NO. 03-15-00313-CV

_______________________________________________________________

IN THE COURT OF APPEALS 

THIRD SUPREME JUDICIAL DISTRICT AT AUSTIN, TEXAS 

________________________________________________________________

HERMENIA JENKINS, 

Appellant, 

v.

CROSBY INDEPENDENT SCHOOL DISTRICT AND 

MICHAEL L. WILLIAMS, COMMISSIONER OF EDUCATION, 

Appellees. 

________________________________________________________________

On Appeal from the 200th District Court of Travis County, Texas; 

Trial Court Cause No. D-1-GN-14-000619

________________________________________________________________

BRIEF OF AMICUS CURIAE

TEXAS ELEMENTARY PRINCIPALS AND SUPERVISORS ASSOCIATION

 

DANIEL A. ORTIZ 

State Bar No. 15323100 

GIANA ORTIZ 

State Bar No. 24053824 

 

The Ortiz Law Firm 

1304 West Abram Street, Suite 100 

 Arlington, Texas 76013 

 817-861-7984 Telephone 

 817-861-8909 Facsimile 

 dortiz@ortizlawtx.com 

 gortiz@ortizlawtx.com 

ATTORNEYS FOR AMICUS CURIAE TEXAS 

ELEMENTARY PRINCIPALS AND 

SUPERVISORS ASSOCIATION 

ACCEPTED

03-15-00313-CV

6023524

THIRD COURT OF APPEALS

AUSTIN, TEXAS

7/10/2015 3:56:40 PM

JEFFREY D. KYLE

CLERK

 RECEIVED IN 3rd COURT OF APPEALS AUSTIN, TEXAS 7/10/2015 3:56:40 PM JEFFREY D. KYLE Clerk
Brief of Amicus Curiae TEPSA Page i

IDENTITY OF PARTIES AND COUNSEL

Amicus curiae Texas Elementary Principals and Supervisors Association 

adopts the parties’ identity of parties and counsel to the order appealed from, 

and supplements as follows:

Attorneys for Amicus Curiae TEPSA:

Daniel A. Ortiz

Giana Ortiz

1304 West Abram Street, Suite 100 

Arlington, Texas 76013

817-861-7984 Telephone

IDENTITY OF BRIEFING PARTY

Pursuant to Texas Rule of Appellate Procedure 11(b), this amicus curiae 

brief is tendered on behalf of Texas Elementary Principals and Supervisors 

Association.

SOURCE OF FEE PAID

Pursuant to Texas Rule of Appellate Procedure 11(c), this amicus curiae 

brief is funded wholly by Texas Elementary Principals and Supervisors 

Association, by and through member contributions. 
Brief of Amicus Curiae TEPSA Page ii

TABLE OF CONTENTS

Cases Page

IDENTITY OF PARTIES AND COUNSEL ................................................. i

TABLE OF CONTENTS................................................................................ ii

INDEX OF AUTHORITIES..........................................................................iii

INTEREST OF AMICUS CURIAE TEPSA ................................................... 1

STATEMENT OF THE CASE ...................................................................... 2

ISSUES PRESENTED.................................................................................... 2

STATEMENT OF FACTS ............................................................................. 2

SUMMARY OF ARGUMENT...................................................................... 3

ARGUMENT................................................................................................. 4

I. The Unique Role of Principal .................................................... 4

A. Principals Are Treated as Unique by the Legislature...... 6

B. Principals Are Treated as Unique by the School 

Community ...................................................................... 9

II. “Principal” Is a Protected “Professional Capacity” ................. 10

III. Jenkins’ Contract is Not an “Administrator Contract”............ 14

IV. The Commissioner’s Decision is Not Entitled to Deference... 16

PRAYER....................................................................................................... 17

CERTIFICATE OF SERVICE ..................................................................... 20

APPENDIX INDEX ..................................................................................... 21
Brief of Amicus Curiae TEPSA Page iii

INDEX OF AUTHORITIES

Cases Page

French v. School Bd., 568 So. 2d 497 (Fla. Dist. Ct. App. 1990)...................... 11

Joyce v. Spring-Ford Area Sch. Dist.,

600 A.2d 1302 (Pa. Commw. Ct. 1991) .......................................................... 11

Murphy v. St. Paul Pub. Schs., 795 N.W.2d 30 (Minn. Ct. App. 2011)............ 11

Pub. Util. Comm’n v. Gulf States Utils. Co.,

809 S.W.2d 201 (Tex. 1991)........................................................................ 3, 17

Commissioner Decisions

Barich v. Canadian Independent School District,

Docket No. 106-R1-585 (Comm’r Educ. 1985)........................................ 12, 14

Jenkins v. Crosby Independent School District,

Docket No. 043-R10-1211 (Comm’r Educ. 2013)........................ 12, 13, 15, 16

Lehr v. Ector County Independent School District,

Docket No. 003-R3-0908 (Comm’r Educ. 2011).............................. 3, 8, 13, 17

Pasqua v. Fort Stockton Independent School District,

Docket No. 011-R3-1102 (Comm’r Educ. 2004)............................................ 12

Ramos v. El Paso Independent School District,

Docket No. 002-R10-900 (Comm’r Educ. 2002)............................................ 12

Tuck v. Alief Indep. Sch. Dist.,

Docket No. 008-R10-1007 (Comm’r Decision 2012)............................... 14, 15

Veliz v. Donna Independent School District,

Docket No. 011-R3-999 (Comm’r Educ. 2000).............................................. 12
Brief of Amicus Curiae TEPSA Page iv

Wheeler v. Austin Independent School District,

Docket No. 008-R3-1108 (Comm’r Educ. 2011)............................................ 14

Statutes

19 TEX. ADMIN. CODE § 149.2001........................................................................ 8

19 TEX. ADMIN. CODE § 232.2 (b)........................................................................ 8

19 TEX. ADMIN. CODE § 241.1.............................................................................. 8

19 TEX. ADMIN. CODE § 242.1.............................................................................. 8

TEX. EDUC. CODE § 11.201 ................................................................................... 6

TEX. EDUC. CODE § 11.201(a)) ............................................................................. 3

TEX. EDUC. CODE § 11.202 ........................................................................... 3, 6, 7

TEX. EDUC. CODE § 11.202(a)............................................................................... 3

TEX. EDUC. CODE § 11.253 ................................................................................... 7

TEX. EDUC. CODE § 21.046 ................................................................................... 8

TEX. EDUC. CODE § 21.201(1) .................................................... 10, 12, 14, 15, 16

TEX. EDUC. CODE § 21.202 ........................................................................... 10, 11

TEX. EDUC. CODE § 21.206 ................................................................................. 10

TEX. EDUC. CODE § 21.206(b) ............................................................................ 16

TEX. EDUC. CODE § 21.211 ................................................................................. 10

TEX. EDUC. CODE § 21.354 ................................................................................... 7

TEX. FAMILY CODE § 52.02(7) .............................................................................. 9

Rules

Texas Rule of Appellate Procedure 38.1.............................................................. 2

Board Policies

Crosby Indep. Sch. Dist. Bd. Policy DP (Local).................................................. 7

Crosby Indep. Sch. Dist. Bd. Policy FOE (Legal)................................................ 9
Brief of Amicus Curiae TEPSA Page 1

INTEREST OF AMICUS CURIAE TEPSA

Formed in 1917, the Texas Elementary Principals and Supervisors 

Association (“TEPSA”) consists of some 5,800 Pre-K-8

th grade principals and 

supervisors working in the public schools of Texas. TEPSA provides support 

for its members by way of advocacy, legislative representation, and professional 

development. TEPSA members are the chief leaders in hundreds of public 

school districts across the state, in rural, urban, and suburban areas. The vast 

majority of TEPSA members serve as principals and assistant principals in 

public elementary schools. TEPSA is interested in this case because the ability 

of a school district to unilaterally transfer Texas public school principals to any 

position other than principal creates a career crisis, and economic detriment, 

from which TEPSA seeks to protect Texas public school principals. TEPSA 

further seeks to promote the legal rights of such principals throughout Texas.

Each of the thousands of educators serving Texas public school children 

plays a vitally important role in our state’s future. Principals, not unlike 

superintendents, serve a uniquely crucial role: As the superintendent is the chief

instructional leaders of the school district, the principal is the chief instructional 

leader of the school building. It takes a great deal of dedication, personal 

sacrifice, and devotion to service to become a principal. Those individuals who 
Brief of Amicus Curiae TEPSA Page 2

have succeeded in attaining the credentials and experience to become a 

principal should not be unilaterally demoted to a non-principal position without 

some form of notice and hearing. The title is not easily earned and should not be 

freely stripped away. 

STATEMENT OF THE CASE

This is an appeal from a decision of the Texas Commissioner of 

Education (the “Commissioner”). This amicus curiae brief is presented to the 

Court advocating a reversal of the Commissioner’s decision by way of an 

appropriate and equitable interpretation of the statutes and case law.

ISSUES PRESENTED

Pursuant to Texas Rule of Appellate Procedure 38.1, TEPSA presents this 

brief not to raise additional issues but to advocate a position on issues raised by 

the parties. 

STATEMENT OF FACTS

TEPSA adopts the parties’ statements of the facts to the extent such facts 

are undisputed. To the extent there exist disputed facts, TEPSA does not take a 

position on such facts unless otherwise noted herein.
Brief of Amicus Curiae TEPSA Page 3

SUMMARY OF THE ARGUMENT

Involuntarily stripping the principal of a principal’s title is tantamount to 

a public termination—the effect on the educator’s reputation and earning 

potential being swift and not easily reversed. TEPSA does not posit that Texas 

principals have a right to a principal’s position, but rather that Texas principals 

have a right to process before being stripped of that title. Because the 

principal’s role garners unique treatment both under the law and in the school 

district community, to strip the principal of the title and duties constitutes a 

deprivation of a property interest such that due process is required. 

First, the legislature treats a principal and a superintendent differently 

than any other person employed by a school district—but agency law has not 

abided by that distinction. Agency law through Commissioner’s decisions,

reflects application of an arbitrary distinction between superintendent—as “sui 

generis” the educational leader and chief executive officer of the school 

district—and treats all other “administrators” as equal. E.g., Lehr v. Ector 

County Ind. Sch. Dist., Docket No. 003-R3-0908 (Comm’r Educ. 2011)

(quoting TEX. EDUC. CODE § 11.201(a)). This distinction ignores the plain 

language of the statute which also identifies the principal’s role as sui generis 

on the campus—“the instructional leader of the school.” TEX. EDUC. CODE
Brief of Amicus Curiae TEPSA Page 4

§ 11.202(a). The principal, unlike any other person on a campus, has a 

statutorily defined role and attendant duties. TEX. EDUC. CODE § 11.202. 

Second, the principal’s visibility in the community is second only to that 

other unique role—the superintendent. Principal reassignments are public 

events and, thanks to the internet, follow the principal for the rest of her career. 

The courts’ duty of deference to agency decisions does not permit this Court to 

affirm the agency’s decision where, as here, it is inconsistent with the statute. 

See Pub. Util. Comm’n v. Gulf States Utils. Co., 809 S.W.2d 201, 207 (Tex. 

1991). This Court should overturn the Commissioner’s decision in this case to 

apply fundamental principles of statutory construction. The notion that the 

legislature meant to treat a superintendent as beyond compare—but treat the 

principal as if she were any other “administrator”—is a fiction created by the 

Commissioner and which must be corrected by this Court. 

ARGUMENT

I. The Unique Role of Principal

The principal is the single chief instructional leader of each public school

campus in Texas. The principal reports directly to the highest ranks in the 

school district—the superintendent(s) and the elected school board. The 

principal is charged with direction of all activities on a campus from custodial 
Brief of Amicus Curiae TEPSA Page 5

and maintenance services, to athletics, extracurricular activities, instruction, and 

testing. In this role, the principal performs a balancing act at all times—

implementing policy promulgated by central administration, while maintaining 

high standards and morale on the campus. At times forced to choose sides (e.g., 

central office vs. teachers, parent vs. teacher, student vs. student, parent vs. 

parent, etc.), there are some battles a principal cannot win. The principal must 

make the most reasonable and intelligent choice with the information she has at 

that given moment, and face the fallout. 

For this reason, and because almost every reassignment will constitute a 

demotion for the principal, the position dictates some minimal process to 

insulate principals from the inherent political risks associated with the job. That 

is, when a principal is “reassigned” to a role of significantly less authority (as is 

any non-principal role), this information is not only reflected on the person’s 

work history but it is also a very public event. It makes the newspapers and 

television news, even in large cities. However, a demotion from a principal 

position—the chief instructional leader position—to assistant principal, 

attendance coordinator, or any other non-principal position has the same 

practical effect for the educator as a termination or nonrenewal without 

requiring the school districts to abide by the procedures set forth in the Texas 
Brief of Amicus Curiae TEPSA Page 6

Education Code. By permitting the school districts to circumvent those 

processes to avoid risks, or inconvenience, the Commissioner’s decision in 

effect condones the school district’s de facto termination or nonrenewal without 

the due process protections afforded Texas educators in the Texas Education 

Code. 

A. Principals Are Treated as Unique by the Legislature. Like 

superintendents, the role and duties of a principal are expressly set forth by 

statute. State law defines the job duties for superintendent and principal. TEX.

EDUC. CODE §§ 11.201, 11.202. All other school positions are subject to being 

completely defined by the school district—through the superintendents and 

principals or their designees. There is no mystery as to the principal’s duties. 

The duties, and the role, are clearly stated in state law, and may be augmented 

by the school district. 

Specifically:

a. The principal of a school is the instructional leader of the 

school and shall be provided with adequate training and 

personnel assistance to assume that role.

b. Each principal shall:

1. Except as provided by Subsection (d), approve all 

teacher and staff appointments for that principal’s 

campus from a pool of applicants selected by the 
Brief of Amicus Curiae TEPSA Page 7

district or of applicants who meet the hiring 

requirements established by the district, based on 

criteria developed by the principal after informal 

consultation with the faculty;

2. set specific education objectives for the principal’s 

campus, through the planning process under Section 

11.253;

3. develop budgets for the principal’s campus;

4. assume the administrative responsibility and 

instructional leadership, under the supervision of the 

superintendent, for discipline at the campus;

5. assign, evaluate, and promote personnel assigned to 

the campus;

6. recommend to the superintendent the termination or 

suspension of an employee assigned to the campus or 

the nonrenewal of the term contract of an employee 

assigned to the campus; and

7. perform other duties assigned by the superintendent 

pursuant to the policy of the board of trustees.

TEX. EDUC. CODE § 11.202; see also Crosby Indep. Sch. Dist. Bd. Pol’y 

DP(Local) (setting forth additional qualifications unique for the principal).

Principals not only have a unique job description provided by state law, 

principals are also assessed by specific statutory appraisal guidelines, separate 

and apart from teachers, assistant principals, and other administrators. See TEX.

EDUC. CODE § 21.354. The Texas Administrative Code also sets forth 
Brief of Amicus Curiae TEPSA Page 8

professional standards for principals as distinct from teachers, assistant 

principals, and other administrators. See 19 TEX. ADMIN. CODE § 149.2001. 

Moreover, unlike for any other administrator position, state law dictates the 

certification requirements for superintendent and principal. TEX. EDUC. CODE

§ 21.046. Additionally, there are only two categories of administrator 

certificates in Texas: the superintendent and principal. See 19 TEX. ADMIN.

CODE §§ 241.1 et seq., §§ 242.1 et seq.

1

 

The school district in this case has asserted that because an assistant 

principal is required to hold a principal’s certificate, the two positions are equal 

for reassignment purposes. Using this same analysis, a superintendent could be 

reassigned to be a principal, because a superintendent is required to hold a 

principal’s certificate. However, the Commissioner has prohibited such 

demotion. E.g., Lehr v. Ector County Ind. Sch. Dist., Docket No. 003-R3-0908 

(Comm’r Educ. 2011). Indeed, the arbitrary distinction between the protection 

afforded to the superintendent from unlawful reassignment to principal—

whereas the principal’s demotion to assistant is lawful—has no support in the 

statutes.

 

1 19 TEX. ADMIN. CODE § 232.2 (b): Classes of certificates include the following: 1. 

superintendent; 2. principal; 3. classroom teacher; 4. instructional educator other than 

classroom teacher, including reading specialist; 5. master teacher; 6. school librarian; 7. 
Brief of Amicus Curiae TEPSA Page 9

B. Principals Are Treated as Unique by the School Community. 

Principals are unique, indispensable, members of the campus community. For 

each public school campus in this state, there exists only one principal. The 

same is not true for assistant principals. Indeed, each principal is aided in that 

role by one or several “assistants,” depending on the size of the campus. A 

principal is strengthened and the campus is made more successful with a good 

assistant principal. The principal often delegates responsibilities related to 

student discipline, teacher appraisals, special education, lunch duty, bus duty, 

textbooks, and others to her assistant. See, e.g., Tex. Family Code § 52.02(7)

(providing that a principal or his designee must assume responsibility of a child 

taken into custody and returned to the school); Crosby Indep. Sch. Dist. Bd. 

Pol’y FOE(Legal) (permitting the principal or his designee to place a student in 

alternative education or expel a student immediately under certain conditions). 

Delegation and designation of duties is left to the discretion of the principal and 

varies from campus to campus. The assistant’s job is to carry out the duties as 

assigned by the principal. While the assistant principal is a crucial component 

of the well-oiled campus machinery, the reality is that no person on the school 

district staff—from the paraprofessional to the superintendent—considers the 

 

school counselor; 8. educational diagnostician; and 9. educational aide.
Brief of Amicus Curiae TEPSA Page 10

assistant to be the “same professional capacity” as the principal. The legal 

fiction that they are the “same professional capacity” exists only in 

Commissioner decisions and finds no support either in the law or in practice.

II. “Principal” Is a Protected “Professional Capacity”

Chapter 21 of the Texas Education Code provides certain protections and 

procedures for the nonrenewal or the termination of the educator, affording the 

educator (or principal, as in this case) notice of the reasons for the adverse 

employment action, and an opportunity for a hearing. See TEX. EDUC. CODE

§§ 21.206, 21.211. However, when the educator is reassigned, such procedural 

protections are not invoked—unless the reassignment constitutes a “change in 

professional capacity.” Texas Education Code § 21.202 provides that if the 

school district does not nonrenew the educator contract, that the teacher must be 

employed in the same professional capacity for the following school year.2 

That is, the Texas Education Code § 21.201(1) defines “teacher” broadly: 

“A superintendent, principal, supervisor, classroom teacher, counselor, or other 

 

2 The District and the Commissioner have relied on the well-established right of public school 

supervisors to reasonably reassign personnel. And indeed, the vast majority of professional 

employment contracts contain a reassignment clause like Jenkins’ that says something similar 

to this: “The District shall have the right to assign or reassign the Employee to positions, 

duties, or additional duties and to make changes in responsibilities, work, or transfers, at any 

time during the contract term.” However, the reassignment authority is always limited by the 

professional capacity of the employee.
Brief of Amicus Curiae TEPSA Page 11

full-time professional employee who is required to hold a certificate issued 

under Subchapter B, or a nurse.” Just five sections later, § 21.202 says that the 

“teacher” must be employed in the same professional capacity for the following 

school year unless the school board elects to nonrenew the employee’s contract. 

Plainly, “principal” is a specific subset of the broadly defined “teacher,” and is 

considered by the legislature to be a distinct professional capacity. When the 

principal is reassigned to a different professional capacity—for example to an 

assistant principal—TEPSA argues that such reassignment constitutes a 

termination or nonrenewal of the existing contract with the teacher and invokes 

certain rights to process. See also Joyce v. Spring-Ford Area Sch. Dist., 600 

A.2d 1302 (Pa. Commw. Ct. 1991) (transfer of principal to newly created 

coordinator position in central office constituted a demotion); French v. School 

Bd., 568 So. 2d 497 , 498-99 (Fla. Dist. Ct. App. 1990) (transfer of elementary 

school principal to position of assistant junior high school principal affects 

substantial interests and therefore requires a hearing); Murphy v. St. Paul Pub. 

Schs., 795 N.W.2d 30 (Minn. Ct. App. 2011) (“[The principal] suffered a 

reduction in rank or a transfer to a lower branch of service when she was 

assigned to an assistant-principal position.”). 

In this case, the Commissioner devotes a great deal of discussion to the 
Brief of Amicus Curiae TEPSA Page 12

concept of “same professional capacity.” Jenkins v. Crosby Indep. Sch. Dist., 

Docket No. 043-R10-1211 (Comm’r Educ. 2013). However, the legislative 

history and statutory analysis therein sheds little or no light on why principals—

unlike the other professional capacities set forth in § 21.201(1), including 

superintendent, teacher, and nurse, have been excluded from recognition as a 

“professional capacity.” The end result is arbitrary and detrimental: A 

superintendent is a superintendent. A teacher is a teacher. A counselor is a 

counselor. A librarian is a librarian. A nurse is a nurse. But all 

“administrators” are equal.3 

The Commissioner has arbitrarily interpreted “administrator” broadly to 

include assistant elementary school principal, high school principal, middle 

school assistant principal, attendance coordinator, and others. See e.g., Pasqua 

v. Fort Stockton Ind. Sch. Dist., Docket No. 011-R3-1102 (Comm’r Educ. 

2004); Ramos v. El Paso Ind. Sch. Dist., Docket No. 002-R10-900 (Comm’r 

Educ. 2002); Veliz v. Donna Ind. Sch. Dist., Docket No. 011-R3-999 (Comm’r 

 

3 And indeed, teacher/coaches, teacher/deans, nurses, and counselors have all been preserved 

as a “professional capacity” by Commissioner’s decisions. E.g., Jenkins v. Crosby Ind. Sch. 

Dist., Docket No. 043-R10-1211 (Comm’r Educ. 2013) (“A classroom teacher cannot be 

reassigned as a counselor. A counselor cannot be reassigned as a nurse. A nurse cannot be 

reassigned as a librarian.”); Barich v. Canadian Ind. Sch. Dist., Docket No. 106-R1-585 

(Comm’r Educ. 1985). 
Brief of Amicus Curiae TEPSA Page 13

Educ. 2000). This broad interpretation of the word “administrator,” by which 

the Commissioner erroneously equates principal with any number of other 

administrative positions, becomes an improper circumvention of the dueprocess type protections set forth in the Texas Education Code. Principals are 

entitled to the nominal legal protections that come with the unique nature of the 

job as evidenced by state law.

The Commissioner’s approach to analyzing administrator reassignments 

is not workable. Prior Commissioner’s decisions equate all administrators, 

other than the superintendent, paving the way for school districts to reassign a 

principal to any other administrative or quasi-administrative position. Lehr v. 

Ector County Indep. Sch. Dist., Docket No. 003-R3-0908 (Comm’r Educ. 

2011). However, and as set forth supra, one can clearly conclude that the 

legislature intended for principals to be treated as unique, and deserving of 

protection from reassignments. 

In the decision before the Court, the Commissioner portends that to

recognize the principal’s status would be to overturn decades of precedent. 

TEPSA respectfully disagrees. Pursuant to the plain language of the statute, 

principals are among the specifically identified protected professional 

capacities. Jenkins v. Crosby Ind. Sch. Dist., Docket No. 043-R10-1211 
Brief of Amicus Curiae TEPSA Page 14

(Comm’r Educ. 2013). A correct reading of the statute does not equate to a sea 

change in all administrator reassignment cases. The traditional factors—

including duties, responsibilities and salaries—would apply to consider the 

comparative “professional capacity” of non-principal administrator positions. 

See Barich v. Canadian Ind. Sch. Dist., Docket No. 106-R1-585 (Comm’r Educ. 

1985). The Commissioner’s analysis has heretofore failed to explain why 

principals are excluded as a “professional capacity” when they are specifically 

named in Texas Education Code § 21.201(1).

III. Jenkins’ Contract Is Not an “Administrator” Contract

Educator employment contracts must contain a valid “professional 

capacity.” See, e.g., Tuck v. Alief Indep. Sch. Dist., Docket No. 008-R10-1007 

(Comm’r Decision 2012); Wheeler v. Austin Indep. Sch. Dist., Docket No. 008-

R3-1108 (Comm’r Educ. 2011). Such a professional capacity may be “broad,” 

but not overly broad.4 See Tuck v. Alief Indep. Sch. Dist., Docket No. 008-R10-

 

4 However, there is no remedy for a school-district employee when her employer fails to 

follow this requirement. Rather, the Commissioner asserts that he will protect school 

employees from school districts that abuse their reassignment authority, but he has shown

little or no inclination to do so with administrator reassignments. In response, school districts 

have broadened the employment categories to a point beyond recognition. A “teacher” 

contract is apparent on its face. But, what about “administrator”? Or, as in the case of Ms. 

Jenkins’ contract, an “employee”? Neither is decipherable and both are intended to be as 

broad as possible to insulate the school district from any claims of wrongful reassignment. 

Their breadth, at least as applied to principals, is an abuse by the school district of its right to 

reassign.
Brief of Amicus Curiae TEPSA Page 15

1007 (Comm’r Decision 2012). In Ms. Jenkins’s contract, her professional 

capacity was defined only as “employee.” Jenkins v. Crosby Ind. Sch. Dist., 

Docket No. 043-R10-1211 (Comm’r Educ. 2013). “Employee” is overly broad 

and not a legitimate professional capacity. See Tuck v. Alief Indep. Sch. Dist., 

No. 008-R10-1007 (Comm’r Decision 2012). Where the professional capacity 

listed in the contract is not legitimate, the Commissioner holds that he “must 

then evaluate the two positions primarily by comparing professional duties and 

responsibilities but also including other factors such as salary and who an 

employee reports to.” See id. Here, the Commissioner improperly inserted the 

word “administrator” into Jenkins’ contract, where it did not exist. Jenkins v. 

Crosby Ind. Sch. Dist., Docket No. 043-R10-1211 (Comm’r Educ. 2013). 

Based on that improper reconstruction of the contract terms, the Commissioner 

is able to justify his own holding as consistent with prior decisions. A review of 

Ms. Jenkins’ position which she had held for a number of years (principal), the 

duties attendant to that position, and a review of § 21.201(1) should have led 

the Commissioner to an easy result: Jenkins was hired as a principal. When 

given the opportunity to repair the contract to the employee’s favor, and in
Brief of Amicus Curiae TEPSA Page 16

compliance with statutes and contract law, the Commissioner went in the 

opposite direction.5

IV. The Commissioner’s Decision Is Not Entitled to Deference

The Commissioner writes: “Precedent should not be lightly overturned. 

Teachers and school districts base important decisions in reliance on 

Commissioner’s Decisions.” Jenkins v. Crosby Indep. Sch. Dist., Docket No. 

043-R10-1211 (Comm’r Educ. 2013). It is exactly for this reason that this case 

is so important. The Commissioner’s decision equating “principal” and 

“administrator” will be relied upon and exploited by school districts—and it is 

contrary to the plain language of the statute. In making statements such as, 

“The positions described in the first sentence of Texas Education Code section 

21.201(1) may or may not be professional capacities for purposes of Texas 

Education Code section 21.206(b),” the Commissioner exhibits a disregard for 

the language of the statute. Jenkins v. Crosby Indep. Sch. Dist., Docket No. 

043-R10-1211 (Comm’r Educ. 2013) (emphasis added). In drawing arbitrary 

 

5 Educator contracts specifying “Administrator” professional capacity are very common but 

problematic in a way not experienced with any other contract category. Administrator 

contracts are used for every administrator position from assistant superintendent to textbook 

coordinator; from principal to transportation director. The range and breadth of the possible 

reassignments for administrators is greater than for any other job category, and is limited only 

by the imagination of the district. There is a wider hierarchy of “administrator” positions than 

in the other professional categories. That is why this case is so important. The commissioner 

has reached a point where he approves every administrator reassignment, because in his view,
Brief of Amicus Curiae TEPSA Page 17

lines which include superintendents and counselors as professional capacities—

while creating a new label for principals as “administrators”—the 

Commissioner’s holding is wholly inconsistent with the language of the statute. 

Further, affording superintendents reassignment protections as “sui 

generis” the educational leader and chief executive officer of the school district 

ignores the legislature’s treatment of superintendents and principals 

congruently. E.g., Lehr v. Ector County Ind. Sch. Dist., Docket No. 003-R3-

0908 (Comm’r Educ. 2011). That is, the superintendent and principal are the 

same in that they are both treated differently by the legislature. The 

Commissioner’s refusal to do the same is arbitrary and inconsistent with the 

language of the statute. As such, the decision is not entitled to deference of this 

Court. See Pub. Util. Comm’n v. Gulf States Utils. Co., 809 S.W.2d 201, 207 

(Tex. 1991).

PRAYER

It has been said that no one in a school district has a harder job than the 

principal. Every day, these leaders serve thousands of campuses filled with 

children of diverse ethnic, socio-economic, and cultural backgrounds, who 

come to school, each with his own educational history and needs. The public 

 

one administrator is like another. 
Brief of Amicus Curiae TEPSA Page 18

schools turn no child away. The principals serve the families—as community 

and instructional leaders. They serve legions of professional and supporting 

staff from the custodians to the head football coach. No person within a school 

district is expected to wear more hats than the principal.

The Commissioner has missed the mark in interpreting a principal to be 

the same professional capacity as an assistant principal—or as a general 

“administrator.” The treatment of the position in the statutes, along with the 

clear language therein, point toward an intent of the legislature to distinguish 

the principal from other administrators. It is beyond reason to read the statute, 

as the Commissioner does, to equate “principal” with the word “administrator.” 

TEPSA prays this Court would overturn the Commissioner’s decision in this 

case to apply fundamental principles of statutory construction. 

Dated: July 10, 2015
Brief of Amicus Curiae TEPSA Page 19

Respectfully submitted,

__/s/ Giana Ortiz____________

DANIEL A. ORTIZ

State Bar No. 15323100

GIANA ORTIZ

State Bar No. 24053824

The Law Office of Daniel A. Ortiz

1304 West Abram Street, Suite 100 

 Arlington, Texas 76013

 817-861-7984 Telephone

 817-861-8909 Facsimile

dortiz@ortizlawtx.com

gortiz@ortizlawtx.com

ATTORNEYS FOR AMICUS CURIAE

TEXAS ELEMENTARY PRINCIPALS 

AND SUPERVISORS ASSOCIATION

CERTIFICATE OF COMPLIANCE

I certify that this Brief was produced on a computer using Microsoft 

Word 2007 and contains 4,256 words, as determined by using the computer 

software’s word-count function, excluding the sections of the Brief listed in 

Texas Rule of Appellate Procedure 9.4(i)(1).

Signed this 10th day of July 2015.

__/s/ Giana Ortiz_____________

Giana Ortiz
Brief of Amicus Curiae TEPSA Page 20

CERTIFICATE OF SERVICE

Pursuant to the Texas Rules of Procedure and the Texas Rules of 

Appellate Procedure, I certify that a true and correct copy of the foregoing 

document was served on the following person by certified mail, return receipt 

requested, and by email on the 10th of July, 2015:

__/s/ Giana Ortiz_____________

Giana Ortiz

David Hodgins

Thompson & Horton LLP

3200 Southwest Freeway, Suite 2000

Houston, TX 77027

dhodgins@thompsonhorton.com

Andrew Lutostanski

Assistant Attorney General

P.O. Box 12548, Capitol Station

Austin, TX 78711-2548

Andrew.lutostanski@texasattorneygene

ral.gov

Kevin F. Lungwitz

The Lungwitz Law Firm, P.C.

3005 S. Lamar Blvd.

Suite D-109-362

Austin, Texas 78704-4785

kevin@lungwitzlaw.com
Brief of Amicus Curiae TEPSA Page 21

APPENDIX

A. Cases:

Public Utility Comm’n v. Gulf States Utils. Co., 809 S.W.2d 201, 207 

(Tex. 1991)

B. Decision of the Texas Commissioner of Education:

Pasqua v. Fort Stockton Independent School District, Docket No. 011-

R3-1102 (Comm’r Educ. 2004)

C. Crosby Indep. Sch. Dist. Board Policies:

Policy DP (Local)

Policy FOE (Legal)
APPENDIX A 
Caution 

As of: August 4, 2014 12:48 PM EDT 

Public Utility Com. v. Gulf States Utilities Co. 

Supreme Court of Texas 

April 3, 1991, Delivered 

No. C-9731 

. Reporter: 809 S.W.2d 201; 1991 Tex. LEXIS 42; 34 Tex. Sup. J. 49.5 

PUBLIC UTILITY COMMISSION OF TEXAS and 

OFFICE OF PUBLIC UTILTIY COUNSEL, Petitioners, 

v. GULF STATES UTILITIES COMPANY, Respondent 

Subsequent History: [**1] Dissenting Opinion of June 

19, 1991. 

Prior History: From Travis County; Third District. 

I Core Terms 

ratepayers, cogeneration, qualifying, rates, purchases, 

costs, electric utility, regulationS, Venture, energy, plants, 

electricity, customers, public interest, public utility, 

negotiated, shareholders, proceeds, facilities, factois, 

requirements, contractual, increment~, provides, 

industrial, substantial evidence, federal regulation, 

arrangements, state regulation, electric energy 

I Case Summary 

Procedural Posture 

Petitioner Public Utility Commission sought review of a 

judgment from the Court of Appeals (Texas) that reversed 

petitioner's final order approving respondent utility 

company's request to sell and then repurchase generating 

units, but imposed conditions regarding the recovery of 

payments in excess of avoided costs and allocation of 

proceeds. Petitioner asserted its decision was supported by 

substantial evidence. 

Overview 

The court affinned a judgment that reversed a final order 

of petitioner Public Utility Commission. Respondent 

utility company proposed to sell two generating units to a 

joint venture, then purchase the entire electrical output 

from the plants for ·distribution to its customers. Applying 

the state and federal regulations governing the purchase of 

power from a qualifying co-generating facility, petitioner 

a11owed the sale, but prohibited respondent from 

recovering from its ratepayers payments in excess of 

respondent's avoided costs and required respondent to 

divide the proceeds of the sale between ratepayers and 

shareholders. The court held that the restrictions regarding 

avoided costs, found in 16 Tex. Admin. Code § 23.66(e) 

(1988), did not apply to voluntary contracts arranged 

outside the requirements of 16 Tex. Admin. Code · § 

23.66(d), bui only applied to compelled purchases. The 

court held ·that petitioner's decision regarding the 

allocation of proceeds was not supjJorted by substantial 

evidence and did not take all relevant factors into 

consideration. The court remanded for determination of 

proper allocation and to a11ow respondent to recover 

purchased price payments. 

Outcome 

The court affinned the judgment that revei'sed petitioner's 

final order. The court held that the restrictiOns on recovery 

of payments in excess of avoided costs did not apply-to 

volutilary arrangements with qualifying co-gener~ting 

facilities and that respondent should be allowed to rei::overthose costs. The court held that allocation of proceedS was 

not supported by substantial evidence and remanded for 

redetermination. 

I LexisNexis® Headnotes 

Energy & Utilities Law > Cogenerntion & Independent Companies > 

General Overview 

Energy & Utilities Law > Cogenerntion & Independent Companies > 

Public Utility Regulntory Policies Act > General Overview 

Energy & Utilities Law> Cogeneration & Independent Companies> 

Public Utility Regulatory Policies Act > Purchasing Requirements 

Energy & Utilities Law > Electric Power Industry > State 

Regulntion > General Overview 

HNl To encourage cogeneration, Congress enacted § 210 

of the Public Utility Regulatory Policies Act of 1978 

(PURPA), 16 U.S.C.S. § 824a-3_ An obstacle to the 

development of cogeneration facilities in the past had been 

the reluctance of the traditional utilities to purchase excess 

power from, or sell bacl"Up power to, these nontraditional 

facilities. Section 210 of PURPA attempts to remove this 

obstacle by requiring that electric utilities purchase 

electrical energy from qualifying co-generating or small 

power production facilities (QFs) and provide back-up 

power to QFs on a nondiscriminatory basis. 

Energy & Utilities Lnw > Regulntors >US Federnl Energy Regulntory 

Commission > General Overview 

Giana Ortiz 
Page 2 of 15 

809 S.W.2d 201, *201; 1991 Tex. LEXIS 42, **l 

Energy & Utilities Lnw > Cogenerntion & Independent Compnnies > 

Genernl Overview 

Energy & Utilities Law > Electric Power Industry > Electric Power 

Rntes > General Overview 

Energy & Utilities Law > Electric Power Industry > Electric Power 

Rates > Retail Rntes 

Energy & Utilities Law > Electric Power Industry > State 

Regulation> General Overview 

Energy & Utilities Law > Utility Companies > Rates > General 

Overview 

HN2 Congress provides that the rates established by the 

U.S. Federal Energy Regulatory Commission for the 

purchases of electricity by a utility ( 1) shall be just and 

reasonable to the utility's customers, and (2) shall not 

discriminate against qualifying co-generating facilities. 16 

U.S.C.S. § 824-3!bl. 

Energy & Utilities Law> Co.generation & Independent Companies> 

Genernl Overview 

Energy & Utilities Law > Electric Power Industry > State 

Regulation > General Overview 

Energy & Utilities Law > Utility Companies > Rates > General 

Overview 

HN3 16 U.S.C.S. § 824a-3!d) provides that no rule 

prescribed under subsection (a) .of this section shall 

provide for a rate which exceeds the incremental cost ·to 

the electric utility of alternatiVe electric energy. The 

incremental cost of alternative electric energy is defined as 

the cost the utility would have incurred if it bad generated 

· itself or purchas~d from another utility the same amount of 

po~er it purchased from the qualifying co-generating 

facility (QF).16 U.S.C.S. § 824a-3(d). By setting a ceiling 

of incremental cost on the amount a utility could be forced 

to pay for a QF's power, Congress intended to encourage 

cogeneration without requiring a utility's ratepayers to 

subsidize co-generators. 

Energy & Utilities Law> Regulators >US Federal Energy Regulntory 

Commission > Authorities & Powers 

Energy & Utilities Law > Cogeneration & Independent Companies > 

General Overview 

HN4 18 C.F.R. § 292.304119901 require that each electric 

utility purchase any energy and capacity which is made 

available from n qualifying co-generating facility. 

Energy & Utilities Law> Cogeneration & Independent Companies> 

Genera). Overview 

Energy & Utilities Law > Pipelines & Transportntion > Pipelines > 

Rntcs 

Energy & Utilities Law > Utility Companies > Rules > General 

Overview 

HNS 18 C.F.R. § 292.304 (]9901 sets the rate of payment 

for such purchases equal to the utility's full avoided cost 

unless the state regulatory authority, or an unregulated 

utility, detennines that a lower rate is in the public interest 

and is sufficient to encourage cogeneration. 

Energy & Utilities Law> Regulators >US Federal Energy Regulntory 

Commission > Authorities & Powers 

Energy & Utilities Law > ... > US Federul Energy Regulatory 

Commission >Civil Actions >Jurisdiction 

Energy & Utilities Law > Cogenerntion & Independent Companies > 

General Overview 

Energy & Utilities Law > Cogenerntion & Independent Companies > 

Public Utility Regulatory Policies Act> Compliance Enforcement 

Energy & Utilities_ Law > Electric Power Industry > Electric Power 

Rates > Retail Rntes 

Energy & Utilities Lnw > Pipelines & Transportation >Pipelines > 

Rates 

Energy & Utilities Lnw > Utility Companies > Rates > General 

Overview 

HN6 Nothing in 18 C.F.R. § 292.JOl!b)(]) limits the 

authority of any electric utility or any qualifying 

co-generating facility to agree to a rate for any purchase 

which differs from the rate which would otherwise be 

required by this subpart. 

Energy & Utilities Law > Cogeneration & Independent Companies > 

Generul Overview 

Energy & Utilities Law·> Electric Power Industry >: Electric Power 

Rates > General Overview 

Energy & Utilities Law > Oil, Gas & Mineral Interests > Purchase 

Contrncts > Price Tenns 

Energy & Utilities Law > Utility Companies > Rntes > General 

Overview 

HN7 Rates for purchases from a qualifying facility. ( 1) 

Rates for purchases of energy and capacity from any 

qualifying facility shall be just and reasonable lo the 

consumers of the electric utility and in the public interest, 

and shall ·not discriminate against qualifying cogeneration 

and small power production facilities. (2) Rates for 

purchases . of energy ad capacity from any qualifying 

facility shall not exceed avoided costs; however, in the 

case in which the rates for purchase are based upon 

estimates of avoided costs over the specific term of the 

contract or their legally enforceable obligation, the rates 

for such purchases do not violate this subsection if the 

rates for such purchases differ from avoided costs at the 

time of delivery. 16 Tex.·Admin. Code § 23.66(e)(l), (2) 

(1988). 

Energy & Utilities Law> Cogeneration & Independent Companies > 

General Overview 

Energy & Utilities Lnw > Electric Power Industry > Electric Power 

Rates > General Overview 

Energy & Utilities Law > Utility Companies > Rntes > General 

Overview 

HN8 Rates for purchases satisfy the requirements of 

paragraph (1) of this subsection if they equal avoided cost. 

Giana Ortiz 
Page 3 of 15 

809 S.W.2d 201, *201; 1991 Tex. LEXIS 42, **l 

(4) Rates for purchases from qualifying facilities shall be 

in accordance with paragraph (1)-(3) of this subsection, 

regardless of whether the electric utility making· such 

purchases is simultaneously making sales to the qualifying 

facility. (5) Payments by a utility to any qualifying facility, 

if in accordance with paragraphs (1)-(3) of this subsection, 

shall be considered reasonable and necessary operating 

expenses by that utility. 16 Tex. Admin. Code § 

23.66(e)(3)-(5) (1988). 

Civil Procedure > ... > Eminent Domain Proceedings > 

Commissioners > Reports 

Energy & Utilities Law > Regulators >Public Utility Commissions > 

Rntemnking Procedures 

Energy & Utilities Law > Cogenemtion & lnd!!pendent Companies > 

HNJI The court reads 16 Tex. Admin. Code § 23.66(e) 

(1988) as operating solely to set the rates that the Public 

Utility Commission can compel a utility to pay for a 

qualifying co-generating facility's (QF) power if the utility 

and the QF are unable to reach a voluntary agreement. 16 

Tex. Admin. Code § 23.66(e) does not impose a ceiling on 

the amount a utility can contract to pay for a QF' s power, 

nor does it limit the amount a utility can recover from its 

ratepayers under such voluntary arrangements. 

Energy & Utilities Law> Cogeneration & Independent Companies> 

General Overview 

Energy & Utilities Law > Utility Companies > Rates > General 

Overview 

Genernl Over<;ew HNJ2 16 Tex. Admin. Code § 23.66(e) (1988) 

Energy & Utilities Law > Electric Power Industry > State 

Regulation > Geneml Overview 

Energy & Utilities Law > Utility Companies > Ownership & 

Restructuring 

HN9 Tex. Rev. Civ. Stat. Ann. art. 1446c, § 63 (Supp. 

1991) requires public utilities to report to the Public Utility 

Commission (Commission) any sale of a plant when the 

total consideration exceeds $ 100,000. The Commission 

then must determine if the transaction is consistent with 

the public interest. If .the Commission finds that the 

transaction is not in the public interest •. the Comrilission 

shall take the effect of the transaction into consideration in 

the rate-making proceedings and shall disallow the effect 

of such transaction if it will unreasonably affect rates or 

service. 

Administrative Law > Judicial Review > Standards of Review > 

General Overview 

Administrative Law > Judicial Review > Standards of Review> Rule 

Interpretation 

Criminal Law & Procedure > ... > Standards of Review > Plain 

Error > Definition of Plain Error 

Energy & Utilities Law> ... >Public Utility Commissions >Hearings 

& Orders > Judicial Review 

Energy & Utilities Law > Utility Companies > General Overview 

Environmental Law > Administrative Proceedings & Litigation > 

Judicial Review 

HNJO The Public Utility Commission's (Commission) 

interpretation of its own regulations is entitled to 

deference by the courts. The appellate court's review is 

limited to determining whether the administrative 

interpretation is plainly erroneous or inconsistent with the 

regulation. However, if the Commission has failed to 

follow the clear, unambiguous language of its own 

regulation, the court must reverse its action as arbitrary 

and capricious. 

Energy & Utilities Law> Cogeneration & Independent Compnnies > 

General Overview 

Energy & Utilities Law > Utility Companies > Rntes > General 

Overview 

avoided-cost rules therefore do not apply to voluntary 

contracts arranged outside the requirements of 16 Tex. 

Admin. Code § 23.66(d). This interpretation of 

subsections (d) and (e) is in harmony with the plain 

language of 16 Tex. Admin. Code § 23.66(b), which 

permits a utility and a qualifying .co-generating facility to 

agree to a rate which differs from the rate that would 

otherwise be required whether above, below, or equal to 

avoided cost. 

Energy & Utilities Law > Cogeneration -& lndepende.nt Companies > 

Geneml Overview 

Energy & Utilities Law > Oil, Gas & Mineml Interests > Purchase 

Contracts > Price Tenns 

Energy & Utilities Law > Utility Companies > Rates > General 

Overview 

HN13 Because 16 Tex. Admin. Code § 23.66(e) (1988) 

does not apply to contractual arrangements between 

utilities and qualifying co-generating facilities, it does not 

impose any limitation on the amount a utility can recover 

from its customers for such contractual payments. 

Energy & Utilities Lnw > Regulators > Public Utility Commissions > 

Authorities & Powers 

Energy & Utilities Law > Cogeneration & Independent Compnnies > 

General Overview 

Energy & Utilities Law > Electric Power Industry > State 

Regulation > General Overview 

Energy & UtilitieS Law >Utility Companies > General Overview 

HN14 The court holds that the federal regulations do not 

grant the Texas Public Utility Commission any more 

authority to regulate negotiated purchases than do the state 

regulations. 

Energy & Utilities Law > Cogeneration & Independent Companies > 

General Overview 

Energy & Utilities Law > Pipelines & Transportation > Pipelines > 

Ra I es 

Energy & Utilities Law > Utility Companies > Rates > Genernl 

Overview 

Giana Ortiz 
Page 4 of 15 

809 S.W.2d 201, *201; 1991 Tex. LEXIS 42, **1 

HNJS 18 C.F.R. § 292.3031a) 11990) provides that a utility 

is obligated to purchase any energy and capacity made 

available from a qualifying co-generating facility. Such 

purchases must be made in accordance with 18 C.F. R. § 

292.304, which sets the rate for purchases at avoided cost. 

Because § 292.304 is applied through § 292.303, the 

avoided-cost limit applies only to compelled purchases. 

Administrative Law > Judicial Review > Standards of Review > 

Substantial Evidence 

HN16 The appellate court's inquiry is.whether the Public 

Utility Commission's decision is reasonably supported by 

substantial evidence in view of the r~liable and probative 

evidence in the record as a whole. 

Administrative Law > Judicial Review > Standards ·of Review > 

Arbitrary & Capricious Standard of Review 

Administrative Law > Judicial Review > Standards of Review > 

Substantial Evidence 

HN17 Agency decisions that are not supported by 

substantial evidence are deemed arbitrary and capricious. 

Administrative Law > Judicial Review > Stnndnrds of Review > 

Substantial Evidence 

HNJS In applying the substantial evidence test, the 

appellate court-may not, however, .substitute its judgment 

as to the weight of the evidence for that of the agency. 

Energy & Utilities Lnw > Cogeneration & Independent Companies > 

General Overview 

Energy & Utilities Law > Utility Companies > Rates· > General 

Overview 

HN19 The issue of the proper a11ocation of proceeds from 

the sale of assets is a complicated one that cannot be 

resolved simply by reference to who paid for the property. 

Energy & Utilities Lnw > Cogeneration & Independent Companies > 

General Overview 

Energy & Utilities Law > Utility Companies > Rates > General 

Overview 

HN20 A proper allocation of proceeds from the sale of 

assets can be detennined only by an analysis of an the 

equities involved. 

Energy & Utilities Lnw > Cogeneration & Independent Companies > 

General Overview 

Energy & Utilities Law > Utility Companies > Rates > General , 

Overview 

Energy & Utilities Lnw > ... > Rates > Rntemnking Factors > Rate 

Buse 

HN21 The equitable principles commonly used to resolve 

allocation problems are that benefits should follow 

burdens and that gain should follow risk of Joss. In other 

words, in the general case, the gain should be allocated to 

that group, as between shareholders and ratepayers, that 

has borne the financial burdens and risks of the asset sold. 

In addition to these two general equitable factors, ·courts 

have also considered numerous other factors, including 

whether the asset sold had been included in the rate base 

over the years, whether the asset was depreciable property, 

nondepreciable property, or a combination of the two 

types, the impact of the proposed allocation on the 

financial strength of the utility, the reason for the asset's 

appreciation, any advantages enjoyed by the shareholders 

because of favored treatment accorded the asset, the 

dividends paid out to the shareholders over the years, and 

any extraordinary burdens borne by the ratepayers in 

connection with that asset. 

Counsel: The Honorable Dan Morales, Attorney General 

of Texas, Ms. Susan D. Bergen, Office of Attorney General 

of Texas, Dan Morales, A. G., Ms. C. Kingsbery Ottmers, 

Office of Public Utility Counsel, Mr. John L. Laakso, 

Assistant Public Counsel, Office of Public Utility Counsel, 

Austin, Texas, for Petitioners. 

Mr. Barry Bishop, Clark, Thomas, Winters & Newton, Mr. 

John F. Williams, Clark, Thomas, Winters & Newton, 

Austin, Texas, for Respondent. 

Judges: Thomas R. Phillips, C.J. Concurring and 

dissenting opinion by' Justice Raul A. Gonzalez and Oscar 

H. Mauzy JJ. 

Opinion by: PHILLIPS 

I Opinion 

[*202] OPINION 

This case is an administrative appeal from a final order of 

the Texas Public Utility Commission. Gulf States Utilities 

Company (GSU) sought the Commission's approval of the 

sale of two of GSU's generating units and of GSU's 

proposed rate treatment of certain revenues and expenses 

associated with that transaction. GSU proposed to sell the 

two plants to a joint venture comprised of GSU and three 

of its Louisiana industrial customers; GSU then planned lo 

purchase the entire electrical output [**2] from the plants 

for distribution to its ·customers. GSU requested. the 

Commission to rule that, in future rate proceedings, it be 

allowed to recover from its ratepayers its total purchase 

price for the electricity and furthermore that it be allowed 

to allocate the proceeds from the sale of the depreciated 

plants to its shareholders rather than to its ratepayers. 

The Commission concluded that the proposed sale was 

generally in the public interest but imposed two conditions 

on GSU's treatment of the transaction in future rate 

proceedings. First, the Commission determined that it was 

Giana Ortiz 
Page 5 of 15 

809 S.W.2d 201, *202; 1991 Tex. LEXIS 42, **2 

not in the public interest for GSU' s ratepayers "to pay in 

excess of GSU's avoided cost" for power purchased from 

the joint venture. Therefore, tlie Commission held that it 

would not allow GSU to recover from its Texas ratepayers 

payments for electricity from the joint venture in excess of 

GSU's avoided cost. Second, the Commission determined 

that GSU must divide the proceeds from the sale of the 

plants between the ratepayers and its shareholders in 

proportion to the amount each group contributed to the 

cost of the plants. 

The district court affirmed the Commission's-order. The 

court of appeals then reversed [**3] the judgment of the 

district court and remanded the case to the Co1n1nission. 

784 S. W.2d 519. The Commission and the Office of Public 

Utility Counsel now appeal to. this court. We must first 

determine whether the applicable stale and federal 

regulations permit a utility purchasing power from a 

cogenerator to recover from its ratepayers payments in 

excess of its avoided cost. Second, we must determine 

\V~ether the Commission's allocation of the utility's 

proceeds from the sale of its plants was proper. For the 

reasons that follow, we affirm the judgment of the court of 

appeals. 

I 

A 

In 1978, in response to rising energy costs and recent fuel 

shortages, Congress sought ways to conserve energy to 

reduce [*203] the nation's dependenCe on foreign oil and 

on natural gas. See Federal Energy Rer:ulaton1 Con11n '11 v. 

Mississippi. 456 U.S. 742. 745-46. 102 S.Ct. 2126, 2130, 

72 LEd.2d 532. 538 (1982). One possible remedy was to 

increase the use of cogeneration. Cogeneration involves 

the simultaneous production of electrical power and 

thermal energy, such as heat or steam, usually at an 

industrial site. Id. at 750 & n.11, 102 S.Ct. at 2132 & n.11, 

72 LEd.2d at 541 & n.11. By making [**4] productive 

use of the "waste" heat produced in the generation of 

electricity, cogeneration can reduce fuel consumption by 

as much as one half. See C. PHILLIPS, THE 

REGULATION OF PUBLIC UTILITIES: THEORY AND 

PRACTICE 452 n.92 (1988); see also 45 Fed. Reg. 12,215 

(1980). 

HNl To encourage cogeneration, Congress enacted 

section 210 of the Public Utility Regulatory Polities Act of 

1978 (PURPA). Pub. L. No. 95-617,92 Stal. 3117 (1978) 

(codified as amended al 16 U.S.C. § 824a-3 (1988)). An 

obstacle to the development of cogeneration facilities in 

the past had been the reluctance of the traditional utilities 

to purchase excess power from, or sell backup power to, 

these nontraditional facilities. FERC v. Mississivpi. 456 

U.S. at 750-51. 102 S.ct. at 2132-33, 72 LEd.2d at 541. 

Section 210 ofPURPAattempts to remove this obstacle by 

requiring that electric utilities purchase electrical energy 

from qualifying cogenerating or small power production 

facilities 1 [**5] (QFs) and provide back-up power to QFs 

on a nondiscriminatory basis. 2 

In section 21.0, Congress directed the Federal Energy 

Regulatory Commission (FERC) lo prescribe., within one 

year of the statute's enactment, rules requiring electric 

utilities to purchase power from and sell power to QFs. 

PURPA § 210(a), 16 U.S.C. § 824-J(a) (]9881. HN2 

Congress further provided that the rates established by 

FERC for the purchases of electricity by a utility (1) shall 

be just and .reasonable to the utility's customers, and (2) 

shall not discriminate against QFs. PURPA § 210(b), 16 

U.S.C. § 824-3(b) (]988). HN3 Section 210(b) also 

provides that "nb . -.. rule prescribed under subsection (a) 

of this section shal.l provide for a rate which exceeds the 

[**6] incremental cost to the electric utility of alternative 

electric en~rgy." Id. The 1rincremCntal cost of alternative 

electric energy" is defined as the cost the utility would 

have incurred if it had generated itself or purchased from 

another utility the same amount of power it purchased 

from the QF. PURPA § 210(d), 16 U.S.C. § ;~24a-3(d) 

(/988). By setting a ceiling of incremental cost on the 

amount a utility could be forced to pay for a QF's poW-er, 

Congress intended to encourage cogeneration without 

requiring a utility's ratepayers to subsidize cogenerators. 

H.R. CONF. REP. NO. 1750, 95th Cong., 2d Sess. 98, 

reprinted in 1978 U.S. CODE CONG & ADMIN. NEWS 

7797, 7832. 

Pursuant to this statutory authority, FERC has adopted 

regulations governing an electric utility's purchases from 

QFs. Seel8 C.F.R. pt. 292 (1990). HN4 The regulations 

require that each electric utility "purchase, in accordance 

with § 292.304, any energy and capacity which is made 

available from a qualifying facility." Id.§ 292.303. HNS 

Section 292.304 sets the rate · of payment for such 

purchases equ~l to the utility's full avoided cost unless the 

slate regulatory authority (or an unregulated utility) 

1 Small power production facilities are those which use biomass, waste, geothermal resources, or renewable resources such as 

wind, water, or solar energy to produce electrical power. 

2 A further obstacle to cogeneration had been the risk that a cogenenllor would be considered a public utility and thus be 

subject to burdensome state and federal regulation. FERC v. !vfississipvi. 456 U.S. at 750-51. 102 S.Ct. at 1133. 72 L.Ed.2d at 

541. PURPA directs FERC to prescribe rules exempting QFs from certain state and federal Jaws governing conventional electric 

utilities. PURPA § 210(e), 16 U.S.C. § 824a-3(el (1988). 

Giana Ortiz 
Page 6 of 15 

809 S.W.2d 201, *203; 1991 Tex. LEXIS 42, **6 

determines [**7] that a lower rate is in the public interest 

and is sufficient to encourage cogeneration. Id.§_ 

292.3041b )(2 I. (The term "full avoided cost" is equivalent 

to PURPA's "incremental cost.") Finally, the regulations 

provide that "HN6 nothing in this subpart ... limits the 

authority of any electric utility or any [QF] to agree to 

[*204] a rate for any purchase ... which differs from the 

rate . . . which would otherwise be required by this 

subpart." Id.§ 292.30J(b)(/). 

Because Congr~ss intended that state regulatory 

authorities be the primary enforcers of PURPA, section 

210(!) of PURPA orders each state regulatory authority to 

implement FERC's rules. 3 [**10] I6 U.S.C. § 824-3([) 

(/ 988 ). In 1981, the Texas legislature added a provision to 

the Texas Public Utility Regulatory Act (Texas PURA) to 

the effect that the Commission "shall make·and enforce 

rules reasonably required to implement the rules and 

regulations of the Federal Energy Regulatory Commission 

pertaining to the production of electric energy by [QFs]." 

Act of Apr. 1, 1981, 67th Leg., R.S., ch. 31, § 2, 1981 Tex. 

Gen. Laws 70, 71. This provision was later amended to 

order the Commission to "make and enforce rules [**8] to 

encourage the economical production of electrical' energy 

by [QFs]." Act of May 26, 1983, 68th Leg., R.S., cb. 274, 

§ l, 1983 Tex. Gen. Laws i258, 1280 (codified at TEX. 

REV. CIV. STAT. ANN. art. 1446c, § I61g) (Vernon Supp. 

1991)). Pursuant to these directives, the Commission has 

enacted its own rules governing a utility's purchases of 

power from a QF. Tex. Pub. Util. Comm'n, 16 TEX. 

ADMIN. CODE § 23.66 (West Sept. I, 1988) ("Rule 

23.66"). 

The Texas rules apply to FERC-certified QFs, id. § 

23.66(a)(l5), and are very similar to FERC's rules. Rule 

23.66(d) of the Texas rules provides that "in accordance 

with subsections (e) - (h) of this section, each electric 

utility shall purchase any energy and capacity that is made 

available from a qualifying facility . . . ." Id. § 

23.66(d)(l)(A). Rule 23.66(e) requires that rates for such 

purchases "shall be just and reasonable to the consumers 

of the electric utility and in the public interest, and shall 

not ·discriminate against" QFs. Id. § 23.66(e)(l). The rates 

"shall not exceed avoided cost.'' Id. § 23.66(e)(2). 

"Avoided cost" has the same meaning as in FERC's 

regulations. Id. § 23.66(a)(2). Rates which equal [**9] 

avoided cost are deemed to be just and reasonable, id. § 

23.66(e)(3), and such payments are considered 

"reasonable and necessary operating expenses of [the] 

utility." Id. § 23.66(e)(5). 4 Finally, as in FERC's rules, the 

Texas rules provide that nothing in the rules "shall limit 

the authority of any electric utility or any qualifying 

facility to agree to a rate for any [*205] purchase, or 

terms or conditions rela~ng to any purchase, which differ 

from the rate or terms Or conditions that would otherwise 

be required by this subsection." Id. § 23.66(b)(2)(A). 

3 The U.S. Supreme Court has held that the federal government may constitutionally order the states to implement FERC's· 

regulations through state courtS or agencies. FERC v. !v!ississippi. 456 U.S. at 760-61. 102 S.Ct. at 2138. 72 L.Ed.2d at 547-48. 

Under this federal command, states. have the authority to· promulgate regulations mirroring the federal regulations. 45 Fed. Reg. 

12,216 (1980). However, it is unclear ·Whether, under PURPA, a state may promulgate additional regulations in the .field of 

cogeneration. In general, a state may enact its own laws or regulations as long as the federal authority has not preempted all 

state efforts to regulate in the area and as long as the state laws or regulations do not conflict with federal la\VS or regulations. 

Citv of New York v. FCC. 486 U.S. 57, 64. 108 S.CL. 1637, 1642, 100 L.Ed.2d 48, 57 (19881. Whether PURPA and the FERC 

regulations completely preempt state regulation in the area of cogeneration is an open question. The issue of preemption is discussed 

at infra note 11. 

4 In full, Rule 23.66(e) provides: 

HN7 (e) Rates for purchases from a qualifying facility. 

(1) Rates for purchases of energy and capacity from any qualifying facility shall be just and reasonable to the consumers of the 

electric utility and in the public interest, and shall not discriminate against qualifying cogeneration and small power production 

facilities. 

(2) Rates for purchases of energy ad capacity from any qualifying facility shall not exceed avoided costs; however, in the case in 

which the rates for purchase are based upon estimates of avoided costS over the specific tenn of the contract or their legally 

enforceable obligation, the rates for such purchases do not violate this subsection if the rates for such purchases differ from avoided 

costs at the time of delivery. 

HNS (3) Rates for purchases satisfy the requirements of paragraph (1) of this subsection if they equal avoided cosL 

(4) Rates for purchases from qualifying facilities shall be in accordance with paragraph (1)-(3) of this subsection, regardless of 

whether the electric utility making such purchases is simultaneously making sales to the qualifying faci1ity. 

(5) Payments by a utility to any qualifying facility, if in accordance with paragraphs (1)-(3) of this subsection, shall be considered 

reasonable and necessary operating expenses by that utility. 

16 TEX. ADMIN. CODE§ 23.66(e) (West Sept. 1, 1988). 

Giana Ortiz 
Page 7 of 15 

809 S.W.2d 201, *205; 1991 Tex. LEXIS 42, **II 

[**11] The first issue we must address in this case 

concerns the proper interpretation of the above federal and 

state regulations governing a utility's purchases of 

electricity from a QF. The questions presented are (1) 

whether the regulations prohibit a utility from contracting 

for and paying a rate in excess of its avoided cost and (2) 

whether, if a utility may pay more than avoided cost, the 

regulations impose a limitation on how much of these 

payments the utility can recover from its ratepayers. The 

controversy arises because both sets of regulations 

expressly allow a utility and a QF to agree to any rate for 

purchased power, see 18 C.F.R. § 292.30Jlbl!ll (]9901: 16 

TEX. ADMIN. CODE § 23.66(b)(2)(A) (West Sept. 1, 

1988), but in subsequent provisions limit pur<:=hased po.wer 

payments to av.aided cost. Seel8 C.F.R. § 292.304(a)(2) 

(]9901; 16 TEX. ADMIN. CODE § 23.66(e)(2) (West 

Sept 1, 1988). 

B 

We consider these questions in light of the circumstances 

presented by this case. GSU is a public electric Utility 

located in Texas near the Louisiana border. In 1984, two of 

GSU's 1a.rgest industrial customers, both situated in 

Louisiana, notified GSU that they were ·planning to build 

[**12] a cogeneration facility, which would enabl.e them 

eventually to withdraw from GSU's system. 5 Normally, 

the loss of such major customers from GSU's ·system 

would result in increases in the rates paid by the remaining 

customers. These increases would occur because the 

utility's fixed costs would have to be spread over a smaller 

number of ratepayers. As a way to keep the industrial 

customers in its system· and thereby to prevent such rate 

increases, GSU proposed the formation of a joint 

cogeneration venture with the customers. 

GSU and three of its Louisiana-based industrial customers 

eventually entered into an agreement to form the Nelson 

Industrial Steam Company Project (the Venture). Under 

the terms of this agreement, GSU agreed to sell two of its 

electrical generating plants to the Venture and to run the 

plants on behalf of the Venture. 6 GSU further [**13] 

agreed to purchase the entire electric output from the 

plants for its general power supply at a price calculated by 

a contractual formula. 7 In return for GSU's undertakings, 

the three industrial members of the Venture agreed to 

continue as GSU's customers. FERC later certified the 

Venture as a QF, contingent on the Venture' s reaching 

certain milestones in converting the plants from natural 

gas to petroleum coke operation. 

Completion of the agreement to form the Venture was 

made contingent on the Commission's [**14] approval of 

GSU's proposed rate treatment of certain revenues and 

expenses arising out of the sale. GSU requested such 

approval under section 63 of the Texas PURA. HN9 This 

section requires public utilities to report lo the 

Commission any sale of a plant when the total 

consideration exceeds $ 100,000. The Commission then 

must determine if the transaction "is consistent with the 

public interest." TEX. REV. CN. STAT. ANN. an. 1446c. § 

63 (Vernon Supp. 1991). If the Commission finds that the 

transaction is not in_ the Public interest, the Commission 

"shall take the effect of the transaction into consideration 

in the rate-making proceedings" and "shall ... disallow the 

effect of such transaction if it will unreasonably affect 

rates or service." Id. 

[*206] Section 63 does not require a utility to obtain the 

Commission's approval prior to such sales. Furthermore, 

the Commission does not set electric utility rates in a 

section 63 proceeding. Nevertheless, . the Commission 

must determine the effect of a transaction on future 

ratemaking prOceedings in order to determine whether the 

transaction as proposed wiU be in the public interest. In 

their section 63 application, therefore, the [**15] parties 

to the Venture requested a prospective ruling on the future 

rate treatment that would be granted the transaction. 

Specifically, GSU requested a ruling from the Commission 

that GSU be allowed to pass on the full amount of its 

payments to the Venture for electricity (the purchased 

power payments) to its ratepayers and that it be allowed to 

allocate the entire proceeds from the sale of the plant to its 

shareholders. 

After a hearing, the Hearing Examiner detennined that the 

sale of the plants to the Venture was generally in the public 

interest. The Examiner then found that GSU' s purchased 

power payments might at times exceed GSU's avoided 

cost The Examiner determined that avoided cost was the 

maximum rate that would be deemed just and reasonable 

and in the public interest under Rule 23.6(\(e). However, 

she concluded that GSU should be allowed to seek 

recovery of any purchased power payments in excess of its 

5 The customers' desire to withdraw was motivated in part by rate increases produced by an expensive nucJear power p1ant that 

GSU had recently brought on line. 

6 GSU would have a 1 % interest in the Venture. 

7 The contractual formula is based on the current Louisiana tariff for large industrial customers and on the Venture's production 

costs, rather than on GSU's avoided cost. Depending on the values for the factors in the formula, the purchased po\ver rate may 

be less than or greater than avoided cost If the rate exceeds avoided cost, the industrial customers are required to purchase additional 

amounts of electricity to partially offset GSU's increased cost 

Giana Ortiz 
Page 8 of 15 

809 S.W.2d 201, *206; 1991 Tex. LEXIS 42, **15 

avoided cost in future rate or fuel-reconciliation 

proceedings. 8 In order to recover the payments, GSU 

Would have to show that the 

costs were necessary as a means to keep its industrial load 

on the system, that the ratepayers benefited by the 

retention of the industrial [**16] load on the system, that 

the costs in excess of avoided costs were at a minimum, 

and tPat given these circumstances, its fuel costs were at 

their lowest reasonable level. 

Tex. Pub. Util. Comm'n, Application of Gulf States Utils. 

Co. for Approval of a Joint Ve.nture Cogeneration Project 

and Treat1nent of Revenues, Docket No. 7147, 14 TEX. 

P.U.C. BULL. 49, 66-67 (Mar. ·21, 1988) [hereinafter 

Docket No. 7147]. The Examiner further determined that 

it would be unreasonable for the ratepayers to absorb all 

the costs associated with the purchased power payments. 

As to the allocation of the sale proceeds, the Examiner 

concluded that the ratepayers should be credited with 83 

percent of the proceeds because they paid ~or 83 percent of 

the cost of the plants. The ratepayers' 83 percent share of 

the proceeds would be deemed "other electric utility 

income" and would be used to offset the amount of 

revenue otherwise required to be generated by the rates. 

[**17] The Commission's final order deleted the Hearing 

Examiner's fmdings that GSU could seek recovery of the 

full amount of its purchased power payments and 

substituted findings that GSU could not recover anything 

above avoided cost. Th~ final order thus stated that "it is 

not in the public interest for GSU's Texas ratepayers to 

pay in excess ·of GSU's avoided cost for purchased power 

from a qualifying cogeneration project" and that "in future 

rate proceedings, [GSU] is limited to recovering those 

purchased power payments to the Venture that do not 

exceed GSU's avoided costs." 9 Docket No. 7147, supra p. 

10, at 98. The parties to the Venture later went ahead with 

the transaction despite the Commission's disallowance of 

the requested rate treatment. 

GSU appealed to the district court, which affirmed the 

Commission's order. GSU then appealed to the court of 

appeals, which reversed the judgment of [**18] the 

district court and remanded to the Commission. The court 

of appeals held that the Commission's interpretation of 

Rule 23.66 as imposing a ceiling on negotiated purchased 

power payments· was unreasonable under the text of the 

provision and contrary to the provisions and purposes of 

the Texas [*207] PURA. 784 S.W.2d at 528. The court of 

appeals also held that the Commission's allocation of the 

sale proceeds was not supported by substantial evidence in 

the record. 784 S. W.2d at 533. 

II 

We first address that part of the Commission's order 

holding that GSU cannot recover from its ratepayers 

purchased power payments in excess of avoided cost. The 

Commission's ·ruling is based on its interpretation of the 

state regulations, in particular Rule 23.66. As described 

above; Rule 23.66(b)(2)(A) allows utilities and QFs to 

agree to any rate, while Rule 23.66(e) st~tes that purchases 

of energy from QFs shall not exceed avoided cost. Thus, 

the two rules appear to conflict. The Commission atteinpts 

to harmonize the two rules by interpreting them to permit 

a utility and a QF to contract only .for rates below avoided 

cost. The Commission also argues that, ·even if Rule 

23.66(b) allows a utility [**19] to pay a rate above 

avoided cost, Rule 23.66(e) prohibits a utility from 

recovering from its ratepayers any payments, whether 

negotiated or compelled, in excess of avoided cost. 

According to the Commission, Rule 23.66(e) provides that 

only thos.e payments that are equal to avoided cost are just, 

reasonable, and in the public·interest. Therefore, it is not 

just; reaSonable, or in the public interest for the ratepa)iers 

to pay more than avoided cost under any circumstances. 

Finally, the Commission argues that FERC' s regulations 

also place a limit of avoided cost on purchased power 

payments. 

HNIO The CommiSs~on's interpretation of its own 

regulations is entitled to deference by the courts. See Udall 

v. Tallma11. 380 U.S. 1. 16. 85 S.Ct. 792. 801. 13 LEd.2d 

616. 625 119651; Lloyd A. Frv Roofing Co. '" State. 541 

S. W.2d 639. 644 !Tex. Civ. App. -- Dallas 1976. writ refd 

n.r.e. l. Our review is limited to determining whether the 

administrative interpretation "is plainly erroneous or 

inconsistent with the regulation." United States v. 

Lario11off, 431 U.S. 864. 872. 97 S.Ct. 2150. 2155, 53 

l.Ed.2d 48. 56 119771 (quoting Bowles v. Seminole Rock 

Co .. 325 U.S. 410. 414. 65 S.Ct. [**20] 1215. 1217. 89 

L.Ed. 1700. 1702 (!945ll. However, if the Commission 

has failed to follow the clear, unambiguous language of its 

own regulation, we must reverse its action as arbitrary and 

capricious. See Sani Houston E/ec. Coop .. Inc. v. Public 

Util. Comm'n, 733 S. W.2d 905. 913 !Tex. App. -- Austill 

1987. lVrit den 'dJ; see also Lelvis v. Jacksonville Bldg. & 

8 At reconciliation proceedings, a utility's fuel costs over a period are reconciled with the projected costs for that period and a 

credit or charge is assessed to the ratepayers accordingly. See 16 TEX. ADMIN. CODE§ 23.23(b)(2)(H) (West Sept. 1, 1988). 

9 One of the Commissioners dissented from the part of the final order limiting GSU' s recovery to avoided cost 

Giana Ortiz 
Page 9 of 15 

809 S.W.2d 201, *207; 1991 Tex. LEXIS 42, **20 

Loan Ass'n, 540 S. W.2d 307, 310 !Tex. 1976), and Ex parte 

Roloff. 510 S. W.2d 913. 915 !Tex. 1974). 10 

We hold that the Commission acted arbitrarily in adopting 

an interpretation contrary to the [**21] plain language of 

its regulation. Rules 23.66(b)(2)(A) and 23.66(e) can be 

hannonized, but not in the manner suggested by the 

Commission. HNJJ We read Rule 23.66(e) as operating 

solely to set the rates that the Commission can co1npel a 

utility to pay for a QF's power ifthe utility and the QF are 

unable to reach a voluntary agreement. Rule 23.66(e) doe_s 

not impose a ceiling on the amount a utility can contract 

lo pay for a QF's power, nor does it limit the amount a 

utility can recover from its ratepayers under such 

voluntary arrangements·. · 

Our interpretl)tion is based on the interaction between Rule 

23.66(e) and Rules 23.66(d) and 23.66(b). Rule 23.66(d) 

obligates a utility to purchase power from a QF if the QF 

makes such power available. Subsection (d) also provides 

that the rates for purchases made under that subsection are 

governed by Rule 23.66(e). See 16 TEX. ADMIN. CODE 

§ 23.66(d)(l)(A) (West Sept. l, 1988) ('Tu accordance 

with subsection[] (e) ... of this section, each electric 

utility shall purchase any energy and capacity that is made 

available from a [QF] ... · ."). HN12 Rule 23.66(e)'s. 

avoided-cost rules therefore do [*208) not apply to 

voluntary contracts arranged [**22] outside the 

requirements of Rule 23.66(d). This interpretation of 

subsections (d) and (e) is in harmony with the plain 

language of Rule 23.66(b), which permits a utility and a 

QF "to agree to a rate which differs from the rate that 

would otherwise be required" whether above, belo1v, or 

equal to avoided cost. We find no justification in the 

language of Rule 23.66(b) to support the Commission's 

interpretation that subsection (b) allows a utility to 

contract for any price belolv avoided cost but not for a 

· price above avoided cost. Finally, HN13 because Rule 

23.66(e) does not apply to contractual arrangements 

between ulilities and QFs, it does not impose any 

limitation on the amount a utility can recover from its 

customers for such contractual payments. The provision 

that payments equal to avoided cost "shall be considered 

reasonable and necessary operating expenses of that 

utiliiy" merely ensures that a utility can recover the full 

amount of the payments it is conzpel/ed to make by the 

Commission. 'Subsection (e)(5) does not provide that 

contractual payments above. avoided cost can never be 

considered reasonable and necessary operating expenses 

.of the utility. · 

We must also [**23) consider the application of PURPA 

and the federal regulations because the transaction 

between GSU and the Venture is governed by federal law 

as well as by Texas law. The interstate activities of GSU 

clearly bring it within the reach of the federal regulations. 

FERC v. Mississippi. 456 U.S. 742, 757," 102 S.Ct. 2126, 

2136, 72 LEd.2d 532, 545 11982 I. In addition, to the 

extent that the state regulations implement PURPA, the 

federal regulations _serve as a· guideline to and may control 

the scope of the state regulations. 

HN14 We hold that the federal regulations do not grant the 

Commission any more authority to regulate negotiated 

purchases than do the-state regulations. II [**26] Like Lhe 

Texas-regulations, the federal regulations do not authorize 

the Commission to alter the terms of a purchased power 

contract between a utility and a QF. Neither do they set a 

limit of avoided cost on the amount of such payments a 

utility can recover from its ratepayers. Thus, HNlS section 

10 The standard for reviewing the Commission's interpretation of its regulations that were promulgated to implement federal 

law, as well as for reviewing the Commission's interpretation of federal regulations, might well be less deferential. However, in 

the absence of any requests from the parties to use a different standard, we-apply the deferential standard enunciated in the text to 

all of the Commission's interpretations in the present case. 

11 Because we find that the federal and state regulations are identical in this regard, we do not reach the issue of whether the 

federal law preempts state regulation in the area of cogeneration. To the extent that the Texas regulations imposed different 

requirements than did the federal regulations, it would be necessary to detennine whether the federal law preempted Texas regulation. 

The answer is unclear. As discussed supra note 3, PURPA directs states to implement FERC~s rules; however, neither PURPA 

nor the federa). regulations expressly state whether additional state regulation is preempted._ 

The preemption issue has previously arisen in situations where states have tried to impose a compeUed rate that is higher than 

FERC.'s avoided cost ceiling. FERC originally stated that "the States are free ... to enact laws or regulations providing for rates 

which -would result in even greater encouragement of these technologies," i.e., rates·above avoided cost. 45 Fed. Reg. 12,221 

(1980). In 1988, FERC proposed changes to the regulations that would prohibit states from setting a compelled rate higher than 

avoided cost. 53 Fed. Reg. 933 l (1988); see Occidental Chem. Corp. v. FERC. 869 F.2d 127. 128 (2d Cir. 1989). These changes are 

still pending. Prior to these recent developments, the lower federal courts had disagreed on whether PURPA preempts state 

regulations that set a price above avoided cost. Compare Consolidated Edison Co. v. Public Sen: Con11n 'n. 63 N. Y.2d 424. 436 

n.8. 483 N.Y.S.2d 153. 157 n.8. 472 N.E.2d 981. 985 n.8 0984)with Kansas Ctn• Power & Light Co. v. State Corn. Co111m'n. 234 

Kan. 1052. 1057-58. 676 P.2d 764. 767-68 (1984). The Supreme Court has declined to address the issue. See Consolidated 

Edison Co. v. Public Sen'. Comn1'11. 470 U.S. 1075. 105 S.Ct. 1831. 85 L.Ed.2d 132 (1985) (dismissing the appeal from the 

Court of Appeals of New York for want of a substantial federal question). 

Giana Ortiz 
Page JO of 15 

809 S.W.2d 201, *208; 1991 Tex. LEXIS 42, **26 

292.303(a J of the federal regulations provides that a utility 

is obligated to purchase any energy and capacity made 

available from a QF. Such purchases must be ·made in 

accordance with section 292.304, which sets the rate for 

purchases [**24] at avoided cost. Because section 

292.304 is applied through section 292.303, the 

avoided-cost limit applies only to compelled purchases. 

This interpretation of sections 292.303 and 292.304 is in 

harmony with the language of section 292.30Jlb)(J ), 

which provides that nothing is to limit the authority of a 

utility or QF "to agree lo a rate for any purchase ... which 

differs from the rate . . . which would otherwise be 

required by this subpart." 12 [*209] 18 C.F.R. § 

292.30J(b)(J J 11990}. See An1erica11 Paper-Inst .. Inc. v. 

A1nerican Elec. PolverSe111. Com .. 461 U.S. 402. 416. 103 

S.Ct. 1921. 1930. 76 L.Ed.2d 22, 35 (1983) ("The 

Cqmmission 's [full-avoided-cost] rule simply establishes 

the rate that applies in the absence of a waiver or a specific 

contractual agreement."); 13see also In re Vicon Recoven• 

Sys .. 153 Vt. 539, 572 A.2d 1355, 1358 Cl 990) ("The rate 

provisions of§ 292 apply only ... in a situation where the 

electric utility is forced to purchase power from the small 

producer. The regulations make clear that uti1ities and 

[QFs] can agree to a rate different than would otherwise be 

mandated."); Barasch v. Public Util. Co1n111'n. 119 Pa. 

Commw. 81. [**25] 546 A.2d1296. 1300 (Pa. Commw. 

ill ("privately negotiated contracts setting rates for QF 

power are essentially outside the federal and state rules"), 

modified,550 A.2d 257 !Pa. Commw. Ct. 1988) (holding 

that previous opinion was to have prospective effect only); 

Bates Fabrics Inc. i~ Public Utils. Conun 'n. 447 A.2d 

1211. 1214 (Me. 1982) ("We conclude that the federal· 

scheme expressly excludes from its reach a1l otherwise 

binding contracts between utilities and" QFs.). Finally, the 

regulations say nothing about hoW much of its purchased 

power payments a utility can recover from its ratepayers. 

[**27] Our holding that the state and federal regulations 

governing a utility's purchases of power from a QF do not 

apply to voluntary arrangements between a utility and a 

QF. does not deprive the Commission of its regulatory 

authority over the amount of such contractual payments 

that a utility may "recover from its customers. GSU may 

contract for any purchase price it wishes; however, 

whether such cost will be fully recoverable from the 

ratepayers Vo'.ill be subject to the Commission's ordinary 

ratemaking powers. GSU's purchase of electricity from 

the Venture is a fuel cost, see 16 TEX. ADMIN. CODE § 

23.23(b)(2)(B) (West Sept. I, 1988), which, like any other 

expense, is subject to disallowance by the Commission 

upon a finding that the expense is unreasonable, 

unnecessary, or not in the public interest. 14SeeTEX. REV. 

ClV. STAT. ANN. nrt. 1446c, §§ 38, 39(a), 4l(c)(3)(D) 

(Vernon Supp. 1991); 15 16 TEX. [*210] ADMIN. CODE 

§ 23.23(b) (West Sept. I, 1988) (utility must show that 

contract negotiations for puri::hased power have produced 

the lowest reasonable cost of fuel. to ratepayers); see also 

Suburban Util. Corn. v. Public Util. Con1ni 'n. 652 S. lV.2d 

12 _ FERC's comments accompanying the federal regulations.adopt this interpre.tation: 

Paragraph (b)(l) [allowing utilities and QFs to agree to any rate] reflects the Commission's view that the rate provisions of 

section 210 of PURPA apply only if a [QF] chases to avail itself of that section. Agreements between an electric utility and a 

[QF] for purchases at rates different than rates required by these rules ... do not violate the Commission's rules under section 

210 of PURPA. The Commission recognizes that the abi1ity of a [QF] to negotiate with an electric utility is buttressed by the existence 

of the rights and protections of these rules. 

45 Fed. Reg. 12,217 (1980). 

13 We disagree witlt the Commission's interpretation of the Supreme Court's comment that "a qualifying facility and a utility 

may negotiate a contract setting a price that is lower than a full avoided cost rate." A111erican Paper Inst .. 461 U.S. at 416. 103 S.Ct 

at 1930. 76 L.Ed.2d at 35. We do not read this statement to mean that a utiJity may not negotiate for a price above avoided cost 

because the Court was not asked to consider the status of prices above avoided cost 

14 Allowing the Commission to examine the fairness and reasonableness of GSU's payments to the Venture will not result in 

the improper application of ratemaking principles to cogenerators, as the Commission warns. Congress intended that cogenerators 

nqt be subject to the "type of examination that is traditionally given to electric .utility rate applications to determine what is the 

just ad reasonable rate that they shou1d receive for their electric power." H.R. CONF. REP. No. 1750, 95th Cong., 2d Sess. 97, 

reprinted in 1978 U.S. CODE CONG. & ADMIN. NEWS 7797, 7831. However, the Commissioner's task in this case is to analyze 

the purchased power rate in terms of its fairness to GSU's ratepayers, not its fairness to the Venture, and the fonner inquiry 

will not involve application of ratemaking principles to the Venture. · 

15 We do not agree with the court of appeals that Texas PURA section 41A is applicable here. Under section 41A, a voluntary 

purchased power agreement between a utility and a QF may be certified by the Commission if "the payments provided for in the 

agreement over the contract tenn are equal to or Jess than the utility's avoided costs as established by the commission and in 

effect at the time the agreement was signed .... " Once certified, the payments under the agreement are presumed to be reasonable 

and necessary expenses of the utility in any future rate proceedings. In the present case, however, section 41 A does not apply 

because GSU has not requested section 41A certification. Furthennore, we do not think this specific certification procedure was 

meant to deprive a utility of its Rule 23.66(b) power to contract for a rate above avoided cost. 

Giana Ortiz 
Page 11of15 

809 S.W.2d 201, *210; 1991 Tex. LEXIS 42, **27 

358. 362 !Tex. 1983) (''The [**28] PUC's ratemaking 

power includes the discretion to disallow improper 

expenses."). In fact, section 63, under which this 

proceeding was brought, expressly orders the Commission 

to disallow any effect of the transaction that will 

unreasonably affect rates. 

[**29] The Commission suggests that it would never be 

fair to the ratepayers for a utility to pay in excess of its 

avoided costs for power since by definition the utility 

could obtain the same amount of power elsewhere by 

paying avoided cost. But using this argument to set an 

absolute ceiling on purchased power payments ignores the 

plain language of the Commission's own rules, which do 

not authorize the Commission to impose a ceiling of 

avoided cost on such payments. Under the rules, the 

Commission must conduct an independent, factual inquiry 

in each case to detennine whether payments in excess of 

avoided cost are reasonable and necessary, considering the 

effects of the transaction as a whole. 16 

[**30] Because the Commission was not called upon to 

set rates in the section 63 proceeding from which this case 

arose, we do not remand this part of the case to the 

Commission. Instead, we order the Commission to allow 

GSU to recover purchased power payments in excess of its 

avoided cost in future rate proceedings if GSU establishes 

to the C.ommission's satiSfactiOn that the payments are 

reasonable and necessary expenses. The Commission 

contends that, since GSU and the industrial customers 

have already gone ahead with the Venture, GSU can no 

longer justify the payments on the grounds that they are 

necessary to retain the customers in the system. However, 

we believe that it may still be possible for GSU to 

establish the necessity of the Venture and the contractual 

rates. GSU should be allowed to show that, absent the 

Venture, the industrial customers would have left its 

system because independent cogeneration was 

economically more attractive than remaining in the 

system, that the contractual rates are necessary to make the 

Venture more attractive the independent cogeneration, and 

that such rates are at the minimum level. If GSU is able to 

satisfy the Commission that payments above avoided 

[**31] cost are justified, then the Commission should 

determine what portion of the costs of the Venture it is 

reasonable and necessary for the ratepayers to bear, given 

the distribution of benefits from the Venture to the 

ratepayers and to the shareholders. 17 

III 

The second issue we must resolve is whether the 

Commission properly allocated the gains from the sale of 

the plants between GSU's ratepayers and its shareholders. 

Under the agreement, the Venture is to pay for the plants 

in twenty annual installments of$ 6.35 million each (the 

fixed asset payments), for a total income stream of$ 127 

million. GSU requested that it be allowed to allocate the 

entire amount of each fixed asset payment, Le., the entire 

proceeds of the sale, to its shareholders. [**32] The 

Commission instead ordered that GSU allocate 83 percent 

of each fixed asset payment, or 83 percent of the total sale 

proceeds, to its ratep_ayers, thereby reducing the amount 

the utility w'as entitled to recover through its rates by_ that 

amount. 

We must reverse the Commission's allocation of the 

profits if it is not [*211] reasonably supported by 

substantial evidence in the record or if the Commission's 

action was arbitrary, capricious, or an abuse of discretion. 

Administrative Procedure and Texas Register Act, TEX. 

REV. CJV. STAT. ANN. art. 6252-13a. § 191ell5), i.Ql 

(Vemori Supp. 1991); Railroad Con1n1'11 v. Continental 

Bus Svs., 616 S. W'.2d 179. 181 !Tex. 1981). HN16 Our 

inquiry is whethef the COmmission's decision is 

reasonably suppo],1ed by substantial evidence in view of 

the reliable and probative evidence in the record as a 

whole. Texas Health Facilities Co11un '11 v. Charter 

Medical-Dallas. Inc .. 665 S. \Y.2d 446, 452 (Tex. 1984). 

HN17 Agency decisions that are not supported by 

substantial evidence are deemed arbitrary and capricious. 

id. at 454. HN18 In applying this test, we may not, 

however, substitute our judgment as to the weight of the 

evidence for that of the agency. [**33] ld. at 452. 

The Commission's decision to a11ocate 83 percent of the 

fixed asset payments . to the ratepayers is based on the 

testimony of the Office of Public Utility Counsel's witness 

Dr. Steven Anderson and of the Commission's staff 

accountant Paul Bellon. GSU has indirectly recovered 83 

percent of the cost of the plants from the ratepayers 

thr5Jugh depreciation expense allowed for the plants and 

figured into the rate base. Both Anderson and Bellon 

testified that "because the Company and the shareholders 

have recovered 83 percent of the costS related ·to [the 

16 We reject the Office of Public Utility Counsel's alternative argument that the Commission's holding was based on its 

independent determination that, on the facts of this case, payments in excess of avoided cost were unreasonable expenses under 

the general standards for allowability of expenses or fuel costs. It is clear from the Commission's Final Order, as wen as from the 

Commission's own position in this appeal, that the Commission's interpretation of Rule 23.66 fanned the only basis for its 

decision. 

17 In conducting this latter inquiry, the Commission should consider the benefits accruing to GSU's shareholders because of 

GSU's 1% share in the Venture, as well as any other income earned by GSU as a result of its operation of the plants on behalf 

of the Venture. 

Giana Ortiz 
Page 12 of 15 

809 S.W.2d 201, *211; 1991 Tex. LEXIS 42, **33 

generating facilities], the ratepayers should receive 83 

percent of the fixed asset payment GSU receives from the 

sale·of the units." Docket No .. 7147, supra p. JO. at 56. 

We hold that the Commission's decision is not reasonably 

supported by substantial evidence in the record. The 

Commission based its decision solely on conclusory 

testimony that cites only the evidence of the ratepayers' 

contribution to depreciation. The Commission did not 

consider any other factors that would be relevant to 

allocation of a utility's proceeds from the sale of assets. 

HN19 The issue of the proper allocation of.such proceeds 

is a complicated [**34] One that cannot be resolved 

simply by reference to who paid for the property. See 

Washington Pub. Interest qrg. v. Public Serv. Co1n1n'n. 

393 A.2d 71. 72 (D.C. 1978): see also Democratic Cent. 

Conznt. v. Washington MetrO. Area Transit Con1m'n. 158 

App. D.C. 7. 485 F.2d 786 !D.C. Cir. 1973); Kansas Power 

& Light Co. v. State Corv. Co1n1n 'n. 5 Kan. App. 2d 514. 

620 P.2d 329 !Ct. App. 1980!. HN20 A proper allocation 

of proceeds can be determined only by an analysis of all 

· the equities involved. See, e.g., De1nocratic Cent. Co1111n .. 

485 F.2d at 821; Kansas Power & Light Co .. 620 P.2d at 

340. 

HN21 The equitable princ~ples commonly used to resolve 

allocation problems are that "be'nefits should follow 

burdens" and that "gain should follow risk of loss." 

Deniocratic Cent. Co1n1n .. 485 F.2d at 806; Washington 

Pub. Interest Org .. 393 A.2d at 92. In other words, in the 

general case, the gain should be allocated to that group (as 

between shareholders and ratepayers) that has borite the 

financial burdens (e.g., depreciation, maintenance, taxes) 

and risks of the asset sold. In addition to these two general 

equitable factors, courts have also considered numerous 

other factors, including [**35] whether the asset sold had 

been included in the rate base over the years, whether the 

asset was depreciable property, nondepreciable property, 

or a combination of the two types, the impact of the 

proposed allocation on the financial strength of the utility, 

the reason for the asset's appreciation (e.g., inflation, a 

general increase in property values in the area), any 

advantages enjoyed by the shareholders because of 

favored treatment accorded the asset, the dividends· paid 

out to the shareholders over the years, and any 

extraordinary burdens borne by the ratepayers in 

connection with that asset. See Detnocratic Cent. Contm .. 

485 F.2d at 791-92. 821-22; id. at 831-32 841-44 

(MacKinnon, J .• concurring in part and dissenting in part); 

ivashington Pub. Interest Org .. 393 A.2d at 89. 91-92; 

Kansas Poi~·er & Light Co .. 620 P.2d at. 341. 

In the present case, the Commission allocated the sale 

proceeds in direct proportion to the amount the 

shareholders and the ratepayers contributed to the cost of 

the plants. This fonnula is based on only one of the above 

principles, that benefits should follow burdens. In addition 

to ignoring the [*212] other considerations outlined 

above, [**36] 18 the Commission did not articulate its 

reasons for concluding that the ratepayers are entitled to a 

percentage of the proceeds exactly equal to the percentage 

of the cost they have paid. The Commission cited only the 

testimony of witnesses Anderson and Bellon but there is 

no evidence in the record to explain· how they reached 

their conclusions. We therefore hold that the 

Commission's allocation is not supported by substantial 

evidence because we find that the evidence the 

Commission cited does not support its decision and 

because the Commission failed to consider evidence 

relating to other relevant factors. We remand the case to 

the Commission for it to recalculate the allocation of the 

fixed asset .payments along the lines Of the analysis 

suggested above, although we d.o not require the 

Commissio.n to consider all of the abpve factors nor forbid 

it from· considering others. However. the Commission 

should set forth the factors it considers relevant and should 

explain how these factors are evaluated in the present case. 

[**37] N 

For the reasons stated above, we affirm the judgment of 

the court of appeals. This case is therefore remanded to the 

Commission for it to determine the proper allocation 

between the shareholders and ratepayers of the fixed asset 

payments after consideration of the factors the 

Commission determines are appropriate. The Commission 

is further ordered to allow GSU to recover its purchased 

price payments in future rate proceedings if GSU shows 

that the payments are reasonable and necessary expenses. 

Concur by: GONZALEZ (In Part); MAUZY (In Part) 

Dissent by: GONZALEZ (In Part); MAUZY (In Part) 

I Dissent 

CONCURRING AND DISSENTING OPINION 

18 The Commission itself had previously recommended that some of these factors be considered in allocation of gain cases. See 

Tex. Pub. Util. Comm'n, Application of Gulf States Utils. Co. for Authority to Clwnge Rates and Inquiry of the Public Util. 

Comm'n of Tex. into the Pntdence and Efficiency of the Planning and Manage1nent of tile River Bend Nuclear Generating Station, 

Docket Nos. 7195 & 6755, 14 TEX. P.U.C. BULL. 1943, 2217 (May 16, 1988) (suggesting that the analysis described in Judge 

MacKinnon's concurring and dissenting opinion in Democratic Cent. Comm be used in future allocation cases). Whi1e we do not 

necessarily endorse these precise factors, we do endorse the general approach of considering various equitable fac!ors, such as 

those discussed in the text, in allocation detenninations. 

Giana Ortiz 
Page 13 of 15 

809 S.W.2d 201, *212; 1991 Tex. LEXIS 42, **37 

Raul A. Gonzalez, Justice 

I concur with the· co_urt that PUC' s allocation of the fixed 

asset payments is not supported by the record. However, I 

disagree with the court's conclusion that PUC's 

interpretation of its own rule was erroneous or arbitrary. In 

my opinion, PUC correctly interpreted its own Rule 23.66 

to hold Lhat GSU cannot recover from its ratepayers an 

amount exceeding its "avoided costs." 1 For this reason, I 

dissent from part II of the court's opinion. 

[**38] FEDERAL LAW - THE AVOIDED COST RULE 

In 1978, the United States Congress enacted the Public 

Utility Regulatory Policies Act of 1978 (PURPA). PURPA 

established the utility's incremental cost of alternative 

electric energy as the ceiling on payments.to cogenerators. 

The term incremental cost is defined in the Act as the cost 

of the energy which, but for the purchase from the 

cogenerator, such utility would generate or purchase from 

another source. 16 U.S.C. § 824a-31dl 11988). Incremental 

cost is referred to as "avoided cost" in the Texas Public 

Utility Regulatory Act (PURA). TEX. REV. C1V. STAT. 

ANN. art. /446c (Vernon Supp. 1991). With respect to 

rates for purchases of electricity from qualifying facilities 

(QFs), Congress provided that the rate 

(1) shall be just and reasonable to the electric consumers 

of the electric utility and in the public interest, and 

(2) shall not discriminate against qua1ify~ng cogenerators 

or qualifying small power producers. 

[*213] No such rule prescribed under subsection (a) of 

this section shall provide for a rate which exceeds the 

incremental cost to the electric utility of alternative 

electric energy. 

16 U.S.C. § 824a-3(b) [**39] (1988). In enacting 

PURPA, Congress was mindful to maintain the balance 

between encouraging cogeneration and not shifting the 

burden of cost to the ratepayer. The congressional intent 

for the incremental cost limitation "was to ensure that 

PURPA did not become a utility-funded welfare program 

for QFs, since such 'funding' would essentially come from 

th_e pockets of electric cqnsumers. Greensboro Lt.unber Co. 

1•. Georgia Power Co., 643 F.S1mp. 1345. 1369 n.30 (N.D". 

Ga. 1986), ajf'd,844 F.2d 1538 Ultlr Cir. 1988). The 

~oncept of limiting purchased power payments to QFs at 

or below avoided cost maintains that balance. Pursuant to 

the authority grunted to it by PURPA, the Federal Energy 

Regulatory Commission (FERC) adopted rules and 

regulations pertaining to cogeneration and small power 

production. 18 C.F.R. Part 292 11990). These regulations 

require the rates for the purchase of electricity from 

. federal qualifying cogeneration facilities to be based on 

avoided cost and establish avoided cost as the maximum 

rate. 18 C.F.R. § 292.3041bl(3) 119901. The United Stales 

Supreme Court has found that FERC has the authority to 

adopt a full avoided cost rule, and to set full avoided cost 

[**40] its the maximum· rate. Auierican PaDer Inst .. Inc. 

v. Anzerican Elec. Polver Serv. Corp .. 461 U.S. 402. 103 

S.Ct. 1921, 76 LEd.2d 22 11983). 2 FERC has done so. 

Thus, federal law sets avoided cost as the maximum rate. 

3 

[**41] THE PUBLIC UTILITY REGULATORY ACT 

In section 41A of the Public Utility Regulatory Act, the 

Texas legislature enacted similar provisions controlling 

1 "Avoided costs" is defined by the substantive ru1es of the PUC as: 

The incremental costs to an electric utility of electric energy or capacity or both, which, but for the purchase from the qualifying 

facility or qualifying facilities, such utility would generate itself or purchase from another source. 

Tex. Pub. Util. Comm'n, 16 TEX. ADMIN. CODE § 23.66(a)(2) (West Sept. 1, 1988) (Arrangements Between Qualifying 

Facilities and Electric Utilities). 

2 In referring to contractual agreements, the Court cited lS C.F.R. § 292.301fb){l), which is identical to§ 23.66(b)(2)(A), for 

the principle that "a qualifying facility and a utility may negotiate a contract setting a price that is lower than a full-avoided-cost 

rate." 461 U.S. at 416 (emphasis added). Thl!S, the full-avoided-cost rule sets the maximum rate that applies in the absenc.e of 

a FERC waiver. Nowhere in American Paper is there any indication that a utility and a QF may negotiate a rate that is above avoided 

cost. 

3 All parties agree that the FERC regulations preempt a contrary interpretation by the PUC. The PUC and the Office of Public 

Utility Counsel (OPC) contend that the PUC has no authority under federal law to approve a rate in excess of avoided cost. GSU 

argues that the PUC is misinterpreting the FERC regulation. GSU' s interpretation is contrary to the stated purpose of PURPA. 

If GSU is given free rein to charge the public for QF purchases in excess of avoided cost, the revenue collected from the utility's 

customers will exceed the revenues that would h:Uve been collected if the utility had procured power from other sources. Such a 

free rein would permit a utility and willing cogenerator to circumvent the rule's protection of the general public by simply converting 

the transaction into contractual form. So long as the utility may freely pass~through excessive QF prices to the general public, 

there is no inherent motivation for either the utility or the cogenerator to protect ratepayers from rapidly escalating revenue 

requirements. This result is inconsistent with the congressional intent behind PURPA. 

Giana Ortiz 
Page 14 of 15 

809 S.W.2d 201, *213; 1991 Tex. LEXIS 42, **41 

transactions between electric utilities and qualifying 

cogenerators. Section 4IA states in pertinent part: 

(b) If an electric utility and a qualifying facility enter into 

an agreement providing for the purchase of capacity ... 

the commission shall detennine whether: 

(1) the payments provided for in the agreement over the 

contract te~ are equal to or less than the utility's avoided 

costs as established by the commission and in effect at the 

tim~ the agreement was signed .... 

PURA, § 41A(b)(J) (emphasis added). Section 41A of 

PURA requires an automatic determination that prices 

paid for power from a qualifying facility that are at or 

below avoided cost are just and reasonable. 4 The PUC's 

prohibition on prices in [*214] excess of avoided cost 

conforms to the requirement of PURA § 41A which 

obligates the PUC to approve an agreement between a QF 

and a utility so long as it detennines that payments "are 

equal to or less than the utility's avoided cost.". 

[**42] RULE 23.66(e)(2) - THE AVOIDED COST 

LIMITATION 

Pursuant to its obligation under PURA § ! 6(g), the PUC 

enacted rules governing the recovery of fuel costs and 

agreements between electric utilities and QFs: The PUC 

limited a utility's recovery of purchased power payments 

to a QF to that utility's "avoided cost." Tex. Pub. Util. 

Comm'n, 16 TEX. ADMIN .. CODE §§ 23.23(b)(4){A), 

23.66(e) (West Sept. 1, 1988). In pertinent part, section 

23.66(e) states: 

(1) Rates for purchases of energy and capacity from any 

qualifying facility shall be just and reasonable to the 

consumers of the electric utility and in the public interest, 

and sha11 not discriminate against qualifying cogeneration 

and small power production facilities. 

(2) Rates for purchases of energy and capacity from any 

qualifying facility shall not exceed avoided cost; .... 

(3) Rates for purchases satisfy the requirements of 

paragraph (1) of this subsection if they equal avoided cost. 

The PUC interprets this rule to mean that only if a utility's 

purchased power payments to the QF equal avoided costs 

or are lower than the avoided costs may those rates be 

deemed just and reasonable and in the public interest. 

[**43] Because GSU's purchased power payments to the 

QF were not tied to its avoided cost but rather to a 

contractual rate, the PUC rejected GSU's request for an 

automatic pass-through under section 63 of PURA and 

limited GSU's recovery for those payments from its Texas 

ratepayers to its avoided cost. 

GSU contends that section 23.66(b)(2)(A) allows it to 

contractually agree to a rate in excess of its avoided cost. 

Section 23.66(b)(2)(A) provides: 

Nothing in ~s subsection: 

(A) shall limit the authority of any electric utility or any 

qualifying facility to agree to a rate for any pllrchase, or 

tenns or conditio~s relating to any purchase, which differ 

from the rate or terms· or conditions that would otherwise 

be required by this subsection. 

GSU argues that pursuant to section 23.66(b)(2)(A), the 

avoided cost ceiling in Rule 23.66(e) applies only to 

contracts that are initiated under the mandatory terms of 

the rule, as opposed to voluntarily negotiated contracts · 

between electric utilities like GSU and QFs. The PUC 

rejected this argument. I agree with the PUC. 

In a seemingly innocuous statement purporting to interpret 

Rule 23.66(d), ·the majority states that "Rule 23.66(e)'s 

avoided-cost [**44] rules ... do not apply to voluntary 

contracts arranged outside the requirements of Rule 

23.66(d)." S.W.2d at . Although Rule 23.66(d) does 

require utilities to purchase power when a QF makes it 

available, the language of the rule does not support the 

majority's contention that "th~ avoided-cost limit applies 

only to compelled purchases."ld. at . The conclusion that 

the avoided-cost rules do not apply to voluntary contracts 

is without foundation. PURA simply does not distinguish 

between voluntary and involuntary agreements. 

Subsection 23.66(b)(2) in no way provides that rule 23.66 

does not apply to a "negotiated" rate. It merely makes clear 

that the parties can negotiate a rate other than the avoided 

cost. See, e.g., 16 TEX. ADMIN. CODE § 

23.66(d)(l)(F)(iv) (West Sept. 1, 1988) (when purchasing 

capacity parties can negotiate for price lower than avoided 

cost). Nothing in rule 23.66 provides that the utility may 

recover an amount greater than the avoi~ed cost from the 

ratepayers. 

Further, the court's construction ~ould effectively destroy 

the avoided cost rule. The court's interpretation allows the 

utility and QF freedom to agree on a rate as provided 

[**45] for in section 23.66(b)(2)(A) to trump the rule that 

4 Section 41A(c) requires the PUC to certify that the agreement meets the avoided cost limitation of subsection (b)(l). Subsection 

(c) provides that "in setting the electric utitlity's rates for a period during which the certification is effective, the regulatory 

authority sha11 consider paymenlS made under the agreement to be reasonable and necessary operating expenses of the electric 

utility.". 

Giana Ortiz 
Page JS of 15 

809 S.W.2d 201, *214; 1991 Tex. LEXIS 42, **45 

rates for purchases shall not exceed avoided costs (Rule 

23.66(e)(2)), yet still requires the agreed rate to ''be just 

and reasonable," as is required [*215] in Rule 

23.66(e)(l). There is no logical reason to interpret Rule 

23.66(2)(a) to trump Rule 23.66(e)(2), yet be subject to the 

requirement of Rule 23.66(e)(J). Further, the very avoided 

cost limitation of Section 23.66(e)(2) which GSU asserts 

to be inapplicable to "negotiated contracts" contains 

explanatory language referring to "estimates of avoided 

costs over the specific term of the contract or other legally 

Senforceable obligation." Thus, the drafters of section 

23.66 envisioned the application of an avoided cost 

standard to negotiated contracts. 

To allow GSU to pass on the costs of prOduction from the 

venture even if they exceed the avoided cost rule allows 

utilities to make a complete end run around the rule and in 

the process completely eviscerate it. In other words, GSU 

is restricted from raising its rates by the avoided cost rule 

so it sells its plants to a joint venture in which it maintains 

an ownership interest. GSU the°: repurchases the 

electricity [**46] at a higher rate than its avoided cost 

a.nd, because of the majority's opinion, is allowed to pass 

through that extra expens·e to its Texas ratepayers while 

creating windfall earnings for GSU's investors. GSU is 

having its cake and eating it too. It receives management 

fees, a percentage of the price that is. paid to the ventu·re, 

and it receives a profit when that verY same energy is sold 

at higher rates as a result of the production costs that are 

passed through to ratepayers even though those costs are 

in excess of the avoided cost rule. This is exactly the type 

of activity that is prohibited by the avoided cost rule. 

An agency's interpretation of its own regulations should 

be given deference by the courts. See United States i•. 

Larimzoff431 U.S. 864. 872-73. 97 S.Ct. 2150. 53 L.Ed.2d 

48 11977); Calverl v. Kadane. 427 S. W2d 605. 608 (Tex. 

1968): Lloyd A. Frv Roofing Co. v. State, 541 S. W2d 639. 

644 !Tex. Civ. App. -- Dallas 1976. writ refd n.r.e.). In my 

opinion, the PUC's interpretation of its rules is not 

arbitrary, capricious nor plainly erroneous. Accordingly, I 

would hold that the PUC correctly interpreted Rule 23.66 

to limit GSU's recovery to its avoided [**47] costs. 

CONCURRING AND DISSENTING OPINION 

Oscar H. Mauzy, Justice 

This utility case presents two issues involving the 

respective burdens of shareholders and ratepayers. In 

disposing of both issues, the majority heeds the complaints 

of the utility company, but fails to recognize the burdens 

borne by the ratepayers. I dissent from part II of the 

majority opinion, and concur only in the result of part III. 

AS to the first issue, I agree with Justice Gonzalez that 

Rule 23.66(e) prohibits a utility from recovering 

purchased 'power payments in excess of the utility's 

avoided cost. Nothing in either the language or the history 

of that rule suggests that its tenns are inapplicable to 

negotiated contracts. Certainly, a utility may contract for a 

rate which is lolver than its incremental cost; but the 

governing federal statute explicitly prohibits the. adoption 

of a rate which exceeds the utility's incremental cost. 16 

U.S.C. § 824a-3(b)(l988). Thus, Rule 23.66(e)(2) should 

be read to mean exactly what it says: that a utility's 

purchase rate "shall not exceed avoided -cost." See 

A1nerican Paper Inst .. Inc. v. An1e1ican Elec. Po1i1er Sen1. 

Caro.. 461 U.S. 402, 416. 103 S.ct. 1921, [**481 1930, 

76 L.Ed.2d 22. 35 (1983)("[A] qualifying facility and a 

utility may negotiate a contract setting a price that is lo1ver 

than a full avoided cost rate.")(emphasis added). 

As to the allocatiQn of proceeds from asset sales, I agree 

that the Commission should have considered factors other 

than the relative contributions to depreciation. I would 

emphasize, however, that the Commission's discretion in 

this context is sharply limited. By shouldering the main 

financial burdens associated with utilities, and by 

assuming the risk of loss, ratepayers establish valid 

interests in utility assets. Those interests must be taken 

into account whenever such assets are sold; any failure to 

do so will necessarily rise to an abuse of discretion. 

Giana Ortiz 
APPENDIXB 
2004 TX Educ. Agency LEXIS 17 

Copyright (c) 2004 Texas Education Agency 

June 15, 2004; June 15, 2004 

DOCKET NO. Oll-R3-1102 

Reporter: 2004 TX Educ. Agency LEXIS 17 

I PAUL PASQUA ; v. ; FORTSTOCKTON INDEPENDENT SCHOOL DISTRICT 

Core Terms 

reass~gnment, constructive discharge, high school principal, middle school, .fair dealing, good faith, grievance, 

exhaust, resign, school district 

Panel: [*1] ROBERT SCOTT, CHIEF DEPUTY COMMISSIONER BY DESIGNATION 

Opinion 

DECISION OF THE DESIGNEE OF THE COMMISSIONER 

Statement of the Case 

Petitioner, Paul Pasqua, appeals the action of Respondent, FortStock/011 Independent School District, concerning 

his grievance. Joan Stewart was initially appointed as the Administrative· Law Judge to -preside over this cause. 

Subsequently, Christopher Maska was appointed substitute Administrative La\v Judge. 'Petitioner is represented by Sam 

D. Sparks, Attorney at Law,· San Angel~, Texas. Respondent is represented by Shellie Hoffman Ctow, Attorney atLaw, Austin, Te{Cas. 

The Administrative Law Judge issued a Proposal for Decision recommending that Petitioner's appeal be denied. No 

exceptions were filed. 

· Findings of Fact 

After due consideration of the record and matters officially noticed, it is concluded that the following Findings of 

Fact are supported by substantial evidence and are the Findings of Fact that can best support Respondent's decision: 

1. For eleven years, Petitioner, Paul Pasqua, served as a high school principal for Respondent, FortStockton 

Independent School District. 

2. On April 8, 2002, Petitioner received a two-year contract. The [*2] contract was entitled "Two-Year Tenn 

Contract for Certified Administrator Position as Assigned." The contract provides: 

2. The board will pay Employee in twelve installments an annual salary according to the compensation 

plan adopted by the Board, but in no event less than the 2001/2002 annual salary. 

4. Employee. shall be subject to assignment and reassignment of positions or duties, additional duties, 

changes in responsibilities or work, transfers, or reclassification at any time during the contract term.· 

3. On August 19, 2002, after the completion of the first day of the 2002-2003 school year, Petitioner was called lo 

the Superintendent's office and was assigned to the position of assistant middle school principal. 

4. Petitioner filled the position of assistant middle school principal until his resignation on November 6, 2002. 

5. Petitioner received full compensation until he resigned. 

6. Board members did not conduct a meeting without posting notice to decide whether Petitioner should be 

reassigned. 

Giana Ortiz 
Page 2 of 4 

2004 TX Educ. Agency LEXIS 17, *4 

7. Petitioner did not file a timely grievance concerning the lack of evaluations. 

8. Petitioner failed to raise a constructive discharge argument before the board of trustees. [*3] 

Discussion 

Petitioner contends that Respondent demoted him by reassigning him from high school principal to assistant middle 

school principal, constructively terminated his contract, failed to evaluate him, and violated the Open Meetings 

Act. Respondent denies these allegations, alleges that Petitioner failed to exhaust administrative remedies, and argues 

that the case is moot. 

Mootness 

Respondent contends that this -case is moot because Petitioner has resigned from his contract. However, Petitioner 

alleges that Respondent's actions amount to constructive discharge. If Petitioner were correct as to the constructive 

discharge claim, relief could be grri.nted. Based on this allegation, the case is not moot. 

Contract 

Petitioner contends that his reassignment from high school principal to assistant middle school principal was a 

demotion which resulted in constructive discharge. Petitioner also contends that his property rights in his contract 

were violated. The Commissioner's jurisdiction over such claims must be based upon Texas Education Code section 

7.057 la): 

(2) actions or decisions of any school district board of trustees that [*4] violate: 

(B) a provision of a written employment contract between the ~chool district and a sChool 

district employee, if a violation causes or would cause monetfily harm. 

Petitioner had a property interest in his tt?rm contract during the contract's term. The issues are whether 

the contract was violated and did this result or would it result in monetary harm. 

For eleven years, Petitioner served as a high school principal for Respondent. On April 8, 2002, Petitioner received 

a two-year contract The contract was entitled ''Two-Year Term Contract for Certified Administrator Position as 

Assigned." The contract provides: 

2. The board will pay Employee in twelve installments an annual salary according to the compensation 

plan adopted by the Board, but in no event Jess than the 2001/2002 annual salary. 

4. Employee shall be subject to assignment and reassignment of positions or duties, additional duties, 

changes in responsibilities or work, transfers, or reclassification at any time during the contract term. 

On August 19, 2002, after the completion of the first day of the 2002-2003 school year, Petitioner was called 

to the Superintendent's office and was assigned to [*5] the ·position of assistant.middle school principal. Petitioner 

filled this position until November 6, 2002, when he resigned. 

Propertv Right 

Petitioner's contract is not a contract for the position of high school principal. It is a contract for a certified 

administrator position as assigned. Assistant middle school principal is a certified administrator position. 19 Tex. 

Admin. Code ch. 241. The Commissioner has held that the professional capacity of administrator is to be broadly 

interpreted for reassignment purposes. Carpenter v. Wichita Falls Independent School District, Docket No. 247-R3-491 

(Comm'r Educ. 1993). While Petitioner was not assigned to the assistant principal position until after he had 

completed his first day of the new school year as a high school principal, the contract itself allows Petitioner to be 

Giana Ortiz 
Page 3 of 4 

2004 TX Educ. Agency LEXIS 17, *5 

reassigned as long as compensation is not reduced from that in the 2001-2002 school year. Petitioner did not lose 

any compensation. Petitioner's reassignment did not violate his contract. 

Good Faith 

Petitioner contends that the timing of the reassignment was unfair and that he should have been given a chance to 

remediate if his perfonnance were questioned. [*6] Petitioner alleges that if Respondent had notified him at the 

beginning of the summer that he would be reassigned for the next school year that he could have sought other high 

school principal positions. During that time frame, districts would still be looking to fill principal positions and 

Petitioner could still represent that his position with Respondent was high school principal. Petitioner's argument is 

that Respondent owe~ Petitioner a duty of good faith and fair dealing .. However, in Texas th~re is no duty of good faith 

and fair dealing in the employment context. Citv of' Midland v. O'Brvallf. 18 S. W.3d 209. 216 !Tex. 2000). Further, 

even if a cause of action for good faith and fair dealing existed, the only damages in the present case would be lost 

earnings capacity or loss of reputation. The Commissioner lacks jurisdiction over an employment contract case 

based on such damages. Smith v. Nelson. 53 S. W.3d 792. 795 (Tex.· App.-Austin 2001, pet. denied), 

Constructive Discharge 

It has been held that "A constructive discharge occurs when the employer makes conditions so intolerable that a 

reasonable person in the employee's [*7] position would have felt compelled to resign." Jett v. Dallas Indep. Sch. 

Dist .. 798 F.2d 748. 755 (5th Cir. 1986) aff'd in part 109 S.Ct. 2702 (}989). Petitioner has failed to exhaust 

administrative remedies as to this issue. Petitioner did not make a constructive discharge argument before the 

board of trustees. This is not surprising because the board hearing occurred on October 28, 2002 and Petitioner did 

not resign until November 6, 2002. But even assuming that Petitioner-had exhausted administrative remedies he would 

not prevail. The record does not support a finding that Respondent made Petitioner's working conditions intolerable. 

While Petitioner's anger at being reassigned is understandable, being assigned to position of less prestige does 

not by itself constitute constructive discharge. 

Evaluations 

Petitioner notes that be was not formally evaluated during the 1999-2000 and 2000-2001 school years. While this 

could be related to a violation of Texas Education Code sections 21.354 and 39.054, Petitioner should ha:ve brought 

a grievance as to those events under the district's [*8] grievance policy. Wittman v. Nelson. JOOS. lV.3d 356. 360 

(Tex. App.-San Antonio 2002 pet. denied). Respondent limited Petitioner's presentation concerning evaluations to 

arguments as to how he exhausted local remedies. TR. 4. Even if Petitioner were correct that the failure to provide 

evaluations violated the school laws of this state, the Commissioner could not as a result order the requested relief 

of reinstatement and back pay. 

Open Meetings Act 

Petitioner contends that board members violated the Open Meetings Act by agreeing to the reassignment of 

Petitioner outside of a properly called meeting. Tex. Gov't Code§ 551.041. The record is scant as to this issue. 

Petitioner's representative's allegations taken alone do not constitute a violation of the Open Meetings Act. Tr. 16-17. 

However, the superintendent's testimony was that he made the decision himself without board approval. Tr. 24. 

The record does not support a finding that a vi~lation occurred. Even if a violation occurred it would not result in 

the vote on Petiti.oner's grievance being overturned. A discussion that was not properly conducted according to the Open 

Meetings Act does not result [*9] in voiding a vote at a properly called meeting on the same subject. Hill v. 

Palestine !11dep. Selz. Dist .. 113 S. W.3d 14. 17 (Tex. App.-Tyler 2000, pet denied). 

Conclusion 

Respondent did not violate Petitioner's contract by reassigning Petitioner. Petitioner's contract allowed for the 

reassignment. Petitioner failed to exhaust administrative remedies as to his constructive termination and evaluation 

claims. Respondent did not violate the Open Meetings Act. Petitioner's appeal should be denied. 

Conclusions of Law 

Giana Ortiz 
Page 4 of 4 

2004 TX Educ. Agency LEXIS 17, *9 

After due consideration of the record, matters officially noticed, and the foregoing Findings of Fact, in my capacity 

as Designee of the Commissioner of Education, I make the following Conclusions of Law: 

1. The Commissioner has jurisdiction to hear this cause under Texas Education Code section 7.057 except as 

specified in Conclusions of Law Nos. 2, 6-8. 

2. Because Petitioner failed to exhaust administrative remedies as to his constructive discharge and evaluation 

claims, the Commissioner lacks jurisdiction over these claims. 19 Tex. Ad1nin. Code § 157.1056(a) [*10] 

3. As pied, this caSe is not moot. 

4. Assistant middle school principal is a certified administrator position. 19 Tex: Adrnin. Code ch .. 241. 

5. Petitioner's reassignment did not violate ·his contract. 

6. There is not a duty of good faith and fair dealing in the employment law context. 

7. The Commissioner lacks jurisdiction over Petitioner's good faith and fair dealing claim. 19 Tex. Atbnbz. Code § 

I 57. 10561a /. 

8. Even if there were a duty of good faith and fair dealing in the employment context, jurisdiction would not exist 

under Texas Education Code section 7.057fa)(2)fB) be~ause the Commissioner lacks jurisdiction on a claim of lost 

earnings capacity or loss of reputation. 19 Tex. Ad1ni11. Code § 157. /056fa). 

9. Members of Respondent's board of trustees did not violate the Open Meetings Act as they did not preapprove 

Petitioner's reassignment outside of a properly called meeting. Tex. Gov't Code§ 551.041 

10. Even if members of Respondent's board of trustees had violated the Open Meetings Act by preapproving 

Petitioner's reassignment outside of a properly [*11] ·Called meeting, this does not result in the board's vote to deny 

Petitioner's grievance being declared void. 

11. Petitioner's appeal should be denied. 

ORDER 

After due consideration of the record, matters officially noticed and the foregoing Findings of Fact and Conclusions 

of Law, in my capacity as Designee of the Commissioner of Education, it is hereby 

ORDERED that Petitioner's appeal be, and is hereby, DENIED. 

SIGNED AND ISSUED this 15th day of JUNE, 2004. 

Giana Ortiz 
APPENDIX C
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PERSONNEL POSITIONS DP

(LOCAL)

DATE ISSUED: 12/2/2002 1 of 1

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DP(LOCAL)-A 

ADOPTED:

In addition to the minimal certification requirement, the principal

shall have at least:

1. Working knowledge of curriculum and instruction;

2. The ability to evaluate instructional program and teaching effectiveness;

3. The ability to manage budget and personnel and coordinate

campus functions;

4. The ability to explain policy, procedures, and data;

5. Strong communications, public relations, and interpersonal

skills;

6. Three years’ experience as a classroom teacher;

7. Prior experience in instructional leadership roles; and

8. Other qualifications deemed necessary by the Board.

PRINCIPAL

QUALIFICATIONS
Crosby ISD

101906

STUDENT DISCIPLINE FOE

EMERGENCY AND ALTERNATIVE PLACEMENT (LEGAL)

DATE ISSUED: 10/5/2011 1 of 6

UPDATE 91

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The principal or the principal’s designee is not prohibited from ordering the immediate placement of a student in a disciplinary alternative education program (DAEP) if the principal or designee reasonably believes that the student’s behavior is so unruly, disruptive, 

or abusive that it seriously interferes with a teacher’s ability to 

communicate effectively with students in class, with the ability of 

students to learn, or with the operation of school or a schoolsponsored activity.

A principal or designee may order the immediate expulsion of a 

student if the principal or designee reasonably believes that such 

action is necessary to protect persons or property from imminent 

harm.

At the time of an emergency placement or an emergency expulsion, the student shall be given oral notice of the reason for the action. The reason must be a reason for which placement in a DAEP 

or expulsion may be made on a nonemergency basis. Within a 

reasonable time, but not later than the tenth day after the placement or expulsion, the student shall be accorded the appropriate 

due process required for a removal or an expulsion. [See FOA, 

FOC, and FOD]

If the student is a student with disabilities who receives special education services, the emergency placement is subject to federal 

law and regulations and must be consistent with the consequences 

that would apply under Education Code Chapter 37, Subchapter A, 

to a student without a disability. [See FOF] 

A principal or designee is not liable in civil damages for an emergency placement.

Education Code 37.019

The Board or designee, after an opportunity for a hearing may expel a student and elect to place the student in an alternative setting 

as provided below if:

1. The student has been arrested for, charged with, referred to a 

juvenile court for, received deferred prosecution for, received 

probation for, received deferred adjudication for, found by a 

court or jury to have engaged in, or been convicted of, conduct defined as a felony offense in Penal Code, Title 5 [see 

FOC(EXHIBIT)] or the felony offense of aggravated robbery 

under Penal Code 29.03; and

2. The Board or the Board’s designee determines that the student’s presence in the regular classroom:

a. Threatens the safety of other students or teachers;

EMERGENCY 

PLACEMENTS

DAEP

EXPULSION

PROCEDURE

STUDENTS WITH 

DISABILITIES

IMMUNITY

TITLE 5 FELONY OR 

AGGRAVATED 

ROBBERY
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STUDENT DISCIPLINE FOE

EMERGENCY AND ALTERNATIVE PLACEMENT (LEGAL)

DATE ISSUED: 10/5/2011 2 of 6

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b. Will be detrimental to the educational process; or

c. Is not in the best interests of the District's students.

The Board or designee may expel the student and order the 

placement regardless of:

1. The date the conduct occurred;

2. The location of the conduct;

3. Whether the conduct occurred while the student was enrolled 

in the District; or

4. Whether the student has successfully completed any court 

disposition requirements imposed in connection with the conduct.

The student must be placed in:

1. A juvenile justice alternative education program (JJAEP), if 

the District is located in a county that operates a JJAEP or the 

District contracts with the juvenile board of another county for 

the provision of a JJAEP; or

2. A DAEP.

Notwithstanding Education Code Section 37.009(c) or (d) (placements beyond one year) or any other provision of Education Code 

Chapter 37, Subchapter C, the student is subject to the placement 

until:

1. The student graduates from high school;

2. The charges are dismissed or reduced to a misdemeanor offense; or

3. The student completes the term of the placement or is assigned to another program

These provisions continue to apply if the student transfers to another district in the state.

The student is entitled to periodic review [see FOC at 120-DAY 

REVIEW OF STATUS].

Any decision of the Board or designee under the above provisions 

is final and may not be appealed.

The above provisions apply notwithstanding any other provision of 

Education Code Chapter 37, Subchapter A, except that Section 

37.007 (expulsion) prevails to the extent of a conflict.

Education Code 37.0081

ALTERNATIVE 

SETTING

DURATION OF 

PLACEMENT
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STUDENT DISCIPLINE FOE

EMERGENCY AND ALTERNATIVE PLACEMENT (LEGAL)

DATE ISSUED: 10/5/2011 3 of 6

UPDATE 91

FOE(LEGAL)-P

The following provisions apply to a student who is required to register as a sex offender under Code of Criminal Procedure, Chapter 

62 (Chapter 62), but not to a student who is no longer required to 

register as a sex offender, including a student who receives an exemption from registration or a student who receives an early termination of the obligation to register.

Notwithstanding any provision of Education Code Chapter 37, 

Subchapter A, on receiving notice under Code of Criminal Procedure article 15.27 or Chapter 62 that a student is required to register as a sex offender, the District shall remove the student from the 

regular classroom and determine the appropriate placement.

Education Code 37.302–.303

The District shall place a student who is a registered sex offender 

and who is under any form of court supervision, including probation, community supervision, or parole, in the appropriate alternative education program for at least one semester.

If a student transfers to another district during the placement, the 

district to which the student transfers may:

1. Require the student to complete an additional semester in the 

appropriate alternative education program without conducting 

a review of the student’s placement for that semester; or

2. Count any time spent by the student in an alternative education program in the district from which the student transfers 

toward the mandatory placement requirement.

Education Code 37.304

The District may place a student who is a registered sex offender 

and who is not under any form of court supervision in the appropriate alternative education program for one semester or in the regular classroom. The District may not place the student in the regular 

classroom if the Board or designee determines that the student’s 

presence in the regular classroom:

1. Threatens the safety of other students or teachers;

2. Will be detrimental to the educational process; or

3. Is not in the best interests of the District’s students.

Education Code 37.305

Except as provided below, the District shall place a student who is 

required by the Board or designee to attend an alternative education program in a DAEP. Education Code 37.309

REGISTERED SEX 

OFFENDERS

APPLICABILITY

REMOVAL FROM 

REGULAR 

CLASSROOM

STUDENT UNDER 

COURT 

SUPERVISION

STUDENT NOT 

UNDER COURT 

SUPERVISION

APPROPRIATE 

PROGRAM
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STUDENT DISCIPLINE FOE

EMERGENCY AND ALTERNATIVE PLACEMENT (LEGAL)

DATE ISSUED: 10/5/2011 4 of 6

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The District shall place the student in a JJAEP if:

1. The memorandum of understanding between the District and 

juvenile board provides for the placement of students who are 

registered sex offenders in JJAEP; or

2. A court orders the placement of the student in a JJAEP.

A JJAEP is entitled to funding for the student in the same manner 

as for students who are subject to discretionary expulsion.

Education Code 37.309–.310

At the end of the first semester of a student’s placement, the Board 

or designee shall convene a committee to review the placement.

The committee must be composed of:

1. A classroom teacher from the campus to which the student 

would be assigned were the student not placed in an alternative education program;

2. The student's parole or probation officer or, in the case of a 

student who does not have a parole or probation officer, a 

representative of the local juvenile probation department;

3. An instructor from the alternative education program to which 

the student is assigned;

4. A District designee selected by the Board or designee; and

5. A school counselor employed by the District.

The committee by majority vote shall determine and recommend to 

the Board or designee whether the student should be returned to 

the regular classroom or remain in the alternative education program.

If the committee recommends that the student be returned to the 

regular classroom, the Board or designee shall return the student 

to the regular classroom unless the Board or designee determines 

that the student’s presence in the regular classroom:

1. Threatens the safety of other students or teachers;

2. Will be detrimental to the educational process; or

3. Is not in the best interests of the District’s students.

If the committee recommends that the student remain in the alternative education program, the Board or designee shall continue the 

student’s placement in the alternative education program unless 

EXCEPTION

REVIEW

REVIEW 

COMMITTEE

RECOMMENDATION
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STUDENT DISCIPLINE FOE

EMERGENCY AND ALTERNATIVE PLACEMENT (LEGAL)

DATE ISSUED: 10/5/2011 5 of 6

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the Board or designee determines that the student’s presence in 

the regular classroom:

1. Does not threaten the safety of other students or teachers;

2. Will not be detrimental to the educational process; and

3. Is not contrary to the best interests of the District’s students.

If the Board or designee determines that the student should remain 

in an alternative education program, the Board or designee shall 

reconvene the committee before the beginning of each school year 

to review the student’s placement in an alternative education program.

Education Code 37.306

A student or the student’s parent or guardian may appeal a decision by the Board or designee to place the student in an alternative 

education program by requesting a conference among the Board 

or designee, the student’s parent or guardian, and the student. 

The conference is limited to the factual question of whether the 

student is required to register as a sex offender under Chapter 62.

If the Board or designee determines at the conclusion of the conference that the student is required to register as a sex offender, 

the student is subject to placement in an alternative education program.

The decision of the Board or designee is final and may not be appealed.

Education Code 37.311

The above provisions regarding placement of a student who is a 

registered sex offender do not:

1. Waive any liability or immunity of a governmental entity or its 

officers or employees; or

2. Create any liability for or a cause of action against a governmental entity or its officers or employees.

Education Code 37.312

The placement of a student with a disability who receives special 

education services must be made in compliance with the Individuals with Disabilities Education Act (20 U.S.C. Section 1400 et seq.).

The review of the student’s placement may be made only by a duly 

constituted ARD committee [see EHBAB]. The ARD committee 

APPEAL

LIABILITY

SPECIAL 

EDUCATION 

STUDENT
Crosby ISD

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STUDENT DISCIPLINE FOE

EMERGENCY AND ALTERNATIVE PLACEMENT (LEGAL)

DATE ISSUED: 10/5/2011 6 of 6

UPDATE 91

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may request that the Board or designee convene a review committee to assist in conducting the review.

Education Code 37.307

Except where a student under court supervision transfers during a 

mandatory placement, the District shall determine whether to place 

a transfer student who is a registered sex offender in the appropriate alternative education program or in a regular classroom. The 

District shall follow the procedures at REVIEW, above, in making 

the determination. Education Code 37.308

TRANSFER 

STUDENTS