Railroad Com'n of Texas v. Lone Star Gas Co. A Div. of Enserch Corp.

Decision Date20 July 1983
Docket NumberNo. C-1888,C-1888
Citation656 S.W.2d 421
PartiesRAILROAD COMMISSION OF TEXAS, Petitioner, v. LONE STAR GAS COMPANY, A DIVISION OF ENSERCH CORPORATION, Respondent.
CourtTexas Supreme Court

Jim Mattox, Atty. Gen., James R. Meyers and Phyllis B. Schunck, Asst. Attys. Gen., Austin, for petitioner.

Clark, Thomas, Winters & Shapiro, David C. Duggins, Austin, Joe N. McClendon and David Gamble, Dallas, for respondent.

RAY, Justice.

This is a suit for judicial review of an order of the Railroad Commission of Texas. The district court sustained an order of the In September 1978, Lone Star applied to the city of Kaufman, Texas, for a rate increase. Upon the city's rejection of the proposed rates, the gas company filed its appeal with the Commission on October 6, 1978. On November 17, 1978, the city and the gas company waived their respective rights to a formal hearing before the Commission. The Commission handed down its final order on February 11, 1980, providing that the rate increase granted the gas company would be effective as of March 8, 1979.

                Railroad Commission which fixed the effective date for a rate increase for natural gas service supplied by Lone Star within the City of Kaufman and its environs.  The court of appeals reversed the judgment of the district court and remanded the cause to the district court with directions that the court remand the proceeding to the Commission.  644 S.W.2d 166.   We reverse the judgment of the court of appeals and affirm the judgment of the district court
                

Lone Star claims the Commission abused its discretion in selecting March 8, 1979, as the effective date for the rate increase granted the company by the Commission. Lone Star does not attack the rate itself, or the district court's conclusion that such rate was within the statutory parameters, but argues only that the Commission granted it the minimum rate allowed by law and each day the Commission delayed the effective date of the new rate resulted in confiscation of its property because it was required to operate under the old, allegedly inadequate rate. Since the rate increase was supposedly the absolute minimum, Lone Star insists that the Commission was required to make the rate increase effective at the earliest possible date.

The date from which the Commission makes its order effective is important for economic reasons. The underlying issue in this appeal concerns Lone Star's effort to minimize its claimed economic losses resulting from "regulatory lag" in the decisional process of the Commission. Regulatory lag arises from the loss in revenue experienced by a utility whose rates are in need of upward adjustment during the period between filing an application for a rate increase and the date when relief is granted. The longer the time required to process and pass on the application, the greater the revenue loss arising from regulatory lag. Accordingly, the time consumed in processing and deciding a rate case assumes real economic significance. Garfield and Lovejoy, Public Utility Economics, at 266 (1964).

The court of appeals held that Section 16(d) of the Administrative Procedure and Texas Register Act (APA) demonstrates the legislature's intent that agencies conduct business in an orderly, prompt and proper manner. Tex.Rev.Civ.Stat.Ann. art. 6252-13a. 1 Further, the court concluded that under the policy considerations of section 16(d), the last day the Commission may permissibly make the new rate effective in the ordinary case is: (1) sixty days after the date of formal hearing is closed; or (2) in stipulated cases, such as this one, sixty days after the date the formal hearing is waived by the parties. The earliest date on which the Commission may authorize increased rates, under the court of appeals' holding, is the date of the city ordinance denying the request for an increase. 644 S.W.2d at 168. Both parties filed applications for writ of error to this Court complaining of the court of appeals' holding. The Commission and Lone Star argue there is no need for the judiciary to create a hard and fast rule of general application delineating the bounds of the Commission's effective date discretion, because a standard abuse of discretion review to be applied to the facts and circumstances of each case is all that is required. We agree.

SECTION 16(d)

OF THE APA

Section 16(d) of the APA provides that an agency's "final decision or order must be rendered within sixty days after the hearing is finally closed." This section was not intended to fix a time limitation upon the power of administrative agencies Both parties urge this Court to consider the unjust effects and impracticalities of the construction given section 16(d) by the court of appeals. 2

to render decisions after expiration of the sixty days mentioned, but to promote order and prompt conduct of agency business. Suburban Utility Corporation v. Public Utility Commission of Texas, 652 S.W.2d 358, 361 (Tex.1983). This section has been held to be directory rather than mandatory. Id. at 361; Railroad Commission v. City of Fort Worth, 576 S.W.2d 899 (Tex.Civ.App.--Austin 1979, writ ref'd n.r.e.).

Many other states have statutes similar to section 16(d). 3 Only a few of the statutes have been judicially construed; however, no court has interpreted the statute as requiring that orders, made after the expiration of the time provided for decision, be made retroactively effective. For example, although Florida's statute has been construed as mandatory, Financial Marketing Group, Inc. v. State Department of Banking and Finance, Division of Securities, 352 So.2d 524 (Fla. 3rd D.C.A.1977), its supreme court has held that the agency's failure to comply renders its order unenforceable only if untimely rendition impaired the fairness of the proceeding or the correctness of the result. Department of Business Regulation, Division of Pari-Mutuel Wagering v. Hyman, 417 So.2d 671 (Fla.1982). The proper remedy for a party to an agency action in Florida where the agency has delayed making a decision beyond the statutory limits is to seek a writ of mandamus compelling the agency to act. Id. at 673. See also, State ex rel. Northern Pacific Transport Company v. Public Service Commission, 82 N.W.2d 597 (N.D.1957); Toms River Water Company v. New Jersey Board of Public Utility Commissioners, 82 N.J. 201, 412 A.2d 430 (1980).

The court of appeals has created a judicial requirement that agencies make orders effective within sixty days of hearing based primarily on the policy reasons behind a non-mandatory statute. No other authority was cited by that court. Although we believe that agencies should conduct their business in a prompt manner, any mandatory requirement should come from the legislature. Therefore, we hold the court of appeals erred in creating a rule which defines the bounds of the Commission's discretion in setting effective dates for its orders.

THE PUBLIC UTILITY REGULATORY ACT

The substantive statute presently governing gas utility rate cases 4 allows the regulatory agency with original jurisdiction 5 185 days in which to reach a decision.

See Art. 1446c, § 43, Public Utility Regulatory Act (PURA). Section 43 of PURA provides a detailed program in an attempt to compensate a utility for undue regulatory lag by limiting the periods of suspension. The rate may not become effective for a minimum of thirty-five days, and the agency may suspend its effectiveness for 120 days beyond that. Further, the agency may extend the suspension for another thirty days. These provisions are supplemented by vesting in the agency authority to approve temporary rates, by permitting the utility to institute its new rates, without agency approval, and by filing a bond adequate to protect the customers if the agency ultimately approves a lower rate. Article 1446c, § 43(d) and (e). See Southwestern Bell Telephone Company v. Public Utility Commission of Texas, 615 S.W.2d 947 (Tex.Civ.App.--Austin), writ ref'd n.r.e. per curiam, 622 S.W.2d 82 (Tex.1981).

The Commission argues that the statutory provisions permitting "bonding in" of rates and temporary rates are an adequate protection against regulatory lag and Lone Star lost its right to complain by not availing itself of these remedies. The rates within the city of Kaufman over which the Commission exercised appellate jurisdiction and which represent most of Lone Star's revenues in controversy are not subject to being "bonded in." Arkansas Louisiana Gas Co. v. Railroad Commission of Texas, 586 S.W.2d 643 (Tex.Civ.App.--Austin 1979, writ ref'd n.r.e.). Although the Public Utility Commission grants interim relief, Lone Star argues that it is the Railroad Commission's policy not to grant interim rate relief unless the utility is able to demonstrate a negative cash flow.

We hold that Lone Star did not waive its complaint to this Court, by failing to bond in the proposed rates or seek temporary rates. Although the measures for lessening the effect of regulatory lag provided by section 43 were of little assistance to Lone Star in this case, any changes in the protection afforded the utility should be made by the legislature.

ABUSE OF DISCRETION

Having determined the court of appeals erred in limiting the Commission's discretion in setting effective dates for its orders, we must now decide whether the Commission abused its discretion in this case.

Any discussion of when the Commission's rate orders should be effective must start with the fundamental principle that utility rates are set for the future, and not the past. See Railroad Commission v. Houston Natural Gas Corp., 155 Tex. 502, 289 S.W.2d 559, 562 (1956). Section 43(f) of PURA implicitly recognizes this principle by prescribing that rates set by order of the Commission "are thereafter to be observed ...." Of necessity, the rates are based on historical data obtained from a test year; therefore, some lag is inherent in the process. Art....

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