Centerpoint Energy Entex v. Railroad Com'n, 03-04-00731-CV.

Decision Date07 July 2006
Docket NumberNo. 03-04-00731-CV.,03-04-00731-CV.
Citation208 S.W.3d 608
PartiesCENTERPOINT ENERGY ENTEX, Appellant, v. RAILROAD COMMISSION OF TEXAS, Victor Carrillo, Elizabeth A. Jones, Michael Williams, City of Tyler and State of Texas, Appellees.<SMALL><SUP>1</SUP></SMALL>
CourtTexas Court of Appeals

David C. Duggins, Marnie A. McCormick, Clark, Thomas & Winters, PC, Austin, for CenterPoint Energy Entex.

Douglas Fraser, Asst. Atty. Gen., Natural Resources Div., Austin, for Railroad Commission of Texas, Victor Carrillo, Elizabeth A. Jones and Michael Williams.

John R. Hays, Jr., Hays & Owens, LLP, Steve McConnico, John W. Camp, Steve Selby, Scott, Douglass & McConnico, L.L.P., Austin, for City of Tyler.

Roger B. Borgelt, Asst. Atty. Gen., Consumer Protection Div., Austin, for State of Texas.

Before Chief Justice LAW, Justices B.A. SMITH and PEMBERTON.



We withdraw our opinion and judgment issued on April 21, 2006, and substitute this one in its place. We overrule the second motion for rehearing filed by CenterPoint Energy Entex.

This appeal presents a question of first impression: whether the Texas Railroad Commission (the Commission) may conduct a retroactive prudence review of charges flowed through a purchased gas adjustment clause (PGA clause) and order refunds of charges that the Commission finds the utility imprudently incurred. We must also consider whether such a review is a "ratemaking proceeding" in which a participating municipality is entitled to expense reimbursement. See Tex. Util.Code Ann. § 103.022 (West 1998). The Commission and the district court answered both questions in the affirmative. Because we find that the Commission has authority to conduct the review and order refunds but that such a review is not a "ratemaking proceeding," we affirm the order of the district court in part but reverse and render in part.


Appellant CenterPoint Energy Entex2 is a gas utility subject to the Gas Utility Regulatory Act. See Tex. Util.Code Ann. § 101.003(7) (West Supp.2005); see generally id. §§ 101.001-105.051 (West 1998 & Supp.2005) (GURA). For more than twenty-five years, Entex purchased gas on behalf of customers served by the Tyler Integrated Distribution System (TIDS) and charged customers under tariffs approved by the City of Tyler (the City), termed "rate schedules."3 Since 1985, each of Entex's approved rate schedules included a "Purchased Gas Adjustment Provision" (PGA clause), an automatic escalator mechanism devised by utility regulators to deal with rapid fluctuations in the cost of natural gas. See Railroad Comm'n of Tex. v. High Plains Natural Gas Co., 613 S.W.2d 46, 48 (Tex.Civ.App.-Austin 1981), writ ref'd n.r.e., 628 S.W.2d 753 (Tex.1981) (per curiam). Such a clause operates to increase or decrease the revenue of the gas company by exactly the amount of its increased or decreased costs of gas charged the gas company by its suppliers. Id. (citing City of Norfolk v. Virginia Elec & Power Co., 197 Va. 505, 90 S.E.2d 140 (1955)). Although Texas has never expressly addressed the use of PGA clauses in a statute, our courts have long approved of their use by regulators. See San Antonio Indep. Sch. Dist. v. City of San Antonio, 550 S.W.2d 262, 266-67 & n. 2 (Tex. 1976); High Plains Natural Gas Co., 613 S.W.2d at 48 (citing City of Chicago v. Illinois Commerce Comm'n, 13 Ill.2d 607, 150 N.E.2d 776 (1958)); Railroad Comm'n of Tex. v. City of Fort Worth, 576 S.W.2d 899, 902 (Tex.Civ.App.-Austin 1979, writ ref'd n.r.e.); see also Tex. Util.Code Ann. §§ 101.001-105.051 (no express recognition of PGAs).4

Since at least November 1992, Entex notified the City on a monthly basis regarding any gas cost changes that it would flow to its customers through the PGA clause. In some months, Entex reported no changes. In others, it informed the City of a change, either an increase or a decrease, and generally provided supporting information in the form of two Entex-generated documents stating the cost of gas purchased from several gas distributors and the effect those costs would have on the amounts charged to customers.

In 2002, the City began reviewing Entex's past customer gas charges, after which it informed Entex of "concerns" it had about the manner by which Entex purchased gas for resale to its customers. In particular, Entex had been acquiring its gas through two gas contracts, one with Texas GasMark, Inc. (TGM contract) and one with TXO Gas Marketing Corporation (TXO contract). Both of the gas supplies purchased under each contract were "firm" (as opposed to interruptible), but the TGM contract price was significantly lower than the TXO contract price. It was alleged that Entex acted wrongfully by charging the higher priced gas to residential and small commercial customers while reserving the lower-priced gas for large commercial customers. The City believed that this procedure resulted in "overcharges" of about $39,000,000 to residential and small commercial customers because Entex had passed the higher-priced gas charges to those customers through the PGA clauses in Entex's filed rates. The City made further charges alleging that Entex had filed misleading tariffs, failed to request annual price redeterminations, and failed to charge non-Tyler customers for their proportionate share of Entex's capital costs. The City set the matter for consideration at a city council meeting.

Entex filed suit in Travis County district court seeking a declaration that the City lacked authority to order refunds and an injunction to prevent consideration of the issue at the city council meeting. Entex asserted that ordering refunds for gas distribution was within the exclusive jurisdiction of the Commission. See Tex. Util. Code Ann. § 104.005(c) (West 1998). Entex and the City agreed that Entex would dismiss its district court proceedings and that the parties would instead submit the issues directly to the Commission. In their "Joint Petition for Review of Charges for Gas Sales,"5 the parties requested that

the Commission initiate a proceeding to determine whether Entex has properly and lawfully charged and collected for gas sales to residential and commercial customers served from the TIDS during the period from November 1, 1992 to October 31, 2002, to consider any appropriate remedies, including but not limited to, refunds, with interest, and to enter such orders as may be appropriate.

But the parties disputed what the Commission's review should entail. Entex urged that the Commission had power only to determine whether Entex "properly and lawfully charged and collected for gas sales to residential and commercial customers in Tyler as authorized under its tariffs and rate schedules" but that the Commission could not consider the prudence of Entex's gas purchases because that would constitute retroactive ratemaking. See id. § 104.151. Entex also maintained that the Commission should first consider the scope of its review authority before reaching the merits of the City's allegations. The City argued that the Commission could conduct a retroactive prudence review of Entex's gas purchases6 and that the Commission should address in a single proceeding both the scope of its authority to review Entex's charges and to order refunds and the merits of the City's allegations. The City also requested that the Commission order Entex to reimburse the City for its expenses because it considered the proceeding to be a "rate case" as defined in the utilities code. See id. § 103.022 (West 1998). Entex responded that the case was not a "ratemaking proceeding" and, thus, the City was not entitled to recover its expenses. See id. § 103.022.

The Commission set the matter before two hearing examiners, who decided that "issues related to a consideration of the reasonableness and necessity of Entex's gas costs and gas purchase practices will be considered in this proceeding." The Commission denied Entex's appeal of this decision. After a hearing on the merits, the hearing examiners rejected the City's argument that any proceeding that affects the compensation of a utility is a ratemaking proceeding. Instead, they decided that "ratemaking proceedings" are only those that are exclusively devoted to rates such that they may result in changed rates. Thus, the examiners found that the City could not be entitled to reimbursement for its expenses. On appeal, the Commission reversed that holding and awarded the City 90 percent of its expenses.7

Entex then filed suit in Travis County district court seeking a declaration that the Commission lacks authority to conduct a retroactive prudence review of gas purchases and, alternatively, that such an action by the Commission is not a "ratemaking proceeding" in which the City could obtain expense reimbursement. It also asked the district court to enjoin enforcement of the Commission's order requiring Entex to reimburse the City 90 percent of its expenses. The district court rendered judgment declaring that the Commission has authority to conduct a retroactive prudence review of gas purchases and that such a proceeding is a ratemaking proceeding in which the City could recover expenses. This appeal followed.8


Entex brings two issues on appeal that mirror its issues before the district court— whether the Commission has authority to conduct a retroactive prudence review of gas purchases that Entex flowed through the PGA clauses and whether such a proceeding is a ratemaking proceeding for which the City can seek expense reimbursement.

Standard of review

Our consideration of Entex's appellate issues ultimately turns upon statutory construction. Statutory construction is a matter of law, which we review de novo. City of San Antonio v. City of Boerne, 111 S.W.3d 22, 25 (Tex.2003). The goal of statutory construction is to give effect to the intent of the legislature. Fleming Foods of Tex., Inc. v....

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