Data Foundry, Inc. v. City of Austin, Texas

Affirmed in Part; Reversed in Part; Remanded; and Opinion filed April 23,
2019.

In The

Fourteenth Court of Appeals

NO. 14-18-00071-CV

DATA FOUNDRY, INC., Appellant
V.

CITY OF AUSTIN, TEXAS, Appellee

On Appeal from the 419th District Court
Travis County, Texas
Trial Court Cause No. D-1-GN-17-000937

OPINION

The City of Austin’s municipally owned utility provides retail electricity to
two Austin data centers owned by appellant Data Foundry, Inc. Data Foundry sued
the City over its pricing of electricity, and the trial court dismissed the suit on the
ground that Data Foundry lacked standing. We conclude that Data Foundry has
standing to complain that the City’s retail electricity rates are excessive in that the
City’s alleged 12% rate of return and its 2.36 debt-service coverage ratio are claimed
to be unreasonably high, and the trial court has jurisdiction to determine whether the
resulting rates are unreasonable. However, the district court lacks jurisdiction over
the remainder of Data Foundry’s claims, as discussed below. We accordingly
reverse the trial court’s dismissal in part and remand the case for further proceedings
consistent with this opinion.

I. BACKGROUND

Until 2002, investor-owned utilities (“IOUs”) were permitted to operate
monopolies, selling the power they generated directly to municipal retail customers
at rates set by the municipality. Effective January 1, 2002, however, the state
legislature determined that, with certain exceptions discussed further infra, “electric
services and their prices should be determined by customer choices and the normal
forces of competition.” TEX. UTIL. CODE ANN. § 39.001(a). IOUs were required to
“structurally unbundle” by separating their business activities—including personnel,
information flow, functions, and operations—into (a) a power-generation company,
(b) a retail electric provider, and (c) a transmission and distribution utility. Id.
§ 39.051(b), (d). Power-generation companies set the rates at which they sell power
to their wholesale customers (such as retail electric providers), and retail electric
providers set the rates at which they sell power to retail customers (such as
residences and businesses). Wholesale transmission services continue to be
regulated by the Public Utility Commission (“the Commission”).

Most of the state falls within an area known as the Electric Reliability Council
of Texas, or ERCOT, that is, “the area in Texas . . . that is not synchronously
interconnected with electric utilities outside the state” and in which ERCOT acts as
the system operator. See id. § 31.002(5). All power-generation companies within
this area—including the City’s municipally owned utility—are required to sell
wholesale energy only through ERCOT’s wholesale “nodal” market, and all retail

2
electric providers are required to purchase from that same wholesale market all of
the energy they use in providing retail service.

Municipally owned utilities (“MOUs”) differ from IOUs in at least two
important respects. Unlike IOUs, MOUs retain the right to operate as monopolies
in providing retail electric service to customers within the municipality. And, unlike
IOUS, MOUs are not required to “unbundle,” structurally or functionally. An MOU
has discretion to choose if and when it will offer customer choice, id. § 40.051(a),
but that decision lies within its exclusive jurisdiction. Id. § 40.055(a)(2). Only the
MOU can determine “whether to unbundle any energy-related activities,” and if so,
whether to unbundle structurally or functionally. Id. The City of Austin has not
chosen to offer customer choice; it remains an integrated utility, selling both
wholesale and retail energy service using the same employees and books.

The City provides retail electricity to two Austin data centers owned by
appellant Data Foundry. Data Foundry’s data center on Smith School Road is in the
City’s “Primary Service 2” (PS2) commercial rate class, which serves high-
consumption customers who take electricity at high-voltage or “primary” levels and
use between 3 and 20 megawatts of electricity. Data Foundry’s data center on East
Ben White Boulevard is in a different rate class; it takes electricity at low-voltage or
“secondary” levels and uses more than 300 kilowatts of electricity.

Data Foundry sued the City, alleging that the City’s retail rates are illegal,
unenforceable, excessive, and discriminatory. Data Foundry’s primary complaint is
that the City includes in the rates it charges retail customers some of the costs of
generating the electricity the City sells on the wholesale market. Data Foundry seeks
declaratory and injunctive relief to end this practice. In addition, Data Foundry
contends that the rates it must pay on its two accounts are excessive or discriminatory
for a variety of reasons.

3
 The City moved to dismiss the suit pursuant to Texas Rule of Civil Procedure
91a on the ground, among others, that Data Foundry lacks standing. Data Foundry
now appeals the trial court’s order granting the motion on that basis.

II. STANDARD OF REVIEW

Standing is a component of subject-matter jurisdiction,1 and Rule 91a2 may
be used, as it was here, to challenge the trial court’s subject-matter jurisdiction. See
City of Dallas v. Sanchez, 494 S.W.3d 722, 724–25 (Tex. 2016) (per curiam). We
review de novo the trial court’s ruling on the motion, construing Data Foundry’s
pleadings liberally and accepting as true Data Foundry’s factual allegations and the
inferences reasonably drawn from them to determine if Data Foundry alleged facts
affirmatively demonstrating the trial court’s subject-matter jurisdiction. See id. at
725.

Texas’s standing requirements are derived from the state constitution’s
separation-of-powers provision,3 “which denies the judiciary authority to decide
issues in the abstract,” and from its open-courts provision, “which provides court
access only to a ‘person for an injury done him.’” Meyers v. JDC/Firethorne, Ltd.,
548 S.W.3d 477, 484 (Tex. 2018) (quoting TEX. CONST. art. I, § 13).4 The standing
doctrine requires a concrete injury to the plaintiff and a real controversy between the
parties that will be resolved by the court. Id. Under Texas law, the standing inquiry

1
Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 445 (Tex. 1993).
2
Rule 91a affords an expedited means of dismissing a cause of action on the grounds that
it has no basis in law or fact. See TEX. R. CIV. P. 91a.
3
See TEX. CONST. art. II, § 1 (“The powers of the Government of the State of Texas shall
be divided into [the Legislative, the Executive, and the Judicial departments] . . . and no person,
or collection of persons, being of one of these departments, shall exercise any power properly
attached to either of the others, except in the instances herein expressly permitted.”).
4
“All courts shall be open, and every person for an injury done him, in his lands, goods,
person or reputation, shall have remedy by due course of law.” TEX. CONST. art. I, § 13.

4
begins by determining whether the plaintiff has personally been injured, that is, the
plaintiff must plead facts demonstrating that the plaintiff, rather than a third party or
the public at large, suffered the injury. Id. at 485. The second element requires that
the plaintiff’s alleged injury be “fairly traceable” to the defendant’s conduct because
courts can act to redress only those injuries that can be fairly traced to the challenged
conduct of the defendant, and not injury resulting from the independent action of
some third party not before the court. Id. This required showing of a causal
connection between the plaintiff’s injury and the defendant’s conduct serves as a
means of identifying the proper defendant. Id. To establish the third standing
requirement—often referred to as “redressability”—a plaintiff must show there is a
substantial likelihood that the requested relief will remedy the alleged injury. Id. If
the trial court lacks jurisdiction to render the requested relief, then a judgment
purporting to do so will not remedy the injury because such a judgment is void and
of no effect. See Mapco, Inc. v. Forrest, 795 S.W.2d 700, 703 (Tex. 1990) (orig.
proceeding) (per curiam).

“[A] plaintiff must demonstrate standing for each claim he seeks to press and
for each form of relief that is sought.” Andrade v. NAACP of Austin, 345 S.W.3d 1,
14 (Tex. 2011) (quoting Davis v. FEC, 554 U.S. 724, 734, 128 S. Ct. 2759, 171 L.
Ed. 2d 737 (2008)). Data Foundry’s claims and requests for relief are based on its
allegations that the rates it is required to pay are either excessive or discriminatory.
See State v. Sw. Bell Tel. Co., 526 S.W.2d 526, 529–30 (Tex. 1975) (explaining that
a utility enjoying a monopoly is legally obligated to offer its services at reasonable
rates and without undue discrimination). We treat each of these broad categories
separately.

5
 III. ALLEGEDLY EXCESSIVE RATES

Among Data Foundry’s excessive-rate claims are its allegations that the City
charges retail rates that are unreasonable and confiscatory. Data Foundry claims the
City seeks an excessive rate of return5 and that the rates constitute an illegal tax.

A. Claims to Exclude Wholesale Power-Generation Costs and a Return on
Wholesale Power-Generation Assets from the Calculation of Retail Rates
In what it describes as “the heart of this lawsuit,” Data Foundry contends that
the City unlawfully includes recovery of wholesale power-generation costs and a
return on power-generation assets in its calculation of retail electricity rates.
Because the City is required to sell the power it generates only on the wholesale
ERCOT nodal market and similarly is required to buy all of the power it provides to
its retail customers from the same ERCOT market, the City cannot bypass ERCOT
and sell the power it generates directly to its retail customers. According to Data
Foundry, the City’s power-generation services are unprofitable, and because the
revenue from the City’s wholesale power-generation sales is insufficient to cover
the costs of generating the power, the City includes recovery of those costs in its
retail rates. Data Foundry contends that charging retail customers for the City’s
wholesale services is illegal, unjust, excessive, constitutes a taking, is confiscatory,
and does not reflect a reasonable measure of use by, or benefit to, retail ratepayers.
Data Foundry pleaded for declaratory and injunctive relief to prevent the City from
enforcing its current ratemaking ordinance or tariff and from maintaining or enacting
any other ratemaking ordinance or tariff that includes in retail rates the recovery of

5
Strictly speaking, the City does not have a “return” on investment because its assets are
funded not by investor-supplied capital but by debt. For the purpose of this appeal, we will treat
the percentage of base-rate revenue that the City transfers to its general fund as a rough proxy for
“return on investment.” When we speak of the City’s return or profit, we are referring to this
amount.

6
any wholesale power-generation costs or a return or profit on the value of the assets
used to provide wholesale service.

The requested relief could not resolve this dispute because the trial court lacks
jurisdiction to render it. Where, as here, a utility is owned by a municipality, the
municipality’s governing body, or a body vested with the power to manage and
operate the MOU, has exclusive jurisdiction to determine “whether to unbundle any
energy-related activities.” TEX. UTIL. CODE ANN. § 40.055(a)(2). As previously
mentioned, “unbundling” refers to the separation of a utility’s business activities into
those of (a) power generation, (b) power transmission and distribution, and (c) retail
provision of electricity. See id. § 39.051(b). “Structural” unbundling requires “a
separation of personnel, information flow, functions, and operations.” Id.
§ 39.051(d). An integrated utility instead can unbundle “functionally” by
“separating out costs and rates” of power generation from the costs and rates of its
other businesses. Cf. Tex. Mun. Power Agency v. Pub. Util. Comm’n of Tex., 253
S.W.3d 184, 192 n.19 (Tex. 2007) (“[S]eparating out costs and rates for generation,
transmission, and distribution operations is itself a functional unbundling.”).6 To
require the City to separate recovery of wholesale costs from its calculation of retail
rates would be to require the City to functionally unbundle its wholesale business
activities from its retail business activities. Because exclusive jurisdiction over
unbundling decisions rests with the City, the district court lacks jurisdiction to
require the City to unbundle. See TEX. CONST. art. V, § 8 (granting district courts
general jurisdiction “except in cases where exclusive, appellate, or original
jurisdiction may be conferred by this Constitution or other law on some other court,
tribunal, or administrative body”).

6
In that case, the MOU Texas Municipal Power Agency had long-standing “bundled”
contracts to sell and transmit wholesale power directly to other MOUs.

7
 Data Foundry asserts that the municipality’s exclusive jurisdiction to decide
whether and how to unbundle does not prevent the trial court from considering its
claims because granting the requested relief “would affect only the amount, but not
the structure, of the City’s retail rates.” But the trial court similarly lacks jurisdiction
to change the amount charged for retail service. Fixing or revising a utility’s rates
is a legislative function, not a judicial one. See Sw. Bell Tel. Co., 526 S.W.2d at
529–30. And just as the City has exclusive jurisdiction over the legislative decision
of whether to unbundle, it has exclusive jurisdiction to “set all terms of access,
conditions, and rates applicable to services provided by the [MOU].” TEX. UTIL.
CODE ANN. § 40.055(a)(1). In matters over which the City has exclusive
jurisdiction, the district court has none.

Data Foundry further asserts that the City already has partially unbundled, but
the examples it cites do not support this characterization. For example, the City
identifies the part of its retail rates that recover wholesale power-generation fixed
costs separately from the part of its retail rates that recover wholesale power-
generation variable costs.7 These arguments appear to rest on the assumption that
by identifying the components of its retail rates, the City has functionally unbundled

7
Fixed costs of wholesale power-generation are included as a part of a retail ratepayer’s
base rate. The base rate includes “energy charges” and “demand charges.” “Energy charges” are
charges for electric service based upon the electric energy consumed or billed and are measured in
kilowatt hours. “Demand charges” are charges based on the electric capacity the customer
consumes and are measured in kilowatts. If a retail customer is a large business, its allocated
portion of the fixed costs of power generation are included in the demand charges of its base rate.
To save on the costs of demand metering, residential retail customers and small businesses pay
their allocated portion of the fixed costs of power generation as part of the energy charges of their
respective base rates. Data Foundry pleaded that because it pays its allocated share of the fixed
costs of power generation through the demand-charge portion of its base rate, “[the City] has
therefore ‘unbundled’ its ‘energy’ and ‘demand’ costs on the base rate side insofar as Plaintiff is
concerned.” Data Foundry similarly asserts that the City has “unbundled” its power-generation
fixed costs from its power-generation variable costs because fixed costs are included in retail
customers’ base rates, as described above, while variable costs are passed through to retail
customers on a dollar-for-dollar basis as a “Power Supply Adjustment.”

8
them. We cannot agree. “Unbundling” requires that the business activities
belonging to each of the three kinds of electrical-utility enterprises be separated, not
merely that they be identified. Fixed costs of power generation are not “unbundled”
from variable costs of power generation, because both are costs for the same
enterprise—power generation.8 And, the City’s power-generation services are not
“unbundled” from its provision of retail electricity because the City’s power-
generation costs and revenue are integrated into the City’s retail rates.9

Because the City alone must choose whether to unbundle or to offer customer
choice, the trial court lacks jurisdiction over Data Foundry’s claims and requests for
relief seeking a ruling that would prevent the City from enacting, maintaining, or
enforcing a retail rate structure that includes recovery of wholesale expenses or a
return on wholesale assets. These include the following claims and requests for
relief:

1. Data Foundry’s request for a declaration that, because the
MOU’s rates are designed to recover the City’s wholesale power-
generation expenses or a return on the City’s wholesale power-
generation capital assets, the retail rates are unjust, unreasonable,
excessive, discriminatory, confiscatory, constitute a taking, and do not
reflect a reasonable measure of use by, or benefit to, ratepayers; and
thus, the City’s ordinance approving the tariff is illegal and
unenforceable;

8
Similarly, the part of retail base rates referred to as energy charges cannot be said to be
“unbundled” from the part of retail base rates referred to as demand charges, because each is
merely a component of the base rate charged in the single enterprise of providing retail electric
service.
9
Data Foundry also argues that the City has unbundled wholesale transmission costs from
retail transmission costs. Retail transmission costs are bundled into the City’s retail rates, but
wholesale transmission costs necessarily are excluded because the Commission retains authority
over wholesale transmission rates and ensures that an electric utility, including an MOU, “recovers
the utility’s reasonable costs in providing wholesale transmission services necessary for the
transaction from the entity for which the transmission is provided so that the utility’s other
customers do not bear the costs of the service.” TEX. UTIL. CODE ANN. § 35.004(c).

9
 2. Data Foundry’s request for a declaration that wholesale costs are
not allowable or reasonable and necessary operating expenses or
eligible for base-rate treatment; and thus, the rates lead to an excessive
and unreasonable return or profit on the fair value of the electric
system’s properties that are dedicated to, and used and useful for, the
furnishing of retail electric service;
3. Data Foundry’s request for a declaration that the City Council
acted arbitrarily and capriciously and abused its discretion by
promulgating retail base rates that include the recovery of wholesale
expenses or a return on wholesale assets, and thus, the City Council
knew that the rates were designed to recover, and do recover, more than
is required for the City to recover its reasonable and necessary expenses
for the provision of retail electric service and obtain a reasonable return
or profit on the capital assets that are used by, or useful to, captive retail
electric customers;
4. Data Foundry’s request for a declaration that the purposeful
effort to require the MOU’s retail ratepayers to pay rates designed to
recover costs related to wholesale power generation constitutes an
illegal tax; and
5. Data Foundry’s request for an injunction enjoining the City’s
enforcement of the ordinance approving the tariff, and enjoining the
enforcement of any other ratemaking ordinance or tariff, on the ground
that the ordinance or tariff prescribes rates for retail electricity service
designed to partially or wholly recover the City’s power-generation
costs through inclusion of those costs as operating expenses or by
earning a return or profit on the value of the assets used to provide
wholesale power-generation service.
To the extent that any other claims or requests for relief raised in Data Foundry’s
pleadings similarly are based on the premise that it is unlawful for the City to include
recovery of wholesale costs or a return on wholesale power-generation assets in its
calculation of retail rates, the trial court lacks jurisdiction over those claims as well.
We affirm the trial court’s dismissal of these claims.

10
B. Claims That Are Not Based on the Exclusion of Wholesale Costs

Some of Data Foundry’s claims that the City’s retail rates are unlawfully high
are not based on the City’s inclusion of power-generation costs and a return on
power-generation assets in the calculation of retail rates. For example, Data Foundry
claims that the City transfers 12% of its average base-rate revenue to its general fund,
and that its debt-service coverage ratio is 2.36 times the amount of the City’s electric
utility bonds. According to Data Foundry, these amounts are too high.10

The trial court has jurisdiction to consider these claims if standing
requirements are satisfied, because a court can review a claim that an MOU’s rates
are exorbitant or that the amount of its return is so high as to violate the ratepayer’s
constitutional rights. See San Antonio Indep. Sch. Dist. v. City of San Antonio
(“SAID”), 550 S.W.2d 262, 265 (Tex. 1976).

1. Particularized injury

The City argues that Data Foundry is asserting only a generalized injury for
which it lacks standing, but the cases on which it relies do not support that position.
For example, in Schenker v. City of San Antonio, 369 S.W.2d 626 (Tex. App.—San
Antonio 1963, writ ref’d n.r.e.), the appellate court dismissed a rate-challenge appeal
on the grounds that “the plaintiffs had not exhausted their administrative remedies
through petition to the City Council,” and alternatively, that “the plaintiffs lacked
justiciable interest to bring the suit” because, absent allegations of a special injury,
“[o]nly lawfully constituted guardians of the public interest” may sue to redress
injuries to the general public. SAISD, 550 S.W.2d at 265. The City also relies on

10
Data Foundry also alleges that these amounts are higher still once wholesale power-
generation costs are excluded, as Data Foundry believes is required. To the extent that these claims
depend on the exclusion of power-generation costs or a return on power-generation assets, the trial
court lacks jurisdiction over the claims and properly dismissed them for the reasons previously
explained.

11
Concerned Community Involved Development, Inc. v. City of Houston, 209 S.W.3d
666 (Tex. App.—Houston [14th Dist.] 2006, pet. denied), in which this court held
that property owners had no standing to challenge the building of a bridge near—but
not on, or restricting access to—their land. The court explained that the property
owners had not alleged “any cognizable property interest that might be impacted by
the City other than an unconstitutional taking of property,” and that the property
owners denied asserting a takings claim. Id. at 672.

Here, however, Data Foundry has alleged a particularized injury. It contends
that the City is requiring it to pay unlawful charges, and Data Foundry has a
cognizable property interest in its own money. See Andrade, 345 S.W.3d at 8
(“[W]here a harm is concrete, though widely shared, the Court has found injury in
fact.” (quoting FEC v. Akins, 524 U.S. 11, 24, 118 S. Ct. 1777, 141 L. Ed. 2d 10
(1998) (citation omitted))). Requiring a person to pay unlawful charges therefore
results in “an actual grievance, not one that is merely hypothetical or generalized.”
Tex. Dep’t of Transp. v. City of Sunset Valley, 146 S.W.3d 637, 646 (Tex. 2004)
(citing Brown v. Todd, 53 S.W.3d 297, 302 (Tex. 2001)). Because we conclude that
Data Foundry has sufficiently alleged a particularized injury as to these claims, it is
unnecessary to consider its arguments that no particularized injury was required.

2. Statutory preemption

The City next points out that the Public Utility Regulatory Act (PURA) allows
a customer of an IOU or a non-resident customer of an MOU to appeal the setting
of retail rates to the Commission, but the statute does not authorize an MOU’s
ratepayer who takes service inside the City’s boundaries to appeal to the
Commission. PURA is silent, however, on the question of whether judicial review
is available to a ratepayer who takes service inside the City limits. The City argues
that because PURA is a comprehensive statute, no remedies exist outside of it. But

12
the obligation to refrain from “exacting exorbitant or unreasonable
charges . . . would be meaningless if there were no judicial redress for its violation.”
Sw. Bell Tel., 526 S.W.2d at 529; cf. R.R. Comm’n v. Hous. Nat. Gas Corp., 155
Tex. 502, 509, 289 S.W.2d 559, 563 (1956) (explaining that the size of return on
investment is a matter of legislative judgment “so long as it is not confiscatory”).
As the Supreme Court of Texas has explained, “Standing operates to prevent the
Judiciary from exercising authority that belongs to other departments of government,
not to deprive the Judiciary of its role in interpreting law . . . .” Fin. Comm’n of Tex.
v. Norwood, 418 S.W.3d 566, 581 (Tex. 2013).

In sum, we conclude that Data Foundry has alleged a particularized injury
from the City’s alleged charging of unreasonably high rates due to an allegedly
excessive rate of return or an allegedly excessive debt-service coverage ratio.11 To
the extent that those claims do not seek to prohibit the City from continuing to bundle
wholesale power-generation costs and a return on power-generation assets into its
calculation of retail rates, the trial court has jurisdiction to address those claims. We
therefore reverse the portion of the judgment dismissing those claims for lack of
standing.

C. Claims That Are Not Necessarily Based on the Exclusion of Wholesale
Costs
Data Foundry seeks a permanent injunction

enjoining the City from maintaining or enacting a rate structure that
fails to distinguish charges between customers using only judicially
accepted factors such as the cost of service, the purpose for which the
service or product is received, the quantity or amount received, the
different character of the service furnished, the time of its use or any

11
The remaining standing requirements—that the alleged injury is fairly traceable to the
City’s conduct and that there is a substantial likelihood that the requested declaration would redress
the alleged injury—are satisfied, and the City does not contend otherwise.

13
 other matter which presents a substantial difference as a ground of
distinction.
Data Foundry also seeks similar declaratory relief.

By these requests, Data Foundry may seek to prevent the City from including
in its retail rates recovery of wholesale expenses or a profit or return on wholesale
assets. To the extent that this is so, the trial court lacks jurisdiction to render the
requested relief for the reasons previously explained.

But, regardless of the basis of this request, and regardless of whether Data
Foundry correctly identifies the “judicially accepted factors” applicable to an MOU
under the facts alleged here, Data Foundry lacks standing for the additional reason
that this request runs afoul of the separation of judicial from legislative power. See
id.; DaimlerChrysler Corp. v. Inman, 252 S.W.3d 299, 304 (Tex. 2008). “[S]tanding
doctrines reflect in many ways the rule that neither citizens nor taxpayers can appear
in court simply to insist that the government and its officials adhere to the
requirements of law.” Andrade, 345 S.W.3d at 7 (quoting Charles Alan Wright, et
al., FEDERAL PRACTICE & PROCEDURE § 3531.10 (3d ed. 2008)). Because Data
Foundry lacks standing merely to insist that the City adhere to the law, and because
there is not a substantial likelihood that the vague relief requested will remedy an
alleged injury or resolve a real controversy between them, Data Foundry lacks
standing to pursue these claims. We accordingly affirm the trial court’s dismissal of
these claims and requests for relief.

IV. ALLEGEDLY DISCRIMINATORY RATES

A utility may not unjustifiably discriminate in its rates between similarly
situated persons. See SAISD, 550 S.W.2d at 264–65; Sw. Bell Tel. Co., 526 S.W.2d
at 529; cf. El Paso Elec. Co. v. Pub. Util. Comm’n of Tex., 917 S.W.2d 846, 864
(Tex. App.—Austin 1995, writ dism’d by agr.) (stating that unequal treatment is not

14
unlawfully discriminatory if there is “a substantial and reasonable basis” for the
distinction). Data Foundry alleges that the City’s retail rates are discriminatory for
four reasons.

First, although the City recently reduced base rates generally, Data Foundry
alleges that the City allocated too much of the base-rate reduction to residential and
small-business customers and allocated too little to the rate classes covering Data
Foundry’s two data centers. But “[w]hether differences in rates between classes of
customers are to be made, and, if so, the amount of the differences, are legislative
rather than judicial questions, and are for the determination of the governing bodies
of the municipalities.” Gillam v. City of Fort Worth, 287 S.W.2d 494, 497 (Tex.
App.—Fort Worth 1956, writ ref’d n.r.e.). Given the differences in the rate
classifications of these customers, Data Foundry’s claim is not that the City
unjustifiably discriminates between “similarly situated” customers.

Second, Data Foundry alleges that the City’s base-rate reductions went into
effect on January 1, 2017, but that an increase in the pass-through regulatory charges
assessed against the PS2 rate class became effective on November 1, 2016. Data
Foundry does not complain of the increase in the regulatory charges that the PS2
rate class was required to pay, but of its timing. Due to the difference in the effective
dates of the regulatory-charge increase and the base-rate reduction, the PS2 rate class
was, for two months, the only rate class that experienced an overall increase in the
cost of electricity. Nevertheless, the rate reduction was effective for all retail
customers on the same day; thus, Data Foundry was treated the same as all other
customers in that respect. And, unlike the base rate, the regulatory charge is passed
through on a dollar-for-dollar basis, so that comparing the date of the regulatory
charge’s increase with the date of the base rate’s reduction is to compare apples with

15
oranges. Data Foundry cannot craft a discrimination claim by combining the dates
of dissimilar charges that serve different ends.

Third, Data Foundry alleges that it is not given enough credit for its data
centers’ high load factors, which means that the data centers consume electricity at
a more constant rate than other customers. The City has a rate class that confers
benefits on high load-factor users with a demand of at least 20 megawatts but does
not have a separate rate class for high load-factor users with a lower demand such as
Data Foundry. Here, too, Data Foundry does not allege a true discrimination
complaint, for its two data centers are treated the same as others in those respective
rate classes.

Fourth, Data Foundry contends that the rate classes covering its two data
centers bear too large a share of power-generation expenses, and that even within
those rate classes, the power-generation expenses have a greater impact on Data
Foundry based on factors such as the amount of power it uses. For example, Data
Foundry complains that the City allocates fixed power-generation costs among the
various retail classes based on each class’s individual contribution to the system’s
peak use in each of the twelve months of the year. According to Data Foundry, the
City’s stated rationale for using this method is that the City must have its power-
generation plants ready to sell power year-round. Data Foundry asserts that this
rationale does not justify using this method in setting retail rates, because the power
the City generates must be sold wholesale through the ERCOT market rather than
directly to retail customers. As previously explained, however, the City integrates
its wholesale costs into its retail rates, and the trial court has no jurisdiction to require
the City to do otherwise. Although the method may have a larger impact on Data
Foundry based on its rate class and the amount of power it uses, the quantity of
service is recognized as a proper factor for distinguishing among individual

16
customers or classes of customers. See El Paso Elec. Co., 917 S.W.2d at 864. Thus,
once again, Data Foundry has failed to allege that the City discriminates against it
on an impermissible basis.

For the foregoing reasons, we conclude that the trial court did not err in
dismissing Data Foundry’s discrimination complaints.

CONCLUSION

Because Data Foundry has alleged a particularized injury from the City’s
alleged charging of unreasonably high rates due to an unlawfully high rate of return
or an unlawfully high debt-service coverage ratio, we reverse the dismissal of those
claims to the extent that Data Foundry does not seek to prohibit the City from
continuing to bundle wholesale power-generation costs and a return on power-
generation assets into its calculation of retail rates. We affirm the trial court’s
judgment dismissing Data Foundry’s remaining claims and requests for relief, and
we remand the case for further proceedings consistent with this opinion.

/s/ Tracy Christopher
Justice

Panel consists of Chief Justice Frost and Justices Christopher and Jewell.

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