The Attorney General of Texas 

April 19, 1984 

JIM MATTOX 

Attorney General 

Supreme Court Building 

P. 0. BOX 12548 

Austin. TX. 79711. 2549 

512,4752501 

Telex 910/874-13S7 

Telecopier 5121475-0206 

714 Jackson, Suite 700 

Dallas, TX. 75202.4506 

2141742-8944 

4824 Alberta Ave., Suite 100 

El Paso. TX. 79905.2793 

9151533.3494 

1001 Texas. Suite 700 

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a 1312255886 

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Lubbock, TX. 794013479 

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McAllen, TX. 78501~16R5 

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San Antonio. TX. 79205.2797 

512/225-4191 

An Equal OpportunItyI 

Affirmative Action Employw 

Honorable Mack Wallace 

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 

Dear Mr. Wallace: 

You have asked whether section 5.02(b) of article 1446e, 

V.T.C.S., the Gas Utility 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 a city gate rate. We conclude that 

you are not so precluded. We conclude that the commission may 

investigatehe reasonableness of the rate charged in 3 pipeline-topipeline transaction in 2 instance in which the gas so transferred 

will ultimately be sold at a city gate for resale to a gas distribution utility. 

Section 5.02 of GDRA was enacted by Acts 1983, Sixty-eighth 

Legislature, chapter 263, section 20, p. 1203, to provide the 

following: 

Sec. 5.02. JUST AND REASONABLE 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 and reasonable. Rates 

may not be unreasonably 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 by a gas utility as a single 

class if the railroad commission considers that 

treatment to be appropriate. 

(b) Rates charged or offered to be charged by 

a gas utility for pipeline-to-pipeline transactions and to transportation, industrial, and 

p. 632 
Honorable Mack Wallace - Page 2 (JM-147) 

other similar large volume contract customers, but 

excluding city gate sales-for-resale to gas 

distribution util,ities, are considered to be just 

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 

had an unfair advantage during the negotiations; 

(2) the rates are substantial~ly the same as 

rates between the gas utility and two or 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 a supplier of an alternative form of 

energy. 

(c) If a complaint is filed with the railroad 

commission by a transmission 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 GUPA was originally contained in section 38 of 

section 1446c, V.T.C.S., the Public lJtili,ty Regulatory Act 

[herei~naf ter PURA] . Section 5.02 of GURA is virtual1.y identical to 

the now repealed section 38(b) of PURA. Section 38(b) of PURA was 

amended by Acts 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 by any public utility, 

or by any two or more public utilities jointly, 

shall be just and reasonable. 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 may treat two or 

more municipalities served by a public utility as 

a single class wherever the commission or railroad 

p. 633 
Honorable Mack Wallace - Page 3 (JM-147) 

P 

P 

commission deems such treatment to be aoorooriate. 

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 and two or more 

other industrial customers contracting under the 

same or similar conditions of service; or 

(3) competition exists either with another gas 

utility, another supplier of natural gas, or with 

a supplier of an alternative form of energy. 

The above underscored language was amended and, in its amended 

version, became subsection (b). A subsection (c) was also added. We 

should first note the effect of the 1981 amendment and the 1983 

enactment. 

The above 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 deemed to be just and reasonable and 

had to be approved by the appropriate regulatory authority if that 

authority found the existence of only one of three specified facts. 

The class of consumers affected by thispresumption 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 . . . be just and 

reasonable . . . [and that they1 shall not be unreasonably 

preferential, prejudicial, or discriminatory, but shall be sufficient, 

equitable, and consistent in application to each class of consumers." 

As a result of the 1981 amendment and the 1983 enactment, the 

class of consumers directly and indirectly affected by the presumption 

is greatly expanded. Now the 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 

p. 634 
Honorable Mack Wallace - Page 4 (JM-147) 

involving city gate sales to gas distribution utilities for resale to 

individual residential and commercial consumers. 

An example will illustrate the dilemma in which the 1981 amendment and the 1983 enactment places the commission. By virtue 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 one of three specified facts. At the 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 must be 

sufficient, equitable, and consistent 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 any pipeline-to-pipeline or other large volume contract 

customer transaction, other than one involving a city 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 a transaction, it shall deem that 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 a pipeline-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 to a gas 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 a gas distribution 

utility will occur later in the chain of transactions. Under this 

interpretation, the commission is authorized to investigate the 

reasonableness of any rate charged in a city gate sale, as well 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 when it amended section 38 of PUPA in 1981 

and subsequently codified the amendment as section 5.02(b) of GURA. 

p. 635 
Honorable Mack Wallace - Page 5 (JM-147) 

An examination of other relevant provisions of GURA support our 

conclusion. 

Section 1.02 of GURA sets forth the legislative policy and 

purpose of the Gas Utility Regulatory Act: 

Sec. 1.02. This Act is enacted to protect the 

public interest inherent in the rates and services 

of gas utilities. The legislature finds that gas 

utilities are by definition monopolies in the 

areas they serve; that therefore the normal forces 

of competition which operate to regulate prices in 

a free enterprise society do not operate; and that 

therefore utility rates, operations, and services 

are regulated by public agencies, with the 

objective that the regulation shall operate as a 

substitute for competition. The purpose 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 GURA sets forth the authority of the 

commission to ensure 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 

and regulations for determining the classification 

of customers and services and for determining the 

applicability of rates. A rule or order of the 

regulatory authority may not conflict with the 

rulings of any federal regulatory body. 

And, as we already noted, section 5.02(a) of GURA reposes a duty in 

the commission "to ensure that every rate made. demanded, or received 

by any gas utility company is just and reasonable." 

Finally, it is clear from transcripts of legislative committee 

hearings on this amendment that the members of the legislature did not 

intend to circumscribe the authority of the commission in regulating 

city gate rates. The author of the bill testified that 

p. 636 
Honorable Flack Wallace - Page 6 (JM-147) 

[t]his bill does not affect the city gate sales. 

As a matter of fact, it states in the substitute 

specifically that it doesn't. 

We further note that the author of what is now section 5.20(b) 

submitted to us a letter in connection with this opinion request. The 

writer specifically declared what he intended to be the effect of 

section 5.02(b) on the commission's authority over city gate rates: 

[Section 5.02(b)] simply restates the traditional 

exclusion for sales of gas between a transmission 

pipeline and a distribution company. It has 

always been deemed necessary for the protection of 

consumers for this transaction to be subject to 

thorough scrutiny by a regulatory body. [Section 

5.02(b)] leaves this consumer protection in 

place.. . . As already stated, [the Railroad 

Conmission] practice and state laws over the years 

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). 

We are reouired to construe an amendment in harmonv with the act 

it amends or to which 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). Our interpretation 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 and will clearly sustain. Railroad Coomission of Texas v. 

Miller, 434 S.W.2d 670 (Tex. 1968). We may not construe the statute 

so as to ascribe to the legislature an unjust 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, 50 S.W.Zd 776 (Tex. 

1932). We must give 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 GURA and so as not to ascribe 

to the legislature an unreasonable result. 

p. 637 
Honorable Mack Wallace - Page 7 (~~-147) 

Accordingly, we interpret section 5.02(b) to require the 

commission to hold a rate just and reasonable and approve 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, Gas Utility A can by contract 

transfer gas to Gas Utility B, such transaction being governed by the 

presumption created by section 5.02(b). Gas Utility B can, 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 A to 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 

Gas Utility A and Gas Utility B. If we were to read the statute in 

any other way, our interpretation would effectively vitiate the 

authority of the commission to regulate city gate transactions. This 

we are unwilling to do, since such a result is clearly not the intent 

of the legislature. 

Accordingly, the Railroad Commission is not precluded by section 

5.02(b) of GURA from fully investigating the reasonableness of the 

rate charged in any pipeline-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 when such rate will 

directly or indirectly affect a city gate salefor-resale to a gas distribution utility. 

JIM MATTOX 

Attorney General of Texas 

TOM GREEN 

First Assistant Attorney General 

p. 638 
Honorable Mack Wallace - Page 8 (JM-147) 

DAVID R. RICHARL'S 

Executive Assistant Attorney General 

Prepared by Jim Moellinger 

Assistant Attorney General 

APPROVED: 

OPINION COMMITTEE 

Rick Gilpin, Chairman 

Colin Carl 

Susan Garrison 

Jim Moellinger 

Nancy Sutton 

p. 639