Texas Mun. Power Ag. v. Public Util. Com'n

• Decision Date: 14 December 2007
• Docket Number: No. 04-0751.,No. 04-0752.,04-0751.,04-0752.
• Citation: 253 S.W.3d 184
• Parties: TEXAS MUNICIPAL POWER AGENCY, City of Denton, City of Garland, and Geus f/k/a Greenville Electric Utility System, Petitioners, v. PUBLIC UTILITY COMMISSION OF TEXAS and City of Bryan, Texas, Respondents Texas Municipal Power Agency, City of Denton, Texas, City of Garland, Texas, and City of Greenville, Texas, Petitioners, v. Public Utility Commission of Texas and City of Bryan, Texas, Respondents.
• Court: Texas Supreme Court

253 S.W.3d 184

TEXAS MUNICIPAL POWER AGENCY, City of Denton, City of Garland, and Geus f/k/a Greenville Electric Utility System, Petitioners, v. PUBLIC UTILITY COMMISSION OF TEXAS and City of Bryan, Texas, Respondents Texas Municipal Power Agency, City of Denton, Texas, City of Garland, Texas, and City of Greenville, Texas, Petitioners, v. Public Utility Commission of Texas and City of Bryan, Texas, Respondents.

No. 04-0751.

No. 04-0752.

Supreme Court of Texas.

Argued October 18, 2005.

Delivered December 14, 2007.

Rehearing Denied June 20, 2008.

R. Lambeth Townsend, Lloyd Gosselink Blevins Rochelle & Townsend, P.C., Lawrence S. Smith, Smith Majcher & Mudge, L.L.P., William B. Wagner, W. Wendell Hall, James R. Bailey, Fulbright & Jaworski, L.L.P., Austin, TX, for Petitioner.

Elizabeth R.B. Sterling, Douglas Fraser, Greg Abbott, Edward D. Burbach, Karen Watson Kornell, Office of the Attorney General, Brook Bennett Brown, D.L. (Lin) Hughes, Marc O. Knisely, McGinnis Lochridge & Kilgore, L.L.P., Austin, TX, for Respondent.

Jo Campbell, Waco TX, for Amicus Curiae.

Justice GREEN delivered the opinion of the Court, in which Chief Justice JEFFERSON, Justice HECHT, Justice O'NEILL, Justice WAINWRIGHT, Justice MEDINA, and Justice JOHNSON joined.

In this statutory construction case we are asked to decide whether the Public Utility Commission of Texas has jurisdiction to revise a uniform sales rate, which includes charges for wholesale transmission service, set by contract between a municipally owned utility (MOU) and its member cities. We hold that chapter 35 of the Public Utility Regulatory Act (PURA) does not give the Commission express or implied authority to do so. To the extent that the court of appeals held otherwise, we reverse the court of appeals' judgment and render judgment in favor of the MOU. We remand the declaratory judgment claims to the court of appeals for further consideration.

I. BACKGROUND

The wholesale electric power industry consists of the generation of electrical power, the transmission of electricity over power lines, and the distribution of power to customers. See Pub. Util. Comm'n v. City Pub. Serv. Bd., 53 S.W.3d 310, 312 (Tex.2001) [hereinafter San Antonio]. To enhance reliability and facilitate the purchase of electrical power among utilities, Texas's electric utilities formed the Electric Reliability Council of Texas (ERCOT), an interconnected network of transmission lines that serves most of the state. Id. Some electric utilities belonging to ERCOT are owned and operated by the municipalities that they serve.

Texas Municipal Power Agency (TMPA)¹ is an MOU that sells electric power at wholesale to its member cities, Denton, Garland, and Greenville, Texas, (collectively, the Northern Cities) and Bryan, Texas, pursuant to identical power sales contracts (collectively, the PSC).² The PSC, entered into in 1976, requires TMPA to generate electric power at its generating plant in Grimes County, Texas, and transmit power to the member cities at their respective points of delivery. TMPA incorporates its costs, including power generation and delivery costs, into the single power sales rate that it charges each of the member cities. Each member city then pays for the amount of power that it used under the power sales rate applicable to all member cities. The PSC is a "bundled" contract, meaning that the power seller (TMPA) provides generation, transmission, and distribution of power under one contract. See Transmission Access Policy Study Group v. Fed. Energy Regulatory Comm'n, 225 F.3d 667, 690 (D.C.Cir.2000), aff'd sub nom. New York v. Fed. Energy Regulatory Comm'n, 535 U.S. 1, 122 S.Ct. 1012, 152 L.Ed.2d 47 (2002). Likewise, the sales rate charged under the PSC is a "bundled" rate because it does not include separate rates or charges for transmission service. Because the contract and rate are bundled, member cities are never charged a separate price for transmission power; they have discretion only regarding the amount of power they take and the point of delivery.

Historically, ERCOT MOUs were not subject to regulation by the Commission. See San Antonio, 53 S.W.3d at 312, 316-18. In 1995, however, the Legislature authorized the Commission to regulate wholesale transmission service by electrical utilities, including MOUs, when it enacted chapter 35 of PURA to promote competition in the wholesale electricity market. Act of March 29, 1995, 74th Leg., R. S., ch. 9, § 1, 1995 Tex. Gen. Laws 31 (amended 1997, 1999) (current version at TEX. UTIL.CODE §§ 35.001-.008). The 1995 PURA amendments granted utilities "open access" to transmission lines, allowing utilities to purchase power from remote sellers without obtaining transaction agreements for the use of transmission lines. See id. Under later PURA amendments, MOUs were given the ability to choose when and how they would participate in the newly competitive, deregulated electricity market. Act of May 27, 1999, 76th Leg., R. S., ch. 405, 1999 Tex. Gen. Laws 2543. If an MOU chooses to participate, a decision that is irreversible, the retail customers in that municipality may select their power provider. Id.

After enactment of chapter 35 and under its new authority over MOUs, the Commission adopted transmission service rules, including a wholesale transmission pricing methodology to establish transmission charges for all ERCOT utilities. 21 Tex. Reg. 1397 (1996) (adopting former 16 TEX. ADMIN. CODE § 23.67); 21 Tex. Reg. 3343 (1996) (adopting former 16 TEX. ADMIN. CODE § 23.70); see San Antonio, 58 S.W.3d at 312, 316-17 (invalidating portions of the Commission rule setting rates for transmission services). The Commission's pricing scheme for transmission service, which resulted in lower rates than one of the member cities was required to pay under the PSC's bundled rate, led to the underlying dispute in this case.

In 1997, the Commission engaged in its first proceeding to set rates that each ERCOT utility would pay and receive for wholesale transmission service. The Commission transmission charges were based in part on the distance power traveled from a generating plant to the point of delivery. As part of a "transition mechanism," TMPA filed a pleading with the Commission claiming that, for purposes of the new pricing scheme, TMPA was not a transmission customer and could thus recover its full costs and escape paying to subsidize other utilities.³ TMPA and the member cities reportedly agreed that the cities should be the wholesale transmission customers that nominate their own loads for the transmission service of TMPA-generated electricity to their cities.⁴ As a result, the Commission assigned wholesale transmission charges to each member city. Because the PSC provides that TMPA will include in its sales rate all costs associated with delivery of TMPA-generated power to the member cities, the TMPA board of directors⁵ in July 1997 voted to reimburse the member cities for the Commission-imposed transmission charges.⁶

In June 2001, we invalidated the Commission's pricing methodology rules. San Antonio, 53 S.W.3d at 318-21. We held in San Antonio that the Commission's pricing scheme exceeded its chapter 35 authority because, although the Commission has an oversight role regarding transmission regulation of MOUs, it lacks authority to set rates for MOUs. Id. As a result of the San Antonio decision and a settlement among all ERCOT utilities, the 201st district court in Travis County reversed the Commission's 1997 rate-setting order in 2003.⁷

The Commission engaged in a second rate-setting proceeding in 1998. As in the 1997 rate-setting proceeding, TMPA and the member cities listed the individual cities as transmission customers. Again, pursuant to our San Antonio decision and the related ERCOT settlement, the 98th district court in Travis County reversed the Commission's 1998 rate-setting order.⁸

This appeal arises from two proceedings, both challenging the scope of authority PURA gives the Commission over MOUs.⁹ Before we ruled the Commission's pricing methodology for MOUs invalid, Bryan initiated a complaint proceeding before the Commission ("the Bryan Complaint Proceeding"), alleging that TMPA's inclusion of the Commission-imposed transmission charges in its uniform rate violated chapter 35 of PURA, the Commission's 1997 rate-setting order, and the Commission's pricing rules. The bundled sales rate Bryan paid TMPA under the PSC was higher than what it would owe if it were able to pay the Commission-set transmission charges and any remaining sales charges separately.¹⁰ As a result, Bryan contended that TMPA reallocated the Northern Cities' more expensive transmission costs to Bryan. Bryan took the position that, because the 1997 rate-setting proceeding recognized that each member city could nominate its own load for power supplied by TMPA, the member cities were able to treat their contracts as "unbundled" because TMPA charged separately for generation, transmission, and distribution. On July 8, 1999, the Commission issued a final order agreeing that Bryan could nominate its own load and therefore was not obligated to pay the full bundled contract sales rate to TMPA but could instead pay TMPA only the transmission charges set by the Commission.

TMPA and the Northern Cities sought judicial review of the Commission's order issued in the Bryan Complaint Proceeding, and TMPA later added a declaratory judgment claim regarding the Commission's jurisdiction and ability to unbundle the PSC, affecting the PSC terms and rates.¹¹ The 200th district court in Travis County granted a partial motion for summary judgment in Bryan's favor, holding that, as a matter of law, PURA chapter 35 conferred jurisdiction on the Commission to determine whether the terms under which TMPA provided transmission services to Bryan were reasonable. The district court reversed the Commission's final order and remanded the contested case proceedings to the Commission...