Untitled Texas Attorney General Opinion

The Attorney General of Texas
April 19, 1984
JIM MATTOX
Attorney General

Supreme Court Building Honorable Mack Wallace Opinion No. JM-147
P. 0. BOX 12548
Austin. TX. 79711. 2549
Chairman
512,4752501 Railroad Commission of Texas Re: Construction of section
Telex 910/874-13S7 P. 0. Drawer 12967 5.02(b) of article 1446e.
Telecopier 5121475-0206 Austin, Texas 78711 V.T.C.S., the Public Utility
Regulatory Act
714 Jackson, Suite 700
Dallas, TX. 75202.4506 Dear Mr. Wallace:
2141742-8944
You have asked whether section 5.02(b) of article 1446e,
V.T.C.S., the Gas Utility Regulatory Act [hereinafter GKJRAI. precludes
4824 Alberta Ave., Suite 100
El Paso. TX. 79905.2793
the Railroad Commission from investigating the reasonableness of
9151533.3494 change in rates between pipelines in instances in which the change
will directly or indirectly affect a city gate rate. We conclude that
you are not so precluded. We conclude that the commission may
1001 Texas. Suite 700 investigatehe reasonableness of the rate charged in 3 pipeline-to-
f- wslo”, TX. 77002-3111
pipeline transaction in 2 instance in which the gas so transferred
a 1312255886
will ultimately be sold at a city gate for resale to a gas distribu-
tion utility.
606 Broadway, Suite 312
Lubbock, TX. 794013479 Section 5.02 of GDRA was enacted by Acts 1983, Sixty-eighth
8061747-5238
Legislature, chapter 263, section 20, p. 1203, to provide the
following:
4302 N. Tenth. Suite B
McAllen, TX. 78501~16R5 Sec. 5.02. JUST AND REASONABLERATES (a) It
5121882.4547
shall be the duty of the regulatory authority to
ensure that every rate made, demanded, or received
200 Main Plaza, Suite 400 by any gas utility, or by any two or more gas
San Antonio. TX. 79205.2797 utilities jointly, is just and reasonable. Rates
512/225-4191 may not be unreasonably preferential, prejudicial,
or discriminatory, but must be sufficient,
equitable, and consistent in application to each
An Equal OpportunItyI
Affirmative Action Employw class of consumers. For ratemaking purposes, the
railroad commission may treat two or more
municipalities served by a gas utility as a single
class if the railroad commission considers that
treatment to be appropriate.

(b) Rates charged or offered to be charged by
a gas utility for pipeline-to-pipeline trans-
actions and to transportation, industrial, and

p. 632
Honorable Mack Wallace - Page 2 (JM-147)

other similar large volume contract customers, but
excluding city gate sales-for-resale to gas
distribution util,ities, are considered to be just
and reasonable and otherwise to comply with this
section, and shall be approved by the regulatory
authority, if:

(1) neither the gas utility nor the customer
had an unfair advantage during the negotiations;

(2) the rates are substantial~ly the same as
rates between the gas utility and two or more of
those customers under the same or similar
conditions of service; ‘r

(3) competition does or did exist either with
another gas utility, another supplier of natural
gas, or with a supplier of an alternative form of
energy.

(c) If a complaint is filed with the railroad
commission by a transmission pipeline purchaser of
w sold or transported under any such
pipeline-to-pipeline or transportation rate, then
the provisions of Subsection (b) shall not apply.
(Emphasis added).

Section 5.02 of GUPA was originally contained in section 38 of
section 1446c, V.T.C.S., the Public lJtili,ty Regulatory Act
[herei~naf ter PURA]. Section 5.02 of GURA is virtual1.y identical to
the now repealed section 38(b) of PURA. Section 38(b) of PURA was
amended by Acts 1981, Sixty-seventh Legislature, chapter 751, section
1, p. 2749.

Prior to the passage of the 1981 amendment, section 38 read 8s
follows:

Sec. 38. It shall be the duty of the
regulatory authority to insure that every rate
made, demanded, or received by any public utility,
or by any two or more public utilities jointly,
shall be just and reasonable. Rates shall not be
unreasonably preferential, prejudicial, or
discriminatory, but shall be sufficient,
equitable, and consistent in application to each
class of consumers. For ratemaking purposes, the
commission or railroad commission may treat two or
more municipalities served by a public utility as
a single class wherever the commission or railroad

p. 633
 Honorable Mack Wallace - Page 3 (JM-147)

commission deems such treatment to be aoorooriate.
Rates charged by a gas utility to an'industrial
customer for supplying gas under a contract and
other similar large volume contract customers are
just and reasonable and shall be approved by the
regulatory authority if the regulatory authority
finds that:

(1) neither the gas utility nor the industrial
customer had an unfair advantage during the
contract negotiations; or

(2) the rates in the contract are
substantially the same as rates contained in
contracts between the gas utility and two or more
other industrial customers contracting under the
same or similar conditions of service; or

(3) competition exists either with another gas
utility, another supplier of natural gas, or with
a supplier of an alternative form of energy.

The above underscored language was amended and, in its amended
P version, became subsection (b). A subsection (c) was also added. We
should first note the effect of the 1981 amendment and the 1983
enactment.

The above underscored language of pre-1981 section 38 created a
presumption that rates charged by a gas utility to an industrial
customer and to other similar large volume contract customers for
supplying gas under contract were deemed to be just and reasonable and
had to be approved by the appropriate regulatory authority if that
authority found the existence of only one of three specified facts.
The class of consumers affected by thispresumption was comparatively
small. It affected only industrial customers or other similar large
volume contract customers. With respect to all other natural gas
consumers, the appropriate regulatory agency, in this instance the
Railroad Commission, was still required to "insure that every rate
made, demanded, or received by any public utility . . . be just and
reasonable . . . [and that they1 shall not be unreasonably
preferential, prejudicial, or discriminatory, but shall be sufficient,
equitable, and consistent in application to each class of consumers."

As a result of the 1981 amendment and the 1983 enactment, the
class of consumers directly and indirectly affected by the presumption
is greatly expanded. Now the presumption reaches all pipeline-to-
pipeline transactions and transportation large volume contract
customers, as well as industrial and other similar large volume
contract customers, while purportedly expressly excluding transactions
P

p. 634
Honorable Mack Wallace - Page 4 (JM-147)

involving city gate sales to gas distribution utilities for resale to
individual residential and commercial consumers.

An example will illustrate the dilemma in which the 1981 amend-
ment and the 1983 enactment places the commission. By virtue of the
recently-amended presumption, rates charged by a gas utility in 9
pipeline-to-pipeline transaction, excluding a city gate sale-for-
resale to a gas distribution utility, are deemed to be just and
reasonable and the commission must approve them if the commission
finds the existence of only one of three specified facts. At the same
time, the commission is rexred to regulate city gate sales and,
again, to "insure that every rate made, demanded, or received by any
gas utility . . . is just and reasonable . . . . [They] may not be
unreasonably preferential, prejudicial, or discriminatory, but must be
sufficient, equitable, and consistent in application to each class of
consumers. " V.T.C.S. art. 1446e. %5.02(a). Accordingly you ask
whether the commission is precluded from investigating the
reasonableness of a rate charged between pipelines in instances in
which the change in rate will directly or indirectly affect a city
gate rate.

It is suggested that the section 5.02(b) presumption should
properly be interpreted as limiting the authority of the railroad
commission in any pipeline-to-pipeline or other large volume contract -
customer transaction, other than one involving a city gate sale-for-
resale to a gas distributing utility, to an investigation as to the
finding of any one of three specified facts. Under this
interpretation, if the commission finds the existence of any one of
three specified facts in such a transaction, it shall deem that the
rate so charged is just and reasonable and shall approve such rate.
The authority of the commission to ful_ly investigate the
reasonableness of a rate charged in a pipeline-to-pipeline or large
volume contract customer transaction is limited to only one kind of
large volume transfer -- the pipeline-to-pipeline or large volume
contract sale of gas at the city gate for resale to a gas distribution
utility.

On the other hand, it is suggested that the section 5.02(b)
presumption should properly be interpreted to reach & those
pipeline-to-pipeline or other large volume contract customer trans-
actions in which s city gate sale-for-resale to a gas distribution
utility will occur later in the chain of transactions. Under this
interpretation, the commission is authorized to investigate the
reasonableness of any rate charged in a city gate sale, as well as the
rate charged for such gas in any large volume transfer prior to the
gas reaching the city gate. This second interpretation is the one
which comports both with the act as a whole and with the evident
intent of the legislature when it amended section 38 of PUPA in 1981
and subsequently codified the amendment as section 5.02(b) of GURA.

p. 635
Honorable Mack Wallace - Page 5 (JM-147)

An examination of other relevant provisions of GURA support our
conclusion.

Section 1.02 of GURA sets forth the legislative policy and
purpose of the Gas Utility Regulatory Act:

Sec. 1.02. This Act is enacted to protect the
public interest inherent in the rates and services
of gas utilities. The legislature finds that gas
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 the regulation shall operate as a
substitute for competition. The purpose of this
Act is to establish a comprehensive regulatory
system that is adequate to the task of regulating
gas utilities as defined by this Act, and to
assure rates, operations, and services which are
just and reasonable to the consumers and to the
utilities. (Emphasis added).

See also Tex. Const. art. I, section 26 (forbidding monopolies in
Texas). Section 5.01 of GURA sets forth the authority of the
commission to ensure that the purposes of the act are achieved:

Subject to the provisions of this Act, the
railroad commission is hereby vested with a
authority and power of the State of Texas to
ensure compliance with the obligations of gas
utilities in this Act. For this purpose the
regulatory authority is empowered to fix and
regulate rates of gas utilities, including rules
and regulations for determining the classification
of customers and services and for determining the
applicability of rates. A rule or order of the
regulatory authority may not conflict with the
rulings of any federal regulatory body.

And, as we already noted, section 5.02(a) of GURA reposes a duty in
the commission "to ensure that every rate made. demanded, or received
by any gas utility company is just and reasonable."

Finally, it is clear from transcripts of legislative committee
hearings on this amendment that the members of the legislature did not
intend to circumscribe the authority of the commission in regulating
city gate rates. The author of the bill testified that

p. 636
Honorable Flack Wallace - Page 6 (JM-147)

[t]his bill does not affect the city gate sales.
As a matter of fact, it states in the substitute
specifically that it doesn't.

We further note that the author of what is now section 5.20(b)
submitted to us a letter in connection with this opinion request. The
writer specifically declared what he intended to be the effect of
section 5.02(b) on the commission's authority over city gate rates:

[Section 5.02(b)] simply restates the traditional
exclusion for sales of gas between a transmission
pipeline and a distribution company. It has
always been deemed necessary for the protection of
consumers for this transaction to be subject to
thorough scrutiny by a regulatory body. [Section
5.02(b)] leaves this consumer protection in
place.. . . As already stated, [the Railroad
Conmission] practice and state laws over the years
have dictated that this sort of event must be
subject to comprehensive review in order to
protect the public interest. It was never the
purpose of [section 5.02(b)] to change, in any
way, the [commission's] well-established and
well-conceived regulation of either city gate or
pipeline-to-pipeline transactions. (Emphasis
added).

We are reouired to construe an amendment in harmonv with the act
it amends or to which it is added. American Surety Co. v. Axtell Co.,
36 S.W.2d 715 (Tex. 1931); Shipley v. Floydada Independent School
District, 250 S.W. 159 (Tex. 1923). Our interpretation must express
only the will of the makers of the law, not forced or strained, but
simply such as the words of the law-in their plain sense fairly
sanction and will clearly sustain. Railroad Coomission of Texas v.
Miller, 434 S.W.2d 670 (Tex. 1968). We may not construe the statute
so as to ascribe to the legislature an unjust or unreasonable thing,
if it is reasonably susceptible of a construction that will not
accomplish such a result. Anderson v. Penix, 161 S.W.2d 455 (Tex.
1942). A statute must be construed as a whole, Texas Turnpike
Authority v. Shepperd, 279 S.W.2d 302 (Tex. 1955), and all of its
parts harmonized if possible. Stark v. Chaison, 50 S.W.Zd 776 (Tex.
1932). We must give effect to the entire act, Martin v. Sheppard, 102
S.W.2d 1036 (Tex. 1937), according to the evident intention of the
legislature. State v. Jackson, 376 S.W.2d 341 (Tex. 1964).
Therefore, we must interpret section 5.02(b) in such a way as to
harmonize it with the remaining parts of GURA and so as not to ascribe
to the legislature an unreasonable result.

p. 637
Honorable Mack Wallace - Page 7 (~~-147)

Accordingly, we interpret section 5.02(b) to require the
commission to hold a rate just and reasonable and approve such rate in
certain transactions after it has found the existence of one of three
specified facts, but only if a city gate sale-for-resale to a gas
distribution utility is not involved as the final consumer in the
chain of transactions. In other words, Gas Utility A can by contract
transfer gas to Gas Utility B, such transaction being governed by the
presumption created by section 5.02(b). Gas Utility B can, in turn.
transfer that gas by contract to a large volume contract industrial
customer, again with this second transaction governed by the section
5.02(b) presumption. On the other hand, had Gas Utility B
subsequently sold the gas it received from Gas Utility A to a gas
distribution facility at the city gate, the section 5.02(b)
presumption would be inapplicable and the commission could inquire
into the reasonableness of the rate charged in the transaction between
Gas Utility A and Gas Utility B. If we were to read the statute in
any other way, our interpretation would effectively vitiate the
authority of the commission to regulate city gate transactions. This
we are unwilling to do, since such a result is clearly not the intent
of the legislature.

Accordingly, the Railroad Commission is not precluded by section
5.02(b) of GURA from fully investigating the reasonableness of the
rate charged in any pipeline-to-pipeline or other similar large volume
contract customer transaction when such a rate will directly or
indirectly affect a city gate sale-for-resale to a gas distribution
utility.

SUMMARY

The Railroad Commission is not precluded by
section 5.02(b) of article 1446e. V.T.C.S., (Gas
Utility Regulatory Act) from fully investigating
the reasonableness of the rate charged in any
pipeline-to-pipeline or other similar large volume
contract customer transaction when such rate will
directly or indirectly affect a city gate sale-
for-resale to a gas distribution utility.

JIM MATTOX
Attorney General of Texas

TOM GREEN
First Assistant Attorney General

p. 638
Honorable Mack Wallace - Page 8 (JM-147)

DAVID R. RICHARL'S
Executive Assistant Attorney General

Prepared by Jim Moellinger
Assistant Attorney General

APPROVED:
OPINION COMMITTEE

Rick Gilpin, Chairman
Colin Carl
Susan Garrison
Jim Moellinger
Nancy Sutton

p. 639