Centerpoint Energy Entex v. Railroad Com'n

• Decision Date: 28 April 2006
• Docket Number: No. 03-04-00688-CV.,03-04-00688-CV.
• Citation: 213 S.W.3d 364
• Parties: CENTERPOINT ENERGY ENTEX, Appellant, v. RAILROAD COMMISSION OF TEXAS, Appellee.
• Court: Texas Court of Appeals

213 S.W.3d 364

CENTERPOINT ENERGY ENTEX, Appellant, v. RAILROAD COMMISSION OF TEXAS, Appellee.

No. 03-04-00688-CV.

Court of Appeals of Texas, Austin.

April 28, 2006.

Marnie A. McCormick, David C. Duggins, Clark, Thomas & Winters, PC, Austin, for appellant.

Douglas Fraser, Asst. Atty. Gen., Austin, for appellee.

Before Chief Justice LAW, Justices PEMBERTON and WALDROP.

OPINION

G. ALAN WALDROP, Justice.

This appeal concerns whether the Railroad Commission properly refused to allow CenterPoint Energy Entex to charge customers residing outside of Houston-area municipalities a share of the franchise fees Entex paid to the Houston-area municipalities in connection with Entex's use of municipal land and services. The district court affirmed the Commission's order. We reverse the district court's judgment and remand this cause to the district court with instructions to remand to the Commission for further proceedings.

Facts and Procedural Background

Entex is a gas utility subject to the Gas Utility Regulatory Act. See Tex. Util.Code § 102.001 (West Supp.2005). The Houston Division of Entex provides natural gas service to the Houston area. The Houston Division comprises several municipalities as well as unincorporated areas, which are called the "environs." The 283,858 customers living in the Houston environs comprise 36.57% of the customers in Entex's Houston Division.

Before filing this rate request for the Houston environs, Entex reached agreements with several municipalities in the Houston Division regarding Entex's rates, the franchise fees the municipalities would charge for use of municipal land to provide gas services, and how Entex could recover those fees from its customers. See Tex. Util Code Ann. § 103.001 (West Supp. 2005) (municipalities have exclusive jurisdiction over gas rates, operations, and services within the municipalities unless they cede that power to the Commission). The franchise fees were calculated based on gas sales within the municipalities. Entex agreed with the municipalities that it would collect the amount paid in franchise fees from all Houston Division customers, including those in the environs outside the municipalities. Accordingly, when Entex filed with the Commission a statement of intent to increase gas rates within the Houston environs, it proposed to collect a proportionate share of the franchise fees paid from environs customers. The requested new rates conformed with those set by the agreements with the municipalities. No opposition was filed.

The Commission's hearings examiners proposed, and the Commission adopted, rates that do not allocate a share of the municipal franchise fees to be borne by Entex's Houston environs customers. Entex filed a motion for rehearing, arguing that the necessarily implied requirement that municipal residents bear the full brunt of the franchise fees marked a change from previous orders not supported by the record. That motion was denied.

Entex sought judicial review. The Commission filed a plea to the jurisdiction, arguing that Entex lacked standing to challenge the Commission's refusal to allow Entex to recover a share of municipal franchise fees from non-municipal customers because Entex was not aggrieved by the decision. After denying the plea to the jurisdiction regarding the fee issue, the district court affirmed the Commission's order.

Entex appeals, arguing that requiring it to collect a municipality's franchise fee only from customers in that municipality is not supported by substantial evidence in the record and marks a change from previous orders. Entex also contends that, by this order, the Commission unreasonably discriminated within customer classes, rendered a decision in violation of the substantial evidence rule, abused its discretion, acted arbitrarily and capriciously, and violated Entex's due process rights. The Commission denies these contentions and argues that, because the Commission's decision is revenue neutral for Entex — that is, it affects only which customers pay a share of the franchise fees rather than whether the fees are recouped by Entex — Entex is not aggrieved by the decision and lacks standing to complain about it.

Standing and jurisdiction

We review de novo whether the trial court had jurisdiction, taking the pleadings as true and construing them in favor of the pleader as well as considering evidence relevant to the jurisdictional inquiry. See Texas Dep't of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226-28 (Tex.2004). Standing is a component of subject-matter jurisdiction and is thus essential to a court's power to hear a case. Texas Ass'n of Bus. v. Texas Air Control Bd., 852 S.W.2d 440, 444-45 (Tex.1993); Texas Lottery Comm'n v. Scientific Games Intern., Inc., 99 S.W.3d 376, 380 (Tex.App.-Austin 2003, pet. denied). A person who has exhausted available administrative remedies and is aggrieved by an agency order in a contested case is entitled to judicial review of that order. Tex. Gov't Code Ann. § 2001.171 (West 2000); see Hooks v. Texas Dep't of Water Res., 611 S.W.2d 417, 419 (Tex.1981). To be aggrieved, a party must have a justiciable interest — that is, the agency's order must injure or threaten the party specifically and differently from the public at large. See Hooks, 611 S.W.2d at 419; Scientific Games, 99 S.W.3d at 380. The Commission does not assert that Entex has failed to exhaust its administrative remedies.

The record shows that Entex may be aggrieved by the Commission's decision in one of two ways: it may not be able to recover from municipal customers all of the franchise fees assessed and, even if it does, that recovery from only a portion of the customers served by the facilities the fees support could put Entex at a competitive disadvantage in the energy market among municipal customers. As the hearings examiners noted, Entex's agreements with the municipalities call for franchise fees to be collected proportionately from all of its customers in the Houston Division, which includes environs customers. Accordingly, the City and other municipalities could resist any attempt by Entex to recover all of the fees from their residents. If instead Entex is allowed to recover all of the fees from municipal residents, that will increase the costs paid by those customers. Entex vice president George Hepburn testified by affidavit that this increased cost would impair the cost-competitiveness of Entex's service in the Houston market. Entex faces competition from unregulated electric utilities and also, at least in Missouri City, another gas utility.

Although the Commission produced evidence that Entex might recover all of the franchise fees from municipal customers, it did not conclusively prove either (1) that Entex would recover all of the fees or (2) that Entex would not be placed at a competitive disadvantage by doing so. Entex's pleadings and Hepburn's testimony describe at least a threatened harm from the agency order that is unique to Entex. This provides standing for Entex and subject-matter jurisdiction for the district court below and this Court. Whether Entex is entitled to relief is a different question.

Standard of Review

Entex challenges the Commission's refusal to allow it to recoup from environs customers a portion of the franchise fees it paid to municipalities. Prefatory to that review, we must determine what standard of review to apply. The parties dispute whether the franchise fee issue under review arises from a ratemaking proceeding or an ad hoc rulemaking. The applicable standards of review are substantial evidence and abuse of discretion, respectively. Both sides contend that they prevail under either standard.

The two types of decisions are not mutually exclusive. Gas rates are set in contested-case hearings "in which the legal rights, duties, or privileges of a party are to be determined by a state agency after an opportunity for adjudicative hearing." See Tex. Gov't Code Ann. § 2001.003(1) (West Supp.2005). Ad hoc rulemaking occurs when the agency makes a determination that has implications beyond the instant parties, but prefers not to make a formal rule because the agency may not have had sufficient experience with a particular problem to support making a rule or because the problem is so specialized and varying in nature as to be impossible of capture within the boundaries of a general rule. See City of El Paso v. Public Util. Comm'n, 883 S.W.2d 179, 188-89 (Tex.1994). An ad hoc rule is an agency statement that interprets, implements, or prescribes agency law or policy. West Tex. Util. v. Office of Pub. Util. Counsel, 896 S.W.2d 261, 272 (Tex.App.-Austin 1995, no pet.). If the decision made during a ratemaking proceeding reflects a policy choice that has not been committed to a formal rule, it can be considered an ad hoc rulemaking. See Texas Ass'n of Long Distance Tele. Cos. (TEXALTEL) v. Public Util. Comm'n, 798 S.W.2d 875, 886 (Tex.App.-Austin 1990, writ denied).

The decision at issue here appears to be purely ratemaking. Although the finding under review is broadly stated and parties in similar ratemaking cases may look to this order for guidance, the hearings examiners expressly stated in their proposal for decision that collecting a share of municipal franchise fees from environs customers was unreasonable "in this particular circumstance." Tex.R.R. Comm'n, Statement of Intent filed by Centerpoint Energy Entex to Change Rates in the Environs of the City of Houston, Tex., Gas Utils. Docket No. 9469 at 10 (May 20, 2004) (proposal for decision). The Commission's final order does not set down a rule that no gas utility could show that such a fee-collection strategy is reasonable. The decision appears to be limited to this rate case and not based on broader policy concerns.

Whether viewed as ratemaking or ad hoc rulemaking, the result of our review of the Commission's decision is the same. In the interest of efficiency, we will review...