Railroad Commission of Texas v. High Plains Natural Gas Co.

• Decision Date: 18 February 1981
• Docket Number: No. 13156,13156
• Citation: 613 S.W.2d 46
• Parties: RAILROAD COMMISSION OF TEXAS, Appellant, v. HIGH PLAINS NATURAL GAS COMPANY, Appellee.
• Court: Texas Court of Appeals

Page 46

613 S.W.2d 46

RAILROAD COMMISSION OF TEXAS, Appellant, v. HIGH PLAINS NATURAL GAS COMPANY, Appellee.

No. 13156.

Court of Civil Appeals of Texas, Austin.

Feb. 18, 1981.

Rehearing Denied March 25, 1981.

Mark White, Atty. Gen., J. Scott Wilson, Asst. Atty. Gen., Austin, for appellant.

Barry Bishop, Clark, Thomas, Winters & Shapiro, Austin, for appellee.

SHANNON, Justice.

The Railroad Commission of Texas has appealed from the judgment of the district court of Travis County setting aside the orders of the Commission in Gas Utilities Dockets 1230 and 1650 which related to rates for gas service supplied by High Plains Natural Gas Company to several towns and communities in the northeastern Panhandle. Appellee is High Plains Natural Gas Company.

The Commission complains of the judgment by six points of error. The important points, however, are: (a) the district court erred in concluding that the Commission's failure to permit recovery by the gas company of certain gas costs was arbitrary and capricious and in violation of statutory provision; and (b) the district court erred in concluding that the 90 percent purchased gas adjustment clause is arbitrary and capricious, not supported by substantial evidence, and in violation of statutory provisions.

Upon agreement of the parties, the district court consolidated the administrative appeal in Docket 1230 with that in Docket 1650. In Docket 1230, High Plains had sought from the Commission both a modification of its purchased gas adjustment clause (PGA) established in a prior docket and a recovery of gas costs lost as a result of the operation of that PGA clause. The requested modification resulted from large increases in the cost of natural gas charged the company by its suppliers. The Commission granted the PGA clause modification but refused to permit recovery of prior unrecovered gas costs. The gas company in Docket 1650 applied to the Commission for, among other things, relief from the operation of its 90 percent PGA clause and also to recover revenue lost through the operation of that clause. The Commission denied the gas company's application for a 100 percent PGA clause as well as its request for an opportunity to recover revenue lost through the operation of the 90 percent PGA clause.

The purchased gas adjustment clause is an automatic escalator mechanism devised by utility regulators to deal with rapid fluctuations in the cost of natural gas. Such a clause operates to increase or decrease the revenue of the gas company by exactly the amount of its increased or decreased costs of gas charged the gas company by its suppliers. City of Norfolk v. Virginia Elect. & Power Co., 197 Va. 505, 90 S.E.2d 140 (1955). In case of a 100 percent PGA clause, the consumers of gas are required ultimately to pay the total increase in the cost of gas, if an increase occurs, and they are given the benefit of a total decrease in such cost when a decrease comes about. Such clauses allow adjustment in the revenue of the utility in case of fluctuations of the cost of gas without the necessity for a full scale rate hearing each time the cost of gas increases or decreases.

The allowance of a purchased gas adjustment clause as an administrative practice has long been permitted. City of Chicago v. Illinois Commerce Commission, 13 Ill.2d 607, 150 N.E.2d 776 (1958). Such clauses are in common use and have been judicially recognized and approved in Texas. San Antonio Ind. S. D. v. City of San Antonio, 550 S.W.2d 262 (Tex.1976); Railroad Comm'n of Texas v. City of Fort Worth, 576 S.W.2d 899 (Tex.Civ.App.1979, writ ref'd n. r. e.).

The losses to the gas company in this appeal stem from the fact that the Commission denied the company a 100 percent PGA clause, and allowed only a 90 percent clause. The gas company, under such arrangement, can pass along to its customers only 90 percent of...