The State Of Tex. v. Pub. Util. Comm'n Of Tex.
| Decision Date | 18 March 2011 |
| Docket Number | No. 08-0421,08-0421 |
| Parties | The State of Texas, et al., Petitioners, v. Public Utility Commission of Texas, et al., Respondents |
| Court | Texas Supreme Court |
On Petition for Review from the
Court of Appeals for the Third District of Texas
This complex case poses several vexing questions regarding Texas utility-deregulation laws and the Public Utility Commissions application of those laws. In short, numerous parties the State of Texas, utility companies, municipal groups, consumer groups, and others challenge the Commissions interpretations of various cost-recovery provisions in Chapter 39 of the Utilities Code. As detailed below, we affirm the court of appeals judgment in part, reverse it in part, and remand to the PUC for further proceedings consistent with this opinion.
The Legislature in 19992 overhauled the Public Utility Regulatory Act (PURA or Act) to create a fully competitive electric power industry in Texas.3 As part of this restructuring, utilities were required, not later than January 1, 2002, to split into three distinct units: (1) a power-generation company, (2) a retail electric provider, and (3) a transmission and distribution utility.4 After that date, retail consumers could choose among competing retail providers.5 Rates charged by the transmission and distribution utility continue to be regulated by the Public Utility Commission (PUC or Commission).6
The Legislature recognized that utilities had made investments in power-generation assets that produced a reasonable return under the existing regulated environment but might well become uneconomic and thus unrecoverable in a competitive, deregulated electric power market.7 The Act thus allows utilities to recover these stranded costs, which consist generally of the portion of the book value of a utilitys generation assets that is projected to be unrecovered through rates that are based on market prices.8
The Act deregulated the market in phases. Retail rates were frozen from September 1, 1999 until January 1, 2002.9
Section 39.201 directed transmission and distribution utilities to file, on or before April 1, 2000, proposed tariffs that included nonbypassable delivery charges to retail electric providers.10 It also directed the PUC to approve rates as of January 1, 2002.11 The nonbypassable delivery charges included a competition transition charge (CTC) based on an estimate of stranded costs projected to exist at the end of the freeze period on December 31, 2001.12 The CTC is nonbypassable in that with limited exceptions, all retail electric customers in an existing utilitys service area will pay charges to allow that utility to recover stranded costs regardless of whether those customers purchase their electricity from that utility, switch to one of its competitors, or generate their own electricity.13 In estimating stranded costs, utilities were required to use the ECOM model, 14 an estimation model earlier used in a 1998 PUC report to the Legislature.15 Section 39.201(h) required the PUC to rerun the ECOM model using updated company-specific updates. Provision is made in Section 39.201 for a utility to recover estimated stranded costs at any time after the start of the freeze period on September 1, 1999 by issuing bonds and using a transition charge (TC) to service the bonds, 16 or by imposing a CTC.17 However, no such charges were imposed because the Commission concluded after the updated ECOM calculations that no utility would incur stranded costs.18
Under Section 39.262, utilities were required, after January 10, 2004, to file with the PUC a reconciliation of stranded costs and the previous estimate of stranded costs that had been used in determining rates under Section 39.201.19 Section 39.262 further directed the PUC to conduct a true-up proceeding and enter a final order adjusting the CTC to reflect the ultimate valuation of stranded costs.20 If, based on the proceeding, the competition transition charge is not sufficient, the commission may extend the collection period for the charge or, if necessary, increase the charge.21 The adjusted CTC is applied to the nonbypassable delivery rates of the transmission and distribution utility.22
In addition to adjustments for stranded costs, the PUC is directed at the true-up proceeding to make other adjustments to the nonbypassable delivery charges of the transmission and distribution utility. The parties refer to these other costs as non-stranded costs. These adjustments can result in an increase or decrease in the amount or collection period of the CTC.23
From January 1, 2002 until January 1, 2007, affiliated retail electric providers were required to charge rates six percent below average rates that were in effect on January 1, 1999, subject to certain adjustments including a fuel factor.24 This price is known as the price to beat. After January 1, 2002, each affiliated power-generation company is required to file a final fuel reconciliation that calculates a final fuel balance as of December 31, 2001.25
To foster competition, utilities or their unbundled power-generation companies were required, at least 60 days before January 1, 2002, to conduct a capacity auction that sold entitlements to at least 15 percent of the utilities generation capacity.26 The obligation continued until the earlier of 60 months after the date customer choice was introduced or the date the Commission determined that 40 percent or more of the electric power consumed by residential and small commercial customers within the affiliated transmission and distribution utilitys certificated service area before the onset of customer choice [was] provided by nonaffiliated retail electric providers.27
Under Section 39.262(d), the Act directs the affiliated power-generation company at the true-up proceeding to reconcile and either bill or credit the transmission and distribution utility for the net sum of (1) the former integrated utilitys final fuel balance, 28 and (2) a balance parties refer to as the capacity auction true-up balance or the wholesale clawback, consisting of the difference between the price of power realized at the capacity auctions and the power cost projections used in the ECOM model.29
Section 39.262(e) directs the affiliated retail electric provider at the true-up proceeding to credit the affiliated transmission and distribution utility for any positive difference between the price to beat under Section 39.202, reduced by the nonbypassable delivery charge established under 39.201, and the prevailing market price of electricity during the same time period.30 This credit is sometimes called the retail clawback.
Pursuant to Chapter 39, Reliant Energy, Inc., an integrated electric utility, separated into three entities:
These three entities filed an application with the PUC to determine stranded costs and other true-up balances pursuant to Section 39.262.33 Numerous parties, including the State of Texas, intervened. The intervenors consist of electricity consumers and consumer groups. In this proceeding (the true-up proceeding), the PUC made many factual and legal determinations, some of which are now before us on appeal. The PUC determined that CenterPoint was entitled to recover approximately $2.3 billion in stranded costs and other non-stranded costs. The PUC entered a final order on rehearing (Order) in the true-up proceeding.34 One Commissioner dissented on a single issue, as discussed below.
CenterPoint and various intervenors appealed the Order to district court. The district court affirmed the Order except as to two issues, one of which, concerning the capacity auction true-up, is discussed below. Both sides appealed to the court of appeals, 35 which affirmed the district court on numerous issues, but reversed the district court on a stranded cost issue and a capacity auction issue discussed below. We granted three petitions for review filed by CenterPoint, 36 a group of intervenors37 who filed a joint petition, and the State of Texas. The State of Texas and the other petitioner-intervenors (collectively the Intervenors) subsequently filed joint briefing on the merits.
Generally, [a]ny party to a proceeding before the commission is entitled to judicial review under the substantial evidence rule.38 Chapter 39 also provides that the true-up order is subject to review under Chapter 2001 of the Government Code, the Texas Administrative Procedure Act (APA).39 The APA looks to the scope of review as provided by the law under which review is sought, 40 which in this case is the substantial evidence standard. Under substantial evidence review of fact-based determinations, [t]he issue for the reviewing court is not whether the agencys decision was correct, but only whether the record demonstrates some reasonable basis for the agencys action.41
The APA also provides in Section 2001.174 that, under substantial evidence review, the court may reverse the agencys order where the agency has made a prejudicial error of law, 42 or where the order is arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion.43 Questions of statutory construction are questions of law and are reviewed de novo.44 We have noted that an agencys interpretation of the statute it administers is entitled to serious consideration so long as it is reasonable and does not conflict with the statutes language.45 However, the PUC may not exercise what is effectively a new power in addition to powers expressly conferred by statute or necessary...
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