Office of Pub. Util. Counsel v. Tex.–n.M. Power Co.

• Decision Date: 11 May 2011
• Docket Number: No. 03–10–00526–CV.,03–10–00526–CV.
• Citation: 344 S.W.3d 446
• Parties: OFFICE OF PUBLIC UTILITY COUNSEL and the Public Utility Commission of Texas, Appellants,v.TEXAS–NEW MEXICO POWER COMPANY, Appellee.
• Court: Texas Court of Appeals

344 S.W.3d 446

OFFICE OF PUBLIC UTILITY COUNSEL and the Public Utility Commission of Texas, Appellants,

v.TEXAS–NEW MEXICO POWER COMPANY, Appellee.

No. 03–10–00526–CV.

Court of Appeals of Texas, Austin.

May 11, 2011.

James K. Rourke Jr., Office of Public Utility Counsel, Assistant Public Counsel, Austin, TX, for Appellants.

Patrick R. Cowlishaw, Jackson Walker LLP, Dallas, TX, for Appellee.Before Chief Justice JONES, Justices HENSON and GOODWIN.

OPINION

J. WOODFIN JONES, Chief Justice.

This is an administrative appeal of a final order of the Public Utility Commission (the “Commission”) in a contested case involving Texas–New Mexico Power Company's (“TNMP”) revised competition transition charge (“CTC”) interest rate. TNMP filed a suit for judicial review of the Commission's decision, which determined the effective date of the revised interest rate. The Office of Public Utility Counsel (“OPC”) intervened in support of the Commission's order.¹ The trial court reversed the Commission's order, and the Commission and OPC appealed. We will reverse the trial court's order and render judgment affirming the Commission's order.

FACTUAL AND PROCEDURAL BACKGROUND

TNMP is a transmission and distribution utility that was “unbundled” from a vertically integrated utility in the restructuring of the Texas market. See generally Tex. Util.Code Ann. §§ 11.001–66.017 (West 2007 & Supp.2010) (hereinafter “PURA”). As a regulated utility, TNMP provides services at rates that remain subject to traditional cost-of-service regulation by the Commission under PURA. See id. One of the rates and charges set by the Commission is TNMP's CTC, the mechanism through which the utility recovers its stranded costs, with interest.²

In TNMP's true-up case, the Commission determined the rate of interest to be applied to TNMP's stranded costs from their inception (January 1, 2002, when competition began) to the date of the true-up. In its final true-up order, issued July 22, 2005, the Commission established a stranded-cost balance for TNMP of $128,820,365 as of January 1, 2002. The Commission added interest (carrying charges) of $39,166,214 to these stranded costs, calculated at an annual rate of 10.93%. The final net stranded-cost recovery authorized by the Commission was $110,603,855. See State v. Public Util. Comm'n, 246 S.W.3d 324, 331 (Tex.App.-Austin 2008, pet. filed).

On November 4, 2005, TNMP initiated Docket No. 31994 (the “CTC Docket”), which involved the carrying-charge rate on its CTC as well as a number of other issues. The Commission referred the matter to an administrative law judge (“ALJ”) at the State Office of Administrative Hearings (“SOAH”). Before the CTC Docket proceeded to a hearing on the merits, however, TNMP and all parties except the Cities entered into a non-unanimous stipulation (or indicated that they did not oppose the stipulation).³ Of relevance to this appeal, the NUS provided that “[i]nterest on the stranded cost balance beginning July 22, 2005 will be 10.93%. That interest rate will prevail unless and until the Commission validly adopts a new rule [regarding the interest rate] at which time the terms of the new rule will apply.”

In fact, during the pendency of the CTC Docket, the Commission was in the process of amending its true-up rule, 16 Tex. Admin. Code § 25.263, which provided a new formula for computing the stranded-cost interest rate.⁴ The Commission completed the rulemaking after the NUS was signed and filed but before the NUS went before the Commission for review. The effective date of the new rule was July 20, 2006.

After a hearing on the NUS, the ALJ recommended in its proposal for decision that the Commission reject the stipulation. In its final order dated November 2, 2006 (the “CTC Order”), the Commission declined to adopt the ALJ's proposal for decision and instead adopted the NUS. In the CTC Order, the Commission made reference to the new rule and determined that, “[u]nder the terms of the NUS, the new version of the rule sets the interest rate on the stranded-cost balance from the date the rule is effective.” In addition, the Commission made the following fact findings:

16A. The NUS sets the interest rate of 10.93% until the Commission validly adopts a new rule, at which time the terms of the new rule will apply.

....

41. The NUS sets an interest rate of 10.93%, which is subject to change when the Commission validly adopts a new rule setting the interest rate.

41A. P.U.C. Subst. R. 25.263( l )(3) was revised, effective July 20, 2006, and establishes a formula for determining interest on post-true-up balances.

In Ordering Paragraph No. 1 of the CTC Order, the Commission approved TNMP's application to set the CTC “as modified by the NUS.” The Commission further ordered TNMP to file a tariff that conformed to the decisions contained in the CTC Order and that updated the interest amounts approved therein. TNMP did not appeal from the Commission's final CTC Order.

In accordance with the new rule, which required each transmission and distribution utility to file an application to adjust the carrying costs on its CTC within 30 days of the effective date of the rule, TNMP initiated Docket No. 33106 (the “Interest Rate Docket”). In its final order in the Interest Rate Docket, the Commission approved TNMP's recommended CTC interest rate revision of 8.31%. This Court considered the ratepayer cities' challenges to the 8.31% interest rate in Cities of Dickinson v. Public Utility Commission, 284 S.W.3d 449 (Tex.App.-Austin 2009, no pet.), ultimately affirming the Commission's determination, see id. at 454. Thereafter, TNMP initiated the proceeding that is the subject of this appeal, Docket No. 35038 (the “Tariff Docket”).

The instant dispute arising from the Tariff Docket proceedings concerns exactly when the new 8.31% interest rate went into effect. TNMP argued that the new rate would only go into effect on the entry of a final order in the Tariff Docket, and that any earlier effective date would result in impermissible retroactive ratemaking. The Commission Staff took the position that the new rate went into effect on December 27, 2007—the date claimed by Staff as the effective date of the Commission's final decision in the Interest Rate Docket. OPC urged that, in accordance with the CTC Order adopting the NUS, the new rate went into effect on the effective date of the revised rule, July 20, 2006.

At the Tariff Docket hearing, each party introduced evidence in support of its respective position. The ALJ's proposal for decision recommended the Commission Staff's proposed date. The Commission declined to adopt the ALJ's interpretation, however, and instead concluded that the CTC Order had adopted the agreement of the parties regarding the effective date of the interest rate change and applied the revised interest rate from July 20, 2006, when the revised rule went into effect. It memorialized these findings by an order dated October 22, 2008 (the “Effective Date Order”). TNMP sought judicial review of the Effective Date Order, and the trial court reversed “the Commission's decision to set a retroactive effective date [of] July 20, 2006 for the 8.31% carrying charge rate.” The Commission and OPC now appeal.

DISCUSSION

On appeal, the Commission and OPC argue that, in issuing the Effective Date Order, the Commission properly interpreted its 2006 CTC Order to require that the revised-rule interest rate apply going forward from July 20, 2006. They urge that because this interpretation of the CTC Order is reasonable and supported by the language of that prior order, this Court should defer to the Commission's interpretation in construing the Effective Date Order under review.

Standard of Review

This case concerns a suit for judicial review of a final agency decision in a contested case. In general, we review the Commission's final order under the substantial evidence standard of review described in section 2001.174 of the Texas Administrative Procedure Act. See Tex. Util.Code Ann. § 15.001 (West 2007); Tex. Gov't Code Ann. § 2001.174 (West 2008). Under the substantial evidence rule, we give significant deference to the agency in its field of expertise. Railroad Comm'n v. Torch Operating Co., 912 S.W.2d 790, 792 (Tex.1995); AEP Tex. North Co. v. Public Util. Comm'n, 297 S.W.3d 435, 447 (Tex.App.-Austin 2009, pet. denied). We presume that the Commission's order is supported by substantial evidence, and the complaining parties have the burden to overcome this presumption. City of El Paso v. Public Util. Comm'n, 883 S.W.2d 179, 185 (Tex.1994).

Any questions of statutory construction are reviewed de novo, although an agency's interpretation of the statute it administers is entitled to serious consideration so long as it is reasonable and does not conflict with the statute's language. First Am. Title Ins. Co. v. Combs, 258 S.W.3d 627, 631–32 (Tex.2008). A court applying the substantial evidence rule may reverse the agency's order when the agency has made a prejudicial error of law, including a violation of a constitutional or statutory provision, or when the order is “arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion.” Tex. Gov't Code Ann. § 2001.174(2).

In construing orders of an administrative agency, we apply the same rules as when we interpret statutes; the ultimate object of construction is to ascertain the intent of the administrative body. Railroad Comm'n v. Home Transp. Co., 670 S.W.2d 319, 325 (Tex.App.-Austin 1984, no writ); see Boswell v. Brazos Elec. Power Co-op., Inc., 910 S.W.2d 593, 599–600 (Tex.App.-Fort Worth 1995, writ denied); Armak Tex. Movers, Inc. v. Railroad Comm'n, 797 S.W.2d 383, 388 (Tex.App.-Austin 1990, no writ); Airport Coach Serv., Inc. v. City of Fort Worth, 518 S.W.2d 566, 574 (Tex.Civ.App.-Tyler 1974, writ ref'd n.r.e.) (op. on reh'g). Because an administrative agency is a creature of the legislature, it...