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

NO. 03-04-00486- CV

Ci tyof C ar r oll to n, A ppe lla nt

v. T ex a s Co mmis s i o n o n E n v i ro n men ta l Q u a l i ty , Ro b er t D . B a l f a n z, T ru man Cl em, Bettye Clem , C.T. Clem , Tow n of Hebron, Joe Evere tt, Julie Evere tt, Jo hn O. G r ady , R on M abr a, Wil lie M abr a, Cha r le s M or r is, Randall Morr is and Sheri Morr is, App ellees

F ROM THE DISTRICT CO URT OF TRAVIS COUNTY , 353RD JUDICI AL DISTRICT NO. GV304727 , HO NORAB LE LORA J. LIVINGSTO N, JUDGE PRESIDI NG

O P I N I O N
The Te x as Const i t u t i o n allows a home r ule city to be g overne d, g ener ally , by ordinanc es adopte d pursuant to its municipal char ter. The narr ow question prese nted her e is whethe r a home r ule city , such as appellant Ci ty of C arr ollton, that acquir ed a Ce rtificate of Convenienc e and Nec essity to provide water and sewe r service may revoke or di scontinue i ts water cer tificate w ithout
no tic e and

he ari ng . T e xas Wate r C od e se c tio n 1 3. 25 4( a ) a llo ws fo r r e vo c a tio n o f a wate r c e rt if ic a te afte r notice and hea

ring . Tex. W ater

Code Ann. § 13.254(a ) (West 2000). The City of Carr ollton
so ug ht a de c larator

y jud g me nt that, be c a

us e it is a mun ic ipa l c or

po ratio n that is no t re qu ir e d to obtain a ce rtificate prior to providing water or sewe r ser

vice , t h e T exas Comm ission on2

E n v i ro n m en t al Qu al i t y

m u s tgra n ti t s p et i t i o nt o ca n ce l i t s c er t i fi ca t e w i t h o u tn o t i ce an d h ea ri n g. Th e dis tr ic t c ourt

de nie d th e re qu e ste d d e c larator y jud g me nt. I n four issues, Carrollton appea ls, c ontending that in f ailing to g ran t i t s petition without a notice and he aringthe Commiss ion’s actions ar e in vi o l at i o n of (i) the separ ation of power s doctrine of

the Texas Constit ution, (ii) the Texas Water Code and Texas L ocal Gove rnment Cod e , (i ii) the po we rs de le g a te d to the Com mis sio n, and (i v) the Com mis sio n’ s o wn ru le s. We h old that, o nc e a

wate r c e rt if

ic a te is a c qu ir e d b y

a ho me ru le c ity , the Te xas Wat e r Cod e pr ov ide s th e so le mecha nism for dec ertifica

tion, a nd notice and hear ing is r equire d. We the ref ore aff irm the judg ment of the dis tr ic t c ourt
.
F ACTUAL AND P ROCEDURAL BACK GR OUND

I n 1 97 9, Carr oll ton

a c qu ir e d a

c e rt if ic a te c ov e ri ngare a s b oth

ins ide and ou tsi de its inc or po rate d lim its a nd

inc lud ingthe c or

po rate lim its of

the ne ig hb or ingTo wn

of He br on , a ll w ith in Dallas and Denton counties. I n 1990, the Hebr on Water Supply Corporation (“H ebron WSC”) obtained a c ertifica

te that dually cer

tified it to serve an area

located w ithin Hebron that Carr ollton’s
cer tificate a lrea dy cover ed. I n 1990, Carrollton reque sted that the Commissi on amend Car rollton’s
c e rt if ic a te to r e fl e c t th e du a l c e rt if ic a tio n c a us e d b y the ov e rl a

pp ingc e rt if

ic a te s. I n 1 99 7, Heb ron WSC, w iththe Com mis sio n’ s a pp ro va l and

by a g re e me nt w ith Carrollton, transfe rre d its water sy stem to Carrollton. The Commission cancelled H ebron WSC’s
cer tificate a nd amende d Carrollton’s t o ref lect that the a

rea was no long er dua lly

cer tified and that Carrollton held t he only cer tificate for Hebron W SC’s former service are a. Thus, He bron and the boundarie s of the for

mer He bron WSC lie within Carrollton’s cer tificated se rvice are a.I n Oct o b e r 2 0 0 4 , the administrative law judg e issued a pr oposal for de cision rec ommending 1 that the Commiss ion deny Carrollton’s application to canc el i ts cer tificate. The Commi ssion ag ree d with the AL J and denie d the application f or canc ellation. The merits of the Commiss ion’s decision are not before us. For this reas o n , the under ly ing f acts pe rtaining to the cer

tificate a re a lso not at issue here . But the Tow n of He bron and c erta in individuals residing in the c er t i fi ca t ed are a ar e a pp e lle e s. B e c a

us e the ir int e re sts fo r the purp os e s of thi s laws uit are the same a s th e Com mis sio n’ s, f o r c o n v e n i e n c e w e w i l l r e f

e r t o t h e C o m m i s s i o no r

a p p e l l e e s a s n e c e s s ar

y. 3 I n Se pte mbe r 2 00 1, Carr oll ton su bmi tte d a pe tit ion to t he Com mis sio n to c anc e l it s
cer tificate. B eca

use it is a home rule city and it aff irmed i ts willingness to continue serving exis ting customers, Car

rollton contended that the Commi ssion should m inisterially gra nt its petit ion. The Com mis sio n d isa g re e d, a dv isi ngthe c ity that it mus t pr ov ide no tic e —a nd a he ari ng , if

re qu e ste d—

to its customers pursuant to water code se ctions 13.250 and 13.254(a ). See id . § § 1 3. 25 0, .2 54 (We st 2000). Carr ollton su b s eq u en t l y published notice of its reque st to cance l, and seve ral He bron customers filed a

protest with the Commiss ion, which was r efe rre d to the State Offic e of Ad m i n i s t ra t i v e H ea ri n gs fo r a co n t es t edca s e h ea ri n g. 1

Carrollton filed a pe tition for de clar atory judgme nt. The case was submitt ed to the district court on an a g ree d rec ord and w ith certa in fac tual stipulations. Among the ag ree d fac ts were that Ca rr oll ton is a “ re ta il p ub lic uti lity ” a s th a t te rm is d e fi ne d in

the wate r c od e ; Ca

rr oll ton is a h o m e ru l e ci t y

that has not ce ded exclusive orig inal jurisdiction over utility rate s, operations, and
s er v ices within its incorporate d limit s to the Commi ssion; and Carrollton possesses a water
cer tificate that encompasse s portions of the Town of Hebr on. The district c ourt denied Car rollton’s decla ratory relief and re ndere d judgme nt in favor of appellee s, and this appea l ensued.4 AN AL YSI S The Cont ro v e rsy Carrollton contends g ener all y that, beca

use it is a home rule c ity , the wate r code provisions and re l at ed re g ulations pertaining to cer tificates of

convenie nce a

nd nece ssity

do not apply to it. C arr ollton specifically contends that onc e its city council passe d a re solution t o canc el its certificate, t h e C o m m i ssion had no discretion to ac t other than to g rant its petition for d e c ertifica

tion. Carrollton urg es that the a ction by the Commiss ion in requiring a notice- and-he aring proce ss is a violation of the cons t i t u t ional separ ation of powe rs and of the statutory

and
a d m i n i s t r a t i v e p o w e r s o f

t h e a g e n c y. Carr oll ton fu

rt he r c on te nd s that its c ha

rt e r and the ho me ru le a me ndme nt e xemp t it fr om t he re a c h o f t

he wate r co de be c a

us e the le g isl a tur e did

no t e xten d it s p ro vis ion s to ho me ru le
mun icip ali ties wi th “ un mis taka ble c lari ty .” I t argue s th a t th e ho me ru le a me ndme nt s pe c if ic a lly exempts i t from the provisions of the wate r code relating to ter mination of the ce rtificate
. See T e x. Con st. art . X I , § 5. F ro m th e g e ne ra l g ra nt o f p ow e r t o h ome ru le c iti e s, Carr oll ton a sse rt s th a t “ it does not appe ar” —at least not with unmistakable cla rity —that the leg islature intended to lim it the ability of a municipality to de cide whe re a nd how to provide utility

service
. Se e Pr oc tor v . A nd re ws , 97 2 S. W.2 d 7 29 , 7 33 (T e x. 19 98 ); Dallas M erch. & Concessionaires Ass’n v. City of Dallas , 852 S.W. 2d 48 9, 49 0- 91 (T e x. 19 93 ). Th e Com mis sio n r e sp on ds that c e rt if ic a te s are c re a tur e s o f s ta tut e
and pa rt of the c omp re he ns ive re g ulator y sy ste m f or uti lit ie s, and

that th e wate r c od e sp e c if ie s w ith unmistakable cla

rity that they may be ca ncelled only

with notice and he aring
.5 We a re the re fo re a sk e d to sq

ua re the g e ne ra l g ra

nt of po wer to a

ho me ru le c ity

to operate its own water

sy stem with the powers g ra n t ed to the Commi ssion to “establish a
c omp re he ns ive re g ulator

y sy ste m” fo r r e ta il p ub lic uti lit ie s fo r the be ne fi t of c on su me rs and

uti lit ie s. See Tex. W ater

Code Ann. §§ 13.001, .250, .254 (West 2000). B e c a us e thi s c a se inv olv e s is su e s o f s ta tut or y c on str uc tio n, our rev iew is de novo. City of San Antonio v. Ci ty of Boerne , 111 S.W .3d 22, 25 (Tex. 2003). We turn first to the gra nt of p o w e r s t o a

h o m e r u l e c i t y.
Home Rule City Th e Te xas Con sti tut ion a

uth or ize s c iti e s e xce e din g 50 00 inh a bit ants to a do pt a

ho me rule c harte r. Tex. Const. art. X I , § 5
. “A d o p t ed in 1912, t he home r ule amendme nt ‘altere d the longsta nding pr actice of havingspecia l char ters individually

g rante d and ame nd e d

b y the leg islature’ for the State’s l arg er cities.” Black v . City of Ki lleen , 78 S.W .3d 686, 692 (Tex. App.—Austin 2002, pet. denied) (quoting 22 David B . Br ooks, Texas Practice: Municipal L aw and Practice § 1.17 (2d ed. 1999)). Although home rule cities have a vast amount of powe r, their a uthority is not without limit ations. Citi es adopting a home r ule cha rter ha ve the f ull power of self g overnme nt except that
no chart er or any

ordinanc e passe d under sa id char ter shall conta in any

provision inconsistent with the Constit ution of the State, or of the g ener al laws e nacte d by the L eg islature of this State. . . .
Tex. Cons t. art. XI , § 5. Thus, home rule c ities look to t he leg islature not for g rants of pow er, but for limitations on their power. W ils on v . A nd

re ws , 10 S.W .3d 663, 666 (Tex. 1999) (leg islature ca n

“ lim i t o r a u g m e nt ” a h o m e r u le c ity ’s se lf

-g ov e rn anc e ); Dallas Merch. &Concessionaires Ass’n , 8526

S.W. 2d a t 49 0- 91 ; Forwood v. City of Taylor , 214 S.W .2d 282, 286 (Tex. 1948) (“The result [of the ho me ru le a me ndme nt] i s th a t no w i t is ne c e ssa ry to loo k to the a c ts of the le g isl a tur e no t f or g ra nts of powe r to such cities but only for limitations on their powers.” ); Black, 78 S.W .3d at 692. Carrollton ena cted a home rule char ter in 1961. Under the city ’s home rule char ter, it is clear the g rant of pow ers is broa d:
Se c tio n 1 .0 4. Po we rs. The City of Carr ollton may

exercise a ll p o we rs that now ar e or he rea fter ma y be gra n t ed to m unicipalities by the Constitut ion or the laws of the State of Te x as [inc lud in g ] a l l o f t h e p o w e r s c o n f e r r e d u p o n c i t i e s b y w h a t i s kn o w n a s t h e Ho me Rule Amendment to the Constitut ion. . . .
As to utili ties, the cha

rter pr ovides Section 8.01. Powers of the city. I n a dd iti on

to t he c ity ’s po we r t o b uy , o wn , c on str uc t, m a int a in, a

nd op e rate uti lit ie s, within or without the city limit s, and to manufac ture a nd distribute electr icity , g as or any thinge ls e th a t m ay

b e n e e d e d

o r u s e d b y th e p u b li c , th e c it

y s h a ll h a v e f

u rth er power s as may

now or he rea fter be g rante d under the C o n stitut ion and laws of the State of Texas. Carrollton’s powe rs include t h e u s e an d occupa ncy of public prope rties and to re quire just and
rea sonable c ompensation for the use of pr operty , including rig hts-of-wa y by public utilit ies and pr ov ide rs of

wate r s e rv ic e s. The powe rs included in the char ter are consistent with those g rante d to municipalities by statut e. T he a

uth or ity to r e g ulate wate r a

nd se we r s e rv ic e in a

mann e r c on sis te nt w iththe be st interests of its citizens is a power g ener ally g rante d to municipalities. T ex as L ocal Gove rnment7

Code section 402.001 author izes a municipality to “purc hase, c onstruct, or ope rate a utility sy stem inside or outside the municipal boundarie s and [t o] reg ulate the sy stem in a manner that protec ts the interests of the municipa lity .” See Tex. L oc. Gov’t Code Ann. § 402.001(b) ( West 1999). I t may
a lso “ e xer c ise the e xclu siv e ri g ht t o o wn , c on str uc t, and op erat e a

wate r s y ste m” fo r i ts r e sid e nts
. Id . § 402.017 (West 1999).
The Texas Water Code Ce rti fic ate s o f Co nv e nie nc e an d Ne c essi ty That the leg islature intended c ertificates of convenience and necessity to be cr eatur es of statute is clea

r. The g ener al purpose of cert i fi ca tion is t o provide for a rational distributi on of public utilit y service s within de fined g eog raphic al are as so that, within a spec ified ar ea, the provider of utility service is “ unhamper ed by competitive forc es.” Public Util. Comm’n v. Tex land Elec. Co. , 701 S.W .2d 261, 265 (Tex. A p p.—Austin 1985, writ ref’ d n.r.e.) (quoting Br adley Toben, Certificates of Convenienc e and Nece ssity Under the Texas Publi c Util ity Regulatory Ac t , 28 Ba y lor L . Rev. 1115, 1116 (1976)) . The Commi ssion issues a cer tificate authorizing the holder to provide service to customers within a spec ified ar ea. T ex. W ater Code Ann. § 1 3
. 2 4 2 (W es t 2 000). The
cer tificate g rants the holder

a monopoly

within its service are a. Id . T hu s, c e rt if ic a tio n is a

be ne fi t to i ts h old e r b e c a

us e g e ne ra lly

no oth e r uti lity may op e rate wi thi n the are a , a nd the Com mis sio n is g iv en authority

to issue orders a g ainst any provider that transg resse s into another’s a rea . Id
. §§ 13.242(a),
. 2 5 2 (W es t 2000). The c ertificate obligates its holder to provide continuous and adequate servic e to eve ry customer a

nd ever y qualified a

pplicant within its area. Id . § 13.250.8 Un le ss o the rw ise spec if

ie d, the n, no pu

bli c uti lity

may re nd e r s e rv ic e wi tho ut f

ir st obtaini n g from the Commission a certific ate that the pr esent or f uture public c onvenienc e and
nece ssity require or will require the installation, ope ra t i o n , or extension of such servic es. Id
. § 13.242(a) . The fa ctors the Commission m u s t consider in dete rmining w hether to awar d a
cer tificate a re expressions of “leg islative standards” g uiding the Commission in i ts administration of the c ertifica

tion process. Texland Elec. Co. , 701 S.W .2d at 266. The water c ode also provide s for discontinuation o f a cer tificate: “ Unless the commission issues a ce rtificate that neither the prese nt nor future convenie nce a nd nece ssity

will be adver sely

aff ecte d,” a holde r of a

cer tificate ma

y not “discontinue, re duce, or impair” ser

vice ex ce p t for nonpa

y ment or nonuse. Te x . Water Code Ann. § 13. 25 0( b)
. Thus , ce rt if ic a tio n pro vid e s sta

bil ity and a se t of rig hts to the uti lity , r e sid e nts , and customer s living within the ce rtificate d are a.
Re gu lator yFram e wor

k for “Re tai l P ub lic Ut ili tie

s” Cha pte r 1 3 o f t

he wate r c od e wa s “a do pte d to pro te c t the pu bli c int e re st i nh e re nt i n the rates and services of reta il public utilit ies.” Id . § 13 .0 01 (a ). I t sp e a ks wi th u nmi sta ka ble c lari ty to the compre hensi v e re gu l at ion of these utilities. Finding that reta il public util ities are “ by definition monopolies in the area s they serve ,” that “norma l force s of competition” do not oper ate, and that re g ulation will serve as a “substitute for compe tition,” the leg islature passe d Chapter 13 of the wate r c od e to g ov e rn

re ta il p ub lic uti lit ie s w iththe state d p ur po se to establish a compre hensive re g ulatory sy stem that is adequate to the task of re g ulatin g re ta il p ub lic uti lit ie s to a ssu re rate s, op e ra

tio ns , an d ser

vic e s tha t are jus t and re a so na ble to t he c on su me rs and

to t he re ta il p ub lic uti lit ie s.A c i t y t h a t d o e s n o t w a n tt o b e i nt h e w at er b u s i n es s , ev en t o t h e e x t en to f r egu l at i n g a 2 u ti li ty o p e r a ti n g w it

h in it s c it y li mi ts , ma

y tu r nju r is d ic ti o no v e r

th a t uti li ty

to th e Co mm is s io n . T e x. Water Code Ann. § 13.042(b) (West 2000). B y stipulation, t he par

ties ag ree that Carrollton has not 9 Id . § 13.001. Carrollton argues that i t is difficult t o square the not ion that home rule municipaliti es
are char g ed to re g ulate their w ater sy stems in the best interest of their citizens with t he re g ulatory framework pr ovided by

the leg islature in the water c ode and by the Commiss ion in its rules. I t is tr ue tha t th e Te xas L oc a l G ov ernm ent Cod e pr ov ide s th a t a ho me ru le municipality

may exercise the exclusi ve rig ht to own, construct, and ope rate a water sy stem for the
us e of the mun ic ipa lity and its re sid e nts and may take the “ ne c e ssa ry a c tio n to op e rate and

ma int a in the sy stem.” Tex. L oc. Gov’ t Code Ann. § 402.017. A home rule municipality may also operate a
u ti li ty s y s te m in s id e o r o u ts id e o f it s mu n ic ip a l b o u n d aries. Id . § 402.001. Texas Water Code section 13.042(a ) provides f or municipal j u risdiction over utilities operating within the
mun ic ipa lity ’s c or

po rate lim its : Subject to the limit ations of this chapter and for the purpose of

regulating r ates a

nd se rv ic e s so that tho se rate s ma y be fa ir , ju st, and

re a so na ble and the se rv ic e s a de qu a te an d e f f ic ie n t, th e g o v e r

n in g b o dy

o f e a c h mu

n ic ip a li ty h a s e xc lu s iv e orig inal jurisdiction ove r all water and sewe r utility rate s, operations, and service s provided b y a w a t e r an d s e w e r u t i l i t y with in i ts c or

po ra te lim its
. Tex. W ater

Code Ann. § 13.042 (West 2000) (empha sis a dded). Citi ng section 13.042, Carrollton contends that the Commi ssion cannot exert jurisdiction over Carr ollton by requiringit to follow the statutory notice and he aringproce ss for ca ncelling its certificate. See id
. Section 13.042(b) a llows a municipality

to cede it s j u ri s diction over rates, servic es, and ope rations to the Commiss ion by ordinanc e. But these provisions apply only to water and sewer util ities and only when these utilit ies 2cede d its jurisdi ction over the se matters to the Commission.

Section 13.242(a) provides: “. . . [A] utilit y , a utility operated by

an af fec ted county , or a 3 wate r s up ply

or se we r s e rv ic e c or

po ratio n ma

y no t in any way rend er ret ail w a te r o r s e we r util ity service direc tly

or indirec tly

to the public without first having obtained fr om the commission a cer tificate that the present or future public convenie nce and necessity will require that installation, operation, or ext ension. . . .” Id . § 13.242(a) (West 2000). 10 are operating solely within the borders of t he muni cipality
. Id
. Carrollton does not c ome within the de fi nit ion of a wate r a nd se we r util ity

and , fur th er, it se rv e s a

te rr ito ry and c us tom e rs be y on d it s corpor ate limits. See id. § 13.002(23) (West 2000)
. By its langua g e, then, se ction 13.042 does not apply to Carrollton. The water c ode distinguishes be tween utili t i es and r etail public utiliti es as water service providers. “ Utiliti es” are alway s require d to obtain a certificate bef ore be g inning to provide service to an ar ea. Id . § 13.242(a)
. T h e term “utilit ies” include s “water a nd sewe r utiliti es” a

nd 3 “public utilit ies” and is define d to mean “a ny person, c orporation, cooperative corpor ation, aff ecte d county , or any combination of these pe rsons or entities, other than a m unicipal corporation , water supply or sewe r ser

vice c orporation, or a political subdivi s ion of the state. . . .” Id . § 13.002(23) (empha sis added). Thus, municipa lities are e x pressly excluded from the de finition.

“ R e t a i l p u b l i c u t i l i t i e s , ” o n t h e o t h e r h an d , i n c l u d e m u n i c i p a l i t i e s an d ar e n o ta l w a ys require d to operate with a ce rtificate
. Id
. § 13.002(19) (West 2000)
. A reta il public utilit y includes “any person, c orporation, public util ity , water supply or sewe r se rv i ce c orporation, mu nic ipa lit y , political subdivisi on or ag ency operating, maintaining , o r controlling in this st ate f acilities for providing potable water service or sewe r ser vice, or both, for compe nsation.” Id . (empha sis added). A “municipality ” is define d to in c lu d e “ c ities ex isting, cr eate d, or org anized under the g ener al, home-See id . § 13.002(19) ( West 2000). 4 11 ru le , or spec ial laws of this state.” Id
. § 13.002(12) ( West 2000) (emphasis adde d). A water sy stem operated by

a municipality

is a “municipally

owned utility .” Id . § 13.002(13) ( West 2000). As a home- rule c ity , there fo re, Carrollton comes within the definition of a “municipality .” Municipalities a re expressly included within the Commi ssion’ s re gu l atory fr a me wo rk of re ta il pu

bli c uti lit ie s. An d by sti pu la tio n, Carr oll ton a g re e d th a t it

is a “ re ta il p ub lic uti lity ” a s th a t te rm

is d e fi ne d in

the wate r c od e . Thus , a lth ou g h Ca rr oll ton is a “ re ta il p ub lic 4 uti lity ,” it i s n ot a “ uti lity ” and , the re fo re , is not sub je c t to the pr ov isi on s in Chap te r 13 that a pp ly to utili ties alone. I t is, however, subje ct to the provisions that apply to retail public utiliti es. By excluding a municipa l utili ty from the de finition of “utility ”and inc luding it i n the de fi nit ion of “ re ta il pu

bli c uti lity ,” the n, the le g isl a tur e de te rm ine d th a t a mun ic ipa lly

ow ne d u til ity is n ot a lw ay s r e qu ir e d to hav e a certif ic a te . A s to wa

te r s e rv ic e wi thi n it s b or de rs , a mun ic ipa lity
may c ho os e to o wn

its ow n s y ste m and be a re ta il pub lic uti lity . I f a mun ic ipa lity do e s n ot c ho os e to own its sy stem , a u tilit y with a ce rtificate from the Commission authoriz ing it to serve that g e og ra ph ic are a may se rv e the mun ic ipa l r e sid e nts . B ut a munic ipa lity

mus t ob ta in a

c e rt if ic a te wh e n it se e ks (i ) t o r e nd e r s e rv ic e to a n a re a that is lawf

ully be ingse rv e d b y

ano the r r e ta il p ub lic utilit y , se e id . § 13 .2 42 (a ), or (i i) to t a ke ov e r s e rv ic e in a re a s ann e xed

by a c ity bu t th a t are wi thi n the c e rt if ic a te d are a of a

wate r s up ply

c or po ratio n, a

sp e c ia l ut ili ty

dis tr ic t, o r a

fr e shwate r s up ply district, se e id
. § 1 3
. 2 5 5 (b ) ( W e s t 2 0 0 0 ). No t h i n g p ro h i b i t s a m u n i ci p al i t y fr o m o b t ai n i n g a
cer tificate w hen, for

example, it serves beyond its bounda ries. Whether or not it is require d to have
a c ert if ica te, a re ta il p ub lic uti lity

may re qu e st o ne to e njo y

the be ne fi ts a

va ila ble to a ll c e rt if

ic a te12

holders. B ut once it deter mines to seek a c ertificate, nothing e x empts a munici p al i t y from the various proc edure s specifie d for the issuanc e and disc ontinuance of a ce rtificate
. Issuance and Discontinuance of Certificates

I n the first instance , the water code a ddresse s the issuance of ce rtificate s. Certificate s
are iss ue d o nly

wi th n oti c e and , if re qu e ste d, a he ari ng . Se c tio n 13. 24 6 of the wate r co de pr ov ide s:
I f an a pplication for a

cer tificate of public convenie nce a

nd nece ssity

is f i led, the commission shall cause notice of the application to be give n to affe cted pa rties and, i f r eq u es t ed , . . . a h ea ri n g.
Id
. § 13.246(a) (West 2000)
. After the Commi ssion rece ives an a pplication, it ensures that a ffe cted parties r ece ive notice and, if reque sted, a public he aring
. Id . I t evaluate s the fac tors specifie d by the leg islature, including the ade quacy of ser vice curre ntly

provided to the a

rea , the nee d for a dditional
se rv ic e , th e e ff

e c t of g ra nti ngthe c e rt if

ic a te on its re c ipi e nt, a s we ll a s the e ff e c t on any oth e r r e ta il public utilit y alre ady offe ring the s ame kind of service to the a rea . Id
. § 1 3
. 2 4 6 ( c ) ( W e s t2 0 0 0 )
. It must also consider the a

bility of the a pplicant to provide a dequate service , the fea sibili ty of obtaining service from an a djace nt retail public utility , and the f inancial stability

of the a pplicant. Id
. Carrollton does not a

rg ue that it did not se ek and obtain the Commi ssion’s approva l with notice and he aringwhen it was g rante d a ce rtificate . Carro llton applied for and r ece ived a
c e rt if ic ate in N ov e mbe r 1 97 9 “ to p ro vid e su c h u til ity se rv ic e in a c c or da

nc e wi th t

he laws of

thi s State and the Rul e s o f t

his Com mis sio n, su

bje c t on ly

to a ny po we r a nd re sp on si bi lity

of thi s Commi ssion to revoke or a mend this Certificate in whole or in part upon a subsequent showing thatThe cer tificate w as g rante d by

the Public Utilit y

Commi ssion, which had jurisdiction over 5 wate r c e rt if

ic a te s in 19 79 ; juri sd ic tio n o ve r w a te r c e rt i f i c a t i o n w a s tr ans fe rr e d f

ro m th e Pub lic Ut ili ty Commi ssion to the T ex as W at er C ommissi on in 1985 and then to the Te x as Natural Resourc es Conservation Commissi on in 1991, which was r ename d the Texas Commi ssion on Environmental Quality in 2001. See Act of Ma

y 25, 1985, 69th L eg ., R.S., ch. 795, § 3.005, 1985 Tex . Gen. L aws 2719, 2789 (transf

er from PUC to TWC); Ac t of J uly 25, 1991, 72d L eg ., 1st C.S ., ch. 3, § 1.058, 1991 Tex. Gen. L aws 4, 20 (tr ansfe r fr om TWC to TNRCC); Act of May 28, 2001, 77th L eg ., R.S., ch. 965, § 18.01, 2001 Te x . Gen. L aws 1933, 1985 (r enamingof TNRCC to TCEQ). 13 the public conve nience and nec essity would be ser

v ed t h er eb y .” By

obtaining this ce rtificate , 5 Carrollton extended its services to include parts of the Town of Hebron and obligated itself to r ender cont i n u o u s an d adequate servic e to the ce rtificate d are a. Se e id . § 13.250(a) . I n 1997, when Carr oll ton

and He br on WSC ne goti ate d f

or the sa le of

He br on WSC’ s sy ste m and

c e rt if ic a te to Carr oll ton , Carr oll ton su

bmi tte d an a

pp lic a tio n to the Com mis sio n, se e kin g to tr ans fe r t he c e rt if ic a te from He bron WSC to Carrollton. The Commissi on approve d the t ransf er “subject to the rules and order s” of the Commission and specifie d: “The c ertificate is valid until amended or r evoked by the Commi ssion.” Thus, Carrollto n acquir ed the c ertificate subject only to further

amendment or
revoc ation by

the Commiss ion. C ar r o l l t o nar g u e s t h a t , a s a

h o m e r u l e c i t y , i t i s n o t r e qu i r e d

t o h a v e a c e rt i f i c a t e . It
c on te nd s, the re fo re , th a t se c tio n 1 3. 25 0 d oe s n ot a pp ly to i t and th at, be c a

us e it a c qu ir e d it s
cer tificate voluntarily , the Commiss ion must, upon application, mini sterially g rant the de c e rt if ic a tio n. Th is argume nt is wi tho ut me ri t. Te xas law m and a te s th a t “ an yre tai l pu bli c uti lit

y that possesses or is require d to possess a certificate of public convenie nce and nec essity shall serve
ever y cons u m er wi t h i n [i ts] cer tified are a and sha ll render continuous and ade quate se rvice . . . .” Id . (empha sis added). B y its c lear lang uag e, section 13.250 applies to “any reta il public util ity

thatPURA is the predece ssor act to Chapter 13 of t he Tex as W ater Code. Act of Ma y 25, 1985, 6 69th L eg ., R.S., ch. 795, § 3.005, 1985 Tex. Ge n. L aws 2719, 2789-2804. I n 1985, when jurisdiction over w ater

and sew er utilities was transf err ed fr om the Public Utili ty Commi ssion to the Tex as Water Commissi on, the utility regulations in Chapter 13 of the Water Code wer e ena cted. 14 possesses” a

cer tificate. Id
. Be cause Carrollton is a “r etail public utility that possesses” a

cer tificate,
we c on c lud e tha

t th e pr ov isi on s o f t

he wate r c od e fo r t

he iss ua nc e of c e rt if ic a te s a pp ly to i t w ith
u n m i s t a k a

b l e c l ar i t y. B y thi s la ngua g e , th e le g isl a tur e ha s de mon str a te d a c le ar a nd un a mbi g uo us int e nt t o apply the provisions of section 13.250 to any holder of a c ertificate, re g ardle ss of whethe r the holder is r equire d to posse ss the cer tificate or possesses it voluntarily
. See Southwestern Pub. Serv. Co. v. Public Util. Comm’n , 578 S.W .2d 507, 511 (Tex. Civ. App.—Austin 1979, writ ref ’d n.r.e .) (noting that Public Utility Reg ulatory Act (PURA) re serve s “exclusive orig inal jurisdiction” to gr ant and 6 deny cer tificates)
. As a holder

of a c ertificate, then, Carrollton is e ntitled to the same benef its as any oth e r h old e r w ho may

be re qu ir e d to poss e ss a ce rt if ic a te : no othe r wate r util ity may op e ra te wi thi n its a re a , a nd the Com mis sio n is a

uth or ize d to iss ue or de rs a g a ins t any pr ov ide r t

hat tr ans g re sse s a
c e rt if ic a te . T e x. Wat e r C od e Ann. §§ 13 .2 42 (a ), .2 52 ; se e City of B ro wns v ill e v . P ub lic Ut il. Comm’n , 616 S.W .2d 402, 408 (Tex. Civ. App.—Tex arka na 1981, wr it re f’ d n.r.e.) (re g arding Com mis sio n’ s a

uth or ity to iss ue c e a se and de sis t ord e r und e r PURAse c tio n 5 0, pr e de c e sso r s ta tut e to Texas W ater

Code section 13.242). L ikewi s e, the discontinuation provision also contemplates its application to any holder of a cer

tificate: “Unless the c ommissi on issues a ce rtificate that neither the prese nt nor future convenie nce a

nd nece ssity

will be adver sely

aff ecte d, the holder of a ce rtifi cate or a p erson whoSection 13.243 specifie s that a certificate i s not require d for a reta il public util ity

to ext end 7 its services into a contiguous t err itory , and section 13.246(f) allows for suc h a utility to apply for a c e rti f ic a te f o r an u n c e rti f

ic a te d ar e a

o na c o mp e ti ti v e b a s is w it

h an o th e r r e ta il p u b li c u ti li ty
. T e x. Wat e r C od e Ann. §§ 13 .2 43 , . 24 6( f) (We st 2 00 0)
. No pr ov isi on e xemp ts the vo lun tary

ho lde r i n these instance s from the notice -and- hear ing pr ovisions for the issuance an d discontinuance of cer tificates unde r Chapter

13. Id . §§ 13.243, .246(f)
.

15 p o s s e s s e s f

a c il it ie s u s e d to p r o v ide service s hall not dis continue, reduc e, or impair service to a
cer tified servic e ar ea or

part of a cer ti fi ed s ervice ar ea. . . .” Tex. W ater Code Ann. § 13.250(b) (empha sis added). Although Carrollton’s argument hinge s on its contention that it i s not require d to hold a cer

tificate and that it a cquire d the cer tificate voluntarily , the code makes c lear that it applies reg ardle ss of whether the holder is r equire d or not to possess a cer tificate. And, sec tion 13.250(d)

7 specifie s the terms on which a reta il p u b lic utilit y

that “has not be en g rante d a ce rtificate ” may discontinue servic e, i.e., “ with approva l of the re g ulatory authority .” Id . § 13 .2 50 (d ). I t is al so consistent with the s tatutory scheme and the concept of protec ted servic e ar eas that Carrollton follow the same pr oc e ss f

or de c e rt if ic a tio n a s f

or iss ua nc e of c e rt if ic a te s. Section 13.254 of the water c ode, which g oes unmentioned in Carr ollton’s b rief, speaks dire ctly

to the cer

tificate c ance llation process for all holders. Id
. § 13
. 2 5 4
. E n t i t led “Revoc ation or Amendme nt of Certificate,” it re quires that, o n c e th e Co mm is s io n is sues a c ertificate, it may c anc e l it only afte r notice and hear ing: “The commission at any time after notice and hearing may revoke or ame nd any cer tificate of public convenie nce a nd nece ssity

with the written conse nt of the cer tificate holder
. . . .” Id
. (empha sis added)
. The Com mission has promulgate d regulations imp le me nti ngthi s n oti c e -a nd -h e ari ngre qu ir e me nt. To c a n c e l a c e r t i f i c a te , a re ta il p ub lic uti lity

mus t file a pe tition t o canc el with the Commiss i on and mail notice to its customers and othe r af fec ted30 Tex. Admin. C ode § 291.115(b) (2004). The definitions of “re tail public utilit y ” and 8 “utility ” in Cha

pter 291, Title 30 of the Te x as Administrative Code ar e identica l to the definitions in the water

code. Se e id . § 291.3 (2004). 16 parties. I f an a ffe cted pa rty reque sts a hear i n g, t h e ca s e is ref err ed to the State Of

fice of 8 Administrative Hea

ring s to conduct a hear ing and make a rec ommendation to the Commi ssion. The water code doe s not allow the Commis sion to cance l unle ss it deter mines that neither the prese nt nor future convenienc e and nece ssity will be adver sely aff ecte d. Id
. § 13.250(b). As with the issuance of a c e rt if ic a te , in makin g its de te rm inatio n to gr ant or de ny de c e rt if ic a tio n, the Com mis sio n mu st consider va

rious fac tors, including the eff ect on the customers, the availability of alter nate sourc es of se rv ic e fo r the are a , and the fe a sib ili ty of c us tom e rs ob ta ini ngse rv ic e fr om a lte rn a te pr ov ide rs . 30 Tex. Admin. C ode § 291.115(i) ( 2004).

The leg islature may

regulate the activities of hom e rule cities throug h g ener al statutes when it does so with unmistakable c larit y . I t has done so he re w ith its compre hensive re g ulatory framework and express provisions reg ardingthe issuance and ca ncellation of c ertificates, which the Commi s s i o n h as implemented throug h its rules. The code provides no other mecha nism for the
canc ellation of ce rt i fi cate s. That this is the sole process c ontemplated by the leg islature for
canc elling a

cer tificate is as clear and unmistakable as is the application of the re g ulatory framework to h ome ru le mun ic ipa lit ie s.

Even apar t f rom the clea

r and unmistakable lang uag e of the various provisions of the
wate r c od e , c a se law c on fi rm s th a t th e re g ulator y pr ov isi on s c on c e rn ingret a il p ub lic uti lity
cer tificates a re a pplicable to h o me rule municipa lities. I n City of B ro wns v ill e v . P ub lic Ut ili ty Commission , Br ownsville, a hom e rule municipality , argued that it was not subject t o the jurisdictionThe statute at issue in City of B ro wns v ill e , PURA se c tio n 50( 2) , is the pr e de c e sso r s ta tut e 9 to Texas W ater

Code section 13.242(a ). See Act of May 25, 1985, 69th L eg ., R.S., ch. 795, § 3.005, 1985 Tex. Gen. L aws 2719, 2799. 17 of the Commission under the PURA relating to the ex t en s i on of ser vice into a c ertificated ar ea of another reta il public utilit y . 616 S.W .2d at 406-07. The question was the same as that ra ised here : wh e the r t he te rm “ re ta il p ub lic uti lity ” c le arl y and un mis taka

bly inc lud e d home ru le c iti e s so a s to lim it the ir ple na ry po we rs . Id . at 407. Our sister c ourt conc luded t h at t h e p ro vision clearly and 9 unmistakably limit ed the power of the c ity to ext end ser

vice to ar eas be ing se rved by other utilities
and c on sti tut e d “ a

pe rm iss ibl e le g isl a tiv e lim itatio n on th e oth e rw ise ple na ry po we rs of

ho me ru le cities.” Id . As this Court st ated in Public Utility Commission v. South P lains Electric Cooperative :

“ [M]un ic ipa lly -o wn e d u til iti e s, a s r e ta il pub lic uti lit ie s, are no dif fe re nt fr om any

oth e r r e ta il p ub lic utilit ies with respe ct to cer tificates of

public convenie nce a

nd nece ssity .” 635 S.W.2d 954, 956-57 (Tex. App.—Austin 1982, writ ref’ d n.r.e.)
.

Be cause Carrollton is a home rule municipality and it passed a

resolution to canc el it s cert if ic a te , it c on te nd s th a t th e Com mis sio n’ s d e te rm inatio n to su bje c t it s “ le g isl a tiv e a c ts t o
re vie w a nd a dj ud ica ti on ” fu

rt he r v iol a te s th e c on sti tut ion a l do c tr ine of se pa ratio n o f p ow e rs . Carrollton contends that the Commission must g ive “a ppropriate defe renc e” to Car rollton’s “leg islative act.” Even a part fr om the leg islature’s c lear i n t en t t o require eve ry holder of a
cer tificate—w hether

require d to possess one or not—to underg o the notice- and-he aringproce ss, the Commi ssion’s conduct does not violate the separ ation-of- powers d octrine. B y its langua g e, Carrol lt o n ’ s r e s o luti o n me r e ly “ r a ti f ie s s ta f f a c ti o n s ” in s u

b mi tt in g th e a

p p li c a ti o n to the18

Commi ssion “seeking t o dece rtify ” the c ertificate, and it authorizes the city attorney to repre sent Carrollton befor e the Commissio n “to continue to re prese nt to [ the Commiss ion] that the City no longe r wishes to hold [it s cer tificate].” There is no conflict between the proce sses and proc edure s
mand a te d b y

the Com mis sio n a

nd the pr on ounc e me nt o f t

he Carr oll ton

c ity c ounc il. Moreove r, unlike an o rd i n ance , a re solution i s not a law, but an e x pression of a n opinion. See , e.g. , City o f Hu t chins v. Prasifka , 450 S.W .2d 829, 832 (Tex. 1970); City of San Antonio v. Mick

lejohn , 33 S.W . 735, 736 (Tex. 1895). Ther e is no langu age i n the re solution ref lecting a leg islative act of the council, but r ather it a ppear s to be a ratification of prior sta ff a ction and an a uthorization t o proce ed bef ore the Commi ssion. The resolution does not co nstitut e a leg islative act a s to invoke the specte r of a violation of the separ ation-of- power s doctrine. We a re persua ded that the leg islature cle arly and unmistakably

intended to apply

the
canc ell ation provisions of Chapter 13 to home r ule municipalities. The home r ule amendme nt sp e c if ic a lly pr ov ide s that no ho me ru le c ity “ c ha rt e r o r a ny or din anc e pa sse d und e r s a id c ha rt e r s ha ll contain any provision inconsistent with the C onstitut ion of t he S tate or of t he g ener al laws e nacte d by the L e g isl a tur e of thi s Stat e .” Te x. Con st. art . XI , § 5. We f ind Carr oll ton ’s c ha

rt e r, the ho me
r u l e a m e n d m e n t , an d

t h e C o m m i s s i o n ’ s a

u t h o r i t y t o i s s u e a n d c a n c e l c e rt i f i c a t e s e n t i r e l y i nh ar

m o n y. Whil e home r

ule cities g ener ally

need not look to the leg islature for power to a ct, the leg islature may impo s e li mi tati o n s o nth e ir a b il it y to a c t o u ts id e th e ir

b o u n d ar ie s . Wi th

th e c o mp r e h e n sive reg ulato r y f r a me w o r k o f th e w a te r c o d e , it h a s d o n e s o h e r e b y g r an ti n g th e Co mm is sion the
e xclu siv e a

uth or ity to i ssu e and

c anc e l w a te r c e rt if

ic a te s.19 CO NC LU SION Whil e we re c og nize that le g isl a tiv e a c tio n is no t w ith ou t bo un ds and that ho me ru le cities maintain the plenar y power s of self g overnme nt, w e conclude that the leg islature has spoke n with unmist akable clar ity in specify

ing that all holders of water c ertificates o f co n v enienc e and
nece ssity are subject t o the not ice and hear ing provisions of t he water code for the ca ncellation of their ce rti f

ic a te s . F o r th e f

o r e g o in g r e a s o n s , w e c o n c lu d e th a t th e Co mm is s io n ’ s a c ti o n s d o not violate the sepa

ration-of -powe rs doctrine of the Te x as Constitut ion, t h e wa ter c ode or loc al g overnme nt code, the pow ers de leg ated to the Commi ssion, or its own rules. We overrule the issues pr e se nte d b y

the City of Carr oll ton

and a ff ir m th e jud g me nt o f t

he dis tr ic t c ourt
.

__________________________________________ J an P. Patterson, J ustice Be fore Chief J ustice L aw, Justi ces Patter son and Pury ear Affir med Filed: Jul y

22, 2005