. Because the PUC’s interpretation of its authority appears to be
reasonable and does not appear to run contrary to the PURA, we grant deference to the
PUC’s interpretation of this aspect of its authority as well. Accordingly, we overrule
SWEPCO’s point of error.
16
While these caps do have a certain ratemaking scent to them, it appears from
relevant provisions that the PUC’s powers are broad enough with respect to protecting
the public interest that, especially since the PUC can consider wholesale load in
determining necessity under Section 37.056, the PUC can also take steps to protect
captive Texas ratepayers from the very concerns expressed by TIEC regarding the
potential for subsidizing wholesale dealings by passing along excess to captive
ratepayers. Further, we see from State v. Pub. Util. Comm’n of Tex., 883 S.W.2d at
198, that not all actions taken with respect to the recoupment of costs necessarily
belong in a ratemaking case.
26
Conclusion
Having overruled the points of error raised by SWEPCO and TIEC, we affirm the
trial court’s judgment.
Mackey K. Hancock
Justice
27