El Paso Elec. Co. v. Public Utility Com'n of Texas

• Citation: 917 S.W.2d 846
• Decision Date: 12 July 1995
• Docket Number: No. 03-93-00661-CV,03-93-00661-CV
• Parties: EL PASO ELECTRIC COMPANY; City of El Paso; State of Texas; and Office of Public Utility Counsel, Appellants, v. PUBLIC UTILITY COMMISSION OF TEXAS; ASARCO, Inc.; and Phelps Dodge Refining Corporation, Appellees.
• Court: Court of Appeals of Texas

Page 846

917 S.W.2d 846

EL PASO ELECTRIC COMPANY; City of El Paso; State of Texas and Office of Public Utility Counsel, Appellants, v. PUBLIC UTILITY COMMISSION OF TEXAS; ASARCO, Inc.; and Phelps Dodge Refining Corporation, Appellees.

No. 03-93-00661-CV.

Court of Appeals of Texas Austin.

July 12, 1995.

Rehearing Overruled July 12, 1995.

Norman Gordon, Diamond, Rash, Gordon & Jackson, El Paso [Signed brief], for City of El Paso.

John F. Williams, Clark, Thomas & Winters, Austin [Signed brief], for El Paso Elec. Co.

Stephen Fogel, Office of Public Utility Counsel, Austin [Signed brief], for Office of Public Utility Counsel.

Dan Morales, Atty. Gen., Rupaco T. Gonzalez, Asst. Atty. Gen., Austin [Signed brief], Richard A. Muscat, Asst. Atty. Gen., Austin [Signed brief], for State of Tex.

James W. Checkley, Jr., Mark W. Smith, Brown, McCarroll & Oaks Hartline, Austin [Both signed brief], for ASARCO, Inc.

Dan Morales, Atty. Gen., Elizabeth R.B. Sterling, Asst. Atty. Gen., Adm. Law Section, Energy Div., Austin [Signed brief], for Public Utility Com'n of Texas.

Before CARROLL, C.J., and ABOUSSIE, JONES, KIDD and B.A. SMITH, JJ.

BEA ANN SMITH, Justice.

We withdraw our opinion issued April 5, 1995 and substitute the following in its place.

The Court on its own motion has considered this cause en banc. See Tex.R.App.P. 79(d), (e). El Paso Electric Company ("EPEC"), the City of El Paso, the Office of Public Utility Counsel ("OPUC"), the State of Texas, and the Public Utility Commission ("Commission") ¹ appeal from a district-court judgment rendered in a suit for judicial review under the Public Utility Regulatory Act. Tex.Rev.Civ.Stat.Ann. art. 1446c (West Supp.1995) (hereafter "PURA"). The district court's judgment reverses and remands certain aspects of the Commission's final order and affirms the remainder. We will affirm the district-court judgment in part and reverse and render in part. See Administrative Procedure Act, Tex.Gov't Code Ann. § 2001.174 (West 1994) (hereafter "APA"). ²

BACKGROUND

EPEC is an electric utility that provides retail electric service in Texas and New Mexico and wholesale service in Texas, New Mexico, California, and Mexico. In 1978 the Commission awarded EPEC a certificate of convenience and necessity to expand its power generation system by purchasing an interest in the Palo Verde Nuclear Generating Station. Palo Verde consists of three separate units; EPEC's ownership interest ³ entitles it to 200 megawatts of power from each unit, for a total of 600 megawatts.

This appeal arises from the Commission's final order in Docket 9945 entered in response to EPEC's request for a rate increase of $131 million. See Tex.Public Util.Comm'n, Application of El Paso Electric Co. for Auth. to Change Rates, Docket No. 9945, 18 Tex.P.U.C.Bull. 9 (Feb. 6, 1992). As part of its proposed rate increase, EPEC requested inclusion in rate base of the $300 million cost of constructing Unit 3. The Commission permanently disallowed $27.23 million of costs for imprudence resulting in construction delays. The Commission then found that the utility had imprudently failed to reduce its

                massive investment in the Palo Verde project, yielding more capacity than its customers needed.  Because the Commission concluded that this "excess capacity" in the form of Unit 3 is not currently "used and useful," its costs were excluded from rate base at this time.  See PURA § 41(a).  However, rather than permanently disallow such a huge expenditure because of EPEC's imprudent level of participation in the project, the Commission decided that inclusion of Unit 3 in rate base be postponed only until the capacity becomes "used and useful."   Anticipating that Unit 3's capacity would become useful in increments, the Commission proposed to include increasing percentages of Unit 3 costs in rate base as the capacity becomes needed to serve customers.  EPEC challenges the Commission's findings that EPEC imprudently failed to reduce its level of participation in the Palo Verde project, argues that Unit 3 does not represent excess capacity, and complains of the Commission's postponement of its recovery of Unit 3 construction costs.  The other appellants raise additional points of error asserting the res judicata effect of decisional imprudence holdings in prior dockets, and challenging the treatment of income tax expenses, deferred accounting charges, the tariff classification of state agencies, and the award of attorney's fees
                

DISCUSSION

Finality of the Commission's Order

Before proceeding to EPEC's points of error, we must address an argument raised by the State challenging the finality of the Commission's order. The State argues that the Commission's order was not a final, appealable order because the Commission continued to approve a rate moderation plan that fails to assign revenue responsibility for deferred revenues. ⁴ Cf. City of Corpus Christi v. Public Util. Comm'n, 572 S.W.2d 290, 299-300 (Tex.1978) (only final agency orders are appealable); State v. Public Util. Comm'n, 840 S.W.2d 650, 654 (Tex.App.--Austin 1992), rev'd in part on other grounds, 883 S.W.2d 190 (Tex.1994) (final order leaves nothing open for future disposition). The State contends that the Commission abdicated its responsibility to ensure just and reasonable rates under PURA because it failed to identify the class of consumers that will pay for these costs in the future.

As we have noted in the analogous situation of deferred accounting treatment for capital costs, "the presence of a condition in an order does not automatically destroy its finality." State v. Public Util. Comm'n, 840 S.W.2d at 654-55. Courts will treat as final an order that is definitive, promulgated in a formal manner, and issued with an expectation of compliance. Office of Pub. Util. Counsel v. Public Util. Comm'n, 843 S.W.2d 718, 723 (Tex.App.--Austin 1992, writ denied) (citing Texas-New Mexico Power Co. v. Texas Indus. Energy Consumers, 806 S.W.2d 230, 232 (Tex.1991)). For example, the Commission may issue an order determining the prudence of a utility's investment before including the costs in rate base; the order is final because it entitles the utility to recover the costs, even though ratepayers remain unaffected by the order until rates incorporating these costs are set. See id. at 723-24 (order need only establish legal relationship between parties to be final and need not resolve all potential related controversies). Similarly, the Commission's order did not need to assign responsibility for revenue increases beyond those incorporated in the current rate design to be final. The State's first point of error is overruled.

In a related point of error, the State argues that the Commission's order is unreasonable and discriminatory to future ratepayers because the failure to allocate deferred revenues by customer class allows customers who leave the system to escape responsibility for their fair share of the cost of service provided for their benefit. The State's argument is premature; there has been no showing

that the deferred revenues are guaranteed or that the State has been discriminated against by the rate plan currently authorized. Without expressing an opinion on the merits of the State's argument, we overrule the State's second point of error as not ripe for our consideration.

Unit 3: Excess Capacity?

PURA section 41(a) provides: "Utility rates shall be based upon the original cost of property used by and useful to the public utility in providing service including construction work in progress at cost as recorded on the books of the utility." In its first point of error, EPEC asserts that Palo Verde Unit 3 is currently "used and useful" in providing service to its customers and does not represent excess capacity; hence, the costs of this unit should have been included in rate base immediately. EPEC urges several ancillary arguments in support of this point of error: (1) when considered as part of EPEC's total generating system, Unit 3 operates to capacity to serve EPEC's retail customers and "off-system" wholesale customers; (2) "off-system" sales must be considered in determining whether Unit 3 is used and useful, because the off-system customers absorb a disproportionate share of EPEC's total system costs, which in turn benefits Texas ratepayers; (3) the Commission allowed EPEC to recover Unit 3's operating expenses and the lower capital costs of a hypothetical generating plant with the same capacity as Unit 3, proving that Unit 3 capacity is used and useful; and (4) the Commission's decision is arbitrary and capricious because it failed to analyze all relevant factors before concluding that Unit 3 is not currently used and useful.

In order to properly evaluate EPEC's arguments, we must first review the bases and effects of the Commission's decision. The Commission argues that EPEC improperly focuses its argument on whether Unit 3 is used and useful and ignores the underlying foundation of the Commission's actions: that EPEC was imprudent in failing to reduce its level of investment in the Palo Verde Nuclear Project after its initial participation in 1978. EPEC's imprudent level of participation in the Palo Verde project resulted in unneeded capacity in the form of Unit 3, which precluded inclusion of any of Unit 3's construction costs in rate base in this docket. However, the Commission recognized that the effects of this imprudence were temporary and determined that Unit 3 costs would be included in rate base as increments of the plant become used and useful. ⁵

Much of EPEC's argument under this point of error rests on the assumption that if a utility's plant is "actually being used" to produce power for whatever purpose, the plant is per se "used and useful" and therefore includible in rate base. Under EPEC's view, it is irrelevant whether the utility acquires capacity to serve its on-system customers or to sell power wholesale abroad. We cannot agree...