### T E X A S C O U R T O F A P P E A L S , T H I R D D I S T R I C T , A T A U S T I N

NO. 03-10-00242- CV

The Railroad Com m ission of T exas, Ce nterP oint En ergy R esource s Corp. d/b /a Cente rP oint En ergy Entex and Cente rP oint En ergy Te xas Gas, Appellants

v. Texas Coast Ut ilities Coalition an d State of Texas Agency Consume rs, Appellees

F ROM TH E DISTRI CT COURT O F TRAVIS CO UNTY, 353 RD JUDICI AL DISTRICT NO. D-1 -GN-0 9-0 0098 2, H ONO RAB LE STEP HEN Y ELENOSK Y , JUDGE P RESIDING

O P I N I O N

The pivotal issue in this administrative appea l is whether the L eg islature’s statutory deleg ation of authority to the Railroad Commi ssion to reg ulate the “ra tes” of g as utilit ies empower s the age ncy to approve or impose a r ate sc hedule that include s a m echa nism for annually adjusting
customer char g es based on the utilit y ’s actua l opera ting expenses, ret u rn o n i n vestment, and fra nchise tax pay

ments—adjustments that would be made without the need or re q uirement to initiate a subsequent rate proce eding befor e ei t her the Commi ssion or any municipalities having ori gi n al jurisdiction over the rate s. I n the view that it possesses such power , the Railroad Commi ssion approve d a new rate schedule for appellant C en t er P o int Energ y Resource s Corp. d/b/a CenterPoint Energ y Entex and CenterPoint Energ y Texas Gas (C en t er P oint), that contained the adjustment mecha nism. Disag ree ing with the Commi ssion’s view of its authority , thedistrict court reve rsed the Commi ssion’s order approving CenterPoint’s rate schedule

. CenterPoint

and the Railroa d Commi ssion appeal. We will reve rse the district c ourt’s judg ment.

BACK GR OUND CenterPoint is a “g as utility ” within the meaning of t he Gas Utility Reg ulatory Act (GURA)

. See Tex. Util. Code Ann. § 101.003(7) (West Supp. 2010); see generally id. §§ 101.001-
105.051 (West 2007 & Su p p . 2 0 1 0 ). Under GURA, the Railroad Commi ssion and individual municipalities share jurisdiction to reg ulate g as utilit ies, including “esta blish[ ing] and reg ulat[i ng ]
rate s of a g as utilit y ” and adopting rules for deter mining “the classifica tion o f customers and service s” and “the applicability of rate s.” Id. § 104.001(b). Mun i ci p al g overning bodies are vested in the first instance with “exclusive orig inal jurisdiction over the rate s, opera tions, and service s of a g as utilit y within the munici p ali ty , subject to the limit ations imposed by [GURA] ,” though they may opt to cede this jurisdiction to the Railroad Commi ssion. Id. §§ 102.001(a) (1)( B) , 103.001, .003. I n are as outside of municipal bou n darie s—termed the “envir ons”—the Railroad C ommissi on has ex clusive original jurisdi ction over a g as ut ility ’s “r at es and services.”
S ee id. § 102.001(a) (1)( A); see also CenterPoint Energy Entex v. Railroad Comm’n , 2 1 3 S

. W

. 3 d 364, 367 (Tex. App.—Austin 2006, no pet.) (d es cr i b i ng environs). GURA contemplates that the rele vant “re g ulatory authority ” exercising juri s d i cti on will conduct proce eding s to establish g asutilit y rate s throug h applicat i on of cost-of- service rate making standards and principles. See
Tex. Util. Code Ann. §§ 103.021, 104.051-.058; see also Railroad Comm ’n v. Entex, Inc. , 599 S.W .2d 292, 2 9 4 (T ex. 1980) (summarizing these principles). Orde rs or ordinanc es of a municipality exercising its exclusive, orig inal jurisdiction under GURA may be appea led to the

2Railroad Commi ssion, see id. §§ 102.001(b), 103.051, and an appea l from “a rate proce eding befor e

a municipality ’s g overning body ” is r eviewe d de novo and “base d on the test y ear prese nted to the municipality adjusted for known chang es and conditions that are measur ed wi t h rea sonable

acc urac y .” Id. §§ 103.051, .055.

The are as that CenterPoint serve s in Texas include its “Te x as Coast Division,” which
encompa sses a reg ion swee ping g ener ally from Montgome ry County , northwest of Houston, around
Houston’s west and south boundarie s to Gal v es t o n an d Fr eepor t. Desiring to incre ase its rate s throug hout the Division—the first such incre ase in more than thirty y ear s—CenterPoint, as GURA require s, filed not ices of intent to incre ase its rates with the g overning bodies of ea ch of the forty

seven municipalit i es whose boundarie s lie within the Division and, with respe ct to the environs, with the Railroad Comm i s sion. See id. § 104.102. Thirty -eig ht of the forty -seve n municipalities
approve d some version of CenterPoint ’s request. The nine rema ining municipalities, which comprise appellee Texas Coast Utiliti es Coalition (TCUC), denied CenterPoint’s reque st. 1
CenterPoint ap p ealed eac h of these municipal decisions to the Railroad Commi ssion, see id. §§ 102.001(b), 103.051, which consolidated those ap p ea l s with the pending environs proce eding

. See 16 Tex. Admin. Code § 1.125 (Railroad Comm’n, Consolidation & J oint Hea ring s) (providing that Commi ssi o n m ay consolidate procee dings that involve common questions of l aw or fac t). A
g roup of Texas state ag encie s and hig her- education inst itutions that are customers of CenterPoint, appellee State of Texas Ag ency Consumers (the State Ag encie s), interve ned.

The nine TCUC cities are Ang leton, Ba y town, Clute, Fr eepor

t, L eag ue City , Pearla

nd, 1 Shoreac res, West Columbia, and Wharton. 3Following a three -day contested- case hea ri n g that the Commi ssion conducte d

itself, the Commi ssion rende red a final order establishing a new rate schedule for CenterPoint applicable within both the Texas Coast Division environs and the TCUC municipalities. The rec ord ref lects that t h e p ro ceeding s addre ssed the elements of cost-of- service rate making , including deter mining the amount o f CenterPoint’s rea sonable and nece ssary opera ting expenses and its
rate base, asce rtaining a rea sonable rate of return, and allocating pay ment of the require d reve nues
among three c u s to me r c la s s e s

— “ Re s id e n ti a l, ” “ G e n e r a l Se r v ic e - Sm a ll , ” and “Ge nera l Service -L arg e Volume.” The Commi ssion rejec ted seve ral of Ce nterPoint’s proposed c alculations re lating to its expenses and re venues a

nd ultimately g rante d the utility an incr ease in reve nues of a pproxi mately $1.2 milli on out of $2.9 milli on it had reque sted.

The rate schedule approve d by the Railroad Commi ssion presc ribed a “monthly rate ” for eac h of the three classes of CenterPoint customers. The monthly rate was to be the sum o f three component fig ures or calc ulations. The first component was a “base rate ” consisting of a flat
“customer char g e” plus fix ed volumetric char g es fo r eac h hundred cubic fee t of g as consumed. These f ix ed cha rg es, at lea st at the t ime the rate schedule was initially to take ef fec t, were derive d from historical test-y ear data, in the m an ner customary for cost-of- service rate making

. The next
t wo components of the monthly rate , unlike the fix ed char g es that comprised the base rate , we re varia ble char g es that provided for ong oing adjustments to ref lect chang es in cer

tain of CenterPoint’s
actua l c osts. The first of these varia ble components, a “ta x adjustment,” ser ved to pa ss thr oug h to the customer the actua l amounts of any municipal fra nchise fee s imposed on CenterPoint in a g iven month and the customer’ s pr o p ortionate share of any reve nue-ba sed taxes (i.e., excluding ad valore m

4and income-ba sed taxes) actua lly levied upon CenterPoint. The second varia ble component of the monthly rate was a “g as cost adjustment” that simil arly functioned to pass throug h the utilit y ’s actua l purcha sed-g as costs to customers. The amount of the g as-c o s t adjustment was to be calc ulated throug h application of a

formula in a “ Purchase d Gas Adjustment” ( PGA) tarif f. CenterPoint’s PGA tariff or clause was materia lly s i m i l ar t o the PGA clause we explored at leng th in another case involving the utilit y , CenterPoint Energy Entex v. R a i l road
Commission , 208 S.W .3d 608, 616-17 (Tex. App.— Au s t i n 2006, pet. dism’d). As we observe d
t here , PGA clause s have long been widely utiliz ed in g as-utility reg ulation nationwide, and t h ei r use and a pproval in Texas preda tes GURA’s enac tment. See id. at 613 (c iting San Antonio Indep. Sch. Dist

. v. C ity of San Antonio , 5 5 0 S.W .2d 262, 266-67 & n. 2 (Tex. 1976); Railroad Comm’n

v. High Plains Natural Gas Co. , 613 S.W .2d 46, 48 (Tex. Civ. App.—Austin 1981, writ ref ’d n.r.e.) (citing City of Chicago v. Illinois C ommerc e Comm’n , 13 I ll.2d 607, 150 N.E.2d 776 (1958)) ; Railroad Comm’n v. C i t

y of Fort W

orth , 576 S.W .2d 899, 902 (Tex. Civ. App.—Austin 1979, writ ref ’d n.r.e.) ). These mecha nisms “oper ate[] to incre ase or decr ease the reve nue of the
g as company by exactly the amount of its incre ased or decr ease d costs of g as char g ed the
g as company by its suppliers,” there by passing on the utilit y ’s actua l g as costs to cu s t o m er s o n a dollar-f or-dollar basis. Id. at 612.
One well-re cog nized implication of this ty pe of rate stru ct ure is that—with
t h e ex ception of fluctuations in purcha sed-g as costs and the costs passed throug h t h e tax adjustment—CenterPoint (or, a lternatively , its customers) would bea r the risk, a ll other things being equal, that the utilit y ’s actua l reve nues, expenses, etc., wo u l d p ro v e to depar t signific antly

5from the historically -base d projec tions from which the rates we re derive d, resulting in the utilit y

“over -” or “under -re cover ing” rela tive to its actua l costs and presc ribed rea sonab l e rate of return, unless and until the rate s could be chang ed prospec tively throug h another round of rate proce eding s. See, e.g. , Railroad Comm’n v. Lone St a r Ga s C o
. , 656 S.W .2d 421, 423 (Tex. 1983) (desc ribing
“re g ulatory lag ” and it s ef fects on utilit ies); CenterPoint Energy Entex , 208 S.W .3d at 617 (contra sting “bifurc ated reg ulatory trea tmen t ” o f fuel costs, which are addre ssed throug h
PGA clause s due to the ir volatility , and “most [ot her] costs,” which tend to inc rea se g radua lly and predic tably such that it is “dee med satisfac tory ” to addre ss them throug h “fixed components of the
rate schedule ” derive d from “historically based projec tions of future costs”). Wit h the express g oal of reduc ing such risks and the need or impetus f or “full-blown” rate proce eding s in the event such risks came to fruition, the R ailroad Commission approved, a s part of CenterPoint’s rate schedule ,

a version of a “cost-of

-ser vice- adjus t m en t ” (COSA) rate schedule or clause that CenterPoint had reques t ed

. T h e C OS A clause was made eff ective for an initial term of three y ear s, subject t o

au t o m atic three -y ear extensions unless CenterPoint or the reg ulatory authority having orig inal jurisdiction gave wr itten notice to the contra ry . Simpl y descr ibed, the COSA clause provided a mecha nism whe reby

CenterPoint’s monthly rate s could be adjusted annually to ref lect chang es in the utilit y ’s actua l cost of service and
rate base rela tive to the historically -base d data from which the fix ed components of those rate s had orig inally been derive d. More specific ally , the clause presc ribed that a “ra te adjustment” was to be made, e ffe ctive ea ch Aug ust 1, in an amount derived f rom the following economic data:

6• CenterPoint’s actua l ope rating expenses for the prec eding cale ndar y ear . I ncluded in the se

expenses wer e to be depre ciation and amortization expenses, taxes other than fede ral income taxes or t hose addr essed throug h the tax adjustm ent, oper ation and maintena nce e x penses, “customer -re lated” expenses, administrative and g ener al expenses, and interest on customer deposits. As with the orig inal rate calc ulation, the amou n t d i d not include purcha sed-g as costs, which we re instea d addre ssed throug h the PGA clause

.

• CenterPoint’s actua l return on investment for the prec eding y ear , calc ulated by multipl y ing the pre- tax rate of return that t h e C o m m i s s ion had set in the rate proce eding times the utilit y ’s “ra te base balanc e” for the prec ed i ng y ear . I n CenterPoint’s rate case befor e the Commi ssion, the p ar t i es had stipulated to underly ing data that y ielded an 11.8% rea sonable rate of return. The “ra te base balanc e” was to include new utilit y plant in service , inventories, prepa

y ments, and cash working capital, l es s customer advanc es, customer deposits, and def

err ed income ta x es.

• CenterPoint’s actua l Texas franc hise tax pay ment for the pr ece ding y ear .

• CenterPoint’s actua l “non-g as reve nue and other reve nue (i.e., transporta tion reve nue and service char g es)” for the pr ece ding y ear .
The “ra te adjustment ” wa s t o b e calc ulated by adding the first three fig ures (oper ating expenses,
return on investmen t , an d fr anchise tax pay ment), subtracting the “non-g as reve nue and other

reve nue” f

igur e, and a djusting the re mainder f or fr anchise taxes:

( o p e r a t i n g e x p e n s e s + r e t u r n o n i n v e s t m e n t + f r a n c h i s e t a x )
- ( a c t u a l n o n - g a s a n d o t h e r r e v e n u e s ) ( 1
- T e x a s f r a n c h i s e t a x s t a t u t o r y r a t e )

The result of this calc ulation—which could be either positive (i.e., a price incre ase) or neg ative (i.e.,

a price decr ease )—wa s then to be “allocated among the customer classes in the same manner as the
cost of service was allocate d among classes o f customers in [C enter Point’s] latest eff ective rate s in the Texas Coast Division.” These allocate d amounts would then be conver ted to a per- customer adjustment by dividing eac h customer class’s allocate d amount by its aver ag e number of customers. The resulting per- cu s t o m er ad j ustment would then be divided by twelve to y ield a “monthly

7adjustment amount, either an incre ase or decr ease , which will be included in the Residential Service ,

Gene ral S ervic e-Small, and Genera l Service -Lar ge Volume custom er charg es.” Any adjustments

wer e cappe d at five perc ent of the customer char g e eff ective at the en d o f the prec eding cale ndar y ear . The COSA clause also presc ribed proce dures throug h which CenterPoint was to g ive notice of impending adjustments, d i s cl ose its underly ing data, and aff

ord reg ulatory authorities the opportuni ty to scrutinize and oppose proposed ad j u s t m en ts. CenterPoint was required to file, by May 1 of eac h y ear , a swo rn s tatement repor ting the above- specifie d data for the prec eding cale ndar y ear . Wit hin 45 day s of filing the require d information, Ce n terPoint was require d to publish notice to its customers simil ar in fo rm to a notice to incre ase rate s under GURA, including a descr iption of the proposed revisions to rate s and their eff ects on customer char g es. Also, following CenterPoint’s filings, eac h reg ulatory authority wi t h o ri gi n al jurisdiction was to have 90 day s
to revie w the propose d ra t e adjus tments. During this period, the authority had the rig ht to obtain “additional information and supporting documents” fr o m CenterPoint within ten working day s of its reque st. After revie wing the proposed adjustment, the reg ulatory authority could also neg otiate change s to the adjustment with CenterPoint or deny it outrig ht. I f not denied within the 9 0 -d ay period, the adjustment would take eff ect. I f a municipality denied an adjustment, the COSA clause author i z ed C en terPoint to appea l the decision to the R ailroad Comm ission. During the pendency of such an appea l, Ce nterPoint c ould pr ocee d to implement the adjusted rate s as deter mined under the COSA clause, subje ct to ref und if the municipality

ultimately

preva iled.

8Finall y , t he COSA clause emphasized that it “does not limit the leg al rig hts and

duties of t he reg ulatory authority ” and that “[n] othing herein sh al l ab ro gate the jurisdiction of t he
reg ulatory authority with respe ct to whether rate s char g ed are just and rea sonable.” I n other words, if CenterPoint obtained, thoug h the C OSA clause , upwar d adjustments y ielding what a reg ulatory authority reg arde d as unjust or unrea sonable rate s, the clause d i d n o t preve nt the authority from initiating a conventional rate case , as befor e, to seek reduc tions in CenterPoint’s customer char g es. On the other hand, the COSA clause did alter the status quo to the extent that it enable d CenterPoint
to obtain the upwar d adjustments without having to initiate the conventional rate case that otherwise would have be en re quired.

TCUC and the State Ag encie s soug ht judicial revie w of the Railroad Commi ssion’s order

. See Tex. Util. Code Ann. § 105.001; see also Tex. Gov’t Code Ann. § 2001.171 (West 2008). Collectively , they broug ht sever al issues complaini n g t hat various of the Commi ssion’s finding s

wer e inadequa te or not supported by substantial evidenc e. They also asser ted that the Commi ssion had exceede d its statutory authority in approving the COSA clause

. The district court ag ree d in part, h o l d i n g that cer

tain Commi ssion finding s rela ting to expenses paid to aff iliated companies were inadequa te and that the ag ency had exceede d its authority in adopting the COSA clause

. Reg arding the latter, the district court specific ally conclude d that the “Commissi on did n o t h av e statutory authority to impose [t he COSA] on the [TC UC] cities with orig inal jurisdiction

. . . [or]

. . . to adopt the COSA in [ the environs].” Ha ving f ound err or i n the Commiss ion’s order , the cour t remande d the matter for further proce eding s. See Tex. Gov’t Cod e Ann. § 2001.174(2) (West 2008).

9CenterPoint and the Railroad Commi ssion both appeal ed t h e d i strict court’s judgme nt. See id.

§ 2001.901(a) (West 2008).

ANALYSIS

CenterPoint and the Railroad Co m m i s s i o n eac h bring a single issue asser ting that the district court erre d in concluding that the Commiss ion lacked a uthority to adopt or impose the
COSA clause within either the environs or the TCUC municipalities. See id. § 2 0 0 1

. 174(2)( B) (providing that district court may re verse or rema nd ag ency ’s decision if ag ency exceeds its authority ). They do not challeng e the district court’s judgme nt of reve rsal on the alterna tive g round rela ting to the Commi ssion’s finding s reg arding pay ments t o aff

iliates. Consequently , appellants ask that we reve rse the district court’s judgme nt conce rning the Commi ssion’s authority and rema nd for f urther pr ocee dings.

As with any dispute conce rning the brea dth of an administrative ag ency ’s authority ,

we beg in our analy sis by rec og nizi ng that ag encie s are entirely cre ature s of statute with no inhere nt authority of their own. See CenterPoint Energy Entex , 208 S.W .3d at 615 (citing Texas Natural Res. Conservation Comm’n v. Lakeshore Util. Co., Inc. , 164 S.W .3d 368, 377 (Tex. 2005)). I nstead, an
ag ency ’s authority is limit ed to (1) powers ex pressly confe rre d by the L eg islature, and (2) powers that are “re asonably nece ssary ” to eff ectua te the L eg islature’s expressly confe rre d power s, so as to be considere d implicit in the L eg islature’s express g rant. See Texas Mun. Power Agenc y v. Public Util. Comm’n , 253 S.W .3d 184, 192-93 (Tex. 2007) (quoting Public Util. Comm’n v. C i t y P u b

. Serv. Bd. of San Antonio , 53 S.W .3d 310, 315 (Tex. 2001)). This is so reg ardle ss of whether a particula r ag ency action might be deeme d salutary as a m atter of policy or administration, as
10an ag ency “‘ma y not exercise what is eff ectively a n ew p o wer’ in addition to power s expressly confe rre d by statute or nece ssary to a ccomplish its e x press duties ‘on the theory that such exercise is expedient for administrative purpos es . ’” State v. Public Util. Comm’n , 344 S.W .3d 349, 356 (Tex. 2011) (quoting City of Austin v. Southwestern Bell Tel. Co. , 92 S.W .3d 434, 441 (Tex. 2002)).
Nor may an ag ency “contr avene specific statutory lang uag e, run counter to the g ener al objectives of the statute, or impose additional burdens, conditions, or restric tions in excess of or inconsistent with the rele vant statutory provisions.” CenterPoint Energy Entex , 208 S.W .3d at 615-16 (citing City of
Austin , 92 S.W .3d at 441; State v. Public Util. Comm’n , 131 S.W .3d 314, 321 (Tex. App.—Austin 2004, pet. denied) ).

Resolution of the prese nt dispute thus turns on statutory construction, which prese nts

a question of law that we revie w de novo. State v. Shumake , 199 S.W .3d 279, 284 (Tex. 2006). I n construing a statute, our primary objective is to g ive eff ect to the L eg islature’s intent. Id

. We seek that intent “first and fore most” in the s tatutory text

. Lexington Ins. C o. v. Strayhorn , 209 S.W .3d 83, 85 (Tex. 2006). “Where text is clea r, text is deter

minative of that intent.” Entergy Gulf States,
Inc. v. Summers , 2 8 2 S.W .3d 433, 437 (Tex. 2009) (op. on reh’ g ) (citing Shumake , 199 S.W .3d
at 284; Alex Sheshunoff Mgmt. Serv s. L.P. v. Johnson , 209 S.W .3d 644, 651-52 (Tex. 2006) ). We consider the words in context, not in isolation. State v. Gonzalez , 82 S.W .3d 322, 327 (Tex. 2002).
We rely on the plain meaning of the text , u n l es s a differ ent meaning is supplied by leg islative definition or is appar ent from context, or unless s u ch a co n s t ruction leads to absurd results. See City of Rock

wall v. Hughes , 246 S.W .3d 621, 625-26 (Tex. 2008) (citing Texas Dep’ t of Transp.

v. City of Sunset Valley , 1 4 6 S.W .3d 637, 642 (Tex. 2004)); see also Tex. Gov’t Code Ann.

11§ 311.011 (West 2005) (“Words and phrase s shall be rea d in context and construed acc ording to the

rules of g rammar and common usag e,” but “ [w] ords and phr ases that ha ve ac quired a

technica l or particula r meaning , whether by leg islative definition or otherwise, shall be construed acc ording ly .”).
We also presume that the L eg islature was awa re of the backg round law and acte d with ref ere nce to it.
See Ack er v. Texas W

ater Comm’n , 790 S.W .2d 299, 3 0 1 (T ex. 1990). We further presume that the L eg islature selec ted statutory words, phrase s, and expressions delibera tely and purposef ully

. See
Texas L ottery C omm’n v. First State Bank of DeQue en , 325 S.W .3d 628, 635 (Tex. 2010); Shook

v. W alden , 304 S.W .3d 910, 917 (Tex. App.—Austin 2010, no pet.). Only when the statutory text is ambig uous—i.e., susceptible to more than one rea sonabl e interpre tation—“do we ‘re sort to rules of construction or extrinsi c aids.’” Entergy Gulf States, Inc ., 282 S.W .3d at 437 (quoting In re E s t a t e of Nash , 220 S.W .3d 914, 917 (Tex. 2007)). Simi larly , if the statute is ambigu o u s , we
g ive defe renc e to a rea sonable construction by an ag ency char g ed with the statute’s administration.
S ee Railroad Comm’n v. Texas Citi zens for a Safe Future & Clean W ater , 336 S.W .3d 619, 624- 25 (Tex. 2011).

Both appellants urg e that the L eg islature expli citly deleg ated extrao rd inarily broad power to the Railroad Commi ssion t o reg ulate g as-utility rate s. They seek text ual support, first, in the L eg islature’s declar ations and descriptions of GURA’s overa rching purposes. GURA

as a whole is f

ounded on the L eg islature’s f indings that “ g as utiliti es are by definition monopolies in the are as they serve ” such that “the normal forc es of competition that reg ulate price s in a fre e enterprise society do not opera te.” See Tex. Util. Code Ann. § 101.002(b). To sub s t i t u te for marke t competition, the L eg islature enac ted GURA with the ex p re s s go al of providing “a

12compre hensive and adequate reg ulatory sy stem for g as utilit ies to assure rate s, o p erations,

and service s that are just and rea sonable to the consumers and to the utilit ies.” Id

. § 101.002(a) , (b). The L eg islature h as further instructed that, to this end, GURA is to be “construe d liberally to promote the eff

ectivene ss and eff

iciency of reg

ulation of g as u t i l i t i es t o the extent that this construction prese rves the validity of [GURA] and its provisions.” Id. § 101.007. Appellants view these provisions as direc tives to the Commi ssion to exercise broad and “compr ehensive ” power s that should be “libera lly construed” to the end of “promot[ing]

. . . eff ective[] and eff

icien[t] reg ulation of g as utilit ies.” Id. §§ 101.002, -.007. And the COSA clause , appellants insist, embodi es such “ef ficient” and “ef

fec tive” reg ulation, enabling CenterPoint’s rate s to “self- corr ect” without the cost and re g ulatory

lag of a c onventional ra te ca se. Appellants additionally point to a more direc t deleg ation of power to the Railroad Commi ssion that appea rs within c hapter 104 of GURA. Chapter 104 is titled “Rates and Service s.” Wit hin a section titled “Authorization to Establish and Reg ulate Rates”—the first in the chapte r—the L eg islature provided the following : “The [R ]ailroad [C ]om mission is vested with a ll the authority and power of this state to ensure compliance with the obliga tions of g as utilit ies in [GURA] .” Id. § 104.001(a)

. Appellants view this deleg ation as g ranting the Commi ssion not only

swee ping power in reg ard to the reg ulation of g as utilit y rate s, but also g rea t flexibi lity in reg ard to the re g ulatory

tools it utiliz es. These br oad dele g ated powe rs, appe llants conclude , would encompa ss authority to
approve the C OSA clause

. And t his woul d be so, appellants add, in both the environs and withi n municipalities exercising exclusive orig inal jurisdiction. Although rec og nizi ng that municipalities

13have exclusive, o ri g inal jurisdiction to reg ulate rate s within their boundarie s in the first instance,

appellants insi st that the R ailroad Comm ission eff ectively has full control over t h e ra t es there via its exclusive appellate jurisdiction and de novo standard of revie w. See id. §§ 102.001(b), 103.055.

Appellants seek addit i o nal text ual support for their position in GURA’s definition of “r ate” :
(A) any compensa tion, tariff , char g e, far e, toll, renta l, or cl as s i fi cation that is direc tly or indirectly demande d, observe d, char g ed, or collecte d by a g as utilit y for a service , product, or commodity descr ibed in the definition of g as utilit y in this section; and (B ) a rule, reg

ulation, prac tice, or contra ct aff ecting the compensa tion, tariff , char g e, fa re, toll, renta l, or classification.

Id

. § 101.003(12). As appellants observe , this definition encompasses not only specific char g es imposed on a g as utilit y ’s customers, but also a “rule ,” “re g ulation,” or “pra ctice” “af fec ting” those char g es. And i t is for this very re ason, as appellants further emphasize, that we rece ntly held t hat

a rate schedule containing a varia ble or formula for deter minin g the amount of a customer char g e—spec ifically , a PGA clause

— wa s a “rate” within GURA’s definition. See CenterPoint Energy E ntex , 208 S.W .3d at 619. The principal issues i n C enterPoint Energy Entex wer e whether the Railroad C ommissi on had st atutory authorit y to conduct a retroa ctive prudence revie w of char g es that CenterPoint had flowed throug h a PGA clause and, if so, whether such a proceed ing was a “ra temaking ” proce eding for which a municipality could seek expense reimburse ment. Id. at 612;

see Tex. Util. Code Ann. § 103.022(b). We answe red the former question in the aff irmative and the

14latter question in the neg ative. I nteg ral to our analy sis of both questions, and to our dispositi on of

rela ted complaints by CenterPoint that the retroa ctive prudenc e revie w violated the fi l ed -r ate doctrine and amounted to im p ermiss ible retroa ctive rate making , was our conclusion that the prudenc e review was not in itself “ra temaking ” but permissible Commi ssion action to ensure that CenterPoint had char g ed its customers in a manner consi stent with its pree x isting approve d
“ra tes”—“ rate s” that i n co rpora ted the PGA clause as one of their components. See CenterPoint Energy E ntex , 208 S.W .3d at 616-26. Whil e we acknow ledg ed that GURA does not expli citly mentio n PG A c lauses, see id.
at 6 1 3 , we conclude d that the act’ s broad definition of “ra te” nonetheless encompa ssed and contemplated this sort of adjustmen t m ec h an i s m . See id

. at 618 (quoting Tex. Util. Code Ann. § 101.003(12))

. Foc using on the s econd prong of t he definition (the portion ref er en ci n g a “r ule,”
“re g ulation,” or “pra ctice” “af fec ting” customer char g es), we d is c e r n e d th a t “ [t ]h r o u g h th is la

n g u a g e, the [L ]egislature has rec og nized that a rate may consi s t n o t m er ely of a fix ed dollar amount but

m ay i n s t ea d be a rule ‘af fec ting’ the char g e, a term contemplating the use of varia bles.” Id. Consequently , we rea soned, CenterPoint’s approve d rate schedule s, which presc ribed “a three -step
p ro ce s s for computing a customer’ s monthly g as char g e”—( 1) a fix ed minimum monthly char g e plus (2) a fix ed volumetric char g e (3 ) adjusted under the PGA clause for deviations betwee n
actua l purcha sed-g as price s and a set g as purcha se price —constituted a “rule ” aff ecting the char g e that “fits square ly within the statutory definition of ‘ra te.’” Id. at 618-19. I n further support of our holding, we ap p roved of the rea soning in fede ral prec edent rec og nizi ng that the Fe dera l Energ y Reg ulatory

Commi ssion could approve “a tariff containing a ra te ‘for mula’ or a

rate ‘rule’ instead

15of a s p ecif ic number” under the Fe dera l Natura l Gas Act, id. at 619 (quoting ChevronTexac o Exploration & Prod. Co. v. Fede ral Energy Regulatory Comm’n , 387 F.3d 892, 895 (D.C. Cir. 2004) (quoting Transw estern Pipeline Co. v. Fede ral En er g y Regulatory Comm’n , 897 F.2d 570, 578 (D.C. Cir. 1990)), an d the proposition, ref lected in a seconda

ry authority , that “ra

tes g ener ally

m ay consist of [bot h] fix ed values and varia ble components.” Id. (citing Richard J

. Pier ce , Rec onsidering the Roles of Regulation and Competition in the Natural Gas Industry , 97 Har v. L

. Rev. 345, 349 n.29 (1983))

.

As previously noted, CenterPoint’s approve d rate schedule i n t h is proce eding contains a similar PGA clause , as well as a tax-adjustment mechanism, and no par ty questions the Railroad Commi ssion’s authority to order either provision. Appellants insist that the COSA clause
opera tes in materia lly the same manner —it amounts to a set of varia bles or formulae for calc ulating
ong oing adj ustments to customer charg es i n light of curr ent economic data. Thus, they conclude , C en t er P oint’s rate schedule as a whole, including the COSA clause , was a “ra te” that was well within the Railroad Commiss ion’s authority to adopt or impose. See id. at 618-19.
I n response , appellee s dispute that the L eg islature’ s statement of GURA’s g ener al policy g oals or its direc tive that the statute be “libera lly construed” are the swee p i n g deleg ations of authority that appellants portray

. They emphasize the principles that ag encie s possess only the
power s g rante d them by express statutory g rant or that are rea sonably nece ssary t o eff ectua te an
express g rant. See Texas Mun. Power Agenc y , 253 S.W .3d at 192-93. We ag ree with appellee s on this point. Given the basic limit ations on ag ency authority that appellee s cite, the L egi s l at u re ’s
g ener al statements that it intended GURA to b e a “c o m prehe nsive” and “ade quate” reg ulatory

16scheme that should be “construe d liberally ” in themselves mere ly b eg t h e q u estion as to what

specific power s have been deleg ated to Railroad Commi ssion in that scheme

. See Tex. Util. Code
Ann. §§ 101.002, .007. We must, in short, look to other provisions of GURA to asce rtain whether the L eg islature has g rante d the Railroad Commission t he broa d authority appellants c laim.
We ag ree with ap pellants that GURA section 104.001—“The [R ]ailroad [C ]om mission is vested with all the authority and power of this state to ensure compliance with the obliga tions of g as utilit ies in [GURA] ”—re prese nts an extraordinarily broad deleg ation of authority
to the Commi ssion in reg ard to rate reg ulation. See id

. § 104.001(a)

. “All of the authority and power of this state” is sy

nony mous with the full brea dth of Texas’s “police power ,” its discretionar y power
to reg ulate conduct (subject to constitutional limit ations) to protec t or advanc e “the health, welfa re, morals, and safe ty of its citizens.” See Black’ s Law Dictionary 1541 (9th ed. 2009) (def ining “state police powe r”)

.

“The obliga tions of g as utilit ies” in GURA—i.e., what the Railroad Commi ssion is
g iven “[ a]ll of t he authority and power of this state” to en s u re that utilit ies comply with—include
not char g ing, collecting , or re ceiving “a r ate f or utility service ” or imposing a “rule or reg ulation” except as GURA pro v i d es . T ex . Util. Code Ann. § 104.002. GURA prohibits a g as utilit y from “g rant[ing] an unrea sonable pref ere nce or advanta g e conce rning rate s or service s t o a p er son in a classifica tion,” “subjec t[ ing] a person in a clas s if ic a ti o n to a n u nr e a s o n a b le p r ejudice or disadvantag e

conce rning rate s or service s,” “esta b li s h [i n g ] o r ma in

ta in [i n g ] a n u n r e a s o n able differ ence conce rning
rate s or service s betwee n localities or b et we en cl asses of service ,” or “dire ctly or indirectly char g [i ng ], demand[ing], collect[ing], or rec eiv[ing] from a person a g rea ter or lesser compensa tion

17for a service provided or to be provided” than the compensa tion provided in schedule s of “ra tes” it

must file with eac h reg

ulatory au t h o ri t y having orig inal or appellate jurisdiction over the are as

serve d. Id. §§ 104.004, .005(a) ; see id. § 102.151. The a pplicable “reg

ulatory authority ,” in turn, is char g ed with ensuring that “eac h ra t e a gas utilit y [shall]

. . . make, demand, or rec eive is just and rea sonable,” not “unre asonably pref ere ntial, prejudicia l, or d i s cr i m i natory but

. . . sufficie nt, equitable, and consistent in application to eac h class of consumer.” Id. § 104.003(a)

. GURA further contemplates that reg

ulatory authorities wi l l co nduct “proc eeding [s] involving a proposed rate chang e” in which the g as utilit y has the burden of proving that any “ra te chang e” it proposes is just and rea sonable and, alterna tively , the burden of proving that the “existi ng rate is just and rea sonable, if the proposa l is to reduce the rate .” Id. § 104.008.

A deleg ation of “[a]ll of the authority and power of this state” to ensure that utilit ies comply with the fore g oing require ments would, all other things being equal, entail both e x pansive enfor ceme nt power and discretion in reg ard to the means throug h which the Railroad Commi ssion
pursues those ends. And it would seem to us that this discretion would provide sufficie nt flexibi lity
to enable the Commi ssion to eff ectua te the ultimate g oal of “just and rea sonable” rate s throug h the

use of varia

ble or formula rate s and not mere ly fix ed char g es. I ndeed, as appellants emphasize, the
L eg islature appe ars to have expli citly contemplated a s much in GURA’s def inition of “rate.”
I n response to appellants’ arg uments reg arding GURA’s “ra te” definition and our analy sis of it in CenterPoint Energy Entex , appellee s emphasize at leng th what they perc eive to be key differ ence s betwee n PGA clause s and the COSA clause . Among other distinctions, appellee s point o u t t h at PGA clause s have a long history of use and approva l in Texas, wher eas the

18COSA clause , as they see it, is a compar atively novel and untested reg ulatory improvisation. They

likewise contra st the nature of costs that are flowed throug h a PGA clause versus the COSA clause

. The historical use and approva l of PG A clause s, as appellee s acc urate ly observe , was driven by
reg ulatory rec og nition that fuel costs “ar e particula rly subject to drama tic and unfore seen chang es,”

are driven by

marke t force s bey ond a uti lity ’s control, and “constitute such a larg e propor

tion of a utilit y ’s total costs that any substantial reg ulatory lag in approving rate incre ases to ref lect fuel cost incre ases can cause rapid financ ial ruin.” CenterPoint Energy Entex , 208 S.W .3d at 617. The ty pes of costs and revenue s made the ba sis for adjustments under the COSA clause , by contra st, tend t o be less volatile, be somewhat easie r to predic t or control, and thus have often been addre ssed in fix ed components of a

rate schedule

. See id.
To th e extent that appellee s are asser ting that the GURA’s “ra te” definition contemplates only PGA clause s and not ot her ty pes of varia

ble or formula rates, the statutory text belies that contention. The definition contains no such limitation, but re fer s broadly to “ a rule

. . . aff ecting the compensa tion, tariff , char g e, far e, toll, renta l, or classifica tion” imposed on customers. See Tex. Util

. Code Ann. § 101.003(12)( B) (empha sis added)

. And, apply ing the literal l ang uag e of this provision, the COSA clause would, all other things being equal, come within GURA’s definition of “ra te,” as it is “a rule, reg ulation, [or] prac tice

. . . af fe ct i n g t he compensa tion, tariff , char g e, [or] fare” imposed by CenterPoint. See id. ; CenterPoint Energy Ente x , 208 S.W .3d
at 618-19. 2

We acknow ledg e that some of t h e l an gu age in the COSA clause itself is inconsistent 2 with the not ion that the clause is part of a “rate” as opposed to a means of adj u s t i ng a “rate.” For example, the COSA clause purports to presc ribe “ra te adjustments” and “ra te” “inc re as es ” or 19T h e S t ate Ag encie s, in fac t, ultimately conce de that GURA’s “broa d statutory

definition of ‘ra te’” g ives the Railroad Commi ssion jurisdiction over “for mula rate s” that would not

nece ssarily be limit ed to PGAs. Howeve r, “that GURA under some circ umstances permits formula
rate s” does not, they insist, mean that the statute empower s t h e C o mmissi on “to approve any

an d ever y thing that a party may wish to descr ibe as a ‘for mula rate .’” And whether a p ar t i cu l ar formula rate is within the Railroad Commi ssion’s authority to adopt, the State Ag encie s urg e, “ca n only be answe red by ref

ere nce to the substantive and proce dural rate -setting provisions of GURA.” The State Ag encie s, as well as the TCUC municipalities, ultimately rely on the asser tion t h at t h e COSA clause conflicts with those GURA provi sions. The exis tence of those conflicts, appellee s

rea son, belies any

authority on the par

t of the Commissi on to impose the clause. Appellee s rely in part on subchapte r B of chapte r 104, which governs the “Computation of Rates” in ra te proc eeding s:

• “I n establishing a g as utilit y ’s rate s, the reg ulatory authorit y s h al l establish the ut ility ’s overall reve nues at an amount that will permit the utilit y a rea sonable opportunity to ear n a rea sonable return on the utilit y ’s invested capital used and usef u l i n providing service to the public in ex ce s s o f its rea sonable and nece ssary opera ting expenses.” Tex. Util. Code Ann. § 104.051.

“dec rea ses” to the “monthly rate s” t hat are determined elsewhere in the rate schedule

. Simi larly , we note that the adjustments y ielded by the ra t e s chedule’s other varia ble mecha

nisms (the PGA clause and the tax adjustment and fra nchi s e fe e t ariff

s) are , in contra st to the COSA adjustments, char acte rized within t h e s ch edule as components of the “monthly rate ” itself. We conclude that this nomenclatur e is not materia l to our analy sis. I t is the L eg islature’s intent ref lected in GURA’s text that controls whether the COSA c lause is pa rt of a valid “ra te” and was within the Railroad Commi ssion’s authority to adopt or impose. Apply ing that definition, as sug g ested above, the COSA clause c omes within GURA’s def inition of “rate.”

20• “The reg ulatory authority may not establish a rate t hat y ields more than a fair return on the adjusted value of the invested capital used and useful in providing se rvice to the public.” Id. § 104.052.

• “Ga s utilit y rate s shall be based on the adjusted value of invested capital used and useful to the utilit y in providing service and that adjusted value shall be computed on the basis of a rea sonabl e b al ance betwee n” (1) orig inal cost (i.e., actua l money or other considerat i o n p aid), less depre ciation, and (2) curr ent cost, less depre ciation. Id. § 104.053(a) ; see a l s o id. § 104.054 (re quiring Railroad Commi ssion to establish uniform rate s and methods of depre ciation). The reg ulatory authority is permitted to “conside r inflatio n , defla tion, quality of service being provided, g rowth rate of the service are a, and need fo r the g as utilit y to attrac t new capital.” Id. § 104.053(c)

. “Costs of fac iliti es, re venues, expenses, taxes, and rese rves shall be separ ated or allocate d as presc ribed by the re g ulatory

authority .” Id . § 104.053(e)

.

• “N et income shall be used to establish just and rea sonable rate s.” Id

. § 104.055(a)

. “Ne t income” for these purposes “mea ns the total reve nues of the g as utilit y from g as utilit y service less all rea sonable and nece ssary expenses rela ted to that g as utilit y service ,” as d et er m i n ed by the reg ulatory authority “in a manner consistent with this subch ap t er . ” Id. The subchapte r addre sses the trea tment of sever al components of this calculation, including cer tain pay ments to aff

iliates, taxes and tax benef its, lobby ing expenses, and civic and char itable contributions. See id. §§ 104.055(b)- (e) , .056-.058.

As all parties acknow ledg e, these standards i n co rpora te cost-of- service rate making principles

an d m et h o d s . See id. § 104.111 (re fer ring to “the cost of service standard presc ribed by Section 104.051”); see also id. § 103.055(a) (re fer encing use of historical test y ear in this analy sis); Entex, I nc. , 599 S.W .2d at 294 (discussing cost-of- service rate making principles).
I n addition to these req u i re m en t s, subchapte r C of chapte r 104 presc ribes sever al
proce dures that must be complied with when g as utilit ies seek to incre ase their “ra tes.” A g as utilit y desiring to incre ase its “ra t es ” m u s t file a statement of such intent with the reg ulatory authority

21having orig inal jurisdiction over those rate s at least thirty -five day s befor e the eff ective date of the proposed incre ase. See id. § 104.102(a) , (b). The statement of intent must include proposed revisions of tariff

s and schedule s and “a detailed statement” of eac h proposed incre ase, the eff ect the proposed incre ase is expected to have on the utilit y ’s reve nues, and eac h class and number of utilit y

consumers a ffe cted. Id

. § 104.102(c)

. The utilit y must a lso “ publish, in conspicuous form, notice
t o the public of the proposed incre ase once eac h wee k for four succe ssive wee ks in a new s p ap er having g ener al circulation in eac h county containing territory aff ecte d by the proposed increa se.” Id . § 104.103(a) (1).

I n response to the statement of intent, the reg ulatory authority may hold a hear ing to deter mine “the propriety of the incre ase” and must do so if the proposed incre ase would constitute a “major” chang e—“a

n incre ase in rate s that would increa se the [ utilit y ’s] ag g reg ate revenue s . . .

more than the g rea ter of $100,000 or 2 1⁄2 perc ent.” Id

. §§ 104.101, .105. Pending a final deter mination, a local reg ulatory authority may suspend the opera tion of the new schedule for up to 90 day s afte r it would otherwise have become eff ective, a nd the Railroad Commission may do the

s am e fo r up to 150 day s. See id. § 104.107(a)

. During this period, the reg ulatory authority m ay implement temporar

y rate s; otherwise , the preexi sting rates continue in eff ect. See id. § 104.108. Additional provision is made for g as utilit ies to put rate s into eff ect under bond pending final deter mination. See id. § 104.109. “I f, afte r hear ing, t h e re gu l at o ry authority finds the rate s are

unrea sonable or in violation of law, the reg ulatory authority shall

. . . enter an order establishing the
rate s the g as utilit y shall char g e or apply for t he service in question,” which “shall be observe d there afte r until chang ed as pr ovided by [GURA] .” Id. § 104.110.

22Finall y , al so of rele vance is section 104.301 of GURA, commonly known as

the “GRI P” (Ga s Reliability I nfra structure Prog ram) sta tute. See id. § 104.301. The GRI P statute provides that under cer

tain circ umstances a g as utilit y may file with the reg ulatory authority , outside of a traditional rate -making proce eding , a tariff or rate schedule providing for “an interim adjustment in the utilit y ’s customer c harg e or initial block ra te” to ref lect chang es i n invested capital. See id. Contrasting the GRI P statute with the more g ener al rate making provisions in subchapte rs B and C of chapte r 104, appellees urg e that the twain ref lect leg islative intent that adjustments to other ty pes of rate elements may be made solely throug h a traditional rate proce eding

. I n fac t, as appellee s

e mp h a s iz e , s e v e r a l Ra il r o a d Co mm is s io n p r e c e d e n ts apply ing the GRI P statute have rec og nized that:

Until promulg ation of [t he GRI P statute]

. . . , a utilit y could not incre ase its rate s applicable to customers located within a municipality without filing with the reg ulatory authority a formal statement of intent rate case , including a compr ehensive cost of ser vice r ate r eview.
See, e.g. , Tex. R.R . Comm’n, Appeal Filed by A TMOS Energy Corp., Mid-Tex Div. for Re view of
Mun. Rate Actions Regarding the Annual GRIP from the Citi es of Caldwell, et al. , Docke t No. 9585, Gas Util. I nfo. B ull. No. 781, 7 (Gas Ser vs. Div. Oct. 10, 2005) ( final orde r). By purporting to permit “piec emea l rate adjustments” based on chang es to “isolated
rate el em en ts,” appellee s urg e, the COSA clause authorized by the Railroad Commi ssion flatly conflicts with chapte r 104, subchapte r B’s requirements of a more co m prehe nsive cost-of- service
rate making analy sis. See Tex. Util. Code Ann. §§ 1 0 4

. 0 5 1 (re quiring the reg ulatory authority to “esta blish the utilit y ’s overa ll reve nues . . .”), .053 (pre scribing method for calc ulating adjusted value of invested capital) , .055 (pre scribing calc ulation of net income). They likewise complain that the

23COSA clause purports to allow CenterPoint to obtai n ra t e i n creases without comply ing with the

proce dures specifie d in chapte r 104, subchapte r C. Wit h this, appellee s emphasize the principle that wher e the L eg islature has g rante d a powe r to an a g ency and pre scribed the manner of i ts exercise, “the presc ribed m et h o d ex cludes all others, and must be followed.” Cobra Oil & Gas Corp.

v. Sadler , 447 S.W .2d 887, 892 (Tex. 1968). I n sum, appellee s arg ue that the Railroad Commi ssion exceede d its deleg ated p o wers in approving or imposing the COSA clause beca use it eff ectively

cre ated a sort of alterna tive rate -re g ulation or rate -adjustment mecha nism th at i s not expressly authorized any

wher e in GURA and is not “re asonably nece ssary ” to eff ectua te what the L eg islature has alre ady deeme d a “compr ehensive and adequa te reg ulatory sy stem” under that act—but square ly conflicts with that sy stem.

We observe that eac h of appellees ’ ar gu m ents hinge s on the premise that an annual adjustment made pursuant to the COSA clause changes the exis ting “ra te” in a m anner implicating GURA’s substantive and proce dural rate mak in g r e q u ir e me nts. See Tex. Util. Code Ann. §§ 104.101-.112 (Subchapte r C titled “ RATE CHANGES PROP OSED BY UTI L I TY”) , 104.151-
.152 (Subchapte r D titled “RATE CHANGES PROP OSED BY COMMI SSI ON”) , 104.101 (“ma jor chang e” define d as “an incre ase in r ates

. . .”), 104.102(a) (“A g as utilit y may not inc rea se its rate s

. . . .”), 104.102(c) (providing that statement of intent must include “propose d revision” and “propose d incre ase” ). Appellants, i n reply , insist t hat COSA adjustments instead reflec t the m ere application of an existing rate to deter mine a customer char g e. See Southwestern Pub. Serv. Co.

v. Public Util. Comm’n , 962 S.W .2d 207, 2 2 0 (T ex . App.—Austin 1998, pet. denied) (“[N]ot all
matters that have a p o tential eff ect on rate s are rate making proce eding s. Only matters direc tly

24resulting in chang ed rates consti tute rate making proce eding s.”). I n other words, the “ra te” whose

adoption was subject to the requirements of GURA chapter 104, in ap p el l ants’ view, was the rate schedule as approved by the C ommissi on, not subsequent cal cu l ati ons of customer char g es under it. I f appellee s’ view of the rele vant “ra te” is corr ect, they would be corr ect in claiming that conflicts exis t betwee n the COSA clause and GURA’s rate making provisions

. B u t th e s e conflicts are resolved or avoide d if we c onstrue “r ate” as appe llants see it.

The text of GURA lends equal support to both constructions. I ts definition of “ra te,”

as previously noted, contains two prong s or elements. The first define s “ra te” in terms of customer char g es—“a

ny compensa tion, tariff, ch ar ge, far e, toll, renta l, or classifica tion that is direc tly or indirectly demande d , o b s er ved, char g ed, or collecte d by a g as utilit y for a service , product, or commodity .” Tex. Util. Code Ann. § 1 0 1

. 0 03(12)( A). The second prong ref ers more broadly to “rule s” throug h which customer char g es are calc ulated. See id. § 101.003(12)( B)

. The choice betwee n the two prong s ultim ately controls our disposition of this appeal.
I n support of its order , the Railroad Commi ssion conclude d, in part, that its approva l of a COSA ta

riff was within its jurisdiction and did not conflict with the rate -setting provisions of
GUR A. I n concluding that there was no conflict, the Commi ssion nece ssarily conclude d that the second prong of GURA’s “ra te” definition was the controlling or rele vant one. Considering the text of t he “rule” definition i n co n j unction with the L eg islature’s broad deleg ation to the C ommissi on of “all the authority and power of this state to ensure compliance with the obliga tions of g as utilit ies in [GURA] ,” we conclude that the Commi ssion’s construction was, at a minimum , a re as o n ab le
const ruction of a statutory scheme made ambig uous by the other prong of the “rule ” def i n i t i o n .

25Consequently , we will defe r to that const ruction, see Texas Citi zens for a Safe Future & Clean
W ater , 336 S.W .3d at 624-25, and accor dingly reje ct appellees’ ass er t i o n s that the C ommissi on’s adoption of the COSA clause as part of CenterPoint’s rate schedule was inconsistent with GURA’s
rate making provisions.

Be y ond these as s ertions reg arding GURA’s rate making provisions, the TCUC municipalities urg e that the Railroad Commi ssion’s constructi o n of its authority conflicts with
GURA’s provisions confe rring exclusive orig inal jurisdiction on municipalities. Specifica lly , they complain that a “ra te” that includes an adjustment mecha n i s m s u bverts municipalities’ exclusive orig inal jurisdiction over “ra tes” within their boundarie s by enabling CenterPoint eff ectively to implement subsequent change s without filing a rate case with eac h aff ecte d municipality , as GURA contemplates, in their vi ew. But this arg ument, like the preceding ones, ul timately hinge s

on GURA’s definition of “rate,” presuming that eac h subsequent annua l application of the C OSA provision results in a “cha ng ed” rate by CenterPoint that trig g ers the require ment of a new rate case . We defe r ag ain to the Commi ssion’s rea sonable construction of its authority in light of GURA’s twoprong ed “ra te” definition. See id. ; see also T ex . Util. Code Ann. § 103.001 (g rant of exclusive orig inal jurisdiction to municipal g overning bodies is “s u b j ect to the limit ations imposed by [GURA] ”). The TCUC municipalities additio n a ll y a r g ue that Railroad Commi ssion rule 7.220(c) prohibits the Commi ssion from using formula rate s to deter mine environs rate s beca

use that section does not all o w a municipality ’s cost-of- service adjustment clause to be applicable to an adjac ent environs are a. See 16 Tex. Admin. Code § 7.220(c) (Railroad Comm’n, Environs Rates). We note

26initially that subsection (d) of this rule specifie s that the rule “shall not apply to major rate chang es

or to chang es in specia l rate s,” see id. § 7.220(d), and the Railr o ad C o m m i s sion found that the
rate chang e her e constituted a ma jor cha ng e. Reg ardle ss, however , the plain lang uag e of 7.220(c ) and its context indicate that it s p urpose is not to prec lude cost-of- service clause s in the environs.
Gene rally stated, rule 7.220 sets out the g uidelines the Rail ro ad Commi ssion uses to set environs
rate s, i n cl u d i n g i t s prac tice of allowing environs rate s to be the same as the rate s in eff ect in the adjac ent municipalities. See id. § 7.220(a)

. Subsection (c) specific ally addre sses environs rate chang es made pursuant to a c ost-of-se rvice adjustment clause:

The Commi ssion shall revie w, on a cost of servic e basis, an incre ase in an environs rate that the utilit y proposes pursuant to a cost of service adjustment clau s e, as d efine d in § 7.115(9) of this title (re lating to Def initions ). The cost of service adjustment clause in e ffe ct in the adjac ent municipality shall not be applicable or put into eff ect for the aff

ecte d environs ar ea , alt houg h the utilit y may reque st the same rate s t hat are in eff ect in the adjac ent municipality for the environs are a. The Commi ssion may revie w the proposed rate incre ases pursuant to these clause s on an informal b as is and will not schedule a formal hear ing u n l es s a complaint is rec eived pursuant to su b s ec t i o n (b)( 4) of this section or the Commi ssion elec ts to conduct a formal he aring

.
Id. § 7.220(c)

. T hus, rathe r than prohibiting the use of cost-of- service adjustment clause s fo r environs rate s, this section simply provides that such clause s are subject to revie w by t h e Railroad Commissi on and will not be automatically applicable as adja cent municipality rate s. TCUC and the State Ag encie s also arg ue that a prior Railroad Commi ssion order in

a differ ent proce eding establishes that t h e R ail road Commi ssion has deter mined that it lacks the statutory authority to adopt adjustable rate s for the environs. See Texas R.R. Comm’n,

27Statement of Intent of TXU Lone Star Pipe line to E stablish an Integrity and Safety Assessme nt for
Rec overy of

Pipeline Integrity Assessment and Managem ent Expe nses and Class Location Changes , Docke t No. 9304, Gas Utils. I nfo. Bull. No. 706, 13 (Ga s S er v s . Div. Aug

. 26, 2002) (orde r of dismiss al). TCUC contends that the TXU order prec ludes the Railroad Commi ssion from adopting

an adjustment clause outside of GURA statement-of -intent proce eding s. I nitially , we note that the
COSA at issue here was, as discussed above, ad o p t ed as part of a GURA statement-of -intent
proce eding initiate d by CenterPoint. Thus, to the ex tent that TCUC’s arg ument here rela tes to its incorre ct assumption that eac h application of the COSA chang es the exis ting “ra te,” we have alre ady reje cted that arg ument on the g round that the COSA itself is the rate adopted b y t h e Railroad Commi ssion under its statutory authority to adopt natura l-g as rate s. Reg ardle ss, howeve r, t h e Railroad Commi ssion’s order in TXU Lone Star Pipeline does not s wee p as broadly as TCUC
sug g ests. I n TXU

, the Railroad Commission found that it—

cannot establish the incre mental rate reque sted by TXU L SP without establishing the ut ility’s reasonable and nece ssary operating expe nses and appropriate rate of return on its invested capital

. There is no statutory authority g ranting t h e C ommissi on the power to set an incremental rate for the sole purpose of allowing additional marg inal reve nue to the u tilit y desig ned to rec over additional rates of return on capital and additional opera ting expenses at the marg in. The establishment of the incre mental rate proposed by TXU L SP is outside the statutory scheme of the Texas Utiliti es Code.

See id. (empha sis added)

. Although the Railroad Co m m i s s i o n does reje ct an incre mental rate

as being outside GURA, it does so in a way that m ak es it clea r that its decision is limit ed to the

28specific rate being proposed. Nothing in the decision sug g ests that such a rate would be prohibited

in all circumstanc es.

Finally , in a post-su b m i s s i o n brief, the TCUC municipalities emphasize that the
L eg islature fa iled to enac t an amendme nt to GURA that, as t hey portray it, was a imed at allowing the Railroad Commi ssion to establish cost-of- service adjustments. But as the Texas Supreme Court 3
has instructed us, we should “attac h no controlling signific ance to the L eg islature’s failure to enac t

. . . proposed [l eg islation] .” See Ojo v. Farmers Group, Inc. , —S.W .3d—, No. 10–0245, 2011 WL 2112778, at *18 (Tex. May 27, 2011) (quoting Texas Emp’t Comm’n v. Holberg , 440 S.W .2d 38,
42 (Tex. 1969) , and discussing the supreme court’s longsta nding reluc tance to draw infere nces from the L eg islature’s failure to act) ; Entergy Gulf States , 282 S.W .3d at 443 (citing Holberg , 440 S.W .2d
at 42). Our analy sis of the Railroad Commi ssion’s authority under GURA, in other words, must rest upon the words the L eg islature ac tually enac ted.
We conclude that the Railroad Commi ssion’s d el egated authority under GURA
encompa sses the power to adopt or impose the COSA clause in both the Texas Coastal Division environs and the TCUC municipaliti es. We sustain appellants’ sole issue on a ppeal.

CONCLUSION Having su s t ained appellants’ sole issue on appea l, we reve rse the district court’s judgme nt that the Railroad Comm i s s i o n exceede d its authority in adopting or imposing the

See Tex. H.B. 2435, 82d L eg ., R.S. (2011); Tex. S .B. 1309, 82d L eg ., R.S. (2011). 3 29COSA clause

. We rema nd this cause to the di strict court for further proce eding s not in co n s i s t ent with this opi nion.

__________________________________________ Bob Pembe rton, J ustice
Be fore Chief J ustice Jones, J ustices Pury ear and Pember

ton Reverse d and Remande d Filed: Oc tober 27, 2011

30