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The Attorney General of Texas
August 16, 1979
MARK WHITE
Attorney General
Honorable George Cowden Opinion No. MW-45
Chairman
Public Utility Commission Re: Whether a cooperative effort
of Texas of various industries to jointly
7800 Shoal Creek Boulevard operate an entity cogenerating
Austin, Texas 78757 electricity causes the entity to be
a public utility.
Dear Chairman Cowden:
You have requested our opinion concerning the classification of
cogeneration projects under the Public Utility Regulatory Act, article 1446c,
V.T.C.S.
Your question primarily involves section 3(c) of the Act which provides
in pertinent part:
(c) The term ‘public utility’ or ‘utility,’ when used
in this Act, includes any person, corporation, river
authority, cooperative corporation, or any combin-
ation thereof, other than a municipal corporation, or
their lessees, trustees, and receivers, now or
hereafter owning or operating for compensation in
this state equipment or facilities for:
(1) producing, generating, transmitting,
distributing, selling, or furnishing electricity
(‘electric utilities’ hereinafter); . . . .
. . . .
(4) . . . The term ‘public utility’ or ‘utility’ shall
not include any person or corporation not otherwise a
public utility that furnishes the services or
commodity described in any paragraph of this
subsection only to itself, its employees, or tenants as
an incident of such employee service or tenancy,
when such service or commodity is not resold to or
used by others.
p. 134
Honorable George Cowden - Page Two @W-4 5 )
Your question involves the status of certain industrial concerns which can cogenerate
electricity as a by-product of their normal industrial processes. The cogeneration project
is proposed to be conducted by a Texas general partnership composed of four non-
regulated corporations.
The project will replace existing conventional oil/gas boilers at plants individually
owned by each partner with a single coal or lignite fired cogeneration steam plant. The
plant will burn coal or lignite to convert water to high pressure steam. The high pressure
steam will pass through turbines to produce 180 megawatts of electricity. The
cogeneration plant will consume approximately sixty megawatts, leaving 120 megawatts
available for export. The high pressure steam after passing through the turbine will
automatically drop to a lower pressure steam which will be delivered to the corporate
partner’s plants for use as process steam. The partners will consume the entire output of
the partnership.
You ask if the partnership or the partners will be a public utility as defined in the
Act. As defined in section 3(c) of the Act, a corporate partnership is the type of entity
which would be a public utility if it owned or operated for compensation facilities
described in section 3(c)(l) as being for the production, generation, transmission,
distribution, sale or furnishing of electricity. The partnership is clearly an entity which
will own facilities used for the generation of electricity for compensation, and without an
exemption, would be a public utility under the Act.
The legislature recognized when it passed the Act that it did not intend to regulate
entities which were furnishing utility service to themselves. The public interest in
regulating utilities as &fined in the Act is expressed in section 2 of the Act.
Sec. 2. This Act is enacted to protect the public interest
inherent in the rates and services. of public utilities. The
legislature finds that public utilities are by definition monopolies in
the areas they serve; that therefore the normal forces of
competition which operate to regulate prices in a free enterprise
society do not operate; and that therefore utility rates, operations
and services are regulated by public agencies, with the objective
that such regulation shall operate as a substitute for such
competition. The purpose of this Act is to establish a
comprehensive regulatory system which is adequate to the task of
regulating public utilities as defined by this Act, to assure rates,
operations, and services which are just and reasonable to the
consumers and to the utilities.
The legislature in section 3(c)(4) exempted from regulation an entity which furnished
utility service solely to itself. It is clear from the language of section 3(c)(4) that if each
corporation built its own individual cogeneration facility, each one would meet the
exception and would not be a public utility under the Act.
P. 135
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Honorable George Cowden - Page Three (NW-451
We recognize that Texas has favored the entity rather than the aggregate theory in
the Texas Uniform Partnership Act, article 6132b, V.T.C.S. See Source and Comments,
Alan R. Bromberg, following section 1 of article 6132b. Thecomments, however, also
emphasize that the entity theory has been used when it accords with business usage.
The decision as to whether a cogeneration project conducted by a Texas general
partnership would be a public utility is a new regulatory issue. It is not the type of
business decision referred to in the comments to the Texas Uniform Partnership Act which
caused entity treatment of many partnership transactions. In addition, the Texas Uniform
Partnership Act still accords aggregate treatment to some partnership transactions. For
example, section 15 of the Texas Uniform Partnership Act makes all partners liable jointly
and severally for all debts and obligations of the partnership. We, therefore, conclude that
the aggregate theory should be followed in determining whether the partnership is
supplying electricity to itself within the meaning of section 3(c)(4) when it supplies
electricity to the plants owned by the partners. It is our opinion that the legislature
intended to exempt a partnership in which the commodity is consumed entirely by the
partnership and its corporate partners. To hold otherwise would ignore legislative intent
and elevate form over the substance of the transaction.
SUMMARY
A cogeneration facility owned by a partnership which furnishes
electricity solely to the corporate partners is not a public utility
under the Public Utility Regulatory Act.
MARK WHITE
Attorney General of Texas
JOHN W. FAINTER, JR.
First Assistant Attorney General
TED L. HARTLEY
Executive Assistant Attorney General
Prepared by Joyce Beasley
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
C. Robert Heath, Chairman
Joyce Beasley
P. 136
Honorable George Cowden - Page Four (Mw-45)
David B. Brooks
Rick Gilpin
William G Reid
p. 137