Gulf States Utilities Co. v. Public Utility Com'n of Texas

• Citation: 784 S.W.2d 519
• Decision Date: 17 January 1990
• Docket Number: No. 3-89-051-CV,3-89-051-CV
• Parties: GULF STATES UTILITIES COMPANY, Appellant, v. PUBLIC UTILITY COMMISSION OF TEXAS, et al., Appellees.
• Court: Texas Court of Appeals

Page 519

784 S.W.2d 519

GULF STATES UTILITIES COMPANY, Appellant, v. PUBLIC UTILITY COMMISSION OF TEXAS, et al., Appellees.

No. 3-89-051-CV.

Court of Appeals of Texas Austin.

Jan. 17, 1990.

Rehearing Denied Feb. 28, 1990.

Barry Bishop, Clark, Thomas, Winters & Newton, Austin, for appellant.

Jim Mattox, Atty. Gen., Susan D. Bergen, Asst. Atty. Gen., Barbara Day, Law Offices of Jim Boyle, John Laakso, Austin, for appellees.

Before POWERS, CARROLL and ABOUSSIE, JJ.

POWERS, Justice.

In a statutory cause of action authorized by the Public Utility Regulatory Act (PURA), Tex.Rev.Civ.Stat.Ann. art. 1446c, § 69 (Supp.1989), Gulf States Utilities Company sued in district court for judicial review of a final order issued by the Public Utility Commission in a contested case. Texas Administrative Procedure and Texas

                Register Act (APTRA), Tex.Rev.Civ.Stat.Ann. art. 6252-13a, § 19 (Supp.1989).  The district court declined to set aside the Commission order, and Gulf appeals to this Court. 1  Id. § 20.  We will reverse the judgment and agency order, remanding the case to the Commission.  Id. § 19(e)
                

THE CONTROVERSY

Gulf is a public utility that generates, distributes, and sells electric power under PURA and the Commission's regulation. Three of Gulf's largest electric-power customers, each situated in Louisiana, determined to withdraw from the Gulf system and to generate their own electric power. To minimize the resulting loss, Gulf proposed to the three customers that they and Gulf enter into a joint venture for the production of electric power. As a part of the undertaking, Gulf agreed to sell the joint venture two of Gulf's generating units, and to buy from the joint venture surplus electric power at a negotiated price specified in the contract. Gulf has owned and used the two generating units for a number of years. The power that Gulf promised to purchase from the joint venture would enter into Gulf's general power supply for sale and distribution to Gulf's remaining customers. The parties entered into a conditional contract on the terms indicated, and Gulf reported the transaction to the Commission as required by PURA § 63.

PURA § 63

Section 63 of PURA requires public utilities to report to the Commission any sale of certain of their assets when the total consideration exceeds $100,000.00. On receiving a report, PURA § 63 directs the Commission to investigate the transaction, with or without a public hearing, to determine whether the sale "is consistent with the public interest," taking into consideration, among other things, the reasonable value of the property and facilities. If the Commission finds the transaction is not in the public interest, PURA § 63 commands that the agency: (1) consider the "effect of the transaction" in any ratemaking proceeding; and (2) disallow that "effect" if it "unreasonably" affects rates or service. PURA § 63.

Thus, a proceeding under PURA § 63 is not directed at obtaining the Commission's approval of a sale of utility assets, but it may affect a utility's rates if the Commission finds the sale is not in the public interest, and if it will unreasonably affect rates or service. A Gulf rate proceeding was pending in the Commission when it issued its final order under PURA § 63 in the proceeding we now review. ²

Section 63 of PURA does not provide as much, in explicit terms, but the Commission has necessarily construed the statute to permit the relevant inquiries before a sale of assets is consummated. The parties do not quarrel with that interpretation.

The Commission Order

After public hearings, the Commission determined that Gulf's sale of the generating units was generally in the public interest. The agency conditioned that finding, however, on two accounting requirements incorporated in the final order. Both refer to the manner of treating the transaction in Gulf's pending (and any future) rate proceeding. First, the Commission determined that it was not in the public interest for Gulf's Texas customers "to pay in excess of [Gulf's] avoided cost for purchased power from" the joint venture, and in any rate proceeding Gulf would be "limited to recovering those purchased power payments" that fell below Gulf's avoided costs. Second, the Commission determined that Gulf must treat as "other electric utility income" 83% of the sums Gulf receives from the joint venture in installment payments on the sale of the two generating units, and may treat as "non-utility income" the remaining 17% of such payments.

From these determinations, Gulf prosecuted its suit for judicial review of the Commission's final order. The trial court declined to reverse the order, and Gulf appealed. The parties join issue in this Court solely on whether the order should be reversed because the Commission erred in either of the two accounting measures imposed as conditions in the final order.

"AVOIDED COSTS" OF PURCHASED POWER

The Commission's decision to limit Gulf's recovery of operating expense to "avoided costs," in any Gulf rate proceeding, rests upon the Commission's interpretation of its rule found at 16 Tex.Admin.Code § 23.66 (1989). The ultimate issue on appeal, concerning "avoided costs," is the validity of the Commission's interpretation of that rule. That issue cannot be understood, however, except in reference to the matters next to be discussed, and the parties properly have devoted large parts of their briefs to them.

Public Utility Regulatory Policies Act of 1978

The joint venture has been designated a "qualifying facility" under federal statutory provisions and rules relating to "cogenerators" and "small power producers" of electric energy. These federal statutes and rules have the general purpose of promoting the development of alternative energy sources in an attempt to reduce the consumption of fossil fuels and to lessen our reliance on foreign energy supplies. ³ The federal statutory provisions were enacted as Pub.L. No. 95-617, 92 Stat. 3117 (1978) and given the name "Public Utility Regulatory Policies Act of 1978." The provisions were incorporated subsequently in various sections of 16 U.S.C. (1982 & Supp.1989). See generally Miles, Full-Avoided Cost Pricing Under the Public Utility Regulatory Policies Act: "Just and Reasonable" to Electric Consumers?, 69 Cornell L.Rev. 1267 (1984).

The Federal Energy Regulatory Commission administers the federal Act. Section 210(a) of the Act (16 U.S.C.A. § 824a-3(a) (1985)) requires the agency to prescribe "rules [that] require electric utilities to offer to ... purchase electric energy from" qualifying cogenerators and small power producers. (Emphasis added.) Section 210(b) of the Act (16 U.S.C.A. § 824a-3(b) (1985)) refers to the rates payable by electric utilities for such compulsory purchases of electric power: the rates must be just and reasonable to the utility's consumers and in the public interest; they may not be discriminatory against the qualifying cogenerator or small producer; and any rule prescribed by the agency may not "provide for a rate which exceeds the incremental cost to the electric utility of alternative electric energy." Id. (emphasis added). Section 210(d) (16 U.S.C.A. § 824a-3(d) (1985)) defines "incremental cost of alternative electric energy:" the term means the utility's cost for "electric energy which, but for the purchase from such cogenerator or small power producer, such utility would generate or purchase from another source." Id. When orchestrated, these statutory provisions mandate that the Federal Energy Regulatory Commission prescribe rules that require electric utilities to buy electric power from "qualifying facilities," whether cogenerators or small-power producers, at a purchase price prescribed by the Commission that must be equal to or less than the cost the utility would incur by producing the power itself or buying the power from another source. Hence, the term "avoided costs" refers to the official price prescribed by the Federal Energy Regulatory Commission in such cases.

The Federal Energy Regulatory Commission promulgated the rules mandated by Congress. These govern when and under what conditions electric utilities must purchase electric power from "qualifying facilities." They also govern the setting of official prices for such sales, or the "avoided cost" rate to which the parties are bound by force of the federal Act. Neither the Act nor the federal rules purport to compel the utility and "qualifying facility" to contract for the official price and no other. Indeed, the Federal Energy Regulatory Commission "intended to permit utilities and qualifying facilities to negotiate rates different from those prescribed in the" regulations, which "were viewed as a buttress of protection for the qualifying facility in negotiations rather than as mandatory requirements to be enforced as to all transactions." Bruder & Simonds, "State Pricing Rules for Cogenerators and Small Power Producers--Eight Basic Issues," Electric Power, Current Issues in Regulation and Financing (Practicing Law Institute, 1982), at 300.

PURA § 41A

In PURA § 41A, the Legislature enacted somewhat analogous provisions dealing with transactions between electric utilities and qualifying cogenerators or small-power producers. The statute supplies a mechanism for certifying an electric utility's "avoided cost" in a particular transaction with a cogenerator or small power producer, the certified sum being included automatically in the utility's operating expenses for rate-calculation purposes in any rate proceeding that occurs while the certification is in effect.

Section 41A of PURA applies to agreements made between an electric utility and a "qualifying facility," as that term is defined in the federal Act to include certain cogenerators and small-power producers. "If an electric utility and a qualifying facility enter into an agreement providing for the purchase of capacity," either may submit a copy of it to the Public...