Application of Cen terPoint Energy Houston Elec tric, LL C for a Competition 1 Transit ion Charge , PUC Docket No. 30706 (July 14, 2005) (or der) , avai lable at http:// intercha

ng e.puc.state.tx .us (ac cesse d J uly 6, 2008). 

### TEXA S C OU R T OF A PPEAL S, THIR D DIST R ICT , AT AU STIN

NO. 03-0 6 -00 285 -CV

Cente rP oint En ergy Houston Electr ic, LLC and Publi c Ut ility Com m ission of T exas Appellan ts
v. G ulf C oa stCo ali ti on o f Cit ie s, Te xa s In dust r ialEne r gyCo nsum e r s, th e St at e of Te xa s a nd

Occidental P ower Market ing, L .P . , Appellees

F ROM THE DISTRICT CO URT OF TRAVIS COUNTY , 98TH JUDICIAL DISTRICT NO. GN50338 1 , HO NORAB LE W. JEANNE MEURER , JUDGE PRESIDI NG

O P I N I O N
CenterPoint E nerg y Houston Electric , L L C, a nd the Public Utilit y

C o m mission
eac h appea l f

rom a district court judg ment reve rsing and re manding portions of the Commissi on’s J uly 14, 2005 Orde r in Docke t No. 30706. Th e or de r h a d a uth or ize d Ce nte rP oin t to re c ov e r c e rt a in 1 costs throug h a compe tition t ransition char g e. The district c ourt held that the Commission erred by authorizing CenterPoint t o impose an improper interest rate on the uncollected balance of the cha rg e, by allowing CenterPoint to recove r ce rtain ex penses through the char g e whose rec overy was ba rre d by statute, and by

exceedingits authority

in requiringany

end-use custom er s wh o switch to newSee, e .g. , CenterPoint Energy H ouston Elec., L LC v. Gulf Coas t Coali tion of C ities , 2 25 2 S.W.3 d 1, 3-1 9 (T e x. Ap p. —Aus tin 20 08 , p e t. f ile d) ; State v. Public Util. Comm’n , 246 S.W .3d 32 4, 33 3- 35 (T e x. Ap p. —Aus tin 20 08 , p e t. f

ile d) ; Citi es of Corpus Chri sti v. Publi c Util. Comm’n , 18 8 S. W.3 d 6 81 , 6 84 -8 8 ( Te x. Ap p. —Aus tin 20 05 , pe t. d e nie d) ; Re lia nt E ne rg y , I nc . v . P ub lic Ut il. Comm’n , 101 S.W .3d 129, 133-36 (Te x . App.—Austin 2003), rev’d on o t h er g r o unds sub nom , CenterPoint Energy, I

nc. v. P ublic Util. Comm’n , 143 S.W .3d 81 (Tex. 2004). 2 on -s ite e le c tr ic ity

g e ne ratio n to c on tin

ue pa ying the c ha

rg e . F or re a so ns we e xpla in b e low , w e wi ll
reve rse the district c ourt’s judg ment and re nder judg ment aff irming the Commi ssion’s order.
BACK GR OUND Statutory c ontext

B e fo re tur

nin g to t he sp e c if ic e ve nts g ivi ngri se to t

he se a pp e a ls, it i s h e lpf

ul t o n ote
so me fe a tur e s o f t

he ir statut or y c on te xt that w ill be re le va nt t o o ur ana ly sis . T he se a

pp e a ls a ri se within the statutory

reg ime g overni n g T ex as’s tra nsition t owar d a compe titive retail marke t for
e le c tr ic ity , w hic h th is C ourt ha s d e sc ri be d in

de ta il i n s e ve ra l pr e vio us op ini on s. At issue here are 2
cer tain statutes that g overn the ty pes of c osts that electric utilit ies can rec over in the transition, and how and f rom whom those costs may be re cover ed. Among the leg islature’s “ foundational” policy go al s in these statutes, found mainly in ch ap t er 3 9 of the Public Utility Reg ulatory

Act (PURA), w as ensur ing that incumbent, forme rly

integ rate d elec tric utiliti es we re ma de whole f or their “ strande d co sts.” The now-fa miliar term “stra

nded costs” unde r PURA chapte r 39 re fer s g ener ally to “the portion of the book value of

a utility ’s g ener ation assets that is projec ted to be unre cover ed throug h rate s that
ar e b ased on market pric es,” Citi es of Corpus Chri sti v. Public Util. Comm’n , 1 8 8 S. W. 3dThroug hout our opinion, wh er e t h e rele vant languag e of a statute has not cha

ng ed in a 3 manner materia l to our analy sis, we will cite to the cur rent ve rsion for c onvenienc e. 3 68 1, 68 5 (T e x. Ap p. —Aus tin 20 03 , p e t. d e nie d) ; see Tex. Util. Code Ann. § 39.251(7) ( West 2007), 3 there by “stranding ” costs of the utilit y ’s prior i n v es t m en t s in ge neration assets that the utilit y had made with the e x pectation of rec overing (and would have rec overe d) under the prior r ate- regulated reg ime. Citi es o

f Co rp us Chr ist i , 188 S.W .3d at 685 (obser ving that “[s] trande d costs are a potential by product of Texas’s transition f rom the former rate -re g ulated ele ctricity sy stem to competition”). Th e pr os pe c t of

str and e d c os ts p la c e d inc umb e nt uti lit ie s at a co mpe tit ive dis a dv anta g e re lativ e to
new mar ket entra nts. Id
. (“B eca

use the new marke t e ntrants would not h av e t h es e e mbedded g ener ation-re lated costs and oppor tun i t y co s t re flec ted in the rate of re turn, their pric ing struc ture would tend to be lower than that of incumbe nt utili ties . . . enabl[ing] new mar ket entra nts to price elec tricity below a le vel at which inc umbent utilit ies could re cover their investments,” for cing them
e ith e r t o “ c ha

rg e un c omp e tit ive highe r r a te s o r s imp ly a bs or b th e se ‘s tr and e d c os ts. ’” ). To a dd re ss
su c h c on c e rn s, the le g isl a tur e c re a te d a thr e e -p ha se re g ulator

y pr og ra m thr ou g h w hic h u til iti e s c ou ld
rec over the ir

“ n e t, v e r if

ia b le , n o n - mi ti g a

b le s tr an d e d

c o s ts in c u r

r e d in p u r c h a s in g p o w e r

and providing elec tric g ener ation service .” See Tex. Util . Code Ann. § 39.252(a ) (West 2007). In the first phase, which en d ed o n Dec ember 31, 2001—the last day

befor e the be g inning of

customer choice—utilit ies that had be en identified in the 1998 ECOM r eport a s having had potential stranded c osts were permitted to empl oy a ra ng e of a ccountingtools to m itigate such costs. See Citi es o f Co rp us Chr ist i , 188 S.W .3d at 686. In the subsequent phas es , the leg islature author ized uti lit ie s to re c ov e r e sti mate d s tr and e d c os ts t hr ou g h th e ir

rate s.4 I n advanc e of the second pha se, which was t o b egi n with customer choic e on J anuar y 1, 2002, utilit ies wer e re quired to file pr oposed tarif fs that their post-“u n b u n d l i n g” transmission and d is trib uti o n uti li ty ( T D U) c omponent would beg in char g ing r etail elec tric provider s (REPs) on that date for the transmission a nd delivery

of powe r over

their re spective sy stems. See Te x. Ut il. Cod e Ann. § 3 9. 20 1( a ) ( Wes t 2 00 7). Amon g the c omp on e nts of the tari ff we re c e rt a in
no nb y pa ssa ble de liv e ry

c ha rg e s— c ha

rg e s th a t RE Ps w e re re qu ir e d to b ill the ir e nd -u se c us tom e rs . Id. § 39.201(b) ( West 2007). One of the nonby passable delivery

char g es that potentially

could have b e e n im p o s e d w a s a “ c o mp e ti ti o n tr an s it io n c h ar g e ” o r “ CT C” th a t th e le g is latu r e a u th o r ized a s
a mea ns for utilities to recove r projec ted strande d costs throug h thei r ra tes. Id. Eac h utilit y that ha d be e n ide n t i f

i e d i nt h e 1 9 9 8 E C O M r e p o rta s h a v i n g p o t e n t i a l s t r an d e d c o s t s w a s to
c a lc ulate re vis e d p ro

je c tio ns of its str and e d co sts by inp utt ing up date d da ta int o th e ECO M mo de l. Id. § 39. 20 1( g ), (h ) ( Wes t 20 07 ). I f, ba se d o n th is e sti mate , s tr and e d c os ts w e re sti ll p ro je c te d to
rema in as of De cembe r 31, 2001, the Commi ssion wa s to a uthorize the utilit y

to implement a CTC
as a means of re cover ing those costs. Id. § 39.201(f) & ( i) (West 2007). In addition to recove ring
s t r an d e d c o s t s t h r o u g h a C T C , u t i l i t i e s c o u l d , a s e ar l y a s t h e f i r s tp h a s e o f

s t r an d e d

- c o s tr e c o v e r

y, “sec uritiz e” up to 75 perc ent of their estimated stranded costs or 100 perc ent of thei r r egu latory assets. Id. § 3 9
. 2 0 1 (i )( 1 ). S ec u ri t i z at i o n , s i mp l y d es cr i b ed , i n v o l v es t h e u t i l i t y re co v er i n g a lum p s um p ay

me nt f ina nc e d b y bo nd s servi c e d b y a no nb y pa ssa ble de liv e ry

c ha rg e up on REP s, termed a “tra nsition charg e” ( TC). See ge nerally id. § § 39.301-.313 (West 2007 & Supp. 2007). As it turned out, the 2001 ECOM stranded- cost estimates indicate d that no incumbent utiliti es hadThe re vised estimates, in fac t, indicated that some of the utilit ies had “ over- re co v ere d” 4 stranded c osts t h ro u gh prior mitigation effor ts, to which the Commis sion responded by order ing utilit ies to ref

und “excess mitigation credits.” S e e C i t i es o

f C o r p us Chr ist i , 1 88 S.W .3d at 688. We addre ssed the Commissi on’s authorit y t o impose those measure s in Citi es o f Co rp us Chr ist i
. Id. at 688-93. 5 projec ted strande d costs; he nce, no CTCs to rec over such costs wer e implemented dur ing this sec ond stranded- cost rec overy

phase. 4 I n th e thi rd

and fi na l phase, a

fi na l e sti mate of

e a c h util ity ’s str and e d c os ts w a s to be ca lculated in a “ true-up” proce edin g i n i t i ated sometime a fter January 2004. Id. § 39.262 (West 2007 & Supp. 2007). B y this ti me, the for

merly integ rate d utilit y

was to have be en “unbundled” into a TDU, a gene rating company , and an REP. Id. § 39 .2 62 (c ). Th is s tr and e d c os t estimate or “t ru e- u p balanc e” w as to be de rived princ ipally from ca lculations of the g ener ation assets’ ma

r k e t v a lu e , th a t, e xc e p t f

o r c e rta in nu c le ar a s s e ts , w e r e to b e b a s e d o n o n e o f sever al alternative marke t-based measure s of t hat value. Id. § 39 .2 62 (h ) & (i ). Th is str and e d c os t e sti mate was to be “ rec oncile[d] . . . with the estimated strand ed co s t s u s ed to deve lop the competition transition char g e” ( i.e., the 2001 ECOM projec tion) and “[a]ny resulting differ ence shall be applied to the nonby

passable de livery

rate s of th e t ra n s m i s s i on and distribution util ity , except that at the utilit y ’s option, any

or all of the a

mounts recove red unde r thi s s ec t i o n may be sec uritiz ed.” Id. § 39.262(c) . I f a CTC had pr eviously been implemente d to rec over e stimated stranded c osts, the le g isl a tur e re qu ir e d th e fo llo wi nga dju stm e nts :
I f, base d on [t he fina l true-up], the competiti on transition char g e is not sufficient, the c omm iss ion may

e xten d th e c oll e c tio n p e ri od fo r t he c ha rg e or , if ne c e ssa ry , in c re a se the cha rg e. Alter natively , if it is found i n the t rue- up proce edingthat the competition transition char g e is larg er tha n is neede d to rec over a

ny rema ining stranded c osts, the c o m m i s s i o nm ay:6

(1) reduc e the c ompetition transition charg e, to t he extent it has not been secur itiz ed; (2) reve rse, in whole or in pa rt, the depre ciation expense that has bee n redire cted under Sec tion 39.256; (3) reduc e the tra

nsmissi on and distribution util ity ’s rates; or (4) implement a combination of the e lements in Subdivi sions (1)-(3)
. I n additi o n to these strande d cost-re lated adjustments, the leg islature also re quired that the ut ility ’s nonby

passable rates it char g es t o REPs be adjusted upwar d or downward based on other ba lance s determined in the f inal true-up. Id. § 39.262(g ). These wer e:

• Capacity auction true- up b alance . As this Court h as d et ail ed else wher e, the c a pa c ity a uc tio n pr oc e ss e nta ile d the uti lity ’s a uc tio nin g of

f e nti tle me nts to its gene ratingcapa city
. Se e Ce nte rP oin t E ne rg yHo us ton El ec., LLC v . G u lf Co a s t Coali tion of C ities , 2 5 2 S
. W
. 3 d 1 , 4 7-50 ( T e x. Ap p . —

A u s ti n2 0 0 8 , p e t. f

il e d ) ; T e x. U ti l. Co d e A n n . § 3 9
. 1 53 (West 2007). The c apac ity auction true

- u

p b a la n c e “ c o nstitut es the diff

ere nce betwee n the price that the utilit y was predic ted to obtain by the ECOM model [i n 2001] for selling its powe r on the wholesale marke t a nd the pre dicted fue l c os ts o ff se t by the dif fe re nc e be tw e e n the pr ic e that ut ili ty a c tua lly ob ta ins in the ca pacity auctions and the ut ility ’s ac tual fuel c osts.” CenterPoint Energy Ho us ton El e c ., LLC , 2 52 S.W. 3d a t 49 ; see Tex. Util . Code Ann. § 39.262(d)( 2). I f the d i ffe renc e betwe en the a ctual pric e obtained a nd the actua l f uel costs was less than the differ ence betwee n the projec ted price and projec ted fue l costs, the utilit y was a llowed to rec over the differ ence ; conver sely , if the utility ’s a ctual marg ins proved to be lar g er tha n t h o s e p re d i ct edi nt h e 2 0 0 1 E C OM p ro j ec t i o n s , i twa s re qu i re d

t o d i s go rge the diffe renc e. Se e Ce nte rP oin t E ner gy H ou sto n E le c ., LLC , 252 S.W .3d a t 49 -5 0. I n thi s respe c t, t he c a pa c ity a uc tio n p ro c e ss s e rv e d to
“ g ua ra nte e c on sume rs and po wer c omp anie s th a t th e po we r c omp any wi ll rec eive no more and no less than a marg in prede termined by the Commiss ion in 2001 when the ECOM model was run,” there by protec ting both consume rs and uti lit ie s f

rom th e e ff

e c ts o f i nte ri m di sto rt ion s and fl uc tuatio ns in e le c tr ic ity and fu e l pr ic e s d

ur ing the e a

rl y de ve lop me nt of the re ta il e le c tr ic marke t. CenterPoint Energy, I nc. v. P u b lic Util. Comm’n , 143 S.W .3d 81, 96 (Tex. 2004).7

• F inal f

uel rec onciliation . After customer c hoi ce beg an, the utility ’s aff iliated power

g ener ation company

was require d to f

ile, as part of the final true-up, a final fue l rec onciliation (rec onciling the reve nues re ceive d under the fue l fac tor in its rates with actua l fuel costs) f or the pe riod endingon the last day

before cust omer c hoice be g an, De cembe r 31, 2001. Te x. Ut il. Cod e Ann. § 3 9. 20 2( c ) ( Wes t 20 07 ); s ee R el iant Energy, Inc

. v. Public Util. Comm’n , 101 S.W .3d 129, 133-36 (Tex. A pp.—Austin 2003), r ev’d on other grounds sub nom , C e n t e r P o i n t E n e r g y , I n c . v . P u b l ic Ut il. Comm’n , 143 S.W .3d 81 (T ex . 2004). The utility ’s af filiated powe r g ener ation company

was to re concile the se figures an d ad d anyunderrec overe d fuel ba lance s to the capaci ty auction true -up bala

nce ( or subtrac t any over- rec overe d fuel ba lance s). T ex. Util . Code Ann. § 39.262(d)
. Depe ndi n g o n whether

the sum was positive or neg ative, the powe r g ener ation company

then either

cre dited or billed the TDU. Id.

• The “r e ta il c lawba c k”
. Th e uti lity ’s a ff ili a te d RE P wa s r e qu ir e d to c re dit the utility any positive differe nce be tween the “pric e to beat” —the price that REPs affiliated with incumbent utiliti es we re require d to char g e upon the a dv e n to f c u s t o m e r c h o i c e
— an d

th e p r e v a i l i n g m ar

k e tp r i c e o f

e l e c t r i c ity during the same time pe riod, net of the utility ’s nonby passable de livery char g es to the REP, up to a cap of $150 per c ustomer. Id . § 39.262(e)
.

• Re gul at or y a sse t a m ount . To the extent that any amount of re g ulatory assets included in a

TC or CT C ex ce eded the amount of re g ulatory asset s a p p r o v e d in a r a te o r d e r

th a t b e c a me e f

f e c ti v e o no r

b e f o re September 1, 1999, the Commi ssion was require d to conduct a r eview dur ing the fi na l tr

ue -u p to de te rm ine wh e the r a

ny su c h amou

nts “ we re a

pp ro pr iate ly calc ulated and c onstitut ed re asonable and necessar y costs.” Id . § 39.262(f)
. I f the Commission found th at t h e amount of regulatory assets appr oved for secur i t ization was subject to modification, a cr edit or other r ate a djustment was to be ma de to the utility ’s nonby passabl e d el ivery

rate s, subject to the limit ation that no adjustment could be made to a TC. Id.
PUR A s e c tio n 39. 26 2( g ) t

he n r e qu ir e d th e uti lity

to p a ss a lon g the se a dd iti on a l c os ts o r r e fu nd s to REP s and , u lti mate ly , to e nd -u se c us tom e rs :
Ba sed on the[se] credits or bills rece ived from its a ffiliates
. . . the transmission and distribution ut ility

shall make ne cessa

ry adjustments to the nonby passable de livery rate s it charg es to reta il electric providers
. I f the c ommissi on deter mines that theAp pli c ati on of C

e nte rP oin t E

ne rg yHo us ton El e c tri c, LLC

, R e lia nt E

ne rg yRe tai l Se rv ic es, 5 LLC, an d Te

x as Ge nc o, LP to De te rm ine Stran de d Cost s and Ot he r True -U

p Balan c es P ur

su an t to P U R A § 39.262 , P UC Docke t No. 29526, Orde r on Rehea ring (De c. 17, 2004), available at http:// intercha

ng e.puc.state.tx .us (ac cesse d J uly 6, 2008). Application of CenterPoint Energy Houston Electric, LLC for a Financing Order , 6 PUC Docket No. 30485 (Ma rch 16, 2005) , available at http:// intercha ng e.puc.state.t x .us (ac cesse d J uly

6, 2008). 8 nonby passable de livery

rate s ar e n o t sufficie nt, the commission may extend the orig inal collection peri o d fo r the c harg e or, if ne cessa ry , incre ase the char g e. Alternatively , if the commission dete rmines that the nonby passable de livery

rate s are larg er tha n are neede d to rec over the transmission and distribution ut ility ’s costs, the commission shall corresponding ly reduc e: (1) the competition tr ansition c harg e, to the extent it has not bee n secur itiz ed; (2) th e depre ciation expense that has be en re direc ted under Section 39.256; (3) the transmission and distribution uti lity ’s rates; or (4) a combination of the elements in Subdivisions (1)- (3).
Id . § 39.262(g ).
P roce edings b elow

Ap pe lla nt C e nte rP oint is the TD U c omp on e nt o f t he “ un bund le d” int e g rate d u til ity former ly known as Reliant Ene rg y , I nc. I n the final “ true-up” proce edinginvolving CenterPoint and its g ener ation and reta il a ffiliates—the subject of this Court’s rec ent opinion in CenterPoint Energy Ho us ton El e c tri c, LLC , 252 S.W .3d 1—the Commiss ion determined that CenterPoint was entitled to rec over a

total of approximately

$2.3 billion i n strand ed co sts and what the pa rties term

“ no n- str and e d” c os ts. See id. a t 23 -2 4. Ce nte rP oin t th e n f ile d p ara lle l pr oc e e dings to obt a in 5 C o m m ission authoriz ation to rec over the se costs either throug h secur itiz ation o r a CT C. The 69

Commi ssion permitted C en t erPoi nt to securitize most of its costs but determined that, under the then-a pplicable ve rsion of PURA’s sec uritiz ation provisions, cert a in o f it s “ n o n - s tr a

n d e d ” c o s ts wer e not “qualifying c osts” that could be se curitized. SeeTex. Util. Code Ann. § 39.302(4) ( West 2007).

Ce nte rP oint pr oc e e de d to ob tai n Co mmi ssi on a pp ro va l to re c ov e r a

pp ro xima te ly $5 70 mil lio n o f i ts “ no n- str and e d” c os ts n ot t he n s ub je c t to se c ur iti zat ion

thr ou g h a C TC . Thi s amount ref

lected Ce nterPoint’s capa city auction true -up amount, which was posit ive; net of it s final fuel adjustment, which wa s neg ative, see id. § 39.262(d); additional downwa rd adjustments for the reta il clawbac k, id. § 39.262(e) ; and a further deduction to the CTC based on a ccumulate d defe rre d taxes that the Comm ission had or dere d in Ce nterPoint’s ear lier sec uritiz ation case . The c alculation also ref lected acc rued interest on various of these amounts. I n other wor ds, the positive net amount that Ce n te r Po int w o u ld b e c o ll e c ti n g thr o u g h th e CT C r e p r e s e n te d it s c a p a c it y a u c ti o n true-up ba lanc e and

a c c ru e d inte re st. The Commission’s order provide d for c ollection of the CTC fr o m R E P s over a fourtee n-y ear

period, with mec hanisms for per iodi c adjustm ents and a final true- up to preve nt
over- or under -re cover

y . Three additional features of the order g ave r ise to the issues now disputed
on a pp e a l:

• T h ei n t e r es t ra te . T he Com mis sio n c on c lud e d th a t th e ve rs ion of P.U .C. Subst. R . 25.263( l)( 3) the n in e ff e c t r e qu ir e d it to a

wa rd Ce nte rP oint in te re st on the un c oll e c te d CTC ba lanc e a t the rate of 11 .0 75 pe rc e nt. Ap pe lle e s G ulf Coast Coaliti on of Cities (GCCC), Tex as Industrial Energy Cons u m ers (T I EC) , a nd the State of Te xas (a s an e le c tr ic ity c on sume r) c on te nd e d th e ru le ha d b e e n inva lid a te d in its e nti re ty

by the Te xas S up re me Court in Ce n te r P o in t E n e r g y , I n c. , 143 S.W .3d at 84, 99. Commiss ioner Parsle y echoe d that view in dissenting f rom this portion of the order
.CenterPoint had incurr ed the f ees in its true-up pr ocee ding, its final f uel re conci l i ation 7 proce eding , and the proce eding s underlying this appea l. Approxim ately $5 milli on of the fe es we re GCCC ex penses that Cente rPoint was req uired to pay under PURA sec tion 33.023. See Tex. Util . Code Ann. § 33.023 (West 2007). Th e rate c a se e xpe ns e c omp on e nt o f t he c ha rg e s d id n ot a c c ru e int e re st. 8 10 • V aluati on panel fee . The Commission authoriz ed CenterPoint t o rec over, thr ou g h a thr e e -ye ar s ur c ha

rg e inc lud e d in

the CTC , $ 24 mil lio n o f r a te -c a se e xpe ns e s, inc lud ing$5 .2 mil lio n in fe e s c ha rg e d b y J.P. M or g an f

or its service s as the “va luation panel” convene d by the C ommissi on in connec tion with CenterPoint’s use of the pa rtial stock valuation method to determine the m ark et v al u e o f i t s t ra n s fe rr ed gen er at i o n as s er t s i n i t s t ru e- u p p ro ce ed i n g. 7 SeeTe x. Ut il. Cod e Ann. § 3 9. 26 2( h) (3 ); see ge nerally CenterPoint Energy , 252 S.W .3d at 17-34. TI EC h a d a rgue d th a t th e le g isl a ture require d th e se 8 fee s to be paid by

the transf

ere e cor poration—CenterPoint’s then -affiliated g ener ation company , Texas Genco—r ather than REPs and consumers. See Tex. Util . Code Ann. § 39.262(h)
.

• Ne w on-sit

ege ne ra tor

s . Oc c ide nta l Po we r M ark e tin g , L .P. , a re ta il e le c tr ic pr ov ider th a t se rv e s p ri mari ly ind us tr ia l e le c tr ic c on sume rs a ff ili a te d w ith it, ha d c omp la ine d th a t th e Com mis sio n’ s o rd e r w ou ld r e qu ir e its customers who switche d to their own n ew on- site elec tricity g ener ation fac iliti es—there by

reduc ing or eliminating their demand for power delivere d ov e r Ce nte rP oint’ s sy ste m and su bje c t to the CTC —to c on tin ue no ne the le ss pa yingthe de liv e ry -b a se d c ha rg e ba se d on the ir e le c tr ic ity us a g e fr om t he ir own f a c il it ie s . A lt

h o u g h c o n c e d in g th a t th e le g is latu r e h a s r e qu ir e d such tr e a tme nt t o th e e xten t stranded costs are beingcollecte d throug h a CTC, see Tex. Util . Code Ann. § 39.252(b) (West 2007), Occ i d en t al u rged that the Commi ssion had no auth o ri t y to permit CenterPoint to sim ilarly collect non -s tr and e d costs fr om i ts c us tom e rs wh o s wi tc he d to ne w o n- sit e g ener ation. Be cause CenterPoint’s CTC c ollected exclusively non-strande d costs, Occ idental reasoned, the Commi ssion had no authority to impose the c ha rg e on tho se c us tom e rs . Followingthe proc eeding s befor e the Commission, GCC C, TI EC, the St at e, and Occ idental ea ch filed a dminist rative a ppeals in Tra

vis Coun t y

district court bring ing f

orwa rd the arguments they

had asse rted be fore the C ommissi on. CenterPoint intervene d, and the a ctions wereT h es e i s sues ar e distinct from those pre sented in the a ppeal of the under ly ing tr

ue-up 9 proce eding
. Ce nte rP oin t En e rg yHo us ton El e c ., LLC , 252 S.W .3d 1. Although the outcome of the true-up litig ation may impact t he st rande d cost and “ non-strande d” cost ba lance s that CenterPoint is u lti mate ly

e nti tle d to re c ov e r t

hr ou g h a CTC or oth e rw ise , no p art

y is s e e kin g to e lim inate CenterPoint’s capa city

auction true -up re cover

y altog ether
. See id. at 160 n.47. 11 consolidated. GCCC, TI EC, and t he S tate joi ntly argued that the C ommissi on err ed in setting the interest rate on the uncollec ted balanc es beingcollecte d throug h the CTC; TI EC chal l en ged the inc lus ion of the va luatio n p ane l f

e e ; and Occid e nta l ur g e d it s c omp la int re g ard ingne w o n- sit e g e ne ratio n. Th e dis tr ic t c ourt su sta ine d a ll thr e e g ro un ds , ho ldi ng that “ the Com mis sio n im pr op e rl y relie[d] upon P UC Subst. Rule 25.263( l)(3) that has bee n invalidated by the Texas Supreme Court,” that th e Com mis sio n’ s r

uli ng“ that Ce nte rP oint ma y re c ov e r t he c os t of

va luatio n p ane l . . . is contra ry to the express lang uag e of the statute re q u i ri n g p ayment of such c osts by the transf

ere e corpor ation,” and that “ [t ]o t he extent the CTC approved by the Commiss ion exceeds the statutory definition of ‘strande d cost’ at PURA § 39.251(7), the Commi ssion or der e x cee ds the authority set out in PUR A § 39.252.” The district court rendere d judgme nt reve rsing the C ommissi on’s orde r and
re mand ingfo r f

ur the r p ro c e e din g s c on sis te nt w ithits ho ldi ng s. Cen te r Po int a

n d th e Co mm is s io nf

il e d s e p ar a te a

p p e a ls f r o m t h e d istrict
c ourt ’s jud g me nt.
AN AL YSI S

I n their re spective a

ppeals, CenterPoint and the Commi ssion each a ssert three issues
corr esponding to the g rounds on which the district court re verse d and re manded the Commission’s order . They

urg e that the district cour t err ed as to eac h g round, and ask us to reve rse the judgment and re nder judg ment aff

irming the Commi ssion’s order. 9We also note that CenterPoint, availing itself of 2007 PURA amendments that expanded the

rang e of true -up balanc es that can be secur itiz ed, rec ently secur itiz ed the uncollecte d balanc e of the CTC calculate d as of F ebrua ry 12, 2008. Ap

pli c ati on of C

e nte rP oin t E

ne rg yHo us ton El e c tri c, LLC

, for Financing Order , PUC Docket No. 3 4 4 4 8 , Or d er ( Sept. 18, 2007), I ssuance Advisory L etter (J an . 30, 2008), & Final Ac counting of Up-F ront Costs (Apr. 11, 2008), a v a il able at http:// intercha

ng e.puc.state.tx .us (a cc es s edJ u l y 6 , 2 0 0 8 ). I twa s co n t em p l at ed i nt h o s e p ro ce ed i n gs that if the outcome of Ce nte rP oin t E ne rg yHo us ton El e c tri c, LLC

or other pe nding a

ppeals re sulted in adjustm en t s t o t h e balances that CenterPoint is entit led to rec over, suc h chang es would be addre ssed in subsequent filing s. See I ssuance Advisory L etter ( J an. 30, 2008) at 7. 12 Intere st rat e At the time of the unde rlying Commission procee dings, r ule 25.263( l)(3) provided:
Th e TD U [tr ans mis sio n a nd dis tr ibutio n util ity ] sha ll be a llo we d to re c ov e r, or sh a ll be liable f

or, ca rry ing c osts on the true-up ba lance . . . calc ulated using the utility ’s cost of ca

pital established in the utility ’s UCOS [unbundl ed cost-of -ser vice] proce eding , and shall be calculated for the per iod of time from the date of the f inal true-up or der until fully

rec overe d. 26 Tex. Reg. 10498 ( 2001) (c odified at 16 Tex . Admin. Code § 25.263( l)(3) ). The Commission conclude d that this rule require d it to awar d CenterPoint interest on its uncollected CTC balanc e at t h e r a t e o f

1 1
. 0 7 5 p e r c e n t , t h e r a t e e s t a b l i s h e d i nC e n t e r P o i n t ’ s 2 0 0 1 U C O S p r o c e e d i n g . In
c o n te n d in g o th e r

w is e , G CC C, T I E C an d th e St a te h a v e u r g e d that in C enterPoint Energy , Inc.

v. Public Utility Commissi on , the Tex as S upreme Court invalidated rule 25.263( l) ( 3 ) i ni t s e n t i r e t y. I n that case , the s upreme court held that PURA entitled util ities to recove r intere st on their stranded costs beg inning on the f

irst day of competition—not, a s rule 25.263( l)(3) then provided, only from the date of

the utility ’s final true -up orde r. CenterPoint Energy, I nc. , 143 S.W .3d at 84, 99. The c ourt phrase d its holdi ng as “Rule 25.263( l)(3) is invalid.” Id.GCCC, TI EC and the State term t his “[t] he key issue decide d in PUC Docket No. 30706.” 10 I n J uly 2006, the C ommissi on amende d rule 25.263( l)(3) to both confor m the interest ac crua l date to CenterPoint Energy, I nc. , and al t er t h e rate methodolog y . See31 Tex. Reg. 5603 ( 2006). Ce nte rP oint su

bs e qu e ntl y

fi le d a nd ob ta ine d C o mm i s s i o n

a p p r o v a l o f a re vis e d ta ri ff c omp lyingwi th the new r ule that spec ified an inter est rate o n the CTC lower than 11.075%
. CenterPoint Energy Houston Electric, LLC’s Tar iff Fil ing in Compliance w ith P.U.C. Subst. R. 25.263( l) ( 3) , PUC Tariff Con tr ol N o. 32 94 9 ( July

17 , 2 00 6) ; Ce nte rP oin t E ne rg yHo us to n E le c tri c, LLC ’s Tar iff Fi lin g in Compliance with P.U.C. Subst. R. 25.263( l) ( 3) , PUC Tarif

f C ontrol No. 32949, Notice of Approva l (Jul y 31, 2006), a v a il

a b le at h ttp:// intercha

ng e.puc.state.tx .us (ac cesse d J uly 6, 2008). Con se qu e ntl y , th e pa

rt ie s’ dis pute re g ardin g t he fi rs t is su e s w ou ld a pp e ar t o b e lim ite d to int e re st o nt h e C T C t h a tw o u l d

h av e a c c r

u e d p r e v i o u s l y.

13 The Commission m ajority , construingthe supreme court’s holding as beinglimit ed solely to r ule 25.263( l)(3) ’s ac crua l provisions, concluded that the por tions of the rule g overningthe
r a t e o f i n t e r e s th a d

n o tb e e ni n v a l i d a t e d , w e r e s e v e r a b l e , an d h a d r e m a i n e d i n e f

f e c t
. A c c o r d i n g l y, it applied C enterPoint’s 2001 UCOS cost-of- service rate to deter mine the i ntere st rate. The parties dispute the proper

interpre tation of the CenterPoi n t Energy, I nc. , holding a

nd whether

the Commi ssion’s use of the 11.075 pe rce nt inter es t ra t e wa s arbitra ry and ca pricious with or without the rule. 10

Our disposition of this i ssue is controlled by our r e c e nt d e c is ion in AEP Texas Central Co. v. Public Utility Commission , N o . 0 3

- 0 7
- 0 0 1 9 6

- C V ,

_ _ _ S
. W
. 3 d _ _ _ , 2 0 0 8 T e x . Ap p . LE X IS 48 23 (T e x . App .—

Au sti n Jun e 18 , 2 00 8, no pe t. h .) (p e r c ur iam) (o p. on re h’ g ); id. at *26 (Patterson, J., concurringand dissenting ). In AEP Texas Central , we he ld that the supreme c ourt’s CenterPoint Energy, I

nc. decision invalidated only the portion of rule 25.263( l)(3) t h at had g ov e r n e d th e inte r e s t a c c r

u a l d a te , b u t n o t t

h e p art p r e s c r ib in g th e r a te , an d th a t t h e o th er portions of t h e rul e had r emained in e ffe ct. The district c ourt err ed in conc luding other wise her e.14

As the rule’ s rate pr ovision had remaine d in effe ct, the Commissi on d i d n ot err or act arbitra rily or ca priciously by complying w ith t h e mandate of its own rule and a

war ding CenterPoint 11.075 perc ent intere st on its uncollected CTC balance
. Se e Flor es v. E mp loy e es R e t. Sy s. , 7 4 S. W.3 d 5 32 , 5 42 (T e x. Ap p. —Aus tin 20 02 , p e t. de nie d) (a

n a g e nc y is bo un d to c omp ly wi th its own rules and proc edure s). We sustain the Commi ssion’s first issue and CenterPoint’s first iss ue. Valuation p anel f

ee I n c on c lud ingthat th e Com mis sio n h a d n o a uth or ity to per mit Ce nte rP oin t to
rec over the valuation panel fee throug h the CTC, the district court re lied on the “e x press languag e” of PURA section 39.262(h) (3). That provision gove rns the “pa rtial s t o ck valuation method” for deter min ingthe ma

rk e t va lue of

g e ne ra tio n a sse ts f

or purp os e s o f a

uti lity ’s fi na l stra

nd e d c os t tr ue -u p. Th a t me tho d e nta ils a uti lity tr ans fe rr ingso me or

a ll o f i ts g e ne ra

tio n a ss ets to s e pa

rate aff iliated or nonaffiliated corporations and both corpor ations “spinning off” a portion of their stock. See Te x. Ut il. Cod e Ann. § 3 9.26 2(h )(3 ). Aft er the sto c k h a s b e e n p ub lic ly tr a de d f or a t le a st a y ear , “the r esulting a

v er age d ai l y

closing price of the c ommon stock over 30 conse cutive tra ding day s chosen by

the comm i ssion out of the last 120 consec utive tradingday s befor e the [true-up] filing . . . sha ll be presumed to e stablish the market va lue of the c o m m o n s t ock equity in eac h transfe ree corpor ation.” See id. At that juncture, the Commi ssion has the option to either “a cce pt this market valuation to conc lusively establish the valu e o f the c ommon stock equity in eac h tr ans fe re e c or

po ratio n o r c on ve ne a

va luatio n pan el of thr e e ind e pe nd e nt f ina nc ia l e xpe rt s to deter mine whether

the per centa g e of c ommon stock sold is fairly repr esentative of t he total common15

stock equity or whether a control premium exis ts f or the re tained intere st.” Id. I f t he Commissi on opts for the latter , [t]he val uat io n pane l mu st c on sis t of fi na nc ia l e xpe rt s, c ho se n f

ro m pr op os a ls submitt ed in re sp onse to commission requests, from the top ten na tionally rec og nized investment banks with de monstrated experience in the United States elec tric industry as indicated by the dollar amount of public offe ring s of long -term de bt and equity of Unite d St a te s inv e s to r - o w n e d

e le c tr ic c o mp an ie s o v e r

th e imme d iate ly

p r e c e d ing three y ear s as ra

nked b y th e publications “Secur ities Data” or “Institut ional I nvestor.”

Id. Then, “[i] f the panel deter mines that a control premium exis ts f or the re tained intere st, the panel shall determine the am ount of the control pr emium, and the commission shall adopt the deter mination but may

not increa se the mar

ket value by

a contr ol premium g reater than 10 pe rce nt.” Id. “The deter

mination of the commission based on t he findingof the pa nel conc lusively

establishes the value of

the common stock of e ach tr ansfe ree cor p o ra t i o n .” Id. Wit hin the same pa rag raph, PURA section 39.262(h)( 3) states: “The costs and expenses of the panel, a s approve d by the commission, shall be paid by eac h transfe ree corpor ation.” Id. TI EC argued below, a nd the district court a g ree d, that this sentence una mbiguously

mandated that Texas Genco—Cente rPoint’s then-a ffiliated power ge neration company —must alone incur

the valuation pane l’s fee and that the Com mis sio n e xce e de d its a uth or ity in a llo wi ng the fe e to be sh if te d thr ou g h Ce nte rP oin t to REPs
and , u lti mate ly , to c on sume rs via the CTC
. I n th e ir re sp e c tiv e se c on d is su e s, the Com mis sio n and Ce nte rP oin t c on te nd

that th is sentenc e of PURA sec tion 39.262(h)(3) g overns only who is held responsible i n t h e first inst ance for pa ying f or the va luatio n p an el when the Commission decides to conve ne one. A bsent such a16

pr ovis io n, th ey

su gg est P URA s ect io n 3 9. 26 2(h )(3 ) wo ul d arguabl y im pl y th at t he C om mi ssion

its e lf would be re quired to cover an y v aluation panel expenses. Appellants emphasize evidenc e that Texas Genco w as, in fac t, contrac tually responsible to pay

the valuati o n p an el ’s fe e (thoug h CenterPoint, then its corporate par ent, g uara nteed the oblig ation and ultimately paid i t ). This was all PURA section 39.262(h)(3) required, appellants urge , beca use the provision does not
a dd re ss, muc h le ss l imi t, h owthe tr ans fe re e c or po rat io n sati sf

ie s it s o bli g a tio n. No r, a pp e lla nts further contend, doe s section 39.262(h)(3) a ddress whe ther a ny valuation pane l expenses can late r be re cover ed from reta il customers as rate case expenses. That issue, appe llants contend, is g overne d solely by PURA section 36.061(b)( 2). PURA section 36.0 6 1 (b)(2) authorizes the Commissi on to “allow as a cost or
e xpe ns e ” fo r r a te makin g purp os e s “r e a so na ble c os ts of pa

rt ic ipatin g in a

pr oc e e din g un de r t

his tit le [P URA] not t o exceed the a mount approved by

the re g ulatory

authority .” Te x . Util. Co d e Ann. § 3 6
. 0 6 1 (b )( 2 ) ( W es t2 0 0 7 ). T h er e i s n o d i s p u t e t h at t h e C en t er P o i n tt ru e- u p wa s a “ p ro ce ed i n g” for pur poses of this provision and that the Commi s s i o n had author ity to approve CenterPoint’s
rec overy of its “re asonable costs” of pa rticipati n g i n it. I n fac t, in connection with the true -up, thi s p ro c e e din g , a

nd oth e r r ela ted pr oc e e din g s, the Com mis sio n, wh ile re je c tin g so me expenses, permitted CenterPoint t o rec over through rate s substantial l ega l fe es and e x penses (which no pa

rty contested) , cer

tain non-lega l consul tant fee s, employ ee e x penses r elated to the
c omp any ’s tr

ue -u p r e late d pr oc e e din g s, c e rt a in e xpe ns e s of Ce nte rP oint w itn e sse s and c on su lta nts , and “supplies a

nd equipment.”17 TI EC r eplies that appellants are ignor ing the plain lang uage of PURA section 39.262(h)( 3), which it vi ews a s unequivoca lly prohibiting such c ost-shifting. As f or PURA section 36.061(b)( 2), TI EC argues t h at “[ t ]hese two provisions can be easily rec onciled.” Spe c if ic a lly , i t urges that “ [t]he g e ne ra l la ngua g e of

PUR A § 36 .0 61 (b ) a llo ws Ce nte rP oin t to
rec over the expenses associate d with i t s p ar ticipation in the true-up pr ocee ding f rom rate pay ers,” while “[t] he spec ific languag e of PURA § 39.262(h) . . . excludes the costs associated with the control pre mium valuation panel from that r ecove ry ,” such that the former “ca nnot rea ch so fa

r as to al lo w r e c o v e r

y o f th e v a lu a ti o n p an e l’ s f e e b e c a u s e th a t a mo u n t is s p e c if ic a ll y g o v e r

ned by PURA § 39.262(h).” See Tex. Gov’t Code Ann. § 311.026(a) (West 2007) (“I f a g ener al provision conflicts with a specia l or local provision, the provisions sha ll be construed, if possible, so that effe ct is g ive n to bo th. ” ); D a ug h te r s o f C h a r it yH e a lt h S e r v s . o f W a c o v . Li n n s tae dter , 226 S.W .3d 40 9, 41 1 ( Te x. 20 07 ). Ap pe lla nts c ounte r t

hat th e tw o pro vi si on s d o n ot c on fl ic t ( and the re is nothing to “ h arm o n i z e” ) b ec au s e t h ey ad dre s s d i ff

er ent s ubjects—PURA section 39.262(h) addre sses who pay s the valuation pane l’s fee s in the first instance, while PURA section 36.061(b)( 2) addr esses the Com mis sio n’ s a

bil ity to a llo w tho se pa

y me nt u lti mate ly

to b e re c ou

pe d a s r a te c a se e xpe ns e s. The Commission i s a cr eati o n o f the L eg islature and “ has no inhere nt authority .” Public Util. Comm’n v. City Pub. Serv . Bd. , 53 S.W
. 3 d 3 1 0, 316 (Tex. 2001). “A state ag ency ’s power s are limit ed to (1) pow ers e x pressly confe rre d by

the L eg islature, and (2) ‘implied powe rs that
are rea sonably

nece ssary

to car ry out the express responsibilities given to it by the L eg isla t u re.’ ” Texas Mun. Power Agenc y v. P ublic Util. Comm’n , 253 S.W .3d 184, ___, 2007 Tex. L EXI S 1096, at * 2 2 (T ex . 2 0 0 7 ) ( qu o t i n g City Pub. Serv. Bd. , 5 3 S. W .3 d at 31 5) . B ut a n a g e nc y may no t, i n18

the g uise of “impl i ed p o wers,” “e x erc ise what is ef fec tively a new power , or a pow er contra d i ct o ry t o the statute, on the theor y that such a pow er is expedient for a dminist rative purposes.” City Pub. Serv. Bd. , 53 S
. W
. 3 d at 3 1 6
. The e x istence or scope of the Commiss ion’s auth o ri t y t o authorize rec overy of the va luation panel fe e throug h rate s thus turns on statutory construction. Statutory construction pre sents a question of l aw that we revie w de novo. Se e Sta te v. Shumak

e , 1 99 S.W. 3d

27 9, 28 4 ( Te x. 20 06 ). Our p ri mary ob je c tiv e in statut or

y c on str uc tio n is to give eff

ect to the leg islature’s intent. Id. We seek that intent “first and fore most” in the statutory text
. Le x ing ton In s. Co. v . S

tra y ho rn , 2 09 S.W. 3d

83 , 8 5 ( Te x. 20 06 ). We c on sid e r t he wo rd s in context, not i n isolation. State v. Gonzalez , 82 S.W.3 d 322 , 327 (T e x. 20 02 ). We r e ly on the pla in meanin g o f t h e text , unless a diffe rent mea ning is supplied by

leg islative definition or is appar ent from conte x t, or unless such a c onstruction leads to absur d results
. City of Rockwall v. Hughes , 2 4 6 S
. W
. 3 d 6 2 1 , 6 2 5 -2 6 (T ex . 2 0 0 8 ) ( ci t i n g Texas De p’t of Transp. v. Cit

y of Sunset Valley , 14 6 S. W.3 d 6 37 , 6 42 (T e x. 20 04 ); Tay lor v . Fire me n’

s & Po lic e me n’

s Civi l Serv . Co mm ’n of City of Lubbock , 6 16 S.W. 2d

18 7, 18 9 ( Te x. 19 81 ); Unive r s i ty of Tex. Sw. Med. Ctr. v. Loutzenhiser , 14 0 S.W. 3d 35 1, 35 6 (T e x. 20 04 )); see Tex. Gov’t Code Ann. § 311.011 (West 2005) (“[w]ords and phrase s shall be re ad in context and construed a ccor ding to the r ules of g rammar

and common usag e”) . Our a naly sis of the statutory

text is also inf

o rm ed by the pre sumptions t hat “the e ntire statute is intended to be ef fe ct ive” a nd that “a just and r easona ble re sult is i ntended,” Tex. Gov’t Code Ann. § 311.021(2) & (3) ( West 2005), and consideration of such matters a s “the objec t sought to be attained,” “cir cumstance s under which the statute wa s enac ted,” leg islative19

history , and “conseque nces of a par ticular c onstruction.” Id. § 311.023(1), ( 2), (3) , (5) ( West 2005). We also presume that the legi slature a cted with knowledg e of the background law. Ack er v. Texas W

ater Comm’n , 790 S.W .2d 299, 301 (Tex. 1990). Fur ther, re g ardinga statute that a n ag ency is ch ar ged with enforcing , we g ive

“ se ri ou s c on sid e ratio n” t o th e ag e nc y ’s c on str uc tio n o f i t, s o lo nga s th a t c on str uc tio n is
re a so na ble and c on sis te nt w iththe statut or y langua g e , and thi s is p art ic ula rl y tr ue wh e n th e statut e involves complex subj ect matter within th e age n cy ’s are a of e x pertise. See Ce nterPoint Energy Ho us ton El e c ., LLC , 2 52 S.W. 3d a t 27 -2 8; cf. Rylande r v. Fi s h erControls Int’l, Inc

. , 45 S.W .3d 29 1, 30 2 (T e x. Ap p. —Aus tin 20 01 , no pe t.) (c ourt s “ do no t de fe r t o a dmi nis tr a tiv e int e rp re tatio n in reg ard to que stio ns which do not lie within administrative expertise or dea l with a nontechnica l question of law.” ).

Whether the Commission has authority to permit CenterPoint t o r e c o v e r th e v a luation panel f ee thr oug h rate s turns on the meaningof the wor d “paid” as used in PURA section 39.262(h)( 3)’s re quirement that the va luation panel cos t s “shall be pa id by eac h transfe ree corpor ation.” SeeTex. Util . Code Ann. § 39.262(h )( 3) (e mphasis added) . TI EC views “pa id” as mandatingthat the transf ere e cor poration mus t be the exclusive ultimate funding source for the valuation pane l fee . I f that we re so, the Commissi on would lack a uthority to order othe rwise. Ap p el l an t s view “pa id” to mean mer ely that the transf

ere e cor poration (a s opposed to the Commi ssion or some other e ntity) has the immediate responsibility to c over the valuation pane l fee , while leavingto other law ( including PURA sec tion 36.061(b)(2)) how the tra nsfer ee c orporation ult imate ly

fu nd s th a t ob lig a tio n or ca

n be re imb ur se d for it. Th is obl ig a tio n, a pp e lla nts su g g e st, isTex. Util. Code Ann. §§ 36.007(d), 36.204, 36.351(a) , 39.158(d), 39.263( d) (West 2007). 11 20 ak i nt o o t h er

co s t s t h at ra t e pr o ce ed i n g p ar t i ci p an t s p ay o u to f p o ck et b u tro u t i n el y re co v er t h ro u gh rate s under PURA sec tion 36.061( b)(2)
. For sever al rea sons, we conc lude that appe llants’ proposed
c on str uc tio n is the on e that r e fl e c ts the le g isl a tur e ’s int e nt. The leg islature did not elabor ate in either PURA section 36.061(b) (2 ) or section 39.262(h) (3) c oncer ning the re l at i o n s h ip, if any , it intended or per ceive d betwee n the two provisions. Ce n t erPoi nt refe rs us to numerous statutory examples within P URA wher e the leg islature, whe n perc eiving potential conflicts with other st at u t es or law , expli citly stated which
wou ld c on tr ol. T h e s e e xamp le s c o n f ir m th a t w h e n th e le g is latu r e p e r c e iv e d s u c h c o n f

lic ts and 11 desired one PURA pr ovision to control over another , it kne w how to sa y so. Abs en t a c o n t rar

y ind ic a tio n in the te xt of e ith e r PURA se c tio n 36. 06 1( b) (2 ) or se c tio n 39. 26 2( h) (3 ), we mus t pr e sume that the leg islature intended both s t at u t es t o be fully eff ective. See Tex. Gov’t Code Ann. § 3 11 .0 21 (2 ) ( we pr e sume th at “th e e nti re statut e is i nte nd e d to be e ff e c tiv e ” ); c f. T e x as Lot te ry Comm’n v. F

irst Stat e Bank

of DeQue en , No. 03-07-00249- CV, ___ S.W .3d ___, 2008 Tex. App. L EX I S 35 72 (T e x. Ap p. —Aus tin 20 08 , p e t. f

ile d) (r e je c tin g c la ims of

statut or y “ c on fl ic t” be c a

us e
on e statut e e xplic itl y state d that it c on tr oll e d ove r co nf lic tin g pr ov isi on s) . A c c or din g ly , w e are to harmonize potentially

conflictingor over lapping statutes when possible. SeeTex. Gov’t Code Ann. § 3 11 .0 26 (a ); see also Lexington Ins. Co. , 209 S.W .3d at 85 (obser ving that specific- controls-ove rg ener al principa l “applies only when ove rl ap p i n g s tatutes ca nnot be re conciled,” and construing statutes so as to avoid conf lict). Appellants’ c onstruction is consistent with these principles, and TI EC’ s is no t. T I EC’ s c on str uc tio n o f P UR

A s e c tio n 3 9. 26 2( h) (3 ) w ou ld c re a te a c on fl ic t w ithSeeAct of J u n e 1 8 , 1 9 9 9 , 76th L eg ., R.S., ch. 405, § 39, 1999 Tex. Gen. L aws 12 2543, 2582; Act of May

21, 1997, 75th L eg ., R.S., ch. 166, § 1, 1997 Tex. Gen. L aws 713, 774.

21 PUR A s e c tio n 3 6. 06 1( b) (2 ) to the e xten t of ba rr inglate r r e c ov e ry

of va luatio n p ane l e xpe ns e s a s r a te
case expenses. Under

appellants’ c onstruction of PURA section 39.262(h) (3), by contra st, the two provisions would be entirely harmonious with one anothe r. PURA section 39.262(h)( 3)’s silence reg ardingany relationship wit h section 36.061(b)( 2) may be espec ially signific ant bec ause se ction 39.262(h)( 3) wa s the later- enac ted of the two. W h en the legislature enac ts a statute, we pr esume that it does so with awa rene ss of the 12 exis ting body

of law. Ack

er , 7 90 S.W. 2d

a t 30 1. Ye t th e le g isl a tur e g a ve no e xpre ss i nd ic a tio n in P UR A s ec tion 39.262(h)(3) a bout prohibiting application of PURA section 36.061(b)(2) ’s pree x isting cost-r ecove ry reg ime to true-up pr ocee dings involving a valuation panel. PURA section 39.262(h)( 3) “should be c onstrued in a manne r that har moniz es rather than c onflicts with that law.” Argonaut Ins. Co. v. Bake r , 8 7 S
. W
. 3 d 5 2 6 , 5 3 1 (T ex . 2 0 0 2 ) ( ci t i n g Ack er , 790 S.W .2d at 301 & Tex. Gov’t Code Ann. § 311.026(a) ).

We conclude that by

providing that the t ransf

ere e corporations “sha ll pay ” valuation panel e x penses, the leg islature did not intend to prec lude those expenses ultimately beingrec overe d thr ou g h r a te s und e r P UR A s e c tio n 3 6. 06 1( b) (2 ). Th e pr ov isi on , in oth e r w or ds , r e fl e c ts n ot a mandate that such expenses be borne exclusively by transfe ree corpor ations, as TI EC sugg ests, but
me re ly an e xpe c tatio n th a t th e e xpe ns e s w ou ld b e “ pai d” by tr ans fe re e c or

po ratio ns in t

he same
manner that parties to rat e proc eeding s routinely pay leg al expenses, consultant fe es, and my riad other “ costs of par

ticipating in a

pro ce eding ” that ar e potentially elig ible for late r re cover y under22

PURA se c ti o n

3 6
. 0 6 1 ( b ) ( 2 )
. Co n s e q

u e ntl y , PU RA

section 39.262(h) (3)’ s require ment that valuation panel expenses “shall be paid by the transfe ree corpor ation” does not prohibit the Commissi on from authorizing CenterPoint ul timately to rec oup those expe n s e s p u r s u a nt t o PU RA

s e c ti o n 36.061(b)( 2). We sustain the Comm ission’s second issue and Cente rPoint’s second issue.
New on-site gener ators

The third issue of both the Commi ssion a nd CenterPoint conce rns the extent of the Commi ssion’s authority

to r equire end-use customers who ha ve switche d to their own on-site powe r g ener ation fac iliti es—there by eliminating or sharply reduc ing their taking of power delivered over CenterPoint’s sy stem—to nonetheless continue paying delivery -base d char g es l ike t he CTC based on their use of

power they g ener ate themselves. As noted, a CTC or TC is a nonby passable de livery char g e—a utility

bills an REP based on its deliver y o f p o we r to the REP’s end-use customer, a nd the REP, in turn, must pass on the cha rg e to the custo m er wh o i ncurr ed it. Thus, as CenterPoint acknow ledg es, “a

n end-use customer can theore tically avoid the nonby passable char g es altog ether by cea sing to take delivery

of powe r fr om the TDU.” I f customer s beg an ce asing to take deliver y of p o we r fr o m the TDU so a s to avoid delivery char g es, one c onsequenc e, all other things be ing equal, would be that rema ining TDU customers would bear incr easing ly g reater propor

tions of the costs beingrec overe d throug h the cha rg es. T h e leg islature re sponded to these possibilities by
enac ting PURA sec tion 39.252(b):
Recove ry of re tail stranded c osts by an ele ctric utility

shall be fr o m al l exi sting or futur e re ta il cust om e rs , in c lud ingthe fa c ili tie s, pr e mis e s, and loa ds of tho se re ta il customers, within the utility ’s g eog raphic al cer tificated se rvice are a as it existed on May 1, 1999. A re tail customer may not avoid stranded c ost recover y ch arge s by switching to new on-site g ener ation except as provided by Section 39.262(k).Se c tio n 3 9. 25 2( b) (1 ) d e fi ne s “ ne w o n- sit e g e ne ratio n” a s “ e le c tr ic g e ne ra tio n c a pa c ity 13 g re a te r t ha n 1 0 me g awatts c a

pa ble of be inglawf

ull y de liv e re d to the si te wi tho ut u se of uti lity distribution or transmissi on fac iliti es.” Id. § 39.252(b)( 1). Se c tio n 3 9. 25 2( b) (1 ) a

pp lie s o nly

to “ ne w o n- sit e g e ne ra

tio n” (i .e ., that havin g c a

pa c ity 14 g re a te r t han 10 me g awatts ) “ wh ic h w a s n ot, on or be fo re De c e mbe r 3 1, 19 99 , e ith e r: (A ) a fu lly oper ational fa cility ; or (B ) a pr oject supported by substantially

complete f

ilings for all nece ssary site-spec ific environme ntal p er m i t s u n der the rules of the Texas Natura l Resource Conservation Commi ssion in effec t at the time of filing .” Id. 23 Te x. Ut il. Cod e Ann. § 3 9. 25 2( b) (1 ). Th e le g isl a tur e a dd iti on a lly c re a te d a me ans fo r util iti e s to impose a C TC or TC on customers who had gre atly reduc ed the amount of power they wer e taking off the utilities’ sy stems by switching to new on-site g ener ation:
I f a c ustomer co m mence s taking ener g y from new

on-site g ener ation which mat er i al l y reduc es the c ustomer’s use of ener g y delivere d throug h the utility ’s fac iliti es, the c ustomer shall pay an amount ea ch month computed by multipl ying the output of t h e on-site ge neration by the new sum of c ompetition transition charg es under Sec tion 39.201 and transition char ges under Subcha pter G [secur itiz ation] which are in e ff

e c t du ri ngthat mo nth . Pa

y me nt s ha ll b e ma de to t

he uti lity , it s succe ssors, an assig nee, or other c olle ct i o n ag ent re sponsible for collec ting the c omp e tit ion

tr ans iti on

c ha rg e s a nd tr ans iti on

c ha rg e s a nd sh a ll b e c oll e c te d in a dd iti on to t he c omp e tit ion

tr ans iti on

c ha rg e s and tr ans iti on

c ha rg e s a pp lic a ble to e ne rgy a c tua lly de liv e re d to the c us tom e r t hr ou g h th e uti lit

y ’s fa c ili tie s.
Id. § 39.252(b)( 2). The l egi s l at u re e x cluded f rom these r equire ments on-site g ener ation fac iliti es with capa city

of ten meg awatts or less (“small self- g ener ators”) and ce rtain “gr andfathere d” 13 “q u al i fy i n g fac iliti es.” I n turn, the “Sec tion 39.262(k)” r efe renc ed in PURA section 39.252(b) 14 provides that small self-g ener ators and c ustomers with g randf ather ed g en er ation fac iliti es ar eSe c tio n 3 9. 26 2( k) pr ov ide s: 15 Notwithstanding Sec tion 39.252, to the e x tent that a customer ’s ac tual load has be en lawfully serve d by

a fully operational qualifying f

acility befor e S eptember 1, 2001, or by an on-site powe r produc tion facility with a rated ca

pacity of 10 meg awatts or les s , any char g e for

rec overy of strande d costs under this sec tion or Subchapter G [securitiz ation] assessed on that customer a fter the fac ility become s fully

operational sh a ll b e inc lud e d o nly

in t ho se tari ff

s or c ha rg e s a sso c iate d wi th the se rv ic e s a c tua lly provided by

the transmission and distribution uti lity , if any , to the customer a fter the fac ility beca me fully operational a

nd may not inc lude any

costs associate d with the service provided to the custom er by the elec tric utility

or its affiliated tr ansmission and dis tr ib u ti o nu ti li ty

u n d e r th e ir ta r if f s b e f o r e th e o p e r a ti o no f

th a t q u a li f ying fa ci l i t y . To qualify

under this subsection, a qua lifying f acility must have made substantially

complete f

ilings o n o r before D ece mber 31, 1999, for all nece ssary site-spec ific environme ntal permits under the rules of the Texas Natura l R es o urce C o n s erv at i o nC o m m i s s i o ni nef fe ct at t h e t i m e o f f

i l i n g. Id. § 39.262(k).

SeeDebate on Tex. S.B. 7 on the Floor o f t he House , 76th L eg ., R.S., at 15, 18 16 (May 20, 1999). 24 r e s p o n s i b l e f

o r s t r an d e d

- c o s t r e c o v e r

y o n l y t o t h e e x t e n to f

s e r v i c e s a c tu a l l y p r o v i d e d

b y t h e u t i l i t y. 15 Tex. Util . Code Ann. § 39.262(k) (West 2007).

PUR A s e c tio n 3 9. 25 2( b) thu s ma nif e sts le g is lat iv e int e nt t o p re ve nt e nd -u se customers c apable of installing their own l arge g ener ation fac iliti es—ty pically major industrial customer s
— fr o m“a v o i d [ i n g] s t ra n d edco s tre co v ery ch ar ges b y

switching to new on-site g ener ation”
and le avin g re ma ini ngc us tom e rs to p ay wh a t oth e rw ise wo uld have be e n th e ne w o n- sit e g e ne rator s’ “shar e.” Ce nterPoint also refe rs to a portion of the leg islative history of PURA section 39.252(b) that is consistent with t h at o b s ervation. During the House f loor debate on the leg islation that be c ame P U R

A c h a p t e r 3 9 , R e p r e s e nt a

t i v e S y l v e ste r T ur

ne r s po ns or e d th e ame ndme nt t hat ul tim a te ly b ec ame se ction 39.252(b). R e p r e s e n t a t i v e T u r n e r e xp l a i n e d t h a t a m e n dm e n t ’ s p u r p o s e w a s to 16 “kee p ev ery one in the pool” of customers re quired to pay stranded c osts by

closing a “loophole”Id. at 15. 17 Id. 18 25 throug h which “ver

y larg e, lar g e compa

nies who ca

n decide to self g ener ate . . . c an g et out of pay ing their portion of stra

nded costs.” Represe ntative Turne r expr es s ed conce rn that if these ty pes of 17 customers de parte d “the pool , ” i t wo uld cause “a dispropor tionate amount [to be] place d on
ever y one else that rema ins in the pool.” Re pr e se ntativ e Turn e r al so e mph a size d th a t stra nd e d c os ts 18
re pr e se nte d inve stm e nts that ut ili tie s h a d p re vio us ly ma de to b uil d fa c ili tie s to se rv e a ll c us tom e rs , including those who might late r switch to self- g eneration, as the utilities had bee n require d to do under r egulation.

PUR A s e c tio n 3 9. 25 2( b) , a s O c c id enta l a c kn ow le dg e s, “ re qu ir e s n e w o n- sit e g ener ation users to pay

a utility ’s ‘stra

nd ed co s t s ’ ev en with re spect to ser vice they are not
rec eiving .” Occ idental concedes that, for ex ample, its customers must continue to pay CenterPoint’s TC used to rec over stra

nded costs, even if they

switch to new on-site g ener ation, with the TC for any
ne w o n- sit e g e ne rator s b e ingc a lc ulate d und e r t he me tho do logy of se c tio n 39. 25 2( b) (2 ). Th e pa rt ie s’ dis pute , r a the r, c e nte rs on wh e the r s e c tio n 39. 25 2(b ) a uth or ize s th e Com mis sio n s imi larl y to
re qu ir e ne w o n- sit e g e ne rator s to pa y a uti lity ’s “ non -s tr and e d” c os ts— sp e c if ic a lly , th e c a

pa c ity auction true -up b al an ce re co v er edt h ro u ghC en t er P o i n t ’s C T C
. Be cau s e t h at wa s t h e s o l e c o mp onent of CenterPoint’s C TC, the outcome of this iss ue contr ols whether O ccide ntal’s customers c ould be
re qu ir e d to pa

y the CTC a t a ll. Occ idental pre vailed in the dis t ri ct cour t by arguing that PURA section 39.252(b)
m an i f e s t s l e g i s l a t i v e i n t e n t t h a t n e w o n - s i t e g e n e r a t o r s c o u l d b e r e qu i r e d t o p ay on ly

str and e d c os ts based on the ir own on-site g ener ation, but could not a lso be require d to pay non-strande d costs onSeeTex. Util . Code Ann. § 39.201. 19 26 that basis. Occ idental obs erve s that section 39.252(b) ref ers solely to “strande d costs” and makes no express mention of capa city auction true-u p b alances or other “non-stra

nded” c osts. Id. § 39.252(b) ( “

Re covery o

f re tai l st ra nde d c os ts by

an ele ctric utility

shall be fr om all exi sting or future retail customers
. . .,” and “[a] reta il customer may not avoid stranded cost recove ry charges by switching to new on-site g ener ation
. . . .”) (empha ses added)
. I nvoking the statutory -construc tion principle of expre

ssi o u n is est exc lusio alt erius —the mention of one thingimpliedly excludes oth e r t hin gs of th e same ty

pe —O c c ide nta l ma int a ins that th e le g isl a tur e ’s e xpre ss r e fe re nc e s in
se c tio n 3 9. 25 2( b) to “ str and e d c os t” re c ov e ry imp lie s it s in ten t to e xclu de no n- str and e d c os ts, there by leavingundisturbed the status quo that customers who did not take power delivere d over a utilit y ’s s y stem wer e not obligated t o pay delivery -base d char g es. See, e.g. , Con tin e nta l Ca s. In s. Co. v . F un c tio na l R esto ra tio n A sso cs. , 19 S.W .3d 393, 401-02 (Te x . 2000). I n contendingthat the district court e rre d, the Commiss ion and Cent erPoint advanc e somewhat differ ent ar g uments. The Commissi on insists that Occ idental’s construc tion of PURA section 39.252(b) ignor es the provision’s c ontext within PUR A cha pter 39. The Commi ssion points to section 39.201, which, as pre viousl y d i s cu s s ed , contemplates the initial im position of a CTC based on projec ted strande d costs identified in the 2001 EC OM estimates, and se ction 39.262(g ), which c ontemplates adjustments to the CTC based on both strande d-cost and “non-stra nded” c ost calculations made in the final true -up. See Tex. Util. Code An n . § § 3 9
. 2 01, 39.262 ( g )
. T h e Co mm is s io n ar g u e s th a t ( 1 ) s e c ti o n 3 9
. 2 5 2 ( b ) r e qu ir e d th a t an in it ia l CTC (whic h wo uld have re c ov e re d e xclu siv e ly pr oje c te d s tr and e d c os ts ) would be imposed on ne w on- 19 site g ener ators; and ( 2) t h er e is no indication in P URA that the leg islature conte mplated27

“two sepa

rate CTC s ”— “o n e paid by new on- site g ener ators and a nother pa id by

ever y one else” —following the final true -up. Thus, t h e C ommissi on rea sons, the leg islature must have intended that new

on-site g ener ators pay the C TC, as adjusted (or impos ed) a fter the final true- up,
e ve n if the c ha rg e re c ov e re d s ome no n- str and e d c os t ba lanc e s. “ At mos t,” the Com mis sio n s ug g e sts that “the statute is ambig uous” and that we should defer to its “re asonable interpre tation” of it. See State v. Public Util. Comm’n , 883 S.W .2d 190, 196 (Tex. 1994).

Ce nte rP oint, by c on tr a st, c on c e de s that PUR A se c tio n 39 .2 52 (b ) “ is lim ite d to on ly stranded c osts,” but disputes that the omissi on ref lects legi s l at i v e intent that the Commissi on be prohibited from im posing non-stranded cost char g es on new self-g ener ators. CenterPoint observes that the e x pr essi o u nis est e

x c lus io a lte riu s principle is not an inflex ible rule, but mere ly a tool for
asce rtaining leg islative intent. See Mid-Century Ins. Co. v . Kidd , 997 S.W .2d 265, 274 (Tex. 1999) (“The doctrine . . . is s i m p l y an ai d t o deter mine leg islative intent, not an absolute rule [and] . . . should not be mecha

nically applied to compel a n unrea sonable interpr etation.”) . CenterPoint sug g ests that a more reliable indicator of le g islative intent is the l egi s l at i ve history noted above , which it views as e videncingg ener al leg islative conce rn with the prospe ct of lar g e industrial companies a

voiding their

“fa ir share ” of c osts associated with Te x as’s tra nsition t o a compe titive reta il electric marke r by

switchingto self-g ener ation, there by incre asing the re lative burde ns on the custo m er s wh o re mained. On the othe r hand, a s CenterPoint admits, “the debate surroundingthe
ame ndme nt w a s a

bo ut s tr and e d c os ts, ” and that non -stra n ded costs ar e not explicitl y mentioned. Nonethele ss, Ce nterPoint ma intains that “ it is impossibl e to r ead the leg islative history and conc lude that, b y a do pti ngthe ame ndme nt, the L e g isl a tur e ma de a ‘d e c isi on ’ to all ow larg e se lf g e ne ra tor s to avoid non-stranded costs.” B eca use PURA section 39.252(b) , in its vi ew, doe s not prohibit the28

Commi ssion from requiringnew self-g ener ators to pa y non-strande d costs, CenterPoint urg es that the Com m i ssion’s authority to do so is im plicit (if not expl icit) in PURA section 39.262(g )’s require ment that “the tra

nsmissi on and distribution util ity shall make nece ssary adjustments to the nonby passable de livery

rate s it char g es t o reta il elec tric providers” based on both stranded c osts and non-strande d cost true- up balanc es. SeeTex. Util . Code Ann. § 39.262(g ).

We have pr eviously

identified the princ iples that g overn our analy sis of the Commi ssion’s statutory authority here
. We be g in with PUR A sec tion 39.262(g ), the provision that is the basis for the Commi ssion’s a uthority to a djust a utilit y ’s nonby passable de livery

rate s based
on “non-stra

nded” cost true-up balanc es. Section 39.262(g ) does not addr ess whethe r or how suc h ba lanc e s c ou ld b e c ha

rg e d to ne w o n- sit e g e ne rator s a nd , s tand inga lon e , th e pr ov isi on may imp ly that such char g es might not be authorized. See id. S ect ion 39 .2 62 (g ) s tate s o nly

tha t th e uti lity

“ sh a ll m ake ne c e ssa

ry a dju stm e nts to t

he no nb y pa ssa ble de liv e ry

rate s it c ha rg e s t o reta il e le c tr ic providers” based on the capa city auction true -up bala

nce, f inal fuel fa ctor, re tail clawba ck, and regulatory

asset adjustments re quired unde r sec tion 39.262 (f ). See id. The sole indication in the provision reg ardingwhat end- use customer s will ult imately absorb in the c harg e is the term “nonby passable de livery

rate s.” Nonby

passable delivery rate s, as noted, ref er in PURA to cha

rg es based on the de liv e ry

of ele ctricity o v er a u t i l i ty ’s sy stem. As CenterPoint acknowle dg es, if a
cu s t o m er i s n o th av i n g p o we r d el i v er edo v er i t s s y s t em , t h e c u s t o m er

wo u l d n o t , a l l o t h er

t h i n gs be inge qu a l, p ay

de liv e ry -b a se d c ha

rg e s li ke Ce nte rP oin t’ s CT C. In th is r e sp e c t, a CTC is a kin to tr ans po rt a tio n c os ts r e fl e c te d in re ta il g ro c e ry pric e s th a t a c on sume r m ig ht a

vo id b y g ro wi nghis
o r her own produce or simply decidingnot to buy

g roce ries. We pre sume that the leg islature understood t his impl ication of re quiring a deliver y -base d char g e, see Ack

er , 790 S.W .2d at 30129

(w e pr e sume the le g isl a tur e is a wa re of the ba c kg ro un d la

w whe n e na c tin g a

statut e ), and

it c le arl y manifested that understandingthroug h its enactment of PURA sec tion 39.252(b).

Only in PURA section 39.252(b) did the leg islature addr ess the extent to which new
on -s ite g e ne rator s c ou ld b e re qu ir e d to pa y a CTC . T he pr ov isi on

state s that “ [r]e c ov e ry

of re ta il stranded c osts by

an ele ctric utility

shall be fr om all exi sting or fu t u re re t ail customers” and that
new on- site g ene ra tors cannot “ avoid strande d cost rec overy char g es by

switching to new
on -s ite g e ne ratio n. ” Te x. Ut il. Cod e Ann. § 3 9.25 2( b) (1 ). Oc c ide nta l ur g e s th a t by re fe rr ingto “strande d costs” and not suc h terms as “ca pacity auction true -up bala

nces” or “non- stranded c osts,” the le g isl a tur e manif

e ste d it s in tent to bar the Com mis sio n f ro m a uth or izin g re c ov e ry

of c a pa c ity auction true-up balanc es from new on-site g ener ators. I t is true, as Occ idental urg es, that the ter m “stranded costs” ha s a we ll-established tec hnical mea ning w ithin P URA, as pre viously discussed. Where statutory terms have acquir ed a technica l meaning , we a re to g ive ef

fec t to that meaning , see Tex. Gov’t Code Ann. § 311.011(b), and we are likewise to “re ad eve ry word, phra se, and e x pression in a statute as if it we re de liberate ly chosen a nd presume the words excluded from a statute are done so purposefully .” Citi e

s o f Corp us Chr ist i , 1 8 8 S. W. 3 d a t 6 9 0
. Ap p ly

in g th e s e p r in c ip le s to th e te xt of sec tion 39.252( b), howeve r, they do not ne cessa rily support Occ idental’s propose d construction. Th e op e rativ e ph ra se s in PUR A s e c tio n 3 9. 25 2( b) are that “ [ r ]e c o v e r y o f re tail strand e d c os ts by

an ele ctric utility

shall be fr om all exi sting or future retail customers” and that new
on -s ite g e ne rator s c ann ot “ avoid stranded cost recov er y charges by

sw itc hin g to n e w o n- sit e g e ne ratio n. ” Te x. Ut il. Cod e Ann. § 3 9. 25 2( b) (1 ) ( e mph a se s a dd e d) . We mus t c on str ue the se phrase s in the ir context within PURA c hapter 39, not in isolation. See G onzalez , 82 S.W .3d at 327. Vi e we d in

that c on te xt, “ re c ov e ry

of re ta il s tr and e d c os ts” and “ str and e d c os t r e c ov e ry

c ha rg e s”30

c ou ld r e a so na

bly re fe r n ot o nly

to t he re c ov e ry of str and e d co sts , pe r se , but al so to the me c ha nis ms
or char g es that the leg islature has provided for the “re cover y of reta il stra

nded costs”—the TC and CTC. As the Comm ission observes, the leg islature in PURA section 39.262(g ) conte mplated that
a CTC c ou ld b e a dju ste d ( or imp os e d f

or the fi rs t ti me ) f

oll ow inga

uti lity ’s fi na l tru e -u

p to collect c osts that could include both s t randed cost and “ non-strande d cost” true -up bala nces. See Tex. Util . Code Ann. § 39.262(g ). I f sec tion 39.252(b) actually require s that any positive adjustment based on “ non-strande d” costs re flec ted in the CTC not be char g ed to ne w on-site g ener ators base d
on the ir on -s ite g e ne ratio n, th e re su lt, a s th e Com mis sio n a rgue s, wo uld

be a bif ur c a te d CT C,
an d t h er e i s n o i n d i ca t i o ni nP UR A c h ap t er 3 9 t h at t h e l egi s l at u re co n t em p l at eds u ch a t h i n g. Th i s statutory

structure sug g ests that when the le g islature made new on- site g ener ators responsible for “strande d cost rec overy char g es” in PURA section 39.252(b) , it was contemplating the CTC , including a

ny “non-stra

nded” c ost adjustments or components re quired unde r
se c tio n 3 9. 26 2( g ), rathe r t ha n s tr ic tly lim iti ngthe c ha

rg e s im po se d s ole ly

to s tr and e d co st b a lanc e s. Id. §§ 39.252(b), .262( g ).

We also observe that in PURA chapte r 39, the line betwee n stranded costs and what the parties ter

m “non-stra

nded” c osts is l ess clea

r-c ut than Occ idental assumes, at least with reg ard to c a pa c ity a uc tio n tr ue -u p b a lanc e s. As pr e vio us ly no te d, the c a

pa c ity a uc tio n tr ue -u p b a lanc e is
e sse nti a lly

a re c on c ili a tio n o f t

he marg ins the 20 01 ECO M c a lc ulatio ns pr oje c te d a ut il ity wo uld obtain on its power sale s during 2002 and 2003 and its ac tual marg ins in li g ht of t h e mar ket valuation of its power

yielded by

the ca p ac i t y au cti on proce ss. See Ce nterPoint Energy Houston El e c ., LLC , 252 S.W .3d at 49-50. The exis tence and si ze of such marg ins is closely related to the
c a lc ulatio n o f s tr and e d c os ts, a s str and e d co sts are a fu nc tio n o f a

uti lity ’s a bil ity to r e c ov e r t

he c os ts31

of its pr ior inv e stm e nts in g e ne ratin g a sse ts th rou gh its e le c tr ic ity sa le s in a c omp e tit ive mark e t. Citi es o f Co rp us Chr ist i , 188 S.W .3d at 685. I n other wor ds, the ca pacity auction true -up ca lculation
c on c e rn s th e e xiste nc e and size of a marg in t hat w ou ld b e avai lab le to re du c e str and e d c os ts. Ce n te r P o in t E n e r g y , Inc. , 143 S.W .3d at 98-99. One implication of this relationship, as both the Texas Supreme Court and this Court have rec og nized, is that the marg in f rom the ca

pacity auction true-up “ may

contain a c omponent that allows a re turn of or on stra nded costs.” Id. ; CenterPoint En e rg yHo us ton El e c ., LLC , 252 S.W .3d at 63-66. In Ce nte rP oin t E ne rg yHo us ton El e c tri c, LLC , in fac t, this Court upheld the Comm ission’s reduction of Cente rPoint’s stranded c ost true-up a war d based on a deter

mination that its c apac ity auction true -up had inc luded a pa rtial rec overy

of strande d costs. Se e Ce nte rP oin t E ne rg yHo us ton El e c ., LLC , 252 S.W .3d at 63-66. I n a dv o c a ti n g a

r ig id d is ti n c ti o nb e tw e e ns tr an d e d c o s ts an d

th e c a p a c it y a u c tion true-up ba lance , Occ idental emphasizes languag e in t h i s C o u rt ’s opinion in Reliant Energy, I nc. Reliant involved sever al cha lleng es to the Commissi on ’s i n i t i al rule g overningthe final true -up proce ss. One of the i ssues conce rned a rule pr ovision that would have re quired utilities to “net” any stranded c ost calculations that were ne g ative ag ainst any of the “ non-strande d” cost ba lance s that
wer e positive. See R eliant Energy, I n c. , 101 S.W .3d at 138-41. This Court invalidated the r ule,
rea soning that “[u] nder c hapter thirty -nine, ther e is simply no conce pt of neg ative st rande d costs and
no c on se qu e nc e of

a ne g a tiv e c a lc ulatio n” ; thus , th e re c ou ld b e a negat iv e stra

nd e d c os t f

ig ur e to offse t positi ve other

true-up ba lance s ag ainst. Id. at 1 3 9
. The Court re jected a n argument by

the Commi ssion that the balance s could be ne tted beca use the other

true-up ba lance s also repr esente d stranded c osts. Id. at 139-41. In support, the Court ch i ef l y emphasized distinctions between stranded c osts and the final fue l adjustment. Id. at 139-40. Althoug h it acknowledg ed the e x istence32

of “a closer ne x us” betwe en the c apac ity auction bala

nce a nd “the f inal deter mination of stranded
c os ts, ” the Court c on c lud e d that the c a pa c ity a uc tio n b a lanc e wa s n on e the le ss n ot a str and e d c os t. Id. a t 14 0- 41 . In th e c on te xt of thi s d isc us sio n, the Court po sit e d th a t “ [c]h a pte r t hir ty -n ine se e ms to contemplate two pa

rallel true -up trac ks—one for stranded c osts and one for the seve ral other true-up items.” Id. at 141. Subsequently , howeve r, the supre me cour t in CenterPoint Energy, I nc. , and this Court in Ce nte rP oin t E ne rg yHo us ton E lec tri c, LLC , have disting uished Reliant in
a c kn ow le dg ingthat e ve n if c a pa c ity a uc tio n b a lanc e s a

re no t, s tr ic tly

sp e a kin g , “ str and e d c os ts”
un de r P UR

A c ha pte r 39 , the y are no ne the le ss int e g ra lly re late d to the c a lc ulatio n of str and e d c os ts. CenterPoint Energy, I

nc. , 143 S.W .3d at 98-99 (“ That dete rmination [i n Reliant ] d oe s no t f or e c los e the Commiss ion from takinginto account a ny return of or on strande d costs that the m arg in from the
c a pa c ity a uc tio n tr ue -u p c on ta ins
. . . . ” ); Ce nte rP oin t En e rg yHo us ton El e c ., LLC , 252 S.W .3d at 66 (“In rea chingour dec ision in Reliant . . . we made no deter

mination reg ardingwhether it was possible t h at a util ity

might re cover

some of its stranded c osts through one or more of the other non-strande d cost true- ups . . . .”).

Gi ve n th is cl os e re latio ns hip be tw e e n the c a pa c ity a uc tio n tr ue -u p a nd str and e d c os t
rec overy , we c annot conc lude that the leg islature, by pro v i d i n g t h at “[ a] retail customer ma y not avoid stran ded cost re c ov e ry c har ge s by sw itc hin g to n e w o n- sit e g e ne ra tio n, ” int e nd e d to forbid the Com mission from requiring new on-site g ener ators to pay a C TC that rec overs a positive capa city auction true -up bal a

n c e . T o the contra

ry , g iven the statutory

mecha nisms that the legislature presc ribed for achie ving stranded cost rec overy , it most likely intended that new

on-site g ener ators would be re sponsible for paying the CTC, including any positive capa city

auction compone nt of the char g e. Construing these provisions in context, as w e must, see G onzalez , 82 S.W .3d at 327,33

we c annot conc lude that the Commiss i o n ’s construction of its statutory power s was inconsistent with the statutory

lang uag e or unreasona

ble. Se e Ce nte rP oin t E ne rg yHo us ton El e c, LLC , 25 2 S.W.3 d at 27- 28
. We ac c or din g ly su sta in the thi rd iss ue s of the Com mis sio n a nd Ce nte rP oint.
CO NC LU SION We r ever se the district c ourt’s judgme nt a nd rende r judgme nt a ffir m i n g the Commi ssion’s order.

__________________________________________ Bob Pembe rton, J ustice Be fore J ustices Patterson, Pember ton and Waldrop Reverse d and Rende red Filed: Jul y

25, 2008