MEGAN NEAL (512) 475-4009

ASSISTANT ATTORNEY GENERAL megan.neal@texasattorneygeneral.gov

P OST OFFICE B OX 12548, A USTIN , TEXAS 78711-2548 TEL : (512)463-2100 WWW . TEXASATTORNEYGENERAL . GOV

An Equal Employment Opportunity Employer · 

April 20, 2015

Honorable Jeffrey D. Kyle, Clerk Via Electronic Filing

Court of Appeals, Third District of Texas

P.O. Box 12547

Austin, TX 78711-2547

Re: No. 03-14-00340-CV,

Appellants, CPS Energy, Time Warner Cable Texas LLC, and Southwestern

Bell Telephone Company d/b/a AT&T// Cross-Appellant Public Utility

Commission of Texas,

v. Appellee, Public Utility Commission of Texas// Cross Appellee, CPS

Energy, Time Warner Cable Texas LLC, and Southwestern Bell Telephone

Company d/b/a AT&T.

Dear Mr. Kyle:

In preparation for oral argument in this case, we determined the Court does not

have jurisdiction to decide one of the issues. CPS Energy does not have standing to

question the Commission’s declarations regarding amendments to the applicable federal

regulation. (CPS Energy’s Appellant’s Point of Error No. 2; Findings of Fact 84-87;

Conclusion of Law 27.) Those amendments became effective on June 8, 2011—several

months after the time period for which the Commission determined the maximum

allowable pole-attachment rate. That period ended with CPS Energy’s test year 2009,

billing year 2010. Thus, the Court cannot review this issue.

This Court and the Texas Supreme Court have held that statements about the

future are advisory and a party does not have standing to complain about them. The two

attached cases demonstrate these holdings. Please provide copies to the Court.

ACCEPTED

03-14-00340-CV

4961132

THIRD COURT OF APPEALS

AUSTIN, TEXAS

4/20/2015 5:45:55 PM

JEFFREY D. KYLE

CLERK

 FILED IN 3rd COURT OF APPEALS AUSTIN, TEXAS 4/20/2015 5:45:55 PM JEFFREY D. KYLE Clerk
Hon. Jeffrey Kyle Page 2

April 20, 2015

Thank you for your assistance.

 /s/ Megan Neal 

Megan Neal

Assistant Attorney General

State Bar No. 24043793

(512) 475-4009 Tel.

(512) 457-4639 Fax

cc: Counsel of record w/ attachments

Stephen Journeay - PUC

Certificate of Service

I certify that a true and correct copy of this document was electronically filed with

the Court of Appeals for the Third District of Texas. All counsel were served with a true

and correct copy of this document electronically or by email on the 20th day of April,

2015, to the following: 

Alfred R. Herrera 

Felipe Alonso III 

HERRERA & BOYLE, PLLC 

816 Congress Avenue, Suite 1250 

Austin, TX 78701 

(512) 474-1492 

(512) 474-2507 (fax) 

aherrera@aherreraboylelaw.com 

falonso@aherreraboylelaw.com

Curt D. Brockman 

CPS Energy 

145 Navarro 

P. O. Box 1771 

San Antonio, TX 78296

(210) 353-5689 

(210) 353-6832 (fax) 

cdbrockmann@cpsenergy.com 

Attorneys for CPS Energy

Michael T. Sullivan 

MAYER BROWN LLP 

71 S. Wacker Drive 

Chicago, IL 60606 

(312) 782-0600 

(312) 706-8689 (fax) 

msullivan@mayerbrown.com

Joseph E. Cosgrove, Jr. 

Katherine C. Swaller 

Thomas Ballo 

AT&T LEGAL DEPARTMENT 

816 Congress Avenue, Suite 1100 

Austin, TX 78701 

(512) 457-2304 

(512) 870-3420 (fax) 

joseph.cosgrove.jr@att.com 

katherine.swaller@att.com 

thomas.ballo@att.com
Hon. Jeffrey Kyle Page 3

April 20, 2015

Valerie P. Kirk 

Melissa Lorber

ENOCH KEVER PLLC 

600 Congress Avenue, Suite 2800 

Austin, TX 78701 

(512) 615-1200 

(512) 615-1198 (fax) 

vkirk@enochkever.com 

mlorber@enochkever.com 

Attorneys for Time Warner 

Paul A. Drummond

Natalie L. Hall 

AT&T LEGAL DEPARTMENT 

1010 N. St. Mary’s, Rm 14Q 

San Antonio, TX 78215

(210) 351-4830 

(210) 886-2127 (fax) 

paul.drummond@att.com

natalie.hall@att.com 

Attorneys for AT&T

John Davidson Thomas 

Paul A. Werner 

James Aaron George 

SHEPPARD MULLIN RICHTER &

HAMPTON LLP 

2099 Pennsylvania Ave., N.W. 

Suite 100 

Washington, D.C. 20006 

(202) 747-1900 

(202) 747-1901 (fax) 

dthomas@sheppardmullin.com 

pwerner@sheppardmullin.com 

ageorge@sheppardmullin.com 

Attorneys for Time Warner

 /s/ Megan Neal 

Megan Neal
Briefs and Other Related Documents

Judges and Attorneys

Only the Westlaw citation is currently

available.

SEE TX R RAP RULE 47.2 FOR DESIGNATION AND SIGNING OF OPINIONS.

MEMORANDUM OPINION

Court of Appeals of Texas,

Austin.

The RAILROAD COMMISSION OF

TEXAS, Appellant

v.

CENTERPOINT ENERGY RESOURCES

CORP. d/b/a CenterPoint Energy Entex

and CenterPoint Energy Texas Gas, Appellee.

The Railroad Commission of Texas, Appellant

v.

Texas Gas Service Company, a Division of

ONEOK, Inc., Appellee.

The Railroad Commission of Texas, Appellant

v.

CenterPoint Energy Resources Corp. d/b/a

CenterPoint Energy Entex and CenterPoint

Energy Texas Gas, Appellee.

Nos. 03–13–00533–CV,

03–13–00534–CV, 03–13–00535–CV.

Aug. 14, 2014.

From the District Court of Travis County,

98th Judicial District, No.

D–1–GN–10–003981, Stephen Yelenosky,

Judge Presiding.

From the District Court of Travis County,

200th Judicial District, No.

D–1–GN–10–003983, Stephen Yelenosky,

Judge Presiding.

From the District Court of Travis County,

126th Judicial District, No.

D–1–GN–10–003982, Stephen Yelenosky,

Judge Presiding.

Douglas Fraser, Assistant Attorney General, Environmental Protection Division,

Kellie E. Billings, Assistant Attorney General, Environmental Protection & Admin.

Law Division, Austin, TX, for Appellant.

Dane McKaughan, Greenberg Traurig,

LLP, Austin, TX, for Appellee.

Before Justices PURYEAR, GOODWIN,

and FIELD.

MEMORANDUM OPINION

MELISSA GOODWIN, Justice.

*1 The Texas Railroad Commission

(the Commission) appeals the trial court's

reversal in part of its final orders in three

annual review proceedings under costof-service adjustment (COSA) tariffs involving essentially identical issues. CenterPoint Energy Resources Corp. d/b/a

CenterPoint Energy Entex and CenterPoint

Energy Texas Gas (CenterPoint) and Texas

Gas Service Company, a Division of

ONEOK, Inc. (Texas Gas) (the Utilities)

sued for judicial review of final orders issued by the Commission denying the Utilities' recovery of certain expenses for meals,

lodging, and other items and ordering certain guidelines for recovery of similar expenses in future COSA reviews. Because

we conclude that the Utilities' claims are

not ripe, we reverse the trial court's judgment and dismiss the Utilities' claims.

FACTUAL AND PROCEDURAL

BACKGROUND

In April 2010, the Utilities applied for

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cost-of-service adjustments to their rates

pursuant to annual reviews authorized under their respective COSA tariffs for certain service areas. Rates for the affected

customers were initially determined in contested case hearings that resulted in the adoption of tariffs with COSA clauses. A

COSA clause is a formula included in a

utility's tariff that allows adjustments to

customer charges without the necessity of a

full-blown “Statement of Intent” rate case.

See Texas Coast Utils. Coal. v. Railroad

Comm'n, 423 S.W.3d 355, 357, 374

(Tex.2014) (upholding authority of Commission to adopt gas utility rate schedule

providing for automatic annual adjustments

based on increases or decreases in utility's

cost of service, i.e., COSA clause). The

terms of a COSA clause vary depending on

what is approved as part of the tariff in the

rate case. The tariffs in these cases provide

that the annual rate adjustment is to be determined by a calculation based on calendar year operating expenses, return investment, and certain taxes. If the resulting

change is positive, the amount charged

goes up; if it is negative, the amount

charged goes down. The adjustment is

capped at 5% of the customer charge that

was in effect at the end of the preceding

calendar year in CenterPoint's tariffs and at

the percentage change in the Consumer

Price Index for All Urban Consumers in

Texas Gas's tariff. These were the first

COSA filings made by the Utilities under

their respective tariffs.

A COSA tariff annual review is a

streamlined procedure that does not include

a hearing; instead, the adjustment is determined following staff review of the

evidence filed by the utility. In each of the

present cases, the Commission questioned

and ultimately disallowed certain expenses

for meals, travel, and other items for which

the Utilities could not produce itemized receipts. FN1 In its final orders, the Commission made certain findings of fact and conclusions of law concerning the disallowed

expenses and included two “ordering paragraphs” requiring the Utilities to meet certain evidentiary criteria for recovery of

similar expenses in the future.FN2 The two

ordering paragraphs provided:

FN1. The removal of the disputed

expenses did not result in any

change to the Utilities' proposed adjustments, and the record reflects

that the Utilities withdrew their requests for the questioned expenses.

FN2. In each case, calculation errors not relevant to this appeal were

corrected and a nunc pro tunc order

issued.

*2 IT IS FURTHER ORDERED that

[the Utilities] shall not include any employee or contractor expenses from employee or contractor expense reports reimbursement in future COSA filings that

cannot be supported by a detailed itemized receipt which shows the specific

amounts and line item charges.

IT IS FURTHER ORDERED that [the

Utilities] shall identify and justify each

meal expense that exceeds $25.00 per

person and any lodging expense over

$150.00 per person per night that [the

Utilities] propose[ ] to include in future

COSAs.

The Utilities filed motions for rehearing complaining that the findings of fact,

conclusions of law, and ordering paragraphs concerning the disallowed expenses

were statements of new policy, not backed

by any rule or guideline, and were therefore made through unlawful procedure, arPage 2

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bitrary and capricious, and not supported

by substantial evidence. The Commission

denied the motions for rehearing, and the

Utilities filed suits for judicial review asserting the same claims. See Tex. Util.Code

§ 105.001(a) (any party to proceeding before Commission entitled to judicial review

under substantial evidence rule). The Commission filed motions to dismiss based, in

part, on its contention that the Utilities

were requesting advisory opinions because

their claims are not ripe. The trial court

denied the Commission's motions to dismiss and reversed the final orders, finding

that the Commission acted arbitrarily and

capriciously by imposing a new policy in

the orders and that the policy was made

through unlawful procedure and was not

supported by substantial evidence. These

appeals followed.

DISCUSSION

In its first issue, the Commission argues that the Utilities' claims are not ripe

and they therefore seek an impermissible

advisory opinion.FN3 The Commission

contends that the Utilities request a predetermination of a hypothetical matter that

could arise in the future, which is not a

matter fit for judicial consideration. The

Utilities argue that the orders “expressly

appl [y] ... to future COSA proceedings,”

“mandate the manner in which all future

rate adjustments filed pursuant to the applicable COSA tariff will be resolved,” and

“fundamentally change the way in which

COSA adjustments are calculated in future

COSA proceedings.” They further contend

that the orders place “obligations and burdens on [them] now, and that failure to

abide by these new obligations and burdens

could bar recovery in a future COSA proceeding.” Thus, the Utilities contend, they

seek real relief and an opinion that will affect “all COSA cases [they] will file in the

future,” not an advisory opinion.

FN3. The Commission also contends that the Utilities lack standing

because in their motions for rehearing, they did not challenge the

Commission's final decisions on

rate adjustments and instead attacked only the underlying findings

of fact and conclusions of law. This

Court has held that to have standing

to seek judicial review, one must be

aggrieved by the final order and not

merely by an underlying finding or

conclusion, see GTE Sw. Inc. v.

Public Util. Comm'n of Tex., 37

S.W.3d 546, 548 (Tex.App.-Austin

2001, no pet.) (citing Champlin Exploration, Inc. v. Railroad Comm'n,

627 S.W.2d 250, 252

(Tex.App.-Austin 1982, writ ref'd

n.r.e.)). However, the Utilities' motions for rehearing expressly challenged the ordering paragraphs as

well as the findings and conclusions. We overrule the Commission's first issue as to this argument.

“The courts of this state are not empowered to give advisory opinions[, and]

[t]his prohibition extends to cases that are

not yet ripe.” Patterson v. Planned Parenthood of Hous. & Se. Tex., Inc., 971 S.W.2d

439, 443 (Tex.1998) (citations omitted).

The ripeness doctrine “serves to avoid premature adjudication” and “focuses on

whether the case involves ‘uncertain or

contingent future events that may not occur

as anticipated, or indeed may not occur at

all.’ “ Perry v. Del Rio, 66 S.W.3d 239,

250 (Tex.2001) (citations omitted). “A case

is not ripe when its resolution depends on

contingent or hypothetical facts, or upon

events that have not yet come to pass.”

Patterson, 971 S.W.2d at 443. “Ripeness is

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both a question of timing, that is, when one

may sue, a question of discretion, or

whether the court should hear the suit, and

not whether it can hear the suit.” Atmos

Energy Corp. v. Abbott, 127 S.W.3d 852,

858 (Tex.App.-Austin 2004, no pet.)

(internal citations omitted) (citing Perry,

66 S.W.3d at 249–50; Patterson, 971

S.W.2d at 442; City of Waco v. Texas Natural Res. Conserv. Comm'n, 83 S.W.3d

169, 177 (Tex.App.-Austin 2002, pet.

denied)). “In the administrative-law context, moreover, avoiding premature litigation over administrative determinations

prevents courts from ‘entangling themselves in abstract disagreements over administrative policies' while simultaneously

allowing the agency to perform its functions unimpeded.” Trinity Settlement

Servs., LLC v. Texas State Secs. Bd., 417

S.W.3d 494, 506 (Tex.App.-Austin 2013,

pet. denied) (quoting Patterson, 971

S.W.2d at 443). The determination of ripeness depends on “(1) the fitness of the issues for judicial decision; and (2) the hardship occasioned to the party by the court's

denying judicial review.” Atmos Energy,

127 S.W.3d at 858 (citing Perry, 66

S.W.3d at 250 (citing Abbott Labs. v.

Gardner, 387 U.S. 136, 149, 87 S.Ct. 1507,

18 L.Ed.2d 681 (1967); City of Waco, 83

S.W.3d at 177)). Ripeness should be decided on the basis of all the information

available to the court, and we may consider

intervening events that occur after the decision in the lower court. Perry, 66 S.W.3d

at 250; 13 Charles Alan Wright, Arthur R.

Miller, & Edward H. Cooper, Federal

Practice & Procedure § 3532.1, at 136–37

(2d ed.1984).

*3 We do not believe the Utilities have

affirmatively established that the issues

they presented were fit for review and that

the failure to address those issues would

constitute a hardship on the Utilities. See

Perry, 66 S.W.3d at 250; Atmos Energy,

127 S.W.3d at 858. Whether there may be

an actual controversy between the Utilities

and the Commission is too uncertain and

speculative to support the Utilities' contention that their claims are ripe. Because the

Utilities complain of future enforcement,

they must show that enforcement is

“imminent or sufficiently likely.” See Trinity Settlement, 417 S.W.3d at 506; Rea v.

State, 297 S.W.3d 379, 383

(Tex.App.-Austin 2009, no pet.) (to establish ripeness, plaintiffs must demonstrate

injury is imminent, direct, and immediate,

not merely remote, conjectural, or hypothetical); Atmos Energy, 127 S.W.3d at 856

; City of Waco, 83 S.W.3d at 175. A perceived threat of enforcement does not create a justiciable controversy. Compare Mitz

v. Texas State Bd. of Veterinary Med. Exam'rs, 278 S.W.3d 17, 25

(Tex.App.-Austin 2008, pet. dism'd), with

Beacon Nat'l Ins. Co. v. Montemayor, 86

S.W.3d 260, 267–68 (Tex.App.-Austin

2002, no pet.).

The Utilities attempt to characterize

their claims as ripe by arguing that the language of the ordering paragraphs will require them to meet evidentiary requirements in all future annually required COSA

filings and that the orders place

“obligations and burdens” on them now.

Tellingly, however, the Utilities argue that

their failure to meet these obligations and

burdens could bar recovery in a future

COSA proceeding. This perceived threat as

to future COSA filings does not rise to the

level of imminent or likely injury so as to

present a justiciable claim. See Mitz, 278

S.W.3d at 25 (contrasting actual initiation

of administrative action suggesting imminent proceeding in that case with mere perceived threat in Beacon Nat'l, 86 S.W.3d at

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267–68). And while we may consider intervening events that occur after a decision in

the lower court, see Perry, 66 S.W.3d at

250, the Utilities have not presented any

evidence that the Commission has taken

any steps to impose the requirements on

them since issuing the final orders or that

there is any existing or continuing threat of

liability or penalty. Cf. Mitz, 278 S.W.3d at

25–26 (constitutional claim ripe for review

considering continuing threat of civil and

criminal liability against practitioners and

direct effect act had on business enterprise); Patel v. Texas Dep't of Licensing &

Regulation, No. 03–11–00057–CV, 2012

Tex.App. LEXIS 6187, at *23,2012 WL

3055479 (Tex.App.-Austin July 25, 2012,

pet. granted) (constitutional claims ripe

where appellants subject to continuing

threat of civil and criminal liability, as well

as administrative penalties and sanctions).

Thus, the Utilities have not established that

enforcement is imminent or sufficiently

likely, see Trinity Settlement, 417 S.W.3d

at 506; Atmos Energy, 127 S.W.3d at 856;

City of Waco, 83 S.W.3d at 175, and we

conclude that the Utilities' issues are not fit

for judicial review, see Perry, 66 S.W.3d at

250; Atmos Energy, 127 S.W.3d at 858.

*4 To prevail, the Utilities must show

that they would suffer hardship if judicial

review is withheld until enforcement of the

requirements in the ordering paragraphs.

See Perry, 66 S.W.3d at 250; Atmos Energy, 127 S.W.3d at 858. Hardship is

shown when the statute, rule, or policy at

issue “ ‘requires an immediate and significant change in the plaintiffs' conduct of their

affairs with serious penalties attached to

noncompliance.’ “ Mitz, 278 S.W.3d at 26

(quoting Abbott Labs. v. Gardner, 387 U.S.

136, 153, 87 S.Ct. 1507, 18 L.Ed.2d 681

(1967)). When the requirement at issue has

a direct and immediate impact on the

party's business and places it in jeopardy of

sanction or penalty, that is sufficient to

show a hardship. Id.; Atmos Energy, 127

S.W.3d at 859.

Here, the ordering paragraphs require

the Utilities to present itemized receipts

and identify and justify certain expenses if

they want the Commission to allow their

inclusion in the calculation of future adjustments. Documenting and justifying expenses to be included in rate calculations

does not constitute “a significant change in

[the Utilities'] conduct.” See Abbott Labs.,

387 U.S. at 153; Mitz, 278 S.W.3d at 26;

see also 18 C.F.R. pt. 201, General Instructions, (2) Records (A) (Federal Energy

Regulatory Commission's (FERC's) Uniform System of Accounts (USOA)

(providing utilities shall keep books and records “so as to be able to furnish readily

full information as to any item included in

any account” and support each entry shall

“by such detailed information as will permit ready identification, analysis, and verification of all facts relevant thereto”); 16

Tex. Admin. Code § 7.310(a) (Railroad

Comm'n of Tex., System of Accounts

(requiring gas utilities to use FERC's

USOA for all operating and reporting purposes); Tex. Util.Code § 104.008(1) (in

proceeding involving rate change proposed

by utility, utility has burden of proving rate

change is just and reasonable); City of Amarillo v. Railroad Comm'n, 894 S.W.2d

491, 498 (Tex.App.-Austin 1995, writ

denied) (in any proceeding to change rates,

utility bears burden of proof to show rate

change and components thereof, such as

operating expenses, are just and reasonable).

Moreover, the Utilities have not made

the requisite showing of hardship. See

Perry, 66 S.W.3d at 250; Atmos Energy,

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127 S.W.3d at 859–60. Significantly, they

are not aggrieved by the Commission's disallowance of undocumented expenses,

which did not result in any changes to their

requested rates. Nor do they face any other

sanction or penalty for noncompliance. See

Atmos Energy, 127 S.W.3d at 859

(concluding appellants were not in jeopardy of sanction or penalty because violation of statute carried no sanction or penalty). Likewise, here, the Utilities face no

sanction or penalty for failure to comply

with the requirements because the ordering

paragraphs include no provision for sanctions or penalties. Id.; cf. Mitz, 278 S.W.3d

at 26 (appellants showed hardship where

they faced continuing threat of civil and

criminal liability). As noted above, the

Utilities argue that failure to meet the requirements could bar recovery in the future. Even assuming future recovery of

some expenses is actually barred at some

point, the inability to recover all expenses

does not necessarily harm the Utilities. In

fact, even after the questioned expenses

were deducted because the Utilities were

unable to present the required documentation, the Utilities' requested rates were not

affected, and the Commission approved

their requested rates. Nor is it certain that

the Utilities will request the expenses at issue in future COSA filings; in these cases,

they withdrew the questioned expenses and

nonetheless received the requested rates.

Thus, the Utilities are not faced with the

dilemma of compliance or sanction, and

they have failed to show the requisite hardship. See Perry, 66 S.W.3d at 250; Atmos

Energy, 127 S.W.3d at 859–60.

*5 Because the Utilities have failed to

establish a justiciable controversy, we sustain the Commission's first issue as to ripeness. We therefore do not reach the Commission's second issue as to the merits of

the trial court's judgment. See Tex.R.App.

P. 47.1 (appellate court opinions should be

as “brief as practicable”), 47 .4

(memorandum opinions should be “no

longer than necessary to advise the parties

of the court's decision and the basic reasons for it”).

CONCLUSION

Having concluded that these cases are

not fit for judicial decision and that denial

of the requested relief will not constitute a

hardship on the Utilities, we reverse the

judgment and dismiss the Utilities' claims.

Tex.App.-Austin,2014.

Railroad Com'n of Texas v. CenterPoint

Energy Resources Corp.

Not Reported in S.W.3d, 2014 WL

4058727 (Tex.App.-Austin)

Briefs and Other Related Documents (Back

to top)

• 2014 WL 644359 (Appellate Brief) Brief

of Appellee Centerpoint Energy Resources

Corp., d/b/a Centerpoint Energy Entex and

Enterpoint Energy Texas Gas (Feb. 10,

2014) Original Image of this Document

with Appendix (PDF)

• 2014 WL 644360 (Appellate Brief) Brief

of Appellee Texas Gas Service Company, a

Division of Oneok, Inc. (Feb. 10, 2014)

Original Image of this Document with Appendix (PDF)

• 2014 WL 644361 (Appellate Brief) Brief

of Appellee Centerpoint Energy Resources

Corp., d/b/a Centerpoint Energy Entex and

Centerpoint Energy Texas Gas (Feb. 10,

2014) Original Image of this Document

with Appendix (PDF)

• 2013 WL 6712920 (Appellate Brief)

Amended Brief of Railroad Commission of

Texas (Dec. 10, 2013) Original Image of

this Document with Appendix (PDF)

• 2013 WL 6712921 (Appellate Brief)

Page 6

Not Reported in S.W.3d, 2014 WL 4058727 (Tex.App.-Austin)

(Cite as: 2014 WL 4058727 (Tex.App.-Austin))

© 2015 Thomson Reuters. No Claim to Orig. US Gov. Works.
Amended Brief of Railroad Commission of

Texas (Dec. 10, 2013) Original Image of

this Document with Appendix (PDF)

• 2013 WL 6712922 (Appellate Brief)

Amended Brief of Railroad Commission of

Texas (Dec. 10, 2013) Original Image of

this Document with Appendix (PDF)

Judges and Attorneys(Back to top)

Judges | Attorneys

Judges

• Field, Hon. Scott K.

State of Texas Court of Appeals, 3rd District

Austin, Texas 78701

Litigation History Report | Judicial Reversal Report | Judicial Expert Challenge

Report | Profiler

• Goodwin, Hon. Melissa Young

State of Texas Court of Appeals, 3rd District

Austin, Texas 78701

Litigation History Report | Judicial Reversal Report | Judicial Expert Challenge

Report | Profiler

• Puryear, Hon. David E.

State of Texas Court of Appeals, 3rd District

Austin, Texas 78701

Litigation History Report | Judicial Reversal Report | Judicial Expert Challenge

Report | Profiler

• Yelenosky, Hon. Stephen Andrew

State of Texas District Court, 345th District

Austin, Texas 78701

Litigation History Report | Judicial Reversal Report | Judicial Expert Challenge

Report | Profiler

Attorneys

Attorneys for Appellant

• Fraser, Douglas Burt

Austin, Texas 78701

Litigation History Report | Profiler

Attorneys for Appellee

• McKaughan, Dane

Austin, Texas 78701

Litigation History Report | Profiler

END OF DOCUMENT

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© 2015 Thomson Reuters. No Claim to Orig. US Gov. Works.
Briefs and Other Related Documents

Oral Argument Transcripts with Streaming

Media

Judges and Attorneys

Supreme Court of Texas.

TXU ELECTRIC COMPANY, et al., Appellants,

v.

PUBLIC UTILITY COMMISSION OF

TEXAS, et al., Appellees.

No. 00–0936.

Argued Jan. 31, 2001.

Decided June 6, 2001.

Rehearing Overruled Aug. 30, 2001.

Incumbent electric utility and intervenors

appealed decision by the Public Utility Commission (PUC) on financing for recovery of

utility's regulatory assets and stranded costs

during deregulation to competitive market. The

250th District Court, Travis County, reversed

and remanded in part. Appeal was taken. The

Supreme Court, Owen, J., held that: (1) the

PUC could employ a second present value test

to determine whether tangible and quantifiable

benefits to ratepayers were provided by securitization through bonds secured by transition

charges; (2) the PUC was required to assume

that, absent securitization, regulatory assets

and stranded costs would be recovered through

competition transition charges in less than

forty years; (3) it was not required to use the

weighted average life of six years over which

utility's transition bonds would be outstanding;

(4) it lacked the discretion to consider utility's

regulatory assets on an asset-by-asset basis; (5)

it may apply the rate design methodology established in an utility's last rate design case to

the data in that rate case, rather than to more

current data; and (6) in an opinion by Hecht,

J., the PUC was not required to reallocate

overpayments or underpayments of transition

charges by any one class among all customers.

Affirmed in part, reversed in part, and remanded.

Owen, J., dissented in part and filed opinion joined by Enoch and Baker, JJ.

*275 Opinion by Justice Owen

West Headnotes

[1] Electricity 145 8

145 Electricity

145k2 Electric Companies

145k8 k. Indebtedness, liens, and mortgages. Most Cited Cases

Public Utility Commission (PUC) could

employ a second present value test to determine whether tangible and quantifiable benefits

to ratepayers were provided by securitization

through bonds secured by incumbent electric

utility's transition charges to recover regulatory assets and stranded costs during deregulation to competitive market, but the PUC was

required to assume that, absent securitization,

regulatory assets and stranded costs would be

recovered through competition transition

charges in considerably less than forty years.

V.T.C.A., Utilities Code §§ 39.201, 39.262,

39.301, 39.303(a).

[2] Electricity 145 8

145 Electricity

145k2 Electric Companies

145k8 k. Indebtedness, liens, and mortgages. Most Cited Cases

Public Utility Commission (PUC) was not

required to use the weighted average life of six

years over which incumbent electric utility's

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transition bonds would be outstanding for the

recovery of regulatory assets and stranded

costs during deregulation to competitive market; rather, to determine whether the amount

securitized would exceed the present value of

the revenue requirement over the life of the

proposed transition bond associated with the

regulatory assets or stranded costs sought to be

securitized, the PUC could take into account

the actual timing of bond payments until the

last payment is made on the oldest bond after

twelve years. V.T.C.A., Utilities Code §

39.301.

[3] Electricity 145 8

145 Electricity

145k2 Electric Companies

145k8 k. Indebtedness, liens, and mortgages. Most Cited Cases

Public Utility Commission (PUC) lacked

the discretion to consider incumbent electric

utility's regulatory assets on an asset-by-asset

basis in determining the amount to be securitized through transition bonds for the recovery

of regulatory assets and stranded costs during

deregulation to competitive market; rather, the

PUC was required to consider regulatory assets

in the aggregate to determine whether those assets met the requirements for securitization

and could not categorically exclude certain

types of regulatory assets from securitization.

V.T.C.A., Utilities Code §§ 39.301, 39.303(a).

[4] Electricity 145 11.5(1)

145 Electricity

145k11.5 Discrimination and Overcharge

145k11.5(1) k. In general. Most Cited

Cases

(Formerly 145k11.3(1))

Public Utility Commission (PUC) may apply the rate design methodology established in

an incumbent electric utility's last rate design

case to the data in that rate case, rather than to

more current data, in order to establish demand

allocation factors that determine how transition

charges are to be allocated among classes of

customers in connection with deregulation to

competitive market. V.T.C.A., Utilities Code

§§ 39.253(c-h).

[5] Electricity 145 8

145 Electricity

145k2 Electric Companies

145k8 k. Indebtedness, liens, and mortgages. Most Cited Cases

Finding and conclusion by Public Utility

Commission (PUC) on adjustment for loss on

reacquired debt in future proceeding involving

electric utility were advisory and premature.

[6] Electricity 145 11.5(1)

145 Electricity

145k11.5 Discrimination and Overcharge

145k11.5(1) k. In general. Most Cited

Cases

Public Utility Commission (PUC) was not

required to reallocate overpayments or underpayments of transition charges by any one

class among all customers of incumbent electric utility and thereby fully cross-collateralize

responsibility for the transition to a competitive market; rather, it could engage in a nonstandard true-up of reallocating transition

charges among classes. V.T.C.A., Utilities

Code §§ 39.253, 39.307.

*276 Roy Q. Minton, Minton Burton Foster &

Collins, Robert J. Hearon, Jr., Mary A. Keeney

, Graves Dougherty Hearon & Moody, Austin,

Robert A. Wooldridge, Robert M. Fillmore,

Howard V. Fisher, Worsham Forsythe

Wooldridge, Dallas, for Appellant.

*277 Thomas K. Anson, Sheinfeld Maley &

Kay, Geoffrey M. Gay, Lloyd Gosselink Blevins Rochelle, Austin, Alan W. Harris, Dallas,

Marianne Carroll, David B. Gross, Carroll &

Gross, Andrew Kever, Bickerstaff Heath SmiPage 2

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ley Pollan Kever & McDaniel, Mark C. Davis,

Brickfield Burchette & Ritts, James K. Rourke

, Thomas Lane Brocato, Suzi Ray McClellan,

Office of Public Utility Counsel, Steven Baron

, Office of Attorney General of Texas, John

Cornyn, Attorney General of the State of

Texas, Jeffrey S. Boyd, Karen Watson Kornell,

Douglas Fraser, Bryan L. Baker, Office of the

Attorney General, Jonathan Day, Lino Mendiola, Mayor Day Caldwell & Keeton, Diane

Barlow–Sparkman, Mark W. Smith, J. Kay

Trostle, Elizabeth H. Drews, James G. Boyle,

Law Office of Jim Boyle, Austin, for Appellee.

PER CURIAM.

In 1999, the Legislature amended the Public Utility Regulatory Act (PURA) to usher in

deregulation of retail electric utility rates in

Texas. FN1 As part of that plan, the Legislature concluded that, subject to certain restrictions, an existing utility like TXU Electric

Company may recover amounts that the PURA

defines as “regulatory assets” by using securitization financing. Securitization is accomplished through a financing order issued by the

Commission that authorizes a utility to issue

transition bonds. The transition bonds are repaid or secured by transition charges to ratepayers in a utility's service area. TXU requested the Commission to issue a financing order

securitizing certain of its regulatory assets.

The Commission authorized securitization of

some but not all of those assets. A district

court reversed the Commission's order in part

and remanded the case for further proceedings.

TXU and others bring this direct appeal to our

Court.FN2

FN1. Act of May 27, 1999, 76th Leg.,

R.S., ch. 405, 1999 Tex. Gen. Laws

2543.

FN2. TEX. UTIL.CODE § 39.303(f)

(providing that review of financing orders under the PURA are to be directly

appealed from the district court to this

Court).

We hold that: 1) in order to ensure that securitization provides tangible and quantifiable

benefits to ratepayers greater than would have

been achieved absent the issuance of transition

bonds,FN3 the Commission may apply a

present value test in addition to the present

value and revenue requirement tests expressly

set forth in sections 39.301 and 39.303(a) of

the PURA; 2) in applying an additional present

value test, the Commission should assume that

recovery of regulatory assets and stranded

costs absent securitization would occur in substantially less than forty years; 3) the Commission must consider regulatory assets that a utility seeks to securitize in the aggregate to determine whether those assets meet the requirements for securitization and cannot categorically exclude certain types of regulatory assets

from securitization; 4) section 39.253 permits

the Commission to apply the rate design methodology established in a utility's last rate

design case to the data in that rate case rather

than to more current data, in order to establish

demand allocation factors that determine how

transition charges are to be allocated among

classes of customers; 5) the Commission is authorized by section 39.307 to adopt a nonstandard true-up provision that reallocates

transition charges among classes of customers

in a manner that differs from the allocation

procedures set forth in section 39.253; 6) none

of the other issues regarding allocation of

transition costs among classes of customers

has *278 merit; and 7) certain findings of fact

and conclusions of law by the Commission are

advisory. Accordingly, we affirm the judgment

of the district court in part, reverse it in part,

and remand this case to the Commission for

further proceedings. Justice Owen's concurring

opinion is the opinion of the Court with respect to the issues that it addresses, and Justice

Hecht's concurring opinion is the opinion of

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the Court with respect to the issues that it addresses.

FN3. All statutory references are to the

Texas Utilities Code, unless otherwise

indicated.

Justice OWEN filed a concurring opinion, in

which Chief Justice PHILLIPS, Justice

HECHT, Justice ENOCH, Justice BAKER,

Justice ABBOTT, Justice HANKINSON, and

Justice JEFFERSON joined.

Justice HECHT filed a concurring opinion, in

which Chief Justice PHILLIPS, Justice ABBOTT, Justice HANKINSON, and Justice

JEFFERSON joined.

Justice OWEN filed a dissenting opinion, in

which Justice ENOCH and Justice BAKER

joined.

Justice O'NEILL did not participate in the decision.

Justice OWEN, joined by Chief Justice PHILLIPS, Justice HECHT, Justice ENOCH,

Justice BAKER, Justice ABBOTT, Justice

HANKINSON, and Justice JEFFERSON, concurring.

In 1999, the Legislature determined that

partial deregulation of the electric power industry was in the public interest. To that end,

the Legislature amended the Public Utility

Regulatory Act (PURA).FN1 In City of Corpus

Christi v. Public Utility Commission,FN2 also

decided today, we describe in some detail the

sections of the PURA that permit an electric

utility to securitize regulatory assets and stranded costs as part of the transition to marketbased retail electric rates. We need not repeat

that discussion here.

FN1. Act of May 27, 1999, 76th Leg.,

R.S., ch. 405, 1999 Tex. Gen. Laws

2543.

FN2. 51 S.W.3d 231 (Tex.2001).

TXU Electric Company filed an application with the Public Utility Commission for a

financing order in which TXU sought to securitize $1.65 billion in regulatory assets and other costs and proposed to write off about $285

million in regulatory assets. The Commission

allowed TXU to securitize $363 million of regulatory assets. TXU and several of the fortyfour parties who had intervened in the proceedings before the Commission appealed to

district court in Travis County. The district

court held that: 1) the Commission did not err

in applying a present value test in addition to

the present value and revenue requirement

tests set forth in sections 39.301 and 39.303(a)

of the PURA; 2) the Commission had the discretion to consider TXU's regulatory assets on

an asset-by-asset basis in determining whether

securitization would provide tangible benefits

to ratepayers; 3) the Commission should have

examined how long it would take TXU to recover the regulatory assets at issue under the

regulatory scheme established by the 1999

amendments to the PURA rather than under

the previously existing regulatory scheme; 4)

the Commission was not required to use the

average life of the transition bonds that would

be issued under the financing order in calculating the maximum amount that TXU could securitize; 5) the Commission's Finding of Fact

113 and references to that finding in Conclusion of Law 41 and Ordering Paragraph 37, regarding future treatment of reacquired debt securitized under the financing order, are advisory and have no res judicata effect; and 6) the

Commission did not *279 err in its treatment

of certain rate design, allocation, and true-up

issues.

TXU, the Commission, the State of Texas,

the Office of Public Utility Counsel, Texas Industrial Energy Consumers, Texas Retailers

Association, the Steering Committee of Cities

Served by TXU, the Coalition of Independent

Colleges and Universities, and Nucor Steel, a

division of Nucor Corporation, appealed dirPage 4

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ectly to this Court pursuant to section

39.303(f) of the PURA.

I

[1] One of the principal issues in this appeal is how to determine the amount of regulatory assets that a utility may securitize under

the PURA. Section 39.303(a) says that when a

utility applies to recover its regulatory assets

and eligible stranded costs, the Commission

shall adopt a financing order upon finding that

“the total amount of revenues to be collected

under the financing order is less than the revenue requirement that would be recovered over

the remaining life of the stranded costs using

conventional financing methods and that the

financing order is consistent with the standards

in Section 39.301.” FN3 The parties disagree

about what constitute “the standards in Section

39.301.” Specifically, the parties diverge on

how the Commission is to carry out section

39.301's directive that it “shall ensure that securitization provides tangible and quantifiable

benefits to ratepayers, greater than would have

been achieved absent the issuance of transition

bonds.” FN4

FN3. TEX. UTIL.CODE § 39.303(a).

FN4. Id. § 39.301.

A

Section 39.301 and the relevant parts of

section 39.303 provide:

§ 39.301 Purpose

The purpose of this subchapter is to enable

utilities to use securitization financing to recover regulatory assets and stranded costs,

because this type of debt will lower the carrying costs of the assets relative to the costs

that would be incurred using conventional

utility financing methods. The proceeds of

the transition bonds shall be used solely for

the purposes of reducing the amount of recoverable regulatory assets and stranded

costs, as determined by the commission in

accordance with this chapter, through the refinancing or retirement of utility debt or

equity. The commission shall ensure that securitization provides tangible and quantifiable benefits to ratepayers, greater than

would have been achieved absent the issuance of transition bonds. The commission

shall ensure that the structuring and pricing

of the transition bonds result in the lowest

transition bond charges consistent with market conditions and the terms of the financing

order. The amount securitized may not exceed the present value of the revenue requirement over the life of the proposed transition bond associated with the regulatory assets or stranded costs sought to be securitized. The present value calculation shall use

a discount rate equal to the proposed interest

rate on the transition bonds. FN5

FN5. Id.

§ 39.303. Financing Orders; Terms

(a) The commission shall adopt a financing

order, on application of a utility to recover

the utility's regulatory assets and eligible

stranded costs under Section 39.201 or

39.262, on making a finding that the total

amount of revenues to be collected under the

financing order is *280 less than the revenue

requirement that would be recovered over the

remaining life of the stranded costs using

conventional financing methods and that the

financing order is consistent with the standards in Section 39.301.

(b) The financing order shall detail the

amount of regulatory assets and stranded

costs to be recovered and the period over

which the nonbypassable transition charges

shall be recovered, which period may not exceed 15 years.

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* * *

(e) The commission shall issue a financing

order under Subsections (a) and (g) not later

than 90 days after the utility files its request

for the financing order.FN6

FN6. Id. § 39.303(a), (b), (e).

All parties agree that there are at least two

limitations on the maximum amount of regulatory assets or stranded costs that can be securitized. One limitation is found in the last

two sentences of section 39.301. They require

a present value test. The present value test expressly set forth in section 39.301 examines

the revenue requirement over the life of the

bonds, which under the PURA cannot exceed

fifteen years.FN7

FN7. Id. § 39.302(6).

Another limitation on the amount that may

be securitized is the revenue requirement test

required by section 39.303(a). All parties agree

that under that provision, the total revenues to

be collected under the financing order, including the costs of issuing and servicing the

bonds, must be less than the revenue requirement using conventional financing methods

over the remaining life of the assets, which in

this case is presently up to forty years. There is

no present value test component in determining whether the total revenue requirement is

met. The revenue requirement in total dollars

over the life of the bonds is compared with the

revenue requirement in total dollars over the

remaining life of the regulatory assets.

The Commission and other parties to this

appeal have taken the position that there is a

third limitation on the amount that may be securitized. They contend that in order for the

Commission to discharge its obligation to

“ensure that securitization provides tangible

and quantifiable benefits to ratepayers, greater

than would have been achieved absent the issuance of transition bonds,” the Commission is

required to ascertain the present value of the

revenue requirements of the regulatory assets

without securitization, using the actual scheduled life of the assets under the regulatory

scheme as it existed before the 1999 amendments to the PURA. The Commission maintains that it is then required to compare the

outcome of that analysis with the present value

computation specified in the final two sentences of section 39.301 to see if securitization

results in a greater benefit to ratepayers.

The revenue requirement over the fortyyear remaining life of the assets that TXU

seeks to securitize was about $2.467 billion.

Using the interest rates that TXU expected

would apply to the transition bonds, the revenue requirement of the bonds was about $124

million less than $2.467 billion. Using TXU's

“worst case” scenario for interest rates, the

revenue requirement of the bonds was about

$100,000 less than the $2.467 billion. TXU

thus meets the revenue requirement test.

However, the Commission argues that when

the present value of transition charges collected over the twelve-year life of the transition

bonds is compared with the present value of

payment for the regulatory assets over their

*281 forty-year life through utility rates, it can

be seen that securitization will harm, not benefit, ratepayers. The Commission's financing order in this case reflects that if a remaining life

of up to forty years for the regulatory assets is

used in a present value analysis, the increased

cost to ratepayers could be $204 million. Some

of the intervenors assert that increased costs

could be as much as $500 million, using a

forty-year life without taking into account other benefits that there might be to ratepayers.

TXU takes the position that the Commission is not authorized to engraft onto the

PURA's securitization provisions a present

value test that is different from or in addition

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to the present value test expressly set forth in

section 39.301. TXU contends that the only

computations that the Legislature intended to

be performed in determining the amount to be

securitized are the two computations to be performed under sections 39.301 and 39.303(a),

which are the present value calculation required by the last two sentences of section

39.301 and the total revenue test under section

39.303(a). TXU contends that the requirement

that ratepayers receive a tangible and quantifiable benefit from securitization is measured by

these tests and other considerations. TXU says

that there are quantifiable benefits to ratepayers from securitizing the $1.65 billion of regulatory assets because to meet the total revenue

test in section 39.303(a) and the present value

test set forth in the last two sentences of section 39.301, TXU would write off and never

recover from ratepayers approximately $285

million in regulatory assets.

The district court adopted somewhat of a

middle ground. It concluded that the Commission had the discretion to apply a second

present value test to determine whether securitization provides “tangible and quantifiable

benefits” within the meaning of section 39.301

. But the district court differed with the Commission about how the second present value

test should be calculated. The district court

concluded that the phrase “absent the issuance

of transition bonds” in section 39.301 required

the Commission to base its second present

value calculation “on the asset recovery period

that exists under the new regulatory scheme”

of the PURA. More specifically, the district

court held that the Commission's second

present value test could not “lawfully be based

upon the recovery periods under the earlier

system of rate regulation that provided for asset lives up to 40 years.”

For the reasons considered below, we conclude that the district court's construction of

sections 39.301 and 39.303(a) best comports

with the express provisions of the PURA. We

agree with the district court that the Commission is authorized to impose a second present

value test in determining the amount of regulatory assets or stranded costs that can be securitized, but in determining present value

“absent the issuance of transition bonds,” the

Commission should use a remaining life for

the assets that is far less than forty years. The

PURA contemplates that the transition to “a

fully competitive electric power industry” FN8

will span considerably less than forty years.

FN8. Id. § 39.001(a).

B

We begin our analysis with the text of section 39.301. As indicated above, the sentence

that gives rise to the controversy says, “The

commission shall ensure that securitization

provides tangible and quantifiable benefits to

ratepayers, greater than would have been

achieved absent the issuance*282 of transition

bonds.” FN9 The first question that must be

answered in order to satisfy this statutory requirement is what would happen to the regulatory assets at issue if they were not securitized.

FN9. Id. § 39.301.

The PURA provides that if a utility does

not securitize all or some of its regulatory assets and stranded costs, they can be recovered

through nonbypassable “competition transition

charge[s].” FN10 Section 39.201(k) gives the

Commission discretion to determine the length

of time over which regulatory assets and stranded costs may be recovered by this method. FN11 All parties, including the Commission,

agree that the Commission could shorten the

remaining life over which regulatory assets

and stranded costs will be recovered to a time

period far less than the remaining life of up to

forty years that those assets and costs would

have had absent the 1999 amendments to the

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PURA. The determination of the appropriate

recovery period would occur in a rate proceeding that is separate from securitization.

FN10. Id. § 39.201.

FN11. Id. § 39.201(k).

A large part of the regulatory assets that

TXU seeks to securitize are Statement of Financial Accounting Standard (SFAS) 109 assets. SFAS 109 assets essentially represent

amounts that TXU would have recovered under the former regulatory scheme from ratepayers over a period of forty years to pay federal income taxes that it will owe in connection with expenditures it made in the past that

were capitalized instead of expensed. The

Commission asks this Court to authorize a

present value test for these assets based on a

remaining life of forty years even though the

Commission knows that in all probability, under section 39.201(k), it will shorten the remaining life to something far less than forty

years. Notwithstanding the Commission's recognition of this fact, it maintains that the district court erred in requiring it to use a remaining life of less than forty years because amount

of any reduction to the forty-year recovery

period has yet to be determined. The Office of

Public Utility Counsel similary argues says

that “the essential problem with the lower

court's position is that neither TXU, the District Court, or anyone else can state with any

level of precision over what period the nonsecuritized assets will be recovered.”

Although there may be some uncertainty as

to precisely how much the Commission would

shorten the recovery period for the regulatory

assets at issue if they were not securitized, that

uncertainty does not justify the use of a fortyyear life. The PURA contemplates a far shorter

recovery period for regulatory assets and other

stranded costs that are not securitized but are

instead recovered through competition transition charges. Each electric utility was required

to file by April 1, 2000 proposed tariffs that included any expected competition transition

charges. All or any part of a utility's regulatory

assets that are not securitized can be recovered

through competition transition charges.FN12

Section 39.201(k) sets forth the factors that the

Commission is to consider in determining the

length of time over which stranded costs, including regulatory assets, will be recovered. FN13 The PURA indicates that a *283 considerable portion of these costs are to have been

recovered within the two-year period after customer choice begins on January 1, 2002.FN14

Section 39.201(l ) provides for a true-up proceeding in January 2004 in which adjustments

may be made to recover “any remaining stranded costs.” FN15 The Commission may extend

the collection period for competition transition

charges, if necessary.FN16 This indicates that

the recovery period for the competition transition charge initially set by the Commission

will be a relatively short period of time, and

that any extension will likewise be a relatively

short period of time. Section 39.262 contemplates that if, during the 2004 true-up proceeding, there are stranded costs in addition to

those previously estimated, those remaining

costs can be added to the amounts to be recovered by competition transition charges, or

at the utility's option, securitized through

bonds that cannot have a life longer than fifteen years.FN17 The fact that a utility may securitize remaining stranded costs and regulatory assets, but over a period of time not to exceed fifteen years,FN18 indicates that the Legislature had something considerably less than

forty years in mind for the transition to “a fully

competitive electric power industry.” FN19

FN12. See id. § 39.201(i).

FN13. Section 39.201(k) provides:

(k) In determining the length of time

over which stranded costs under SubPage 8

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section (h) may be recovered, the

commission shall consider:

(1) the electric utility's rates as of the

end of the freeze period;

(2) the sum of the transmission and

distribution charges and the system

benefit fund fees;

(3) the proportion of estimated stranded costs to the invested capital of the

electric utility; and

(4) any other factor consistent with

the public interest as expressed in this

chapter.

Id. § 39.201(k).

FN14. Section 39.102(a) provides that

customer choice begins, with certain

exceptions not material here, on January 1, 2002. Id. § 39.102(a).

FN15. Section 39.201(l) says:

Two years after customer choice is

introduced, the stranded cost estimate

under this section shall be reviewed

and, if necessary, adjusted to reflect a

final, actual valuation in the true-up

proceeding under Section 39.262. If,

based on that proceeding, the competition transition charge is not sufficient, the commission may extend the

collection period for the charge or, if

necessary, increase the charge. Alternatively, if it is found in the trueup proceeding that the competition

transition charge is larger than is

needed to recover any remaining

stranded costs, the commission

may:....

Id. § 39.201(l).

FN16. Id.

FN17. Section 39.262(c) provides:

(c) After January 10, 2004, at a

schedule and under procedures to be

determined by the commission, each

transmission and distribution utility,

its affiliated retail electric provider,

and its affiliated power generation

company shall jointly file to finalize

stranded costs under Subsections (h)

and (i) and reconcile those costs with

the estimated stranded costs used to

develop the competition transition

charge in the proceeding held under

Section 39.201. Any resulting difference shall be applied to the nonbypassable delivery rates of the transmission and distribution utility, except that at the utility's option, any or

all of the remaining stranded costs

may be securitized under Subchapter

G.

Id. § 39.262(c). The recovery period

for transition charges under the

PURA's securitization scheme is limited to fifteen years by section

39.303(b), and the life of transition

bonds is similarly limited to fifteen

years by section 39.302(6). Id. §§

39.303(b), 39.302(6).

FN18. Id. § 39.303(b).

FN19. Id. § 39.001(a).

Statements made by PUC Commissioners

at an open meeting in this case are consistent

with our understanding of the Legislature's intent. Those Commissioners indicated that competition transition charges, which would be the

method for recovering regulatory assets and

stranded costs absent securitization, would be

collected over a period of time that would be

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unlikely to exceed fifteen years and that *284

could be as few as eight years. Those statements are not binding, but they indicate that

the Commission understands that the Legislature did not intend for the transition to a fully

competitive market to be protracted.

We therefore conclude that the district

court did not err in holding that the Commission could employ a present value test in addition to the present value test expressly set forth

in section 39 .301, but that the Commission

must assume that absent securitization, regulatory assets and stranded costs would be recovered through competition transition charges

in considerably less than forty years.

II

[2] The financing order in this case approved the issuance of a series of transition

bonds with differing maturity dates TXU explains that this was designed to allow its regulatory assets to be securitized at the lowest

overall interest rate on the best possible terms,

and no one takes issue with that assertion. The

bonds' maturity dates range from one to twelve

years after their issuance. TXU contends that

in performing the present value test set forth in

the last two sentences of section 39.301,

FN20

the Commission should have used the

weighted average life over which the bonds

will be outstanding, which would be approximately six years, rather than twelve years. We

approve of the Commission's methodology.

FN20. The last two sentences of section

39.301 provide:

The amount securitized may not exceed the present value of the revenue

requirement over the life of the proposed transition bond associated with

the regulatory assets or stranded costs

sought to be securitized. The present

value calculation shall use a discount

rate equal to the proposed interest rate

on the transition bonds.

Id. § 39.301.

The Commission's method of calculating

present value takes into account the actual timing of bond payments until the last payment is

made on the oldest bond. The Commission

concluded, and we agree, that accounting for

the actual timing of payments is necessary to

determine present value. TXU's averaging

method does not mathematically account for

transition charges that will be collected until

the last of the series of transition bonds matures twelve years from the date of issuance.

III

[3] Another significant issue presented is

whether, in determining the amount to be securitized, the Commission must consider the

regulatory assets or other stranded costs to be

securitized in the aggregate or, instead, may

conduct an asset-by-asset analysis. We conclude that the Commission must consider regulatory assets in the aggregate for the same

reasons expressed in Corpus Christi.FN21

FN21. 51 S.W.3d at 231 – 255.

Briefly, what is at issue in this case are regulatory assets that do not currently earn a return. The majority of TXU's regulatory assets

fall into this category. Among TXU's regulatory assets that earn no return are approximately $1.45 billion in SFAS 109 assets. As explained above, these assets essentially represent amounts that TXU would have recovered

under the former regulatory scheme from ratepayers to pay federal income taxes that it will

owe, when it recovers through rates, expenditures it made in the past that were capitalized

instead of expensed.

Some of TXU's regulatory assets do earn a

return, as much as 13.637 percent. The proposed interest rate on TXU's transition bonds

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was 7.24 percent. Accordingly,*285 there was

considerable room to aggregate some of TXU's

regulatory assets that earned no return with

regulatory assets that earn a relatively high rate

of return and still have a net benefit to ratepayers from securitization.

The State of Texas, the Office of Public Utility

Counsel, and Texas Industrial Energy Consumers have taken the position that to maximize the benefit of securitization to ratepayers,

all regulatory assets that do not earn a rate of

return should be declared ineligible for securitization. The State and those aligned with it on

these issues contend that each regulatory asset

must be analyzed on a stand-alone basis to determine if securitization of that asset benefits

ratepayers. As we explain in Corpus Christi,

the PURA does not support that position.FN22

The PURA says that all regulatory assets are to

be securitized on application of a utility, subject to the requirement that “the total amount

of revenues to be collected under the financing

order” meets certain requirements.FN23 The

PURA defines “regulatory asset” with specificity.FN24 Regulatory assets are defined

with reference to a utility's 1998 Securities and

Exchange Commission Form 10–K, which lists

regulatory assets. A utility is entitled to securitize 100 percent of its regulatory assets,FN25

subject only to the tests in sections 39.303(a)

and 39 .301.FN26 The present value test in

section 39.301 ensures that a utility will not recover a return on these assets higher than the

return it would receive under the existing regulatory scheme. Neither the present value test

nor the requirement in section 39.301 that the

Commission “ensure that securitization

provides tangible and quantifiable benefits to

ratepayers, greater than would have been

achieved absent the issuance of transition

bonds” FN27 authorizes the Commission to

“maximize” benefits to ratepayers by refusing

to securitize certain types of regulatory assets

when 100 percent of regulatory assets are

“qualified costs” under the PURA.FN28

FN22. Id.

FN23. TEX. UTIL.CODE § 39.303(a).

FN24. Id. § 39.302(5).

FN25. Id. §§ 39.302(4), 39.201(i)(1).

FN26. Id. §§ 39.303(a), 39.301.

FN27. Id. § 39.301.

FN28. Id. § 39.302(4).

The district court erred in concluding that the

Commission has the discretion to consider regulatory assets on an asset-by-asset basis. Because the Commission did not consider the

regulatory assets and other costs that TXU

sought to securitize in the aggregate, the Commission must do so on remand.

IV

[4] A number of parties have challenged the

manner in which the Commission allocated

transition charges among customer classes.

TXU proposed and the Commission adopted

seven regulatory asset recovery classes for

purposes of collecting transition charges.

Those classes and the regulatory asset allocation factors assigned to each under section

39.253 are:

Class: Allocation Factor:

Residential 41.2705%

General Service—Secondary 44.7323%

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General Service—Primary 5.8982%

High Voltage Service 2.7875%

Lighting Service 0.6836%

Instantaneous Interruptible 1.8568%

Noticed Interruptible 2.7711%

Total 100.0000%

Nucor Steel is in the Instantaneous Interruptible regulatory asset recovery class. Nucor

Steel is a nonfirm, also known as an interruptible, customer on TXU's system. A utility may

interrupt service to an interruptible customer

for specified reasons, typically during periods

of high demand from other customers on that

utility's system. Texas Industrial Energy Consumers *286 (TIEC) is a voluntary association

of companies that operates industrial facilities

in TXU's service area. Nucor Steel and TIEC

take issue with how the Commission determined the percentage of transition costs each

customer class would bear. Nucor Steel and

TIEC assert that the Commission should have

used the more current, 1999 data rather than

the data used in TXU's most recent rate-design

case, which was 1997 data.

The pertinent section of the PURA is

39.253(c)-(h).FN29 As we explain in greater

detail in Corpus Christi,FN30 the allocation of

stranded costs under section 39.253 has two

basic components. One is determined by applying the same “methodology used to allocate

the costs of the underlying assets in the electric

utility's most recent commission order addressing rate design.” FN31 The other is the energy

consumption of the respective classes FN32

“based on the relevant class characteristics as

of May 1, 1999, adjusted for normal weather

conditions.” FN33 The question presented here

is whether the Commission should apply the

same methodology used in TXU's last rate

design case to the data used in that rate case, or

whether the Commission is free to choose

more recent data.FN34

FN29. Id. § 39.253(c)-(h).

FN30. 51 S.W.3d at 257.

FN31. Tex. Util.Code § 39.253(c)-(e).

FN32. Id. § 39.253(c).

FN33. Id. § 39.253(g).

FN34. Cf. Corpus Christi, 51 S.W.3d at

259.

We conclude in Corpus Christi and in this

case that the PURA is unclear in this regard. FN35 In such a situation, we give some deference to the Commission as long as its interpretation of a code provision is a reasonable

one and does not conflict with the code's language.FN36 The Commission construed section 39.253 to mean that the methodology used

in a utility's last rate design case is to be applied to the data used in that rate case. That is

a reasonable construction of the PURA that

does not contradict any of its language, and we

agree with the Commission's construction.

FN35. Id.

FN36. See Stanford v. Butler, 142 Tex.

692, 181 S.W.2d 269, 273 (1944)

(observing that courts will ordinarily

adopt and uphold a construction placed

upon a statute by a department charged

with its administration if the statute is

ambiguous or uncertain, and the construction is reasonable); Texas Ass'n of

Long Distance Tel. Cos. v. Pub. Util.

Comm'n, 798 S.W.2d 875, 884

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(Tex.App.—Austin 1990, writ denied)

(observing that construction of a statute

by an administrative agency charged

with its enforcement is entitled to great

weight, particularly if the statute is ambiguous, so long as the agency's construction is reasonable and does not

contradict the plain language of the

statute); TEX. GOV'T CODE §

311.023(6) (providing that in construing a statute, whether or not the statute

is considered ambiguous on its face, a

court may consider the administrative

construction of the statute).

V

Several parties who are also parties in Corpus Christi raise many of the same issues in

both cases.FN37 Our decision in CP & L resolves each of these issues, and we will not

lengthen this opinion by reiterating all the

reasons for our holdings. We instead briefly

summarize each issue and our disposition.

FN37. Those parties include the Office

of Public Utility Counsel, Texas Industrial Consumers, and Nucor Steel, who

filed an amicus brief with this Court in

Corpus Christi.

Certain of TXU's customers assert that the

Commission failed to follow section 39.253 in

allocating transition costs to the *287 non-firm

industrial customer classes. They contend that

the Commission erred in applying the 150 percent demand allocator required by section

39.253(d) FN38 to all the transition costs

rather than first subtracting the transition costs

allocated to residential customers. We hold in

this case, as we do in Corpus Christi, that section 39.253 is ambiguous in this regard and

that the Commission's construction is a reasonable one and should be accorded deference.

FN38. TEX. UTIL.CODE § 39.253(d)

(requiring that “[n]on-firm industrial

customers shall be allocated stranded

costs equal to 150 percent of the

amount allocated to that class”).

TIEC says that in determining how much

of the transition costs should be allocated to

the industrial classes, the Commission should

have excluded load lost when customers

switched to sources of power that exempt them

from paying transition charges.FN39 Again,

for the reasons we consider in Corpus Christi,

we reject that argument.FN40

FN39. See id. § 39.262(k).

FN40. 51 S.W.3d at 259 – 261.

VI

[5] Several parties to this appeal, including

the Commission, contend that the district court

erred when it held that the Commission's Finding of Fact 113 and references to that finding

in Conclusion of Law 41 and Ordering Paragraph 37 were “advisory and superfluous to

the Order and therefore [have] no res judicata

effect.” The finding of the Commission that is

at issue concerned loss on reacquired debt.

TXU reacquired preferred stock and highcost debt before the maturity date of that debt

by paying a premium. The loss TXU sustained

in those transactions is included in the definition of regulatory assets under the PURA, and

the Commission allowed TXU to include loss

on reacquired debt as part of the amount securitized in the financing order. This same loss on

reacquired debt is also reflected as an increase

in TXU's cost of capital, and that in turn increases TXU's rate of return. The Commission

and others were concerned that TXU would

enjoy a double recovery of its losses. Responding to that concern, the Commission concluded

that loss on reacquired debt “should not be removed from [TXU's] cost-of-capital calculation for purposes of the annual report submitted pursuant to PURA § 39.257,” but that inPage 13

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stead an adjustment should be made in future

proceedings.FN41 In the Financing Order,

Finding of Fact 113, the Commission said that:

FN41. Tex. Pub. Util. Comm'n, Application of TXU Electric Company for

Financing Order to Securitize Regulatory Assets and Other Qualified Costs,

Docket No. 21527 (May 2, 2000).

[A]n adjustment should be made in the true

up proceeding under PURA § 39.262 to account for the effect of securitizing the loss on

reacquired debt on [TXU's] cost of capital.

This treatment is necessary to comply with

the Legislature's mandate in PURA §

39.262(a) that a utility and its affiliates “may

not be permitted to overrecover stranded

costs” by using any of the methods provided

in Chapter 39 [§ 39.262(a) ]. In addition, any

determinations regarding the effect of securitizing loss on reacquired debt on the calculation of stranded costs should not be made in

this docket but should be made in [TXU's]

cost unbundling case under PURA § 39.201.

FN42

FN42. Id. (footnote omitted).

We agree with the district court that this

was an advisory and premature finding.*288

Whether an adjustment is required in a true-up

or other future proceeding should await resolution in that proceeding.

* * * * *

For the reasons considered above, we conclude that: 1) in order to ensure that securitization provides tangible and quantifiable benefits

to ratepayers greater than would have been

achieved absent the issuance of transition

bonds, the Commission may apply a present

value test in addition to the present value and

revenue requirement tests expressly set forth in

sections 39.301 and 39.303(a) of the PURA; 2)

in applying an additional present value test, the

Commission should assume that recovery of

regulatory assets and stranded costs absent securitization would occur in substantially less

than forty years; 3) the Commission must consider regulatory assets that a utility seeks to securitize in the aggregate to determine whether

those assets meet the requirements for securitization and cannot categorically exclude certain types of regulatory assets from securitization; 4) section 39.253 permits the Commission to apply the rate design methodology established in a utility's last rate design case to

the data in that rate case rather than to more

current data, in order to establish demand allocation factors that determine how transition

charges are to be allocated among classes of

customers; 5) none of the other issues regarding allocation of transition costs among classes

of customers has merit; and 6) certain findings

of fact and conclusions of law by the Commission are advisory.

Justice HECHT, joined by Chief Justice PHILLIPS, Justice ABBOTT, Justice HANKINSON

, and Justice JEFFERSON, concurring.

We join fully in the Court's judgment and

in JUSTICE OWEN's concurring opinion. This

is the opinion of the Court regarding the validity of the “non-standard true-up” included in

the Public Utility Commission's financing order for TXU Electric Company.

[6] The financing order for TXU contains a

non-standard true-up procedure essentially

identical to the one in the financing order for

Central Power and Light Company, which we

approve today in City of Corpus Christi v.

Public Utility Commission, 51 S.W.3d 231

(Tex.2001). A Commission witness testified

that if any TXU customer class experienced a

decrease in power usage of more than six to

nine percent, that class would be “at risk for a

cascading loss scenario.” The arguments for

and against that procedure in this case are the

same as those made in Corpus Christi with one

exception. Nucor Steel, one of TXU's largest

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customers, argues that any overpayments or

underpayments of transition charges by any

one class should be reallocated among all

TXU's customers, thereby fully crosscollateralizing responsibility for the transition

as TXU proposed to the Commission. Without

deciding whether the Commission was empowered to depart this far from the allocation

requirements of section 39.253, we easily conclude that the Commission was not required to

adopt this approach instead of the somewhat

more restricted non-standard true-up. For the

same reasons explained in our concurring

opinion in that case, we approve of the nonstandard true-up procedure in this case.

Justice OWEN, joined by Justice ENOCH and

Justice BAKER, dissenting.

The financing order for TXU contains a

non-standard true-up provision that is virtually

identical to the non-standard true-up provision

at issue in *289City of Corpus Christi v. Public Utility Commission,FN1 which the Court

also decides today. For the reasons set forth in

my dissent in that case, I also dissent from the

Court's approval of the non-standard true-up

procedure in TXU's financing order.

FN1. 51 S.W.3d 231 (Tex.2001).

Tex.,2001.

TXU Elec. Co. v. Public Utility Com'n of

Texas

51 S.W.3d 275, Util. L. Rep. P 26,789, 44 Tex.

Sup. Ct. J. 854, 44 Tex. Sup. Ct. J. 1126

Briefs and Other Related Documents (Back to

top)

• 00-0936 (Docket) (Sep. 11, 2000)

Oral Argument Transcripts with Streaming

Media (Back to top)

• 2001 WL 36161699 (Oral Argument) Oral

Argument (Jan. 31, 2001)

Judges and Attorneys(Back to top)

Judges | Attorneys

Judges

• Abbott, Hon. Michael

State of Texas Municipal Court, City of Vidor

Vidor, Texas 77662

Litigation History Report | Judicial Reversal

Report | Profiler

• Enoch, Craig T.

Litigation History Report | Judicial Reversal

Report | Profiler

• Hankinson, Hon. Deborah G.

Litigation History Report | Judicial Reversal

Report | Profiler

• Hecht, Hon. Nathan L.

State of Texas Supreme Court

Austin, Texas 78701

Litigation History Report | Judicial Reversal

Report | Judicial Expert Challenge Report |

Profiler

• Jefferson, Hon. Wallace B.

Litigation History Report | Judicial Reversal

Report | Profiler

• O'Neill, Hon. Alice

State of Texas Municipal Court, City of Houston

Houston, Texas 77002-1553

Litigation History Report | Judicial Reversal

Report | Judicial Expert Challenge Report |

Profiler

• Owen, Hon. Priscilla Richman

United States Court of Appeals, Fifth Circuit

New Orleans, Louisiana 70130-3408

Litigation History Report | Judicial Reversal

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Report | Judicial Expert Challenge Report |

Profiler

Attorneys

Attorneys for Appellant

• Fillmore, Hon. Robert M.

Unknown State

Litigation History Report | Profiler

• Hearon, Robert J. Jr.

Austin, Texas 78701

Litigation History Report | Profiler

• Keeney, Mary A.

Austin, Texas 78701

Litigation History Report | Profiler

• Minton, Roy Q.

Austin, Texas 78701-2198

Litigation History Report | Profiler

Attorneys for Appellee

• Anson, Thomas K.

Austin, Texas 78701

Litigation History Report | Profiler

• Baker, Bryan Lawrence

Austin, Texas 78701

Litigation History Report | Profiler

• Baron, Steven

Austin, Texas 78763

Litigation History Report | Profiler

• Boyd, Hon. Jeffrey S.

Unknown State

Litigation History Report | Profiler

• Brocato, Thomas L.

Austin, Texas 78701

Litigation History Report | Profiler

• Carroll, Marianne

Austin, Texas 78701-4093

Litigation History Report | Profiler

• Cornyn, John

Washington, District of Columbia 20510

Litigation History Report | Profiler

• Davis, Mark C.

Austin, Texas 78701-2415

Litigation History Report | Profiler

• Day, Jonathan

Houston, Texas 77002

Litigation History Report | Profiler

• Drews, Elizabeth H.

Austin, Texas 78701-4093

Litigation History Report | Profiler

• Gay, Geoffrey M.

Austin, Texas 78701

Litigation History Report | Profiler

• Gross, David B.

Ridgeland, Mississippi 39157-8766

Litigation History Report | Profiler

• Kever, Andrew

Austin, Texas 78701

Litigation History Report | Profiler

• Mendiola, Lino III

Austin, Texas 78701

Litigation History Report | Profiler

• Rourke, James K. Jr.

Austin, Texas

Litigation History Report | Profiler

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END OF DOCUMENT

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