Power Resource v. Public Utility Com'n

• Decision Date: 10 January 2002
• Docket Number: No. 03-01-00187-CV.,03-01-00187-CV.
• Parties: POWER RESOURCE GROUP, INC., Appellant, v. PUBLIC UTILITY COMMISSION OF TEXAS and Texas-New Mexico Power Company, Appellees.
• Court: Texas Court of Appeals

73 S.W.3d 354

POWER RESOURCE GROUP, INC., Appellant, v. PUBLIC UTILITY COMMISSION OF TEXAS and Texas-New Mexico Power Company, Appellees.

No. 03-01-00187-CV.

Court of Appeals of Texas, Austin.

January 10, 2002.

Robert A. Webb, Austin, C.S. Lewis III, Gretchen M. Schilling, Riggs, Abney, Neal, Turpen, Orbison & Lewis, Tulsa, OK, for appellant.

Kirsten L. Worman, Assistant Attorney General, Amanda Atkinson Cagle, Assistant Attorney General, Austin, for Public Utility Commission of Texas.

Louis S. Zimmerman, Brian S. Greig, Marcy Hogan Greer, Fulbright & Jaworski L.L.P., Austin, for Texas-New Mexico Power Company.

Before Justices KIDD, YEAKEL and PATTERSON.

JAN P. PATTERSON, Justice.

In this appeal, we must determine whether the Public Utility Commission of Texas erred in interpreting its substantive rule 23.66, governing the obligation of electric utilities to purchase energy and capacity from qualifying facilities.¹ Power Resource Group, Inc., challenges the Commission's refusal to find a requirement in the rule imposing upon utilities an obligation to enter into contracts offered by qualifying facilities incapable of providing energy or capacity within ninety days of such offer.

In Texas, the primary enforcer of the Public Utility Regulatory Policies Act of 1978 ("PURPA"), a federal statute enacted in part to encourage development of cogeneration facilities as an alternative source of energy, is the Commission. The Commission is authorized to enact rules imposing an obligation upon a utility to purchase power from a QF. See Tex. Util.Code Ann. § 11.002(c) (West Supp.2002). As contemplated by PURPA, the Commission enacted rule 23.66(d)(1)(C) to regulate the relationship between utilities and QFs. In implementing and interpreting its rule, then, the Commission determined that it could best serve the purposes of PURPA by imposing an obligation upon a utility to purchase energy—but not contract for it—within ninety days of notification of the availability of such energy from a QF. In so doing, the Commission struck a balance between insuring a market for QFs by encouraging the development of energy and requiring utilities to purchase that energy.

The question on appeal, then, is whether the Commission misinterpreted the rule or it is otherwise invalid. In six points of error, Power Resource contests the district court's judgment (i) affirming the Commission's interpretation of rule 23.66 and (ii) granting appellees'² motions for summary judgment. Holding the Commission's interpretation of rule 23.66 was reasonable and Power Resource's claims to be without merit, we affirm the district court's judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Power Resource and Texas New Mexico Power ("TNMP") began contract negotiations in early 1996 for Power Resource to supply energy and capacity to TNMP from a proposed cogeneration facility to be built in Lewisville, Texas. In September 1996, while still negotiating with TNMP, Power Resource filed for and received a self-certification number from the Federal Energy Regulatory Commission ("FERC") for the Lewisville project.³ Relying on this certification, Power Resource demanded that TNMP sign a long-term purchase agreement. Negotiations between Power Resource and TNMP continued until January 2, 1998, when Power Resource made its "last firm offer." Contract negotiations ended when TNMP rejected Power Resource's proposal.

Power Resource filed a petition with the Commission requesting the Commission to force TNMP to contract with Power Resource for the purchase of energy and capacity from its proposed Lewisville project. When TNMP filed a motion to dismiss, the Commission referred the matter to the State Office of Administrative Hearings. After an evidentiary hearing, the administrative law judge denied TNMP's motion, concluding that rule "23.66(d)(1)(C) does not negate TNMP's duty to negotiate and contract with [Power Resource] based on [Power Resource]'s inability to deliver power within 90 days." TNMP appealed the ALJ's ruling to the Commission, which issued an order reversing that determination, and dismissing Power Resource's contract and fraud claims against TNMP. The Commission concluded that TNMP was not obligated under rule 23.66 to contract with Power Resource to purchase power and capacity from the Lewisville project because Power Resource could not deliver power or capacity from the Lewisville project within ninety days after Power Resource's January 1998 offer. Power Resource then filed suit in district court appealing the Commission's final order. Power Resource now appeals the district court's judgment granting appellees' motions for summary judgment and affirming the Commission's order dismissing Power Resource's claims against TNMP.

DISCUSSION

By its third point of error, Power Resource challenges the Commission's interpretation of rule 23.66 as ultra vires and invalid. Power Resource agrees that this appeal primarily concerns when, with respect to an unbuilt QF in Texas, a utility incurs a legally enforceable obligation to purchase energy. That determination turns on the correct interpretation of the language in rule 23.66(d)(1)(C),⁴ requiring each electric utility to "purchase energy and capacity from a qualifying facility ... within 90 days of being notified by the qualifying facility that such energy is or will be available...." 16 Tex. Admin. Code § 23.66(d)(1)(C) (1999). Power Resource contends that, merely by obtaining QF status and tendering a self-imposed commitment to provide energy, a cogeneration facility creates a legally enforceable obligation by which it can unilaterally compel a utility to contract for the QF's future energy production. The Commission responds that the rule contemplates both that the QF (i) notify the utility of its intent to invoke its statutory right to demand the utility purchase its energy and (ii) have the capacity to make energy available to the utility within ninety days of such notification.

Although not binding, the interpretation of a regulation by the administrative agency charged with its enforcement is entitled to great weight. See State v. Public Util. Comm'n, 883 S.W.2d 190, 196 (Tex.1994) (citing Dodd v. Meno, 870 S.W.2d 4, 7 (Tex.1994), and Tarrant Appraisal Dist. v. Moore, 845 S.W.2d 820, 823 (Tex.1993)). We necessarily look to the administrative construction of the rule in question and determine "whether the administrative interpretation `is plainly erroneous or inconsistent with the regulation.'" Public Util. Comm'n v. Gulf States Utils. Comm'n, 809 S.W.2d 201, 207 (Tex.1991) (citing United States v. Larionoff, 431 U.S. 864, 872, 97 S.Ct. 2150, 53 L.Ed.2d 48 (1977) (quoting Bowles v. Seminole Rock Co., 325 U.S. 410, 414, 65 S.Ct. 1215, 89 L.Ed. 1700 (1945))). Thus, absent evidence that the Commission is disregarding the plain language of its rules, we look to its expertise in calibrating the various technical aspects of this complex statutory scheme and in integrating the various policy considerations of a transitioning industry. The agency responsible for regulating an industry must be afforded sufficient flexibility to determine and carry out its mandate. See Cities for Fair Util. Rates v. Public Util. Comm'n, 924 S.W.2d 933, 942 (Tex.1996). We will reverse the Commission when it fails to follow the clear, unambiguous language of its own regulations, that is, when its actions are arbitrary and capricious. Id. (citing Lewis v. Jacksonville Bldg. & Loan Ass'n, 540 S.W.2d 307, 310 (Tex.1976), and Ex parte Roloff, 510 S.W.2d 913, 915 (Tex.1974)).

Subsection (1)(C) specifies the circumstances under which an electric utility is required to purchase energy and capacity. See 16 Tex. Admin. Code § 23.66(d)(1)(C). The rule states,

Each electric utility shall purchase energy and capacity from a qualifying facility with a design capacity of 100 Kw or more within 90 days of being notified by the qualifying facility that such energy and capacity are or will be available, provided that the electric utility has sufficient interconnection facilities available. If an agreement to purchase energy and capacity is not reached within 90 days after the qualifying facility provides such notification, the agreement, if and when achieved, shall bear a retroactive effective date for the purchase of energy (and capacity) delivered to the electric utility correspondent with the 90th day following such notice.... If an agreement to purchase energy and capacity is not reached upon completion of construction of the interconnection facilities or 90 days after notification by the qualifying facility that such energy and capacity are or will be available, the agreement, if and when achieved, shall bear a retroactive effective date for the purchase of energy and capacity delivered to the electric utility correspondent with the time of interconnection or the 90th day, whichever is later. Nothing in this subsection shall be construed in such a manner so as to preclude a qualifying facility from notifying and contracting for energy and/or capacity with a utility prior to 90 days before delivery of such energy and/or capacity.

Id. (emphasis added). According to the Commission, the requirement in the rule to purchase is not the same as a requirement to contract. The Commission asserts that its interpretation is consistent with the plain language of the rule and that an alternative reading would render the rule's ninety-day notification provision meaningless.

Power Resource contends that, under a correct interpretation of the rule, a utility must contract to purchase energy and capacity within ninety days after receiving the QF's self-imposed commitment to deliver such power, regardless of whether the QF is capable of delivering the power within that period. This is so, according to Power Resource, because: (i) FERC regulations require utilities to "offer to purchase available electric energy from cogeneration and small power...