City of El Paso v. Public Utility Com'n of Texas

Decision Date26 August 1992
Docket NumberNo. 3-90-007-CV,3-90-007-CV
PartiesCITY OF EL PASO, the State of Texas and Office of Public Utility Counsel, Appellants, v. PUBLIC UTILITY COMMISSION OF TEXAS, et al., Appellees.
CourtTexas Court of Appeals

Norman J. Gordon, Diamond, Rash, Leslie, Smith & Samaniego, El Paso, Nanette G. Williams, Asst. City Atty., City of El Paso, El Paso, for City of El Paso.

Jim Mattox, Atty. Gen., W. Scott McCullough, Asst. Atty. Gen., Austin, for State of Tex.

C. Kingsbery Ottmers, Public Counsel, John Laakso, Asst. Public Counsel, Austin, for OPUC.

Jim Mattox, Atty. Gen., Norma K. Scogin, Asst. Atty. Gen., Austin, for PUC.

Michael D. McQueen, Kemp, Smith, Duncan & Hammond, El Paso, Barry Bishop, John F. Williams, Clark, Thomas, Winters & Newton, Austin, for El Paso Elec. Co.

C. Michael Ginnings, Ginnings, Birkelbach, Keith & Delgado, El Paso, for Border Steel.

Before CARROLL, C.J., and ABOUSSIE and JONES, JJ.

ON MOTION FOR REHEARING

JONES, Justice.

The opinion and judgment issued by this Court on August 14, 1991, are withdrawn, and this opinion is filed in place of the earlier one.

The district court affirmed an order of the Public Utility Commission ("Commission") setting rates to be charged by El Paso Electric Company ("EPEC"). The Commission issued the order, after hearing, pursuant to the Public Utility Regulatory Act (PURA), Tex.Rev.Civ.Stat.Ann. art. 1446c (Supp.1992). The City of El Paso ("City"), the State of Texas (on behalf of various state agencies located in western Texas) ("TSA"), and the Office of Public Utility Counsel ("OPC"), appellants, seek reversal of the trial court's judgment. We will affirm in part and reverse in part.

Disapproving of EPEC's decision to invest in the Arizona Nuclear Power Project, appellants complain of the Commission's order permitting EPEC to charge rates that allow it to recover most of the project's costs. The Commission ordered the rate increase after conducting a lengthy evidentiary hearing, providing many opportunities for all parties to plead and present their cases; the Commission considered two sets of motions for rehearing. The Travis County district court, to which the complaining parties brought their appeal, affirmed the Commission's order.

On appeal, appellants challenge twelve different aspects of the Commission's decision: (1) adoption of a non-unanimous stipulation; (2) failure to disallow more for "decisional" imprudence; (3) approval of deferred accounting for regulatory-lag expenses; (4) failure to disallow more for constructional imprudence; (5) exclusion of witness Hubbard's testimony; (6) refusal to find excess capacity in EPEC's system; (7) inclusion of common facilities in rate base; (8) inclusion of income tax expense in cost of service; (9) inclusion of a portion of Unit 2 lease payments in cost of service; (10) calculation and inclusion of other cost-of-service allowances; (11) temporary exclusion of TSA from the proceedings; (12) determination of rates and rate class for TSA. We will reverse the trial court's judgment to the extent it affirmed the Commission's approval and use of "deferred accounting" for the carrying costs EPEC incurred between the date the Palo Verde plant became commercially operational and the date the new rates were effective; we will affirm the remainder of the trial court's judgment.

SETTING

At the heart of this dispute is EPEC's decision to expand its power generation system by obtaining an ownership interest in the Arizona Nuclear Power Project, also known as the Palo Verde Nuclear Generating Station. EPEC and four other utility companies agreed to partially fund and otherwise assist in building one or more nuclear steam electric generating units, with attendant common facilities. In return, EPEC was entitled to 15.8% of the resulting net energy generation and the same percentage of available generating capability. Construction is complete on the common facilities and two of the five units originally planned. At the time this proceeding was heard by the Commission, a third unit was still under construction.

Factors arising after construction began have induced EPEC to alter its ownership interest in the units. Originally, EPEC owned an undivided interest in each of the units as a tenant in common with the other four project participants. Although EPEC retains its undivided interest in Unit 1, the company has sold its interest in Unit 2 and made arrangements to lease the unit back for the duration of EPEC's involvement in the project.

Because of the complexity of appellants' points of error, we will supply additional facts from the record throughout this opinion as necessary to clarify the discussion.

PROCEDURAL BACKGROUND

On October 31, 1986, EPEC filed an application requesting the Commission to determine Because of the voluminous evidence to be presented, the Commission initially divided the proceedings in the rate case into three phases. The Commission added a fourth phase after several parties tendered a non-unanimous "stipulation" to the Commission and requested that the Commission base its decision on the stipulation. In addition, pursuant to an agreed motion, the Commission consolidated the rate case with the proceeding to approve the sale/leaseback arrangement. An examiner convened hearings on each of the four phases during August, September, October, and November of 1987. On February 1, 1988, the hearings examiner filed a report with the Commission recommending against adoption of the stipulation.

whether EPEC's arrangement to sell and lease back its ownership interest in Unit 2 was in the public interest. On April 6, 1987, EPEC filed applications with various affected cities and the Commission to raise its rates based on the inclusion of the new nuclear plant in its generation system. The City of El Paso, one of the affected cities, approved rates within the El Paso city limits that would not have allowed EPEC to recover any of its nuclear plant investment; EPEC appealed the City's decision to the Commission. The Commission consolidated EPEC's appeal with its appeals from the decisions of other municipalities and with the environs case (affecting areas outside the cities) that was already before it. 1

On March 31, 1988, the Commission signed an order adopting and incorporating the terms of an amended and restated stipulation and increasing rates to permit EPEC to earn a return on part of its investment. The order withheld approval of the sale/leaseback arrangement until a later proceeding, effectively undoing the earlier consolidation. On May 10, 1988, the Commission made minor changes to its order in response to motions for rehearing filed by the City, OPC, TSA, and others. The City, OPC, and TSA filed second motions for rehearing which the Commission overruled on June 16, 1988.

The City, OPC, and TSA each appealed the Commission's order to a Travis County district court, and the Commission obtained a consolidation of those appeals. All the appellants participated in the ensuing district-court review, which resulted in an affirmance of the Commission's order. The City, OPC, and TSA each raise several challenges to the trial court's judgment and, through it, to the Commission's order.

THE NON-UNANIMOUS STIPULATION

The threshold complaint of the City and OPC is that the Commission erred in basing its final order, in part, on a non-unanimous stipulation. Both appellants argue that there is no substantial evidence to support the stipulated matters and that the Commission violated its own procedural rules by considering the stipulation. In addition, OPC asserts that some necessary findings or statements of underlying facts are lacking and that, by considering and basing its final order on the stipulation, the Commission "improperly attempt[ed] to negate statutorily created rights belonging solely to OPC."

An unarticulated assumption underlies the majority of appellants' challenges to the Commission's decision in these and other points of error; although they do not say so explicitly, appellants impliedly urge us to presume that, by basing its final order partially on stipulated matters, the Commission completely abdicated its responsibility to determine disputed issues. We may not so presume; indeed, the law compels a contrary presumption. In reviewing a challenged administrative order, we must presume its validity. The challenger bears the burden of showing error. Texas Health Facilities Comm'n v. Charter Medical-Dallas, Inc., 665 S.W.2d 446, 453 (Tex.1984); Continental Cars, Inc. v. Texas Motor Vehicle Comm'n, 697 S.W.2d 438, 441 (Tex.App.1985, writ ref'd n.r.e.).

We may not substitute our discretion or our judgment for that of the agency; we may reverse an agency's decision only if it is unsupported by substantial evidence, is arbitrary, or results from an abuse of discretion. Railroad Comm'n v. Continental Bus System, Inc., 616 S.W.2d 179, 181 (Tex.1981). An agency's decision is arbitrary or results from an abuse of discretion if the agency: (1) failed to consider a factor the legislature directs it to consider; (2) considers an irrelevant factor; or (3) weighs only relevant factors that the legislature directs it to consider but still reaches a completely unreasonable result. Gerst v. Nixon, 411 S.W.2d 350, 360 n. 8 (Tex.1966); Statewide Convoy Trans., Inc. v. Railroad Comm'n, 753 S.W.2d 800, 804 (Tex.App.1988, no writ).

Appellants analogize the present case to a civil cause in which the court has rendered an agreed judgment without the consent of all parties. The analogy is not apt. In the present case, the decision-maker did not impose the terms of a settlement on non-settling parties. Although the parties signing the stipulation believed its terms fairly resolved disputed issues, 2 tender of the stipulation to the examiner did not bind the Commission to "adopt" it. Furthermore, the Commission did not,...

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