In re Txu Electric Co.

• Decision Date: 31 December 2001
• Docket Number: 010547
• Citation: 67 S.W.3d 130
• Parties: In re TXU Electric Company, RelatorSupreme Court of Texas
• Court: Texas Supreme Court

In re TXU Electric Company, Relator

No. 01-0547

Supreme Court of Texas

Argued on December 12, 2001

December 31, 2001

On Petition for Writ of Mandamus

PER CURIAM

In this original proceeding, relator is TXU Electric Co. and respondents are the Public Utility Commission and its three members. TXU seeks relief from portions of the Commission's orders requiring TXU to reverse efforts it has undertaken to mitigate its estimated stranded costs as part of the transition to a deregulated, competitive retail market for the sale of electricity in Texas.

Six Members of the Court vote to deny relief for different reasons. Chief Justice Phillips, joined by Justice Enoch and Justice Godbey, would not exercise mandamus jurisdiction because TXU has an adequate remedy at law. Justice Baker, joined by Justice Rodriguez, would hold that the relief TXU seeks is against the Commission, over which the Court has no original mandamus jurisdiction. Justice Brister would hold that the portions of the Commission's orders of which TXU complains do not constitute a clear abuse of discretion. Justice Hecht, joined by Justice Owen and Justice Jefferson, would grant relief.

The petition for writ of mandamus is denied.

Chief Justice Phillips filed a concurring opinion in which Justice Enoch and Justice Godbey (Assigned)¹ joined.

Justice Baker concurred in the judgment and filed an opinion in which Justice Rodriguez joined.

Justice Brister (Assigned)² concurred in the judgment and filed an opinion.

Justice Hecht filed a dissenting opinion in which Justice Owen and Justice Jefferson joined.

Justice Brister, concurring.

Mandamus should be granted "only to correct a clear abuse of discretion or the violation of a legal duty when there is no other adequate remedy at law."¹ I agree with Justice Hecht there is no adequate legal remedy; the difficulty of the question presented is exceeded only by its importance, and there is no telling what effect judicial intervention or delay may have. But because I can find no abuse of discretion or violation of a duty imposed by law--certainly none that is clear--I agree with Chief Justice Phillips that mandamus should be denied.

The facts not contested in this proceeding bear repeating. During the last two years while electric rates were frozen, TXU retained almost $1.7 billion in excess revenues that otherwise would have been refunded to consumers. The Legislature authorized this retention to help TXU recover stranded costs, although in hindsight it now appears TXU did not have any. TXU enters competition with the opposite of stranded costs--its power generation assets will be worth almost $3 billion more than their book value. If nothing is done to remedy this excess until 2004, competition will be stifled. These findings by the PUC may be wrong, but for purposes of this mandamus proceeding we must take them as true.²

Whether the Legislature foresaw this situation when drafting the statute is unclear, but one thing is certain--it made no specific provision for it. This is not a case, as TXU argues, in which the Legislature prescribed a plan that the PUC refuses to follow. As shown below, not one of the statutory provisions on which the parties rely tells the PUC what to do in this situation. As a result, TXU asserts the PUC can do nothing, at least not for several years.

But state agencies have never been strictly limited to specific statutory provisions. If legislators could foresee every contingency, there would be little need for agencies. Because they cannot, agencies also have whatever implied powers are reasonably necessary to fulfill their regulatory duties.³

In the Public Utility Regulatory Act (PURA), the Legislature directed the PUC to deregulate the electric industry in a way that encourages competition.⁴ Given its factual findings and this legislative directive, the PUC must do something. Because all parties implicitly agree the statute is ambiguous, and the PUC's interpretation is just as reasonable as any other, no clear legal violation has been shown.

Section 39.254

TXU relies on two sections of the statute. First, it argues PURA section 39.254 gives it a right--indeed a duty--to mitigate the stranded costs it had in 1998. That is not what the section says:

This subchapter provides a number of tools to an electric utility to mitigate stranded costs. Each electric utility that was reported by the commission to have positive "excess costs over market" (ECOM), denoted as the "base case" for the amount of stranded costs before full retail competition in 2002 with respect to its Texas jurisdiction, in the April 1998 Report to the Texas Senate Interim Committee on Electric Utility Restructuring entitled "Potentially Strandable Investment (ECOM) Report: 1998 Update," must use these tools to reduce the net book value of, otherwise referred to as "accelerate" the cost recovery of, its stranded costs each year. Any positive difference under the report required by Section 39.257(b) shall be applied to the net book value of generation assets.⁵

The reference in this section to the 1998 report limits only who may use the chapter's tools. Nothing in the section freezes stranded costs at 1998 levels. When the Legislature intended to freeze utility figures at 1998 levels elsewhere in the statute, it did so expressly.⁶ It did not do so here.

It is undisputed the 1998 report listed TXU as having stranded costs at that time. So applying section 39.254 to this case, the operative second sentence requires TXU to accelerate recovery of "its stranded costs each year."⁷ The ambiguity is in these last five words-which stranded costs? Those that appeared to exist in 1998 or those that appear to exist now?

The PUC chose to use current estimates, and that is certainly the more reasonable construction. There is no reason to require accelerated recovery of stranded costs from previous years that no longer exist. Once its stranded costs were reduced to zero, TXU could not continue mitigation simply because it made more money that way. TXU's counsel conceded at oral argument that if TXU had sold its nuclear power plant in 1999 at book value, it could not continue recovering stranded costs under section 39.254. The same rule should apply when stranded costs disappear not due to a sale but to a rise in gas prices.

Nevertheless, TXU has continued to recover stranded costs in years when, according to the PUC, it had none. Section 39.255 of the statute allows a utility "that does not have stranded costs described in Section 39.254" to use excess revenues to improve transmission, distribution, or air quality facilities.⁸ TXU has used its excess revenues for none of these. As a result, section 39.255 requires TXU to return these funds to consumers.⁹ That is just what the PUC order does.

TXU argues the Legislature intended to freeze estimated stranded costs at 1998 levels (even though the statute never says so) because after the true-up proceeding in 2004 they will become "actual" rather than "estimated." But the true-up is likely to require just as many educated guesses as earlier estimates. Nuclear plants (the main source of stranded costs) rarely swap hands, and never in an open market. In lieu of an objective market price, the plants will be valued at the true-up using stock prices and anticipated income streams.¹⁰ But stock prices reflect many factors other than the auction-value of the plants. And it will be impossible to tell whether income stream estimates are accurate until decades from now when the last kilowatt is sold. The Legislature certainly had the power to provide a cut-off date in 2004, after which all calculations would be treated as final. But that merely guarantees they are final; it cannot guarantee they are accurate.

The statute does not freeze stranded cost estimates at 1998 levels. It requires the PUC to update stranded cost estimates now,¹¹ and nowhere requires it to ignore the results. In a recent case involving the same statute, the same parties, and the same question--whether the PUC should use updated figures when the statute was unclear--this Court deferred to the Commission.¹² To be consistent, the Court must do the same here.¹³

Section 39.201

Second, TXU argues the PUC has taken steps it has no power to take--at least not yet. For reasons both statutory and equitable, TXU dares not argue it can simply keep several billion dollars as a windfall. Instead, it points out that PURA section 39.201(l) allows the PUC to take the steps it does here (reversing redirected depreciation and returning excess revenues to consumers by lowering rates) after the true-up proceeding some years from now. Because of this express provision, TXU infers a legislative intent to prohibit their use any earlier.

But the Legislature did provide for some rate adjustment in the current proceedings based on updated stranded cost estimates. PURA section 39.201(g) allows the PUC to include a competition transition charge in 2002 rates based on current estimates of stranded costs.¹⁴ TXU argues that, because the PUC's adjustment is a credit to consumers rather than a charge, it has improperly read a "negative competition transition charge" into the statute.

But TXU makes the same inference in its own reading of the statute, without saying so. TXU says section 39.201(l) allows the PUC to remedy overrecovery at the true-up, but that section only applies if "the competition transition charge is larger than is needed to recover any remaining stranded costs." It is undisputed TXU's rates will include no competition transition charge, and it will have no "remaining stranded costs" if it has overrecovered them. How then can this section apply, if the charge that is "larger than is needed" is zero? Only by reading the statute to imply a negative competition transition charge. There is nothing else zero can be "larger than."

TXU's argument shows all parties agree we must infer somewhere in chapter 39 the...