ACCEPTED
03-14-00706-CV
4425431
THIRD COURT OF APPEALS
AUSTIN, TEXAS
3/9/2015 3:33:37 PM
JEFFREY D. KYLE
CLERK
NO. 03-14-00706-CV
IN THE FILED IN
3rd COURT OF APPEALS
TEXAS COURT OF APPEALS AUSTIN, TEXAS
THIRD COURT OF APPEALS DISTRICT
3/9/2015 3:33:37 PM
AT AUSTIN JEFFREY D. KYLE
Clerk
ENTERGY TEXAS, INC.,
APPELLANT,
V.
PUBLIC UTILITY COMMISSION OF TEXAS,
APPELLEE
ON APPEAL FROM THE FINAL JUDGMENT
IN CAUSE NO. D-1-GN-13-002623
345TH JUDICIAL DISTRICT COURT, TRAVIS COUNTY, TEXAS,
HONORABLE AMY CLARK MEACHUM, JUDGE PRESIDING
APPELLEE BRIEF OF THE
OFFICE OF PUBLIC UTILITY COUNSEL
OFFICE OF PUBLIC UTILITY COUNSEL
Tonya Baer
Public Counsel
State Bar No. 24026771
Ross Henderson
Assistant Public Counsel
State Bar No. 24046055
ross.henderson@opuc.texas.gov
P.O. Box 12397, Capitol Station
Austin, Texas 78711-2397
(512) 936-7500 (Telephone)
(512) 936-7525 (Facsimile)
March 9, 2015
TABLE OF CONTENTS
TABLE OF CONTENTS ............................................................................................i
TABLE OF AUTHORITIES .................................................................................. iii
GLOSSARY OF ABBREVIATIONS AND TECHNICAL TERMS.......................vi
ISSUES PRESENTED ............................................................................................... 1
STATEMENT OF FACTS ....................................................................................... 2
SUMMARY OF THE ARGUMENTS ...................................................................... 4
ARGUMENT AND AUTHORITIES ........................................................................ 6
I. There is substantial evidence in the record to support the Commission’s
decision to reject ETI’s rate case expenses related to Appellant’s
advocacy for financially-based employee incentive compensation.. ............... 7
A. Substantial evidence standard of review. ................................................... 8
B. There is substantial evidence to support the Commission’s
determination that ETI’s advocacy regarding financial-based
incentive compensation was “unreasonable” and “overly
aggressive.”. ............................................................................................ 10
C. The Commission’s decision to disallow a portion of ETI’s rate-case
expense is also supported by the totality of the record... ......................... 14
II. The Commission acted well within its broad discretion when it
disallowed ETI’s rate case expenses related to Appellant’s advocacy for
financially-based employee incentive compensation. The Commission did
not act arbitrarily or capriciously nor abuse its discretion. ............................ 18
i
A. The Commission was not bound by any policy to allow rate case
expenses for efforts to recover impermissible financially-based
incentive compensation. .......................................................................... 19
B. ETI was afforded due process. ................................................................ 21
C. The Commission’s decision was a case-by-case determination and
was not impermissible adjudicative rulemaking...................................... 24
III. The Commission’s method of quantifying the amount of disallowed rate
case expenses is supported by substantial evidence in the record and was
not arbitrary, capricious, or an abuse of its discretion. .................................. 29
A. The Commission’s quantification of the unreasonable rate case
expenses is supported by substantial evidence in the record.................. 30
B. The Commission’s quantification of the unreasonable rate case
expenses was not arbitrary, capricious, or an abuse of its discretion ..... 33
PRAYER FOR RELIEF ........................................................................................... 35
CERTIFICATE OF SERVICE ................................................................................ 37
CERTIFICATE OF COMPLIANCE ....................................................................... 38
APPENDIX A
Application of Entergy Texas, Inc., Docket No. 39896, Direct Testimony
of Kevin G. Gardner (ETI Application at Bates p. 3155 to 3159)
(Nov. 1, 2012) (Interchange item No. 142)
ii
TABLE OF AUTHORITIES
CASES
Burke v. Central Educ. Agency
725 S.W.2d 393 (Tex. App. – Austin 1987, writ ref’d n.r.e.)................ 16-17, 19
Cities of Corpus Christi v. Public Utility Commission
188 S.W.3d 681 (Tex. App. – Austin 2005, pet. denied) .................................. 35
City of Amarillo v. Railroad Commission
894 S.W.2d 491 (Tex. App. – Austin 1995, writ denied) ................ 14-15, 18, 32
City of El Paso v. Public Utility Commission
609 S.W.2d 574 (Tex. App. – Austin 1980, writ ref’d n.r.e.)............................ 16
City of Port Neches v. Railroad Commission
212 S.W.3d 565 (Tex. App. – Austin 2006, no pet.) ....... 6, 13, 14, 15-16, 32, 34
Industrial Utilities Service v. Tex. Natural Resource Conservation Commission
947 S.W.2d 712 (Tex. App. – Austin 1997, writ denied) .................................. 18
McHaney v. Tex. Comm’n on Environmental Quality
No. 03-13-00280, 2015 WL 869197 *8 (Tex. App. – Austin mem. op.). ......... 28
Oncor Electric Delivery Company, LLC v. Public Utility Commission
406 S.W.3d 253 (Tex. App. – Austin 2013, no pet.). .........................21-23, 33, 34
Pedernales Electric Cooperative, Inc. v. Public Utility Commission
809 S.W.2d 332 (Tex. App. – Austin 1991, no pet.). ........................................ 18
Pioneer Natural Resources USA, Inc. v. Public Utility Commission
303 S.W.3d 363 (Tex. App. – Austin 2009, no pet.) ............. 9, 13, 15, 32, 34-35
Reliant Energy, Inc. v. Public Utility Commission
153 S.W.3d 174 (Tex. App. – Austin 2004, pet. denied). ........................... 20, 33
iii
Richards v. Comm’n for Lawyer Discipline
35 S.W.3d 243 (Tex. App. Houston 2000). ....................................................... 19
State of Texas’ Agencies and Institutions of Higher Learning v.
Public Util. Comm’n of Tex., No. 03-11-00072-CV, 2014 WL 6893871
(Tex. App. – Austin Dec. 4, 2014, no pet.)........................................................ 12
Texas Dep't of Transp. v. Sunset Transp., Inc.
357 S.W.3d 691 (Tex. App. – Austin 2011, no pet.) .................................. 26-27
Texas State Board of Pharmacy v. Witcher
447 S.W.3d 520 (Tex.App. – Austin 2014, pet. filed)............................. 25, 26, 27
Trinity Settlement Services, LLC v. Texas State Securities Board
417 S.W. 3d 494 (Tex.App. – Austin 2013, pet. denied) ................... 26, 27, 29, 34
STATUTES
Administrative Procedure Act (APA), TEX. GOV’T CODE §§ 2001.001-.902
(Vernon 2008 & Supp. 2013) ................................................................................... 26
TEX. GOV’T CODE § 2001.003(6) ................................................................. 26-27, 34
TEX. GOV’T CODE § 2001.174(2) ............................................................................. 35
TEX. GOV’T CODE § 2001.174(2)(e)........................................................................... 9
Public Utility Regulatory Act (PURA), TEX. UTIL. CODE §§ 11.001-66.017
(Vernon 2007 & Supp. 2013) ................................................................... 4, 19, 25, 32
TEX. UTIL. CODE § 36.003 .............................................................................. 4, 27, 29
TEX. UTIL. CODE § 36.006 .................................................................................... 5, 33
TEX. UTIL. CODE § 36.051 .............................................................................. 4, 27, 29
TEX. UTIL. CODE § 36.061 .................................................................................... 6, 14
iv
TEX. UTIL. CODE § 36.061(b) ..................................................................................... 8
TEX. UTIL. CODE § 36.061(b)(2) .................................................................... 4, 25, 30
v
GLOSSARY OF ABBREVIATIONS AND TECHNICAL TERMS
APA – Administrative Procedure Act, Tex. Gov’t Code §§ 2001.001-.902 (Vernon
2008 & Supp. 2013)
AR – Administrative Record
Commission – Public Utility Commission of Texas, Defendant in this appeal
Docket No. 39896 – Application of Entergy Texas, Inc. for Authority to Change Rates,
Reconcile Fuel Costs, and Obtain Deferred Accounting Treatment. The Public
Utility Commission of Texas rate case proceeding in which the rate case
expenses at issue were incurred.
Docket No. 40295 – Application of Entergy Texas, Inc. for Rate Case Expenses
Pertaining to PUC Docket No. 39896. The Public Utility Commission of Texas
proceeding from which this appeal is taken.
OPUC – Office of Public Utility Counsel, an Intervenor in this appeal
Order – The final and appealable order of the Commission in Docket No. 40295,
signed on May 21, 2013, from which OPUC appeals in this suit for judicial
review.
Appellant – Entergy Texas, Inc. (ETI), an electric utility.
PFD – Proposal for Decision
PURA – Public Utility Regulatory Act, TEX. UTIL. CODE ANN. §§ 11.001-66.017
(Vernon 2007 & Supp. 2013)
vi
BRIEF OF APPELLEE,
OFFICE OF PUBLIC UTILITY COUNSEL
TO THE HONORABLE COURT OF APPEALS:
The Office of Public Utility Counsel (OPUC), Appellee, submits this brief in
support of the final judgment of the District Court on judicial review of the Final Order
on Rehearing of the Public Utility Commission of Texas (Commission or PUC) in
Docket No. 42059. Appellee, OPUC respectfully presents the following:
ISSUES PRESENTED
1. In Commission Docket No. 39896, Appellant failed to prove that certain
financially-based employee incentive compensation expenses were just and
reasonable. The Commission had rejected those, or similar, expenses in
previous dockets. In Docket No. 40295, the rate case expense hearing that is the
subject of this appeal, the Commission denied the rate case expenses Appellant
incurred while attempting to include the financially-based employee incentive
compensation expenses in its rates in Docket No. 39896. Was the
Commission’s case-by-case determination within the Commission’s broad
authority and discretion to grant or disallow rate case expenses?
2. Was the Commission’s case-by-case determination, after notice and hearing, to
reject rate case expenses associated with Appellant’s request for financially-
based employee incentive compensation expenses in the related rate case a
1
violation of Appellant’s due process rights or an improper ad hoc rulemaking –
or was it within the Commission’s broad authority and discretion?
3. Assuming the Commission’s decision to reject the rate case expenses related to
the financially-based employee incentive compensation expenses was supported
by the record and a reasonable exercise of its discretion, was the Commission’s
method of quantifying those rate case expenses, after notice and hearing, within
the Commission’s broad authority and discretion and supported by substantial
evidence in the record?
STATEMENT OF FACTS
Appellant Entergy Texas, Inc. (ETI) appeals the District Court’s Judgment
which affirmed the Commission’s Final Order in Docket No. 40295. 1 This docket
(Docket No. 40295) was a rate case expense hearing that was severed from a previous
rate application (Docket No. 39896). In Docket No. 39896, ETI filed an application
seeking a $111.8 million increase in base rates. 2 Docket No. 39896 was ETI’s third
rate case application in only four years. 3 ETI subsequently reduced its requested
increase to $104.8 million. 4
1
Appellant ETI’s Initial Brief.
2
AR Volume I, Binder 2, Item 55 (Final Order at 4, FOF No. 2).
3
AR Volume I, Binder 2, Item 32 (PFD at 23).
4
AR Volume I, Binder 2, Item 55 (Final Order at 5, FOF No. 10).
2
In its final order for Docket No. 39896, the Commission substantially reduced
ETI’s overall increase to $27.7 million – a fraction of the original $111.8 million
increase requested. 5 Approximately $6.5 million of the $84.1 million reduction from
the original request in Docket No. 39896 was for financially-based employee incentive
compensation expenses. 6 ETI had previously failed to obtain such expenses in the two
immediately preceding rate cases involving the Company (Docket Nos. 34800 and
37744) and failed to do in Docket No. 39896 as well. 7
During the underlying rate case, SOAH granted ETI’s unopposed motion to
sever rate case expenses and the PUC docketed the severed proceeding as Docket No.
40295. In Docket No. 40295, which is the subject of this appeal, ETI sought recovery
of $8,752,576 in rate case expenses related to Docket No. 39896. 8 Of that total, $7.6
million was incurred by ETI with the remainder being incurred by the intervening
Cities. 9
The Administrative Law Judge (ALJ) held that, based upon the general concerns
raised by PUC Commission Staff and Intervenors, “a substantial cut to ETI’s rate case
expenses is warranted.”10 In the Final Order, the Commission agreed with the ALJ,
5
AR Volume I, Binder 2, Item 55 (Final Order at 5, FOF No. 12).
6
AR Volume I, Binder 2, Item 32 (PFD at 29, third bullet point).
7
AR Volume I, Binder 2, Item 32 (PFD at 23).
8
AR Volume I, Binder 2, Item 55 (Final Order at 5, FOF No. 13).
9
AR Volume I, Binder 2, Item 55 (Final Order at 5, FOF No. 14).
10
AR Volume I, Binder 2, Item 32 (PFD at 30).
3
adopting the relevant portions of the Proposal for Decision (PFD) and finding that “the
amount of rate case expenses sought by ETI ($8.8 million) is high, both in absolute
terms and in relation to the rate increase ultimately obtained by ETI in Docket 39896
($27.7 million). 11
The Commission reduced the amount of recoverable rate case expenses to
$6,896,037.73. 12 Of the reduced amount of rate case expenses, the Commission
determined that $522,244.66 should be disallowed because this amount of expense was
“attributable to unreasonable and overly aggressive arguments” pursued by ETI in
Docket No. 39896 related to the financially-based incentive compensation.13
SUMMARY OF THE ARGUMENTS
Under the Public Utility Regulatory Act (PURA), 14 the Commission has broad
powers and discretion in regulating and setting the rates of public utilities, and in
particular, in determining what reasonable costs of participating in a proceeding a
utility may be allowed to recover as a cost or expense.15 The Commission found in the
underlying ETI rate case16 that ETI failed to meet its burden to prove that certain
financially-based employee incentive compensation expenses were just and reasonable.
11
AR Volume I, Binder 2, Item 55 (Final Order at 5, FOF No. 17).
12
AR Volume I, Binder 2, Item 55 (Final Order at 5, FOF No. 18).
13
AR Volume I, Binder 2, Item 55 (Final Order at 6, FOF No. 18.f).
14
Public Utility Regulatory Act (PURA), TEX. UTIL. CODE ANN. §§ 11.001-66.017 (Vernon 2007 &
Supp. 2013).
15
PURA §§ 36.003, 36.051 and 36.061(b)(2).
4
In this appeal from the rate case expense hearing, Appellant maintains that the
Commission acted outside of its broad authority when the Commission decided to
reject rate case expenses associated with Appellant’s fruitless efforts to obtain approval
for the financially-based incentive compensation expenses in Docket No. 39896.
Appellant also argues that the Commission should be required to conduct a rulemaking
prior to rejecting such rate case expenses. Additionally, Appellant similarly argues that
the Commission’s method of determining the amount of the rate case expenses
attributable to the Company’s financially-based incentive compensation request is in
error. However, Appellant fails to provide support under the law for its positions and
the District Court’s Judgment affirming the Commission’s Order should be affirmed.
Appellant, as the public utility, had the burden to provide evidentiary support for
the rate case expenses rejected by the Commission and under PURA § 36.006 retained
the burden of persuasion on the entire case. Appellant had notice and an opportunity to
provide evidence and argument with respect to each of those expenses. Appellant
further had the opportunity to provide rebuttal evidence and argument in response to
the direct cases of the intervening parties and Commission Staff, including the Direct
Testimony and Workpapers of Nathan A. Benedict.17 The Commission considered the
ALJ’s PFD, weighed the evidence in the record, and considered the parties’ arguments.
16
PUC Docket No. 39896, AR Volume I, Binder 2, Item 55 (Final Order).
17
AR Volume II, Binder 3, OPUC 1, Direct Testimony and Workpapers of Nathan A. Benedict.
5
Ultimately, the Commission adopted the PFD with some changes. The Commission’s
decisions were a reasonable exercise of its statutory authority and are supported by
substantial evidence. The Commission did not act in an arbitrary and capricious
manner and the Commission did not abuse its discretion. Further, an agency is not
required to adopt a rulemaking prior to exercising its discretionary authority under
these circumstances. The Commission has the authority to decide cases through the
contested case process. The Court should decline Appellant’s request to substitute its
own judgment for that of the Commission.
ARGUMENT AND AUTHORITIES
The Commission has broad discretion to determine recovery of expenses in a
ratemaking proceeding. City of Port Neches v. Railroad Commission, 212 S.W.3d 565,
579 (Tex. App. – Austin 2006, no pet.). PURA § 36.061 reflects this authority and
states that the regulatory authority (here, the Commission) “may allow” as a cost or
expense the “reasonable costs of participating in a proceeding under this title not to
exceed the amount approved by the regulatory authority.”
In the rate case expense proceeding which is the subject of this appeal, Docket
No. 40295, the Commission disallowed Appellant’s rate case expenses associated with
financially-based employee compensation expenses in the associated rate case.
Appellant’s request to include the financially-based employee incentive compensation
6
expenses ran contrary to longstanding Commission precedent. In seeming contrast to
Appellant’s arguments, the issue presented in this appeal is not the Commission’s
rejection of the financially-based employee incentive compensation expenses in the
underlying rate case, but instead, the Commission’s decision to reject ETI’s rate case
expense associated with pursuing the financially-based incentive compensation
expense request. Appellant argues in its brief that the Commission’s Order was
arbitrary and capricious and was an abuse of the Commission’s broad discretion.
Appellant’s argument is without merit. The Commission’s Order is supported by the
record and was a proper exercise of its broad grant of authority under PURA and
should be affirmed.
I. There is substantial evidence in the record to support the
Commission’s decision to reject ETI’s rate case expenses
related to Appellant’s advocacy for financially-based employee
incentive compensation.
No party to this proceeding argues that the Commission’s decision to deny the
financially-based employee incentive compensation in the underlying rate case (Docket
No. 39896) was unreasonable. Instead, Appellant disputes the Commission’s
determination that it was “unreasonable” and “overly aggressive” for ETI to expend the
litigation costs associated with seeking the incentive compensation expense. Appellant
contends this, despite the fact that the Commission has repeatedly rejected the same
financially-based incentive compensation expenses in prior dockets. Appellant cites to
7
past Commission orders in an attempt to persuade the Court that the Commission’s
policy on such expenses was unclear or evolving. However, Appellant’s argument is
incorrect. While it is certainly a fact question for the Commission to decide whether
certain incentive compensation may be disallowed if it is tied to financial-based
incentives (versus allowable if it is tied to operational performance), the record
demonstrates that the rejection of this type of financially-based incentive compensation
was settled Commission precedent.
More importantly, Appellant’s argument ignores the larger context by which the
Commission made its determination. The totality of the record demonstrates that the
Commission’s decision to disallow the specific rate case expenses in question was
simply the means by which the Commission accomplished its ultimate objective of
trimming ETI’s excessive overall rate case expense. In sum, there is substantial
evidence in the record to support the Commission’s partial disallowance of ETI’s rate
case expenses.
A. Substantial evidence standard of review
In this case, the Commission acted pursuant to a statutory grant of authority. The
relevant statute states that the Commission “may allow as a cost or expense . . .
reasonable costs of participating in a [rate case] not to exceed the amount approved by
the regulatory authority.” PURA § 36.061(b) (emphasis added). In interpreting this
8
section, the Third Court has found that the Commission has a broad grant of discretion
to determine the recovery of expenses in utility rates – including the reasonable costs
of participating in the rate-making proceeding (i.e., rate case expenses). Pioneer
Natural Resources USA, Inc. v. Public Utility Commission, 303 S.W.3d 363, 376 (Tex.
App. – Austin 2009, no pet.).
With regard to the substantial evidence review standard in rate making, the
Third Court has said, “we are prohibited from substituting our judgment for the
Commission’s . . ..” Pioneer, 303 S.W.3d at 367. The Commission is the sole judge of
the weight of the evidence on questions committed to agency discretion. Id. The
Court described its role as determining whether there is some reasonable basis in the
record to support the agency decision even “if the evidence actually preponderates
against the Commission’s finding . . . as long as there is enough evidence to suggest
that the Commission’s determination was within the bounds of reasonableness.” Id.
The substantial evidence standard of review requires the court to reverse the
Commission if the substantial rights of the appellant have been prejudiced because the
Commission’s “administrative findings, inferences, conclusions, or decisions are not
reasonably supported by substantial evidence considering the reliable and probative
evidence in the record as a whole.” TEX. GOV’T CODE § 2001.174(2)(e). Appellant
fails to meet this standard of review and the Commission’s Order should be affirmed.
9
B. There is substantial evidence to support the Commission’s determination
that ETI’s advocacy regarding financial-based incentive compensation was
“unreasonable” and “overly aggressive.”
The evidence in the record supports the Commission’s determination that it is
not reasonable for the customers to bear the costs of ETI’s “unreasonable and overly
aggressive arguments.”18 OPUC provided evidence in the form of direct testimony by
its expert witness, Nathan A. Benedict, who testified about the propriety of the rate
case expense request as well as how to quantify disallowances for issues such as the
financially-based incentive compensation request. 19 Further, official notice was taken
of the record in the underlying rate case, Docket No. 39896.20 The record in Docket
No. 39896 includes evidence related to the Commission’s established precedent and
policy with regard to financially-based incentive compensation. Intervening Cities and
Commission Staff each presented testimony addressing the issue in Docket No. 39896.
When seeking the inclusion of the financially-based incentive compensation expenses
in rates, the Appellant’s own witnesses admitted in their pre-filed direct testimony that
their respective recommendations were contrary to Commission precedent and policy,
but they hoped to provide new evidence that financial incentive measures benefit
customers. See Appendix A. 21
18
AR Volume I, Binder 2, Item 55 (Final Order at 6, FOF No. 18.f).
19
AR Volume II, Binder 3, OPUC 1, Direct Testimony and Workpapers of Nathan A. Benedict.
20
AR Volume III, Binder 3, Vol. A, Hearing on the Merits Transcript, p. 16, l. 14 to 24.
21
AR Volume I, Binder 2, Item 32 (PFD at 21); See also Appendix A, Application of Entergy Texas,
10
In the PFD, the ALJ outlined what contributed to his reasoned determination to
disallow the rate case expenses associated with the financially-based incentive
compensation expenses. First, the PFD states: “In Docket 39896 [the underlying rate
case], all parties, including ETI, agreed that the Commission precedent mandated that
financially-based incentive compensation is not recoverable.22 The PFD also
recognized other pertinent considerations, including the fact that the underlying rate
case docket was the third consecutive rate case in which Appellant sought, but failed to
obtain, authority to charge ratepayers for this type of financially-based incentive
costs. 23 The ALJ also recognized that Appellant would have been aware that other
utilities have sought recovery of this type of financially-based incentive compensation,
and been uniformly denied by the Commission. 24 In the Court below, ETI stated that it
“does not disagree that past Commission decisions weigh against including financially-
based incentive compensation in rates.”25 Nevertheless, ETI asked the Commission to
reconsider its long-standing precedent on this issue and demands that the customers to
pay for its fruitless efforts. 26
Appellant concedes that this Court recently upheld the Commission’s
Inc., Docket No. 39896, Direct Testimony of Kevin G. Gardner (ETI Application at Bates p. 3155 to
3159) (Nov. 1, 2012) (Interchange item No. 142)
22
AR Volume I, Binder 2, Item 32 (PFD at 21).
23
AR Volume I, Binder 2, Item 32 (PFD at 23).
24
AR Volume I, Binder 2, Item 32 (PFD at 24).
25
Appellant ETI’s Initial Brief at13.
11
disallowance of “compensation payments that are tied to financial performance
measures rather than those tied to strictly operational measures such as reliability and
safety.” Appellants Brief citing State of Texas’ Agencies and Institutions of Higher
Learning v. Public Util. Comm’n of Tex., No. 03-11-00072-CV, 2014 WL 6893871
(Tex. App.—Austin Dec. 4, 2014, no pet.). Appellant correctly notes that the question
of which expenses are disallowable financial measures versus allowable operational
measures is a fact question for the Commission to decide based upon the record. Id.
However, Appellant attempts to stretch the holding of State of Texas’ Agencies to
argue that it was not unreasonable for ETI to seek the rejected financial-based
incentive compensation when such a question turns on facts. 27
In support of its argument, Appellant paints a picture of a murky question before
the Commission regarding the disallowed expense. Appellant argues that the
Commission’s precedent on the recovery of financially-based incentive compensation
is evolving, and that the door was open for Appellant to seek such expenses. 28
Appellant cites orders in which, it argues, applicants have made inroads into recovery
of certain financially-based incentive compensation. 29
However, ETI has not cited to a single case where the Commission granted the
26
AR Volume I, Binder 2, Item 32 (PFD at 21, 2.a).
27
Appellant’s Brief, p. 16.
28
Appellant’s Brief, p. 14.
29
Appellant’s Brief, p. 14.
12
particular financial-based incentive compensation ETI was seeking. Appellant cannot
change the fact that the Commission’s precedent was clear with respect to the
financial-based incentive compensation. It was uniformly disallowed. Even
Appellant’s own witnesses admitted that the precedent was clear-cut with respect to the
rejected expense. Appendix A.
The record demonstrates that ETI expended litigation efforts in a failed attempt
to overturn long-standing Commission precedent. The Commission was not persuaded
to overturn its long-standing precedent and determined that ETI’s rate case expenses
“attributable to [ETI’s] unreasonable and overly aggressive arguments . . .is properly
disallowed.” 30
When determining the reasonableness and necessity of rate case expenses, the
agency is the sole judge of the weight of the evidence and the credibility of the
witnesses. City of Port Neches, 212 S.W.3d at 579. The record before the
Commission and now the Court demonstrates that there is more than “enough evidence
to suggest that the Commission’s determination was within the bounds of
reasonableness.” Pioneer, 303 S.W.3d at 367.
However, even if ETI could demonstrate that its litigation efforts were not
unreasonable and overly aggressive, the Commission’s decision must be examined in
the larger context whereby the Commission determined that ETI’s overall litigation
13
expenses were excessive and sought a reasonable means to trim them.
C. The Commission’s decision to disallow a portion of ETI’s rate-case expense
is also supported by the totality of the record.
Appellant’s single-minded reliance on the Commission’s determination that ETI
made “unreasonable and overly aggressive arguments”31 is misplaced. The
Commission’s specific disallowance of rate case expense related to financial-based
incentive compensation does not exist in a vacuum. Even if ETI could demonstrate
that it was reasonable to advocate for those specific expenses in the underlying rate
case, the totality of the record demonstrates that the Commission was still well within
its allowed discretion to reduce ETI’s overall rate case expenses.
The Commission has broad discretion to determine recovery of expenses in a
ratemaking proceeding. City of Port Neches, 212 S.W.3d at 579. PURA § 36.061
reflects this authority and states that the regulatory authority (here, the Commission)
“may allow” as a cost or expense the “reasonable costs of participating in a proceeding
under this title not to exceed the amount approved by the regulatory authority.”
The Commission may draw inferences and conclusions based on its experience,
and to make its own determination of what expenses are reasonable, so long as the
Commission includes a reason or explanation in its order. Further, the reasonableness
of the Commission’s determination is looked at in light of the whole record. See City
30
AR Volume I, Binder 2, Item 55 (Final Order at 6, FOF No. 18.f).
14
of Amarillo v. Railroad Commission, 894 S.W.2d 491 (Tex. App. – Austin 1995, writ
denied).
The Commission’s discretion includes the authority to consider the context of
the rate proceeding for which the expenses were incurred and the authority to disallow
rate case expenses based upon the propriety of bringing the proceeding. See Pioneer,
303 S.W.3d at 377 (“The Commission was entitled to take into consideration the fact
that Cap Rock's rates had not been regulated by the Commission for a substantial
period of time and, therefore, that Cap Rock had to create much of its rate-filing
package from scratch.”).
Further, the Commission’s authority is not limited to line-item disallowances or
charges related to underlying unreasonable costs. In City of Amarillo, the Third Court
upheld the Railroad Commission’s decision to reduce the uncontested rate case
expenses related to one analyst’s charges by 20% due to insufficiency of support. City
of Amarillo, 894 S.W.2d at 496-97. In addition, the Third Court of Appeals in another
opinion also confirmed that it is within the agency’s discretion to find rate case
expenses to be unreasonable even if the underlying cost item in the rate case is found to
be reasonable. The court stated in its opinion in City of Port Neches that:
It is true that, in order to include . . . costs as an “expense or cost of
service” in TGS’s rate calculation, TGS was required to demonstrate that
those costs were reasonable and necessary. But the leap cannot be made
31
AR Volume I, Binder 2, Item 55 (Final Order at 6, FOF No. 18.f).
15
from this fact to TGS’s conclusion that any fee incurred by TGS in
presenting its “cost of service” argument is automatically recoverable as a
rate case expense. This is where the Commission’s discretion . . . plays
an integral role.
City of Port Neches, 212 S.W.3d at 581 (emphasis added).
In this case, Appellant’s argument focuses solely on the specific reduction in rate
case expense and ignores the larger context by which the Commission made its
decision. However, the Commission’s decision was not as narrow as Appellant would
suggest. The Commission determined from the record that ETI’s overall rate-case
expenses were too high and sought a reasonable means to reduce them.
In Finding of Fact No. 17 of the Commission’s Final Order, the Commission
determined that “the amount of rate-case expenses sought by ETI ($8.8 million is high,
both in absolute terms, and in relation to the increase ultimately obtained by ETI in
Docket 39896 ($27.7 million).” 32 ETI has waived any error with respect to this finding
because ETI was required to have presented this point of error to the Commission in its
Motion for Rehearing. 33 A motion for rehearing must be specific enough to put an
agency on notice of an alleged error and give the agency the opportunity to correct the
error or prepare to defend it. 34
32
AR Volume I, Binder 2, Item 55 (Final Order at 5, FOF No. 17).
33
City of El Paso v. Public Utility Commission of Texas, 609 S.W.2d 574, 577-578 (Tex. App.—
Austin 1980, writ ref’d n.r.e.) (Appellant could not raise potential problems with a PUC Order,
including substantial evidence questions, which it failed to raise in its motion for rehearing).
34
Burke v. Central Educ. Agency, 725 S.W.2d 393, 396-97 (Tex. App.—Austin 1987, writ ref’d
16
This uncontroverted finding of fact, and relevant portions of the PFD,
demonstrates that the Commission’s decision considered the overall context of ETI’s
rate case expense request not just the reasonableness of the specific disallowed
expense. The record shows that the ALJ considered (in portions of the PFD specifically
adopted by the Commission,) 35 the frequency in which ETI had filed for rate cases
(three in four years); 36 the size of the increase granted relative to the increase requested
(only roughly 25% granted); 37 and the disproportionally large amount of rate case
expenses relative to the approved underlying rate increase (roughly one third). 38 After
considering these general concerns, the ALJ found that “a substantial cut to ETI’s rate
case expense is warranted.”39
Only after reaching this general conclusion did the ALJ evaluate the methods by
which a substantial cut could be accomplished. 40 After considering the methods
proffered by the parties, the ALJ’s disallowance of the specific expenses related to
ETI’s aggressive long-shot argument (the “issue-specific” approach) 41 was simply the
means by which the reduction was accomplished. Thus, even if the record did not
n.r.e.) (Appellant must provide “(1) identification of the particular finding of fact, conclusion of law,
ruling, or other action by the agency which the complaining party asserts was error; and (2) the legal
basis upon which the claim of error rests.”).
35
AR Volume I, Binder 2, Item 32 (PFD at 29).
36
AR Volume I, Binder 2, Item 32 (PFD at 29).
37
AR Volume I, Binder 2, Item 32 (PFD at 29).
38
AR Volume I, Binder 2, Item 32 (PFD at 29).
39
AR Volume I, Binder 2, Item 32 (PFD at 30).
40
AR Volume I, Binder 2, Item 32 (PFD at 31).
17
conclusively show that ETI’s advocacy for certain expenses was “unreasonable and
overly aggressive,” the Commission’s reduction in rate case expenses was supported
by the whole record and the overall context of the record. City of Amarillo, 894 S.W.2d
at 496-97. Industrial Utilities Service v. Tex. Natural Resource Conservation
Commission, 947 S.W.2d 712 (Tex. App.—Austin 1997, writ denied). This is because
the Commission has the discretion to reject even reasonably accrued rate case expenses
if the record supports such a decision. Id.
In sum, there is ample support in the record for the Commission’s disallowance
of a portion of Appellant’s rate case expenses.
II. The Commission acted well within its broad discretion when it
disallowed ETI’s rate case expenses related to Appellant’s
advocacy for financially-based employee incentive
compensation. The Commission did not act arbitrarily or
capriciously nor abuse its discretion.
Appellant complains that the Commission imposed a new standard upon it when
it rejected the rate case expenses associated with the financially-based incentive
compensation expenses, and that its purported dissimilar treatment was arbitrary and an
abuse of discretion.
The Third Court has described its review under the ‘arbitrary and capricious’
standard as being “limited and deferential.” Pedernales Electric Cooperative, Inc. v.
Public Utility Commission, 809 S.W.2d 332, 338 (Tex. App.—Austin 1991, no pet.).
41
AR Volume I, Binder 2, Item 32 (PFD at 29).
18
As discussed above, PURA confers considerable discretion on the Commission in
deciding the reasonable and necessary expenses to be recovered in rates. The
Commission’s determination in this case to disallow rate case expenses associated with
fruitless efforts to recover financially-based incentive compensation is supported by the
record.
A. The Commission was not bound by any policy to allow rate case expenses
for efforts to recover impermissible financially-based incentive
compensation.
To support its position that the Commission treated ETI disparately, Appellant
begins by improperly citing to Commission orders that are not part of the record before
the Court. 42 Appellant alleges that the orders show that the Commission has
“consistently allowed utilities to recover their expenses associated with their efforts to
recover the incentive costs.”43
Appellant introduces the orders as an Appendix to Appellant’s brief and gives
no indication that the orders are part of the administrative record. 44 To the extent that
the orders are not part of the record, they should not be given any consideration.
Richards v. Comm’n for Lawyer Discipline, 35 S.W.3d 243, 250-51 (Tex. App.
Houston 2000); Burke v. Central Educ. Agency, 725 S.W.2d 393 (Tex. App. – Austin
1987, writ ref’d n.r.e.). However, even if it were proper for ETI to cite these
42
Appellant’s Brief, P. 17 and (Appellant’s Appendix D).
43
Appellant’s Brief, P. 17.
19
Commission orders here, the orders are irrelevant and do not show the Commission
policy that ETI contends.
Each of the orders cited by ETI were issued as the result of either stipulated
agreements or the case was not contested at all. The Commission had never
specifically addressed the question of whether a utility should recover rate case
expenses associated with disallowed financially-based incentive compensation
expenses in a fully litigated contested case - until now. The Commission cannot have
created binding policy when it never previously addressed this issue. There was no
such policy. However, even if the policy or precedent existed as Appellant alleges, the
Commission is not bound to follow its past decisions so long as the divergence is
justified and explained. Reliant Energy, Inc. v. Public Utility Commission, 153 S.W.3d
174, 200 (Tex. App.—Austin 2004, pet. denied).
Even assuming there was a Commission precedent relating to recovery of rate
case expenses accrued seeking financially-based employee incentive compensation; the
Commission was not bound to follow that precedent in this case. The Third Court has
held that even when the Commission has treated utilities dissimilarly, the
Commission’s decision was not arbitrary and capricious where substantial evidence
supported the decision and the record did not show that divergence was unjustified.
Reliant, 153 S.W.3d at 200. Appellant’s own brief cites this proposition: “the
44
Appellant’s Brief, P. 17 and (Appellant’s Appendix D).
20
Commission is not absolutely bound by its previous decisions and may change its
policy on a given issue when relevant circumstances change.”45
As demonstrated in the substantial evidence review above (Section I), the
Commission’s use of its broad discretion to reject some of Appellant’s rate case
expenses was fact specific and supported by substantial evidence in the record.
Further, divergence from past practice (if there was any) was not unjustified due to the
totality of the record before the Commission. In complete contradiction to the
principal that the Commission is not bound by precedent in a case-by-case
determination, Appellant argues that the Commission may only exercise its discretion
on a prospective basis. Appellant’s implausible theory would impermissibly bind the
Commission’s hands from exercising its statutory grant of authority each time the
Commission made a determination.
B. ETI was afforded due process.
Appellant cites the Third Court’s Oncor Electric Delivery Company LLC v.
Public Utility Commission opinion for the proposition that parties “are entitled to know
what agency standards will be applied to them in advance of the administrative process.”
Appellant’s Brief at 19; Citing Oncor Electric Delivery Company LLC v. Public Utility
Commission, 406 S.W.3d 253 (Tex. App.—Austin 2013, no pet.). Appellant asserts
that the Commission was required to develop new policies regarding the collection of
45
Appellant’s Brief at 16.
21
rate case expenses prospectively only, and within the context of a rulemaking.46 In
actuality, it is Appellant that is attempting to foist a new standard of discretion on the
agency. The Commission made a case-by-case determination based upon the record
before it. The Commission’s decision was well within the bounds of its broad
discretion to award rate case expenses.
In Oncor, the Third Court held the Commission failed to provide any support in
the record for a conclusion of law. The court also held that the Commission’s decision to
require a new procedure after the fact (a new procedure that the Applicant was now
foreclosed from availing itself of) was a violation of due process and fundamental
fairness. Oncor, 406 S.W.3d 253. Appellant argues that Docket No. 40295 was
identical to the scenario presented in Oncor. Appellant states that the Commission’s
decision in this case was similar because the “post-hearing imposition of a new policy
was fundamentally unfair because by that time, it was too late for Oncor to comply with
the new rule”47 Appellant is incorrect, the Oncor decision is not instructive in this case.
The Third Court’s ruling in Oncor is inapplicable to the current rate appeal for
two reasons. First, unlike in Oncor, the Commission’s decision to deny rate case
expenses was fact- specific to this record and thoroughly explained in the PFD and
Commission Order. Oncor, 406 S.W.3d 253, 268. In Oncor “the Commission failed to
46
Appellant’s Brief at 19.
47
Appellant’s Brief at 19.
22
articulate any rational connection between the facts of this case and its decision.” As
detailed above, the Commission’s determination in this case was based upon substantial
evidence showing that ETI’s rate case expenses were generally too high and that the
company took unreasonable positions in the rate case.
Second, the holding in Oncor was primarily that the Commission’s announcement
of a new policy was a departure from past precedent that precluded the utility from
receiving notice and opportunity to be heard and, therefore, was a violation of due
process. Oncor, 406 S.W.3d 253, 268. The Third Court states in Oncor, “to achieve the
meaningful hearing that due process requires, the parties must be able to present
evidence on the issues to be decided.” Oncor, 406 S.W.3d 253, 269.
Unlike the applicant in Oncor, Appellant was afforded notice and an opportunity
to be heard. In Oncor, the utility was not allowed to present any evidence on its rate case
expenses, whereas in this case, ETI had two full hearings to present evidence and meet
its burden to prove the reasonableness of including financially-based employee incentive
compensation expenses in its cost of service and the reasonableness of expenses related
to advocating for them.
In addition, in the underlying rate case (Docket 39896) ETI was aware that all of
the other parties opposed its request to recover financially-based incentive
compensation. Indeed, as outlined above, even ETI knew it was attempting to overturn
23
Commission precedent. ETI cannot complain about the disallowance of the rate case
expenses associated with a position ETI knew was unlikely to prevail on. Furthermore,
it was ETI who filed the unopposed request to sever the rate case expense issue from
Docket 39896 in the first place, which prevented the other parties from stating their
positions on rate case expenses in the underlying rate case.
In this case, (Docket 40295) the issue of disallowing rate case expense associated
with ETI’s unreasonable positions in the rate case was raised early in the proceeding.
OPUC provided direct testimony on the issue which Appellant then had the opportunity
to rebut through rebuttal testimony. 48 Appellant also had multiple opportunities to brief
the issue and provide argument before the Commission’s decision. The Commission
simply used its broad grant of discretion to reject Appellant’s request based upon the
totality of the record. Appellant’s due process rights were satisfied in the proceeding and
the Commission’s Order should be affirmed.
C. The Commission’s decision was a case-by-case determination and was not
impermissible adjudicative rulemaking.
Similarly, Appellant’s characterization of the Commission’s decision to deny
these rate case expenses as being impermissible adjudicative rulemaking also misses the
mark. The Commission’s decision to deny these rate case expenses was not, as Appellant
claims, a broad amendment to the Commission’s rules. The Commission had no rule and
48
AR Volume II, Binder 3, OPUC 1, Direct Testimony and Workpapers of Nathan A. Benedict.
24
created no new rule. The only rule that guided the Commission’s decision was its
statutory discretion to determine rate case expenses on a case-by-case basis under
PURA. TEX. UTIL. CODE § 36.061(b)(2). The Commission’s decision was discrete and
particular to the totality of the facts of this particular case.
Appellant relies heavily upon the Third Court’s opinion in Texas State Board of
Pharmacy v. Witcher to support its position that the Commission’s use of discretion in
this case was an impermissible adjudicative rulemaking. Texas State Board of Pharmacy
v. Witcher, 447 S.W.3d 520 (Tex.App. – Austin 2014, pet. filed). The court in Witcher
held that the Board of Pharmacy’s decision to suspend a pharmacist’s license, due solely
to a policy annunciated in a previous adjudicative matter and without any consideration
for the differences in factual circumstances between the two matters constituted illegal
rulemaking. Id.
This matter is distinguishable from the Witcher decision on the most crucial
threshold question: The Commission in Docket No. 40295 did not create a ‘rule’ when it
exercised its statutory discretion to determine rate case expenses on a case-by-case basis
under PURA. TEX. UTIL. CODE § 36.061(b)(2). The Commission’s decision was discrete
and particular to the totality of the facts of this particular record. The Commission did
not announce a rule of general applicability for future matters regardless of the factual
circumstances. The Commission was simply exercising its statutory discretion to
25
determine the reasonableness of rate case expenses on a case-by-case basis.
The most distinguishing fact that separates the matter at hand from Witcher is that
the Appellant in this case was not prejudiced by a previously announced Commission
policy or rule. Trinity Settlement Services, LLC v. Texas State Securities Board, 417
S.W. 3d 494, 501 (Tex.App. – Austin 2013, pet. denied) (TSSB did not express an intent
to apply its decision in all future cases regardless of the factual circumstances). The
Commission’s exercise of its discretion on a case-by-case basis does not constitute a rule
under the Administrative Procedure Act (APA).49
The APA provides a definition for ‘Rule’:
(A) means a state agency statement of general applicability
that:
i. implements, interprets, or prescribes law or policy; or
ii. describes the procedure or practice requirements of a
state agency;
(B) includes the amendment or repeal of a prior rule; and
(C) does not include a statement regarding only the internal
management or organization of a state agency and not
affecting private rights or procedures.
TEX. GOV'T CODE § 2001.003(6). In order to constitute a ‘rule’ under this definition,
“an agency statement interpreting law must bind the agency or otherwise represent its
authoritative position in matters that impact personal rights.” Texas Dep't of Transp.
49
Administrative Procedure Act (APA), Tex. Gov’t Code §§ 2001.001-.902.
26
v. Sunset Transp., Inc., 357 S.W.3d 691, 703 (Tex.App.— Austin 2011, no pet.); See
Trinity Settlement Services, LLC v. Texas State Securities Board, 417 S.W. 3d 494, 501
(Tex.App. – Austin 2013, pet. denied). The court in Trinity specifically distinguished
Witcher saying, “[i]n order to be considered a statement of ‘general applicability’ under
the APA, agency pronouncements must ‘affect the interest of the public at large such
that they cannot be given the effect of law without public input.’” Trinity, 417 S.W.3d
at 502 (no intent for interpretation of suit to apply in all future cases, regardless the
factual circumstances).
Appellant’s argument is incorrect because there was no binding policy on the
Commission other than unreasonable and unnecessary expenses shall be disallowed
pursuant to PURA §§ 36.003 and 36.051. The Commission’s decision in this matter
does not meet the APA definition of a rule because Appellant failed to show that the
decision was “a statement of general applicability.” Id; TEX. GOV’T. CODE §
2001.003(6). As has been discussed previously, the Commission based its decision on
the particular set of facts to the record before it.
Appellant’s argument rests solely on a statement made by one Commissioner.
Chairman Nelson is quoted by Appellant as saying: “I think just the issue of rate case
expenses, whether it’s a utility or the cities, I think it’s something we’ve needed to look
at for a while, and this is the type of issue that would be appropriate to include in that
27
type of rulemaking.” 50 A single statement by one Commissioner in this context does
not create or express the Commission’s policies nor does it serve as a statement of the
Commission’s intention in adopting a final order. The fact that the Commission
mentioned adopting a rulemaking on the issue, “strongly implies that rulemaking is not
occurring at that hearing.” McHaney v. Tex. Comm’n on Environmental Quality, No.
03-13-00280, 2015 WL 869197 *8 (Tex.App.-Austin mem. op.).
In McHaney, the Third Court considered a strikingly similar fact pattern and
argument by a waste handling facility (McHaney) that the TCEQ had engaged in
improper ad hoc rulemaking. Id. There, McHaney argued that the Commission
“improperly announce[d] new, clarified record-keeping rules” relating to his record-
keeping for universal waste. Id. The Third Court held that the Commission’s actions
were taken pursuant to the Commission’s general discretion to assess penalties and that
the actions were supported by substantial evidence. In McHaney, the TCEQ
Commission made a similar comment to what Chairman Nelson made in this matter:
“if there is a need for clarity in our rules, I would encourage our staff to look at that
and see if we need to go through the rulemaking or provide some other guidance.” Id.
Contrary to what McHaney argued, and what Appellant argues here, the Third Court
stated that the Commissioner’s statement about rulemaking “strongly implies that
rulemaking is not occurring at that hearing.” Id.
50
Appellant’s Brief at 22.
28
Appellant has failed the threshold question of whether a rule was created. Trinity,
417 S.W.3d at 502. Appellant has not shown any evidence that the Commission
expressed or intended its decision in this matter to be generally applicable or binding
regardless of the facts. The Commission simply used its discretion pursuant to PURA §§
36.003 and 36.051to determine that it would be unreasonable for Appellant to recover
certain rate case expenses based upon the totality of the record before the Commission.
Therefore, the Commission’s decision is not shown to be arbitrary and capricious or an
abuse of its broad discretion.
III. The Commission’s method of quantifying the amount of
disallowed rate case expenses is supported by substantial
evidence in the record and was not arbitrary, capricious, or an
abuse of its discretion.
Appellant argues that even if the Commission’s decision to reject the rate case
expense associated with the financially-based incentive compensation is not reversible,
then the Commission’s method of quantifying the amount of rate case expenses to
reject was “an unexplained departure from Commission precedent and should be
imposed, if at all, prospectively after a rulemaking.”51 Appellant’s arguments
regarding the method of disallowance are incorrect for virtually the same reasons as the
arguments discussed above regarding whether the Commission should make the
disallowance at all. The Commission’s decision was rationally based upon evidence in
51
Appellant’s Brief at 27.
29
the record, was not arbitrary and capricious, and was well within its broad discretion
under TEX. UTIL. CODE § 36.061(b)(2).
A. The Commission’s quantification of the unreasonable rate case expenses is
supported by substantial evidence in the record.
There is a rational basis in the evidentiary record to support the Commission’s
method of quantifying the amount of rate case expenses to reject. As was discussed in
detail in Section II above, the Commission decided that some amount of reduction in
rate case expenses was warranted due to Appellant’s choice to take an unreasonable
position in the underlying rate case – a position that ran counter to long-standing
Commission precedent. The Commission thoroughly explained how its determination
in this matter was particular to the facts of this case and that the totality of the record
showed that awarding the financially-based incentive compensation to ETI in this case
would be unreasonable. The Commission found that the total amount of rate case
expenses sought by ETI was “high, both in absolute terms, and in relation to the rate
increases ultimately obtained by ETI in Docket 39896 ($27.7 million).”52
Based upon these facts in the record, the Commission had several ways to
determine the amount of rate case expenses to reject. The Commission relied on
evidence and testimony presented by the parties giving various options as to the
52
AR Volume I, Binder 2, Item 55 (Final Order at 5, FOF No. 17).
30
amount of rate case expenses to reject due to Appellant’s unreasonable overreaching.53
In fact, the PFD discusses the merits of three approaches provided by the parties
based on the evidence presented. The approaches discussed are: the ‘50/50 approach’
(whereby Appellant receives only 50% of its rate case expenses); the ‘results-obtained
approach’ (whereby Appellant’s rate case expenses are reduced in proportion to the
ratio of their rate case recovery – in this case ETI would only receive 26.4% of its rate
case expenses); and the ‘issue-specific approach’ (whereby Appellant’s rate case
expenses are reduced proportionately to the amount of specific overreaching - in this
case financially-based incentive compensation).54
Each of the above approaches is based upon evidence in the record that was
adduced at the hearing. The ALJ ultimately recommended, and the Commission
adopted, an issue-specific reduction of rate case expenses based upon the amount of
rate case expenses that were clearly overreaching, because they were based on the a
position that ran counter to clear Commission precedent.55 The Commission’s decision
to adopt the issue-specific approach was a middle-ground position. As the ALJ noted
in the PFD “the Commission is not required to grant recovery of every reasonable
expense and can take into account other considerations.”56 The Commission could
53
AR Volume I, Binder 2, Item 32 (PFD at 29-30).
54
AR Volume I, Binder 2, Item 32 (PFD at 29-30).
55
AR Volume I, Binder 2, Item 55 (Final Order at 2).
56
AR Volume I, Binder 2, Item 32 (PFD at 30-31).
31
have taken a more punitive approach and its decision still would have been supported
by the record.
As discussed earlier, the Commission’s authority with regard to rate case
expenses is not limited to line-item disallowances or charges related to underlying
unreasonable costs. See City of Amarillo 894 S.W.2d at 496-97; City of Port Neches,
212 S.W.3d at 579-582. The PFD and the Commission’s Order in Docket No. 40295
recognized this.
Appellant argues that the record does not support the Commission’s
determination because Appellant had put forth unrebutted evidence of actual expenses
associated with the issue-specific reduction. The ALJ considered Appellant’s evidence
and concluded that the expenses put forth by Appellant captured only a fraction of the
rate case expenses associated with Appellant’s unreasonable position. 57 In other
words, the Commission concluded that the Appellant failed to meet its burden to
separate reasonable, from unreasonable, rate case expenses.58 The Court should reject
Appellant’s suggestion to flip the burden of proof set forth in PURA from the utility to
the Commission. 59 The Court should likewise resist Appellant’s request for the Court
to re-weigh the evidence and substitute its judgment for that of the Commission.
Pioneer, 303 S.W.3d at 367.
57
AR Volume I, Binder 2, Item 32 (PFD at 24).
58
AR Volume I, Binder 2, Item 32 (PFD at 24).
32
Simply put, there is substantial evidence in the record to support the
Commission’s reasoned decision and its Order should be affirmed.
B. The Commission’s quantification of the unreasonable rate case expenses
was not arbitrary, capricious, or an abuse of its discretion.
Appellant contends that the Commission’s method of quantification is flawed
because “it is an unexplained departure from Commission precedent, and should be
imposed, if it all, prospectively in the context of a rulemaking proceeding.” 60 This
contention is virtually identical to the contention addressed in Section II above and
fails for all of the same reasons. OPUC adopts the responses from Section II for the
purpose of responding to this argument. Summarized, the reasons discussed above are:
(1) The Commission’s use of its broad discretion to reject certain of
Appellant’s rate case expenses was fact specific and supported by the
record. Further, the record does not show that divergence from past
practice (if there was any) was unjustified. Reliant, 153 S.W.3d at 200.
(2) The Third Court’s ruling in Oncor is inapplicable to the current rate
appeal for two reasons. First, the Commission’s decision to deny rate
case expenses was fact specific to this record and not generally applicable
to all utilities. Reliant, 153 S.W.3d at 200. Second, Appellant’s due
process rights were not violated. Unlike the applicant in Oncor, Appellant
59
TEX. UTIL. CODE § 36.006.
33
was afforded notice and an opportunity to be heard. Appellant had two
full hearings in which to present evidence and meet its burden to prove
the reasonableness of its rate case expenses, and multiple opportunities to
brief the issues and provide argument to the Commission. Oncor, 406
S.W.3d at 253.
(3) The threshold question in determining whether adjudicative rulemaking has
occurred is whether a rule has been announced. Appellant has failed to
show there was a rule. Trinity, 417 S.W.3d at 502. There is no evidence
in the record that the Commission intended its decision in this matter
regarding methodology to have any general applicability to future
applicants. In other words, the Commission’s decision did not meet the
APA definition of a “rule.” TEX. GOV'T CODE § 2001.003(6).
In addition to the responses summarized above, OPUC notes the Commission’s
authority is not tied to any specific methodology or accounting treatment. The
Commission has broad discretion to determine recovery of expenses in a ratemaking
proceeding. City of Port Neches, 212 S.W.3d at 579. Further, the Third Court has
specifically upheld the Commission’s discretion to make percentage inferences from
the evidence in the record as it has done in this matter. Pioneer, 303 S.W.3d at
369-370. The Court in Pioneer held that in calculating the accounting treatment of a
60
Appellant ETI’s Initial Brief at 21.
34
computer expense, the Commission had discretion to infer a 35% multiplier where the
35% figure was within the range of evidence supported by substantial evidence even
when there was no presentation of that particular figure:
[E]ven when no evidence suggests a specific figure
explicitly, the Commission may infer the figure if it is
supported by the body of evidence. . . . Moreover, the
Commission may ‘accept or reject in whole or in part the
testimony of various witnesses who testify.’
Pioneer, 303 S.W.3d at 369, quoting Cities of Corpus Christi v. Public Utility
Commission, 188 S.W.3d 681, 695 Tex. App.—Austin 2005, pet. denied) (emphasis
added by citing court). Indeed, the Commission makes allocations based upon
inferences in the record regularly. The Commission’s decision in this case is even
stronger because there was expert testimony and evidence in the record which
supported the exact figure that the Commission chose to adopt.61
For the forgoing reasons, the Commission’s Order should be affirmed.
PRAYER FOR RELIEF
WHEREFORE, PREMISES CONSIDERED, Intervenor OPUC prays that
pursuant to TEX. GOV’T CODE § 2001.174(2) and other applicable law, the Court will
deny Appellant Entergy Texas, Inc.’s Issues Presented, and affirm the Commission’s
Order. OPUC further prays for any other relief to which it may be justly entitled.
61
AR Volume II, Binder 3, OPUC 1, Direct Testimony and Workpapers of Nathan A. Benedict; and
35
Respectfully submitted,
Tonya Baer
Public Counsel
State Bar No. 24026771
/s/ Ross W. Henderson
___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Ross W. Henderson
Assistant Public Counsel
State Bar No. 24046055
OFFICE OF PUBLIC UTILITY COUNSEL
1701 N. Congress Avenue, Suite 9-180
P.O. Box 12397
Austin, Texas 78711-2397
512/936-7500 (Telephone)
512/936-7525 (Facsimile)
ross.henderson@opuc.texas.gov
AR Volume I, Binder 2, Item 32 (PFD at 29-31).
36
Certificate of Service
I certify that Intervenor Appellee, Office of Public Utility Counsel’s Brief was
electronically filed with the Clerk of the Court using the electronic case filing system
of the Court, and that a true and correct copy of this document was served upon
counsel for each party of record, listed below, by electronic service and 1st Class U.S.
Mail, on this 9th day of March, 2015.
Marnie A. McCormick Katherine H. Farrell
John F. Williams Administrative Law Division – Energy
Duggins, Wren, Mann & Romero, LLP Rates Section
P.O. Box 1149 Office of the Attorney General
Austin, Texas 78767-1149 P.O. Box 12548 – Mail Code 018-12
(512) 744-9300 Austin, Texas 78711-2548
(512) 744-9399 (fax) (512) 475-4237
mmcormick@dwmrlaw.com (512) 936-0674 (fax)
jwilliams@dwmrlaw.com katherine.farrell@texasattorneygeneral.gov
Counsel for Entergy Texas, Inc. Counsel for State Agencies
Elizabeth R. B. Sterling Rex VanMiddlesworth
Environmental Protection Division Benjamin Hallmark
Office of the Attorney General Thompson & Knight, LLP
P. O. Box 12548, Capitol Station 98 San Jacinto Blvd, Ste. 1900
Austin, Texas 78711-2548 Austin, Texas 78701
(512) 475-4152 (512) 469-6100
(512) 320-0911 (fax) (512) 469-6180 (fax)
elizabeth.sterling@texasattorneygeneral.gov rex.vanm@tklaw.com
Counsel for the Public Utility Commission benjamin.hallmark@tklaw.com
of Texas Counsel for Texas Industrial Energy
Consumers
/s/ Ross W. Henderson
___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Ross W. Henderson
37
Certificate of Compliance
I certify that the Appellee Brief of the Office of Public Utility Counsel contains
7,938 words, as measured by the undersigned counsel’s word-processing software, and
therefore complies with the word limit found in Tex. R. App. P. 9.4(i)(2)(B).
/s/ Ross W. Henderson
___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________
Ross W. Henderson
38
APPENDIX A
Application of Entergy Texas, Inc., Docket No. 39896,
Direct Testimony of Kevin G. Gardner (ETI Application at
Bates p. 3155 to 3159) (Nov. 1, 2012) (Interchange item
No. 142)
Entergy Texas, Inc. v. Public Utility Commission of Texas, Office of Public Utility Counsel, and State of Texas Agencies and Institutions of Higher Education
Combined Opinion