State v. Public Utility Com'n of Texas

• Citation: 883 S.W.2d 190
• Decision Date: 06 October 1994
• Docket Number: D-3155,Nos. D-3154,s. D-3154
• Parties: Util. L. Rep. P 26,410 The STATE of Texas and Office of Public Utility Counsel, Petitioners, v. PUBLIC UTILITY COMMISSION OF TEXAS and Central Power and Light Company, Respondents. The STATE of Texas and Office of Public Utility Counsel, Petitioners, v. PUBLIC UTILITY COMMISSION OF TEXAS and Houston Lighting and Power Company, Respondents.
• Court: Supreme Court of Texas

Page 190

883 S.W.2d 190

Util. L. Rep. P 26,410

The STATE of Texas and Office of Public Utility Counsel, Petitioners, v. PUBLIC UTILITY COMMISSION OF TEXAS and Central Power and Light Company, Respondents.

The STATE of Texas and Office of Public Utility Counsel, Petitioners, v. PUBLIC UTILITY COMMISSION OF TEXAS and Houston Lighting and Power Company, Respondents.

Nos. D-3154, D-3155.

Supreme Court of Texas.

Argued Sept. 13, 1993.

Decided June 22, 1994.

Rehearing Overruled Oct. 6, 1994.

Luis A. Wilmot, San Antonio, Stephen Fogel, William L. Magness, Richard A. Muscat, Joe K. Crews, Dan Morales, Austin, for petitioners in No. D-3154.

Davison W. Grant, Joen N. Pratt, Austin, Ferd C. Meyer, Jr., Kenneth C. Raney, Jr., Dallas, R. Eden Martin, Thomas W. Merrill, Chicago, IL, William N. Woolsey, Austin, Harry M. Reasoner, Houston, Dan Morales, Norma K. Scogin, James M. Phillips, Austin, for respondents in No. D-3154.

Luis A. Wilmot, San Antonio, Stephen Fogel, William L. Magness, Dan Morales, Rupaco T. Gonzalez, W. Scott McCollough, Richard A. Muscat, Joe K. Crews, Austin, for petitioners in No. D-3155.

Hugh Rice Kelly, Houston, Robert J. Hearon, Robin A. Melvin, Austin, George W. Schalles, III, Houston, Selden Anne Wallace, Norma K. Scogin, Dan Morales, Austin, for respondents in No. D-3155.

ENOCH, Justice, delivered the opinion of the Court, in which PHILLIPS, Chief Justice, and HIGHTOWER, HECHT and CORNYN, Justices, join.

These two causes were submitted together because both involve the Public Utility Commission's (Commission) treatment of various costs associated with the operation of a newly constructed nuclear power plant. ¹ The question presented by each case is whether the Commission has the authority under the Public Utility Regulatory Act (PURA) ² to allow a public utility to defer certain costs incurred during the "regulatory lag" period in order to protect the utility's financial integrity. ³ We answer this yes, and consequently affirm the judgment of the court of appeals in part and reverse and remand in part.

In 1972, Central Power and Light Company (CP & L), Houston Lighting and Power Company (HL & P), the City of Austin, and the City of San Antonio began construction of a two-unit nuclear powered electricity generating station in Matagorda County, Texas, known as the South Texas Project. Unit One of the project (STP-1) was completed and began commercial operation on August 25, 1988. Under standard accounting procedures, CP & L and HL & P would have stopped accruing carrying costs on their invested funds and would have begun charging operations and maintenance, depreciation, insurance and taxes (collectively "operating costs") as expenses against income at this time. During the interval between the time STP-1 was placed in service and the time the investment in the plant would be included in rate base (i.e., the "regulatory-lag" period), HL & P and CP & L would have incurred carrying costs and operating costs on their invested funds that they would never recover. As a result, both CP & L and HL & P applied to the Commission for deferred-accounting treatment of such costs during the regulatory lag period.

In Docket No. 7560 the Commission granted CP & L's request for deferred accounting treatment for a period from August 25, 1988, to no later than February 15, 1990. In Docket No. 8230 the Commission granted HL & P's request for deferred accounting treatment from August 25, 1988, through the earlier of either the date rates which reflect those costs became effective or November 23, 1989. The order also provided that if by November 23, 1989, rates were not in effect to reflect the prudently incurred costs of the plant, HL & P could file a petition to request an extension of the deferral period beyond that date. Later, in Docket No. 9010, the Commission extended HL & P's deferral period beyond November 23, 1989, until such time as the cost of STP-1 was reflected in rates approved by the Commission. By granting deferred accounting treatment during such time periods, the Commission allowed CP & L and HL & P to capitalize their costs associated with STP-1 during those periods and carry them as separate assets on their balance sheets. The reasonableness of the amount of the costs was to be determined by the Commission in a separate ratemaking proceeding in which the balance-sheet asset consisting of the deferred costs would be reviewed using the same criteria as any other asset.

The State of Texas on behalf of certain State agencies, and the Office of Public Utility Counsel (OPUC) sought judicial review of the Commission's orders granting deferred accounting treatment to CP & L and HL & P. The trial court upheld all three orders. The court of appeals affirmed the portion of the trial court's judgment which affirmed the Commission's order allowing the deferral of post-in-service operating costs. 840 S.W.2d 650, 657. The court of appeals reversed the portion of the trial court's judgment which affirmed the Commission's order allowing the deferral of post-in-service carrying costs. ⁴ Id. All parties filed applications for writ of error in this court. For the reasons stated below, we reverse the judgment of the court of appeals to the extent that it disallows the deferral of post-in-service carrying costs and remand this cause to the court of appeals for further proceedings consistent with this opinion. In all other respects, the judgment of the court of appeals is affirmed.

I.

A. The Public Utility Regulatory Act

As a general rule, an administrative agency is a creation of the legislature and, as such, has only those powers expressly conferred and those necessary to accomplish its duties. State v. Jackson, 376 S.W.2d 341, 344 (Tex.1964); Sexton v. Mount Olivet Cemetery Ass'n, 720 S.W.2d 129, 137 (Tex.App.--Austin 1986, writ ref'd n.r.e.). This Court must determine the scope of the Commission's authority under the Public Utility Regulatory Act (PURA), both express and implied, and must determine whether the Commission's actions comported with this grant of authority. TEX.GOV'T CODE ANN. § 2001.174 (Vernon Pamphlet 1994). See Public Utility Regulatory Act, TEX.REV.CIV.STAT.ANN. art. 1446c, §§ 4, 16 (Vernon Supp.1994).

PURA section 27 grants to the Commission broad authority in setting and defining a utility's system of accounts. Specifically, under PURA section 27(a), the Commission has the power to prescribe forms of books and accounts "which in the judgment of the Commission may be necessary to carry out any of the provisions of" PURA. ⁵ Thus, section 27 provides authority for the Commission to determine the manner in which specific expenditures are to be recorded in carrying out the provisions of PURA. ⁶ This includes section 39(a). Section 39(a) requires the Commission to set, as a minimum lawful rate, revenues at a level which will permit the utility "a reasonable opportunity to earn a reasonable return on its invested capital used and useful in rendering service to the public over and above [the utility's] reasonable and necessary operating expenses." ⁷ TEX.REV.CIV.STAT.ANN. art. 1446c, § 39(a); see also Railroad Comm'n of Texas v. Lone Star Gas Co., 656 S.W.2d 421, 426 (Tex.1983). By allowing the deferral of costs incurred during the regulatory lag period, the Commission has provided a mechanism, through accounting procedures under section 27, to ensure that the requirements of section 39 are met. This is within the Commission's authority under PURA. ⁸

The State and the OPUC contend that because the deferral of post-in-service costs is not explicitly included in PURA section 43 as a remedy for regulatory lag, the Commission exceeded its authority by providing a remedy for regulatory lag not contemplated by the legislature. ⁹ We disagree. In ascertaining the scope of the Commission's authority, we must read PURA as a whole to ascertain the underlying legislative intent. Citizens Bank of Bryan v. First State Bank, 580 S.W.2d 344, 348 (Tex.1979). Further, the contemporaneous construction of a statute by the administrative agency charged with its enforcement is entitled to great weight. Dodd v. Meno, 870 S.W.2d 4, 7 (Tex.1994); Tarrant Appraisal Dist. v. Moore, 845 S.W.2d 820, 823 (Tex.1993). As noted, the Commission possesses the authority under section 27 to determine accounting classifications in order to carry out the provisions of PURA. And, the existence of the methods included in section 43 to ameliorate the impact of regulatory lag does not foreclose the Commission from authorizing deferred accounting pursuant to its authority under section 27. Rather, section 43 is a component of the overall scheme provided by PURA for regulating utilities and assuring that rates are just and reasonable. See TEX.REV.CIV.STAT.ANN. art. 1446c, § 2. ¹⁰

B. Regulatory Lag and the Financial Integrity Standard

Because deferred accounting alleviated the effects of regulatory lag, the State and the OPUC argue that the Commission violated the principle that regulatory lag is ordinarily an element of the risk associated with investment in a utility. While we agree that regulatory lag is ordinarily an element of risk for utilities, Railroad Comm'n of Texas v. Lone Star Gas Co., 656 S.W.2d 421, 425 (Tex.1983), we do not accept that the legislature intended this general principle to subordinate the provisions of PURA. Rather, if the effects of regulatory lag infringe on the Commission's ability to regulate in a manner necessary to carry out the provisions of PURA, then the Commission may respond within its powers, both express and implied, under PURA to alleviate the impact of regulatory lag in order to fulfill its statutorily imposed duties. See TEX.REV.CIV.STAT.ANN. art. 1446c, § 16. At the same time, the authority to allow the deferral of post-in-service costs is not unfettered. Rather, the Commission must not alleviate regulatory lag unless necessary to comply with the provisions of PURA.

In Dockets Nos....