# TheAttorney GeneralofTexas April 19, 1984 JIM MATTOX Attorney General

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AnEqualOpportunItyI Affirmative Action Employw Honorable MackWallace Chairman Railroad Commission of Texas P. 0. Drawer 12967 Austin, Texas 78711 Opinion No. JM-147
Re: Construction of 5.02(b) of article V.T.C.S., the Public Regulatory Act section 1446e. Utility

DearMr.Wallace:

You have asked whether section 5.02(b) of article 1446e, V.T.C.S., the GasUtility Regulatory Act [hereinafter GKJRAI.precludes the Railroad Commission from investigating the reasonableness of change in rates between pipelines in instances in which the change will directly or indirectly affect acity gate rate. Weconclude that you are not so precluded. We conclude that the commission may investigatehe reasonableness of the rate charged in3 pipeline-topipeline transaction in2 instance inwhich the gas so transferred will ultimately be sold at acity gate for resale to agas distribution utility.
Section 5.02 of GDRAwas enacted by Acts 1983, Sixty-eighth Legislature, chapter 263, section 20, p. 1203, to provide the following:
Sec. 5.02. JUSTANDREASONABLE RATES (a) It shall be the duty of the regulatory authority to ensure that every rate made, demanded, or received by any gas utility, or by any two or more gas utilities jointly, is just andreasonable. Rates maynot beunreasonably preferential, prejudicial,
or discriminatory, but must be sufficient, equitable, and consistent in application to each class of consumers. For ratemaking purposes, the railroad commission may treat two or more municipalities served byagas utility asasingle class if the railroad commission considers that treatment tobeappropriate. (b) Rates charged or offered to be charged by
a gas utility for pipeline-to-pipeline transactions and to transportation, industrial, and

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other similar large volume contract customers, but excluding city gate sales-for-resale to gas distribution util,ities, are considered to bejust and reasonable and otherwise to comply with this section, and shall be approved by the regulatory authority, if:
(1) neither the gas utility nor the customer hadanunfair advantage during the negotiations; (2) the rates are substantial~ly the same as rates between the gas utility and twoor more of those customers under the same or similar conditions of service; ‘r (3) competition does or did exist either with another gas utility, another supplier of natural gas, or with asupplier of analternative form of energy. (c) If acomplaint is filed with the railroad commission byatransmission pipeline purchaser of
w sold or transported under any such pipeline-to-pipeline or transportation rate, then the provisions of Subsection (b) shall not apply. (Emphasis added).
Section 5.02 of GUPAwas originally contained in section 38of section 1446c, V.T.C.S., the Public lJtili,ty Regulatory Act [herei~nafter PURA]

. Section 5.02 of GURAis virtual1.y identical to the nowrepealed section 38(b) of PURA. Section 38(b) of PURAwas amendedbyActs 1981, Sixty-seventh Legislature, chapter 751, section 1, p. 2749.
Prior to the passage of the 1981 amendment, section 38 read 8s follows:
Sec. 38. It shall be the duty of the

regulatory authority to insure that every rate made, demanded, or received byanypublic utility,
or by any two or more public utilities jointly, shall bejust andreasonable. Rates shall not be unreasonably preferential, prejudicial, or discriminatory, but shall be sufficient, equitable, and consistent in application to each class of consumers. For ratemaking purposes, the commission or railroad commission maytreat twoor moremunicipalities served by apublic utility as asingle class wherever the commission or railroad

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P

P commission deemssuch treatment tobeaoorooriate. Rates charged by a gas utility to an'industrial customer for supplying gas under a contract and other similar large volume contract customers are just and reasonable and shall be approved by the regulatory authority if the regulatory authority finds that: 

### (1) neither the gas utility nor the industrial customer had an unfair advantage during the contract negotiations; or (2) the rates in the contract are substantially the same as rates contained in contracts between the gas utility andtwoor more other industrial customers contracting under the
sameor similar conditions of service; or (3) competition exists either with another gas utility, another supplier of natural gas, or with
asupplier of analternative form of energy.
The above underscored language was amended and, in its amended version, became subsection (b). Asubsection (c) was also added. We should first note the effect of the 1981 amendment and the 1983 enactment.
Theabove underscored language of pre-1981 section 38 created a presumption that rates charged by a gas utility to an industrial customer and to other similar large volume contract customers for supplying gas under contract were deemedtobejust andreasonable and had to be approved by the appropriate regulatory authority if that authority found the existence of only one of three specified facts. Theclass of consumers affected bythispresumption was comparatively small. It affected only industrial customers or other similar large volume contract customers. With respect to all other natural gas consumers, the appropriate regulatory agency, in this instance the Railroad Commission, was still required to "insure that every rate made, demanded, or received by any public utility

. . . bejust and reasonable

. . . [and that 

### they1 shall not be unreasonably preferential, prejudicial, or discriminatory, but shall besufficient, equitable, andconsistent inapplication toeach class of consumers."
As a result of the 1981 amendment and the 1983 enactment, the class of consumers directly andindirectly affected bythe presumption is greatly expanded. Nowthe presumption reaches all pipeline-topipeline transactions and transportation large volume contract customers, as well as industrial and other similar large volume contract customers, while purportedly expressly excluding transactions

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involving city gate sales to gas distribution utilities for resale to individual residential andcommercial consumers.
Anexample will illustrate the dilemma in which the 1981 amendment and the 1983 enactment places the commission. Byvirtue of the recently-amended presumption, rates charged by a gas utility in 9 pipeline-to-pipeline transaction, excluding a city gate sale-forresale to a gas distribution utility, are deemed to be just and reasonable and the commission must approve them if the commission finds the existence of only oneof three specified facts. Atthe same time, the commission is rexred to regulate city gate sales and, again, to "insure that every rate made, demanded, or received by any gas utility

. . . is just and reasonable

. . . . [They] may not be unreasonably preferential, prejudicial, or discriminatory, but mustbe sufficient, equitable, andconsistent in application to each class of
consumers. " V.T.C.S. art. 1446e. %5.02(a). Accordingly you ask whether the commission is precluded from investigating the reasonableness of a rate charged between pipelines in instances in which the change in rate will directly or indirectly affect a city gate rate.
It is suggested that the section 5.02(b) presumption should properly be interpreted as limiting the authority of the railroad commission in anypipeline-to-pipeline or other large volume contract customer transaction, other than one involving acity gate sale-forresale to a gas distributing utility, to an investigation as to the finding of any one of three specified facts. Under this interpretation, if the commission finds the existence of any one of three specified facts in such atransaction, it shall deemthat the rate so charged is just and reasonable and shall approve such rate. The authority of the commission to ful_ly investigate the reasonableness of a rate charged in apipeline-to-pipeline or large volume contract customer transaction is limited to only one kind of large volume transfer -- the pipeline-to-pipeline or large volume contract sale of gas at the city gate for resale toagas distribution utility. -

On the other hand, it is suggested that the section 5.02(b) presumption should properly be interpreted to reach & those pipeline-to-pipeline or other large volume contract customer transactions in which s city gate sale-for-resale to agas distribution utility will occur later in the chain of transactions. Under this interpretation, the commission is authorized to investigate the reasonableness of anyrate charged in acity gate sale, aswell as the rate charged for such gas in any large volume transfer prior to the gas reaching the city gate. This second interpretation is the one which comports both with the act as a whole and with the evident intent of the legislature whenit amended section 38of PUPAin 1981 and subsequently codified the amendment as section 5.02(b) of GURA.

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An examination of other relevant provisions of GURAsupport our conclusion.
Section 1.02 of GURAsets forth the legislative policy and purpose of the GasUtility Regulatory Act:

Sec. 1.02. This Act is enacted to protect the public interest inherent in the rates andservices of gas utilities. Thelegislature finds that gas utilities are by definition monopolies in the
areas they serve; that therefore thenormal forces of competition which operate toregulate prices in
afree enterprise society donot operate; andthat therefore utility rates, operations, and services
are regulated by public agencies, with the objective that the regulation shall operate as a substitute for competition. Thepurpose of this Act is to establish a comprehensive regulatory system that is adequate to the task of regulating gas utilities as defined by this Act, and to assure rates, operations, and services which are just and reasonable to the consumers and to the utilities. (Emphasis added).
See also Tex. Const. art. Texas). I, section 26 (forbidding monopolies in

Section 5.01 of GURAsets forth the authority of the commission toensure that the purposes of the act are achieved:

Subject to the provisions of this Act, the railroad commission is hereby vested with a authority and power of the State of Texas to ensure compliance with the obligations of gas utilities in this Act. For this purpose the regulatory authority is empowered to fix and regulate rates of gas utilities, including rules andregulations for determining the classification of customers and services and for determining the applicability of rates. Arule or order of the regulatory authority may not conflict with the rulings of anyfederal regulatory body.
And, as wealready noted, section 5.02(a) of GURAreposes aduty in the commission "to ensure that every rate made. demanded, or received byanygas utility companyisjust andreasonable." Finally, it is clear from transcripts of legislative committee hearings onthis amendmentthat themembersof the legislature did not intend to circumscribe the authority of the commission in regulating city gate rates. Theauthor of thebill testified that

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[t]his bill does not affect the city gate sales. Asamatter of fact, it states in the substitute specifically that it doesn't.

Wefurther note that the author of what is nowsection 5.20(b) submitted tousaletter in connection with this opinion request. The writer specifically declared what he intended to be the effect of section 5.02(b) onthe commission's authority over city gate rates:

[Section 5.02(b)] simply restates the traditional exclusion for sales of gas between atransmission pipeline and a distribution company. It has always been deemednecessary for the protection of
consumers for this transaction to be subject to thorough scrutiny byaregulatory body. [Section 5.02(b)] leaves this consumer protection in place..

. . As already stated, [the Railroad Conmission] practice andstate laws over theyears have dictated that this sort of event must be subject to comprehensive review in order to protect the public interest. It was never the purpose of [section 5.02(b)] to change, in any way, the [commission's] well-established and well-conceived regulation of either city gate or pipeline-to-pipeline transactions. (Emphasis added).

Weare reouired to construe anamendmentin harmonvwith the act it amendsor towhich it is added. American Surety Co.v. Axtell Co., 36 S.W.2d 715 (Tex. 1931); Shipley v. Floydada Independent School District, 250 S.W. 159 (Tex. 1923). Ourinterpretation must express only the will of the makers of the law, not forced or strained, but simply such as the words of the law-in their plain sense fairly sanction andwill clearly sustain. Railroad Coomission of Texas v. Miller, 434 S.W.2d 670 (Tex. 1968). Wemaynot construe the statute soas to ascribe to the legislature anunjust or unreasonable thing, if it is reasonably susceptible of a construction that will not accomplish such a result. Anderson v. Penix, 161 S.W.2d 455 (Tex. 1942). A statute must be construed as a whole, Texas Turnpike Authority v. Shepperd, 279 S.W.2d 302 (Tex. 1955), and all of its parts harmonized if possible. Stark v. Chaison, 50S.W.Zd 776 (Tex. 1932). Wemustgive effect to the entire act, Martin v. Sheppard, 102 S.W.2d 1036 (Tex. 1937), according to the evident intention of the legislature. State v. Jackson, 376 S.W.2d 341 (Tex. 1964). Therefore, we must interpret section 5.02(b) in such a way as to harmonize it with the remaining parts of GURAandsoasnot toascribe tothe legislature anunreasonable result.

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Accordingly, we interpret section 5.02(b) to require the commission tohold arate just andreasonable andapprove such rate in certain transactions after it has found the existence of one of three specified facts, but only if a city gate sale-for-resale to a gas distribution utility is not involved as the final consumer in the chain of transactions. In other words, GasUtility Acanby contract transfer gas to GasUtility B, such transaction being governed bythe presumption created by section 5.02(b). GasUtility Bcan, in turn. transfer that gas by contract to a large volume contract industrial customer, again with this second transaction governed by the section 5.02(b) presumption. On the other hand, had Gas Utility B subsequently sold the gas it received from Gas Utility Ato a gas distribution facility at the city gate, the section 5.02(b) presumption would be inapplicable and the commission could inquire into the reasonableness of the rate charged in the transaction between GasUtility AandGasUtility B. If wewere to read the statute in any other way, our interpretation would effectively vitiate the authority of the commission to regulate city gate transactions. This weare unwilling to do, since such aresult is clearly not the intent of the legislature. Accordingly, the Railroad Commission is not precluded bysection 5.02(b) of GURAfrom fully investigating the reasonableness of the rate charged in anypipeline-to-pipeline or other similar large volume contract customer transaction when such a rate will directly or indirectly affect a city gate sale-for-resale to a gas distribution utility.
SUMMARY

The Railroad Commission is not precluded by section 5.02(b) of article 1446e. V.T.C.S., (Gas Utility Regulatory Act) from fully investigating the reasonableness of the rate charged in any pipeline-to-pipeline or other similar large volume contract customer transaction whensuch rate will directly or indirectly affect a city gate salefor-resale toagas distribution utility.

JIM MATTOX Attorney General ofTexas
TOMGREEN First Assistant Attorney General

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DAVIDR. RICHARL'S Executive Assistant Attorney General Prepared byJimMoellinger Assistant Attorney General
APPROVED: OPINIONCOMMITTEE
Rick Gilpin, Chairman Colin Carl SusanGarrison JimMoellinger NancySutton

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