Reliant Energy v. Public Util Comm'n of Texas

• Decision Date: 15 November 2001
• Docket Number: No. 03-01-00195-CV,03-01-00195-CV
• Citation: 62 S.W.3d 833
• Parties: (Tex.App.-Austin 2001) Reliant Energy, Incorporated, Appellant v. Public Utility Commission of Texas; Office of Public Utility Counsel; and Steering Committees for the Cities Served by TXU Electric and Central Power and Light Company, Appellees
• Court: Texas Court of Appeals

Page 833

62 S.W.3d 833 (Tex.App.-Austin 2001)

Reliant Energy, Incorporated, Appellant v. Public Utility Commission of Texas; Office of Public Utility Counsel; and Steering Committees for the Cities Served by TXU Electric and Central Power and Light Company, Appellees

No. 03-01-00195-CV

Court of Appeals of Texas, Austin

November 15, 2001

DIRECT APPEAL FROM PUBLIC UTILITY COMMISSION OF TEXAS

[Copyrighted Material Omitted]

Before Justices Kidd, Yeakel and Patterson

Jan P. Patterson, Justice

In this direct appeal, we must determine whether the Public Utility Commission of Texas (the "Commission") erred in promulgating price-to-beat rules that fail to ensure an initial fuel factor above market costs. Reliant Energy, Incorporated ("Reliant") brings this suit challenging the validity of these rules. Because the Commission acted within its authorized powers, we uphold the price-to-beat regulations as enacted.

BACKGROUND

In 1999, the Texas Legislature amended the Public Utility Regulatory Act ("PURA") and enacted Chapter 39 "to protect the public interest during the transition to and in the establishment of a fully competitive electric power industry." ¹ Tex. Util. Code Ann. § 39.001(a) (West. Supp. 2001). As part of the utility industry deregulation, the Legislature created a statutory scheme whereby the regulated utility industry would be separated or "unbundled" into three distinct entities: (1) power generation companies; (2) retail electric providers ("REPs"); and (3) transmission and distribution utilities. Id. 39.051. Once the statute goes into effect, electric providers formerly affiliated with regulated utilities will be required to provide electricity to residential and small commercial customers at a rate of six percent less than the rate in effect on January 1, 1999, adjusted to reflect the fuel factor as determined by the Commission. ² Id. 39.202, .406. This price is referred to as the "price-to-beat."³ Id. 39.202. In enacting the price-to-beat statute, the Legislature intended for new REPs not affiliated with the regulated utility industry to enter the market and compete for customers with affiliated REPs, those that were formerly part of the bundled utility companies.

The Commission was mandated to effectuate an across the board six percent reduction to the base rate portion of the price-to-beat. Id. 39.202(b). As part of the goal to promote competition, the Commission was given the express authority to make adjustments to the fuel factor portion of the price-to-beat. Id. Once established, the price-to-beat is to remain in effect for five years, unless the affiliated REP loses forty percent of its customers. ⁴ Id. 39.202(a), (e). In determining whether the forty percent threshold has been met, the Commission excludes customers that are dropped by the affiliated REP to a provider of last resort ("POLR"). P.U.C. Subst. R. 25.41 § (i)(1)(A)-(B), (i)(2). By statute, POLRs are required to offer standard retail service packages for certain customers, as designated by the Commission, at a fixed, nondiscountable rate. Tex. Util. Code Ann. § 39.106(b).

DISCUSSION

In three issues, Reliant challenges the Commission's scope of authority under PURA, both express and implied. Reliant first contends that PURA requires the Commission to implement, as part of the Legislative scheme to ensure a competitive market after deregulation, an initial price-to-beat fuel factor above market costs so as to secure immediate profits for new entrants into the retail electricity market. Reliant also contests the validity of the Commission's decision, when evaluating whether incumbent utility providers have lost forty percent of their residential and small commercial customers, to exclude from market share calculations customers served by a POLR. Finally, Reliant contends that rule 25.41, as promulgated by the Commission, violates the reasoned justification requirement of Texas Government Code section 2001.033. See Tex. Gov't Code Ann. § 2001.033 (West 2000).

In determining whether the Commission's rule is valid, we must first ascertain whether the Legislature expressly gave the Commission the power to guarantee nonaffiliated retail electric providers an initial profit. See Public Util. Comm'n v. City Public Serv. Bd. of San Antonio, 44 Sup. Ct. J. 1014, 2001 Tex. LEXIS 71, at *15 (Tex. June 28, 2001). If no express authority is set forth, we must then consider whether that power is reasonably necessary for the Commission to fulfill the express function and duties prescribed by the Legislature. Id. Where such authority exists, a rule need only be based on a legitimate position of the agency to be upheld. Chrysler Motors Corp. v. Texas Motor Vehicle Comm'n, 846 S.W.2d 139, 142 (Tex. App. Austin 1993, no writ) (citing Bullock v. Hewlett-Packard Co., 628 S.W.2d 754, 756 (Tex. 1982)).

Administrative Rule Making

Reliant contends that the Commission's substantive rule 25.41 is void because the Commission failed to include in it any mechanism to guarantee initial headroom. ⁵ This omission, argues Reliant, invalidates the rule because a rule that does not ensure sufficient initial headroom "fails to accomplish the legislative goal of promoting competition." State administrative agencies have only those powers expressly conferred upon them by the Legislature. City Public Serv. Bd. of San Antonio, 2001 Tex. LEXIS 71, at *15 (citing Public Util. Comm'n v. GTE-Southwest, Inc., 901 S.W.2d 401, 407 (Tex. 1995); State v. Public Util. Comm'n, 883 S.W.2d 190, 194 (Tex. 1994)). But an agency may also have implied powers those that are reasonably necessary to carry out the express responsibilities given to it by the Legislature. Id. (citing GTE-Southwest, 901 S.W.2d at 407). However, the law prohibits agencies from exercising what is effectively a new power, or a power contradictory to the statute, based merely on a claim that the power is expedient for administrative purposes. Id. (citing GTE-Southwest, 901 S.W.2d at 407 (quoting Sexton v. Mt. Olivet Cemetery Ass'n, 720 S.W.2d 129, 137-38 (Tex. App. Austin 1986, writ ref'd n.r.e.))).

Here, Texas Utility Code section 39.202 dictates how the Commission is to determine the price-to-beat. See Tex. Util. Code Ann. § 39.202(a), (b). The statute requires the Commission to set the price-to-beat at a rate "six percent less than the affiliated electric utility's corresponding average residential and small commercial rates, on a bundled basis, that were in effect on January 1, 1999, adjusted to reflect the fuel factor," as determined by the Commission. Id. 39.202(a). Because there is nothing in the statutory language pertaining to headroom, we must look to the entire statutory scheme to determine whether the Commission was required to consider headroom in setting the initial price-to-beat. See State v. Public Util. Comm'n, 883 S.W.2d at 196.

In ascertaining the scope of an agency's authority, we give great weight to the contemporaneous construction of a statute by the administrative agency charged with its enforcement. Id. at 197 (citing Dodd v. Meno, 870 S.W.2d 4, 7 (Tex. 1994); Tarrant Appraisal Dist. v. Moore, 845 S.W.2d 820, 823 (Tex. 1993)). We recognize that the Legislature intends an agency created to centralize expertise in a certain regulatory area "be given a large degree of latitude in the methods it uses to accomplish its regulatory function." Id.

According to the Commission, rule 25.41 reflects a reasonable balance between the competing interests of REPs and customers namely, fostering competition while simultaneously providing customers a prompt reduction from regulated rates. Reliant does not contest the Commission's power to establish the initial price-to-beat. Instead, Reliant contends that the Commission was required to include in rule 25.41 a mechanism guaranteeing that the price-to-beat would be above market cost and that, in failing to do so, it ignored the legislative goals underlying PURA and deregulation establishing a competitive electricity market.

PURA encompasses competing policy considerations: electric consumers' interest in lowering costs versus electric retailers' interest in establishing competition. This Court does not decide matters of policy. Our role is limited to evaluating whether the Commission acted contrary to the statute. Reliant argues that in setting the initial price-to-beat, "the Commission could have provided a mechanism that would have established an adequate margin between the price-to-beat and the market cost of power," yet "the final rule contained no provision ensuring adequate initial headroom." Reliant concedes that the Commission had the authority to set the initial price-to-beat. Although the Commission could ensure adequate initial headroom, nothing in the statute requires it to do so; neither can such a requirement be found upon examination of the entire statutory scheme. Therefore, we cannot say that the Commission erred by not including a provision guaranteeing new entrants adequate initial headroom to secure a profit. Accordingly, Reliant's first issue is overruled.

Provider of Last Resort

Reliant next contends that, because the PURA provides no basis for excluding POLR customers from the target forty percent affiliated REP reduction rate calculation, rule 25.41 is invalid. Here, Reliant asserts that, to the extent the Commission exercised an implied power to insert a non-statutory exclusion in the rule, the Commission overstepped its authority. In deciding whether the Commission exceeded its authority, we ask if the rule is in harmony with the general statutory objectives. Chrysler Motors Corp., 846 S.W.2d at 141. The stated purpose of PURA Chapter 39 is to facilitate the transition between the regulated and deregulated utility market. See Tex. Util. Code Ann. § 39.001(a).

Reliant argues that excluding POLR customers from the forty percent target calculation thwarts the overall intent of PURA section 39.202(e), which, Reliant...