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

NO. 03-10-00633- CV

Cente rP oint En ergy Houston Electr ic, LLC, Appellan t

v. P ubl ic Utility Com m ission of T exas, Appellee

DIRECT AP P EAL F ROM TH E P UB LIC UTILI TY CO MM ISSI ON OF TEXAS

O P I N I O N

I n this direc t appea l, we consider a challeng e to the validity of a rule promulg ated by the Public Utility Commi ssion g overning elec tric utilit ies’ implementation of statutorily mandated

ener g y -ef ficienc y prog rams desig ned to reduc e elec tricity consumption. See 16 Tex. Admin. Code § 25.181 (2011) (Pub. Util. Comm’n, Energ y Effic iency Goal). Appellant, CenterPoint Energ y 1 Houston Electric , L L C (“Cente rPoint”), co n t en d s that section 39.905 of the Public Utiliti es Reg ulation Act (“PURA”) require s that the Commi ssion i n clude a “lost-re venue adjustment mecha nism” (“L RAM”) in r

ule 25.181 and that the Commi ssion’s f ailure to do so rende rs the rule invalid. See Tex. Util. Code Ann. § 39.905 (West Supp. 2010). CenterPoint alterna tively contends that rule 25.181 is invalid beca use the Commi ss i o n ’s fa i lure to include an L RAM as part of

I n addition to the Commi ssion, three intervenor s arg ue in support of the rule. They are the 1 Offic e of Public Utility

Counsel, the City

of Houston, and Te x as I ndustrial Energ y Consumers.rule 25.181 re sulted from the Commi ssion’s errone ous interpre tation of its own authority to do so under PURA. We will affir m.

BACK GR OUND I n 1999 the leg islature enac ted PURA section 39.905, which established

ener g y -ef ficienc y g oals desig ned to reduc e Texas customers’ ener g y consumption. See id. § 39.905. The g oals consisted of specifie d reduc tions—i.e., a slowing—in the anticipated g rowth in de mand for elec tricity in the service are as of elec tric utilit ies. See id. § 39.905(a) (3). Since then, CenterPoint has offe red ener g y -e ff

i ciency prog rams desig ned to meet these g oals. I n 2007, the leg islature amende d PURA section 39.905 to establish additional ener g y -ef ficienc y g oals. The amende d statute also direc ted the Commi ssion to adopt rules to establish “an ener g y eff iciency cost rec overy fac tor for ensuring timely and rea sonable cost rec overy for utilit y expenditures made to satisfy the g oal of this section.” See id. § 39.905(b)( 1). Thus, the purpose of the “cost-r ecove ry fac tor”—e ssentially a surcharg e on customers’ b i l l s —was to fac ilitate the prompt rec overy of “ex penditures” made to achie ve the g oals of sec tion 39.905.

The a mended statute f

urther pr ovides:

The ener g y eff

iciency cost rec overy fac tor under Subsection (b)( 1) may not result in an over- rec overy of costs but may be adjusted eac h y ear to chang e rate s to enable utilit i es to match reve nues ag ainst ener g y eff iciency costs and any incentives to which they are g rante d. The fac tor shall be adjusted to ref lect any over- collection or under- collection of e nerg y eff iciency cost rec overy

reve nues in previous y ear s.
Id

. § 39.905(b-1)

. Thus, this provision establishes an annual “true -up” proce dure so that reve nues produce d by t he “ene rg y eff iciency cost rec overy fac tor” (“EE CRF”) stay rea sonably close to the

2actua l ener g y eff iciency costs. I n response to this leg islation, in 2008 the Commi ssion repla ced its exis ting energ y -ef

ficienc y rule with an a

mended r ule that adde d provisions establishing the ne wly mandated EECRF. See 33 Tex. Reg

. 3622 (2008) (for mer 16 Tex. Admin. Co d e § 25.181). As amende d in 2008, rule 25.181 stated that a utilit y must establish an EECRF that “complies with this section to timely rec over the rea sonable costs of providing ener g y eff iciency prog rams pursuant to this section.” 16 Tex. Admin. Code § 25.181(f)(6)

.

I n 2010, the Commi ssion commence d a rulemaking proce eding , Project No. 37623, to ag ain amend rule 25.181. I n that proce eding , the Commi ssion proposed amendments to the rule that would establish ener g y -ef ficienc y go al s fo r 2 0 12 and 2013, add a cost cap, update the rule’s cost-ef fec tiveness standard, and modify calc ulation of the rule’s perf ormanc e bon us for utilit ies exceeding the stated ene rg y -ef ficienc y g oals. The Commi ssion a lso soug ht c omments on whether it should adopt an L RAM that would provide a method for utilit ies to rec over, throug h the EECRF, any reve nues that could be shown to have been lost as a result of implementing the mandated ener g y eff iciency prog rams. Numerous interested entities provided co mm e n ts b o th f o r a n d a g a in s t in c lu d in g

an L RAM in rule 25.181. CenterPoint supported adoption of an L RAM, maintaining that, pursuant to PURA section 39.905, the Commi ssion “cle arly has the authority ” to do so and that an L RAM “is

a better solution than the filing of a costly base rate case —the utilit y ’s only other method of addre ssing an inability to adjust rate s.” I n its Orde r in Project No. 37623, the Commi ssion ultimately declined to include an L RAM provision in rule 25.181, stating that its decision was consistent with the conclusion it had rea ched in an ear lier proce eding that “lost reve nues” are not “ene rg y -ef ficienc y

3costs” that could be rec overe d throug h an EECRF under PURA section 39.905. CenterPoint filed 2 this direc t appea l challeng ing t h e v al i d i t y of rule 25.181. See Tex. Util. Code Ann. § 39.001(f) (West 2007).

DISCUSSIO N

This proce eding is a direc t challeng e to the validity of a chapte r 39 “compe tition rule.” See id. § 39.001(e)

. A validity challeng e tests a rule on proce dural and constitutional g rounds. Offic e of Pub. Util. Counsel v. Public Util. Comm’n , 104 S.W .3d 225, 232 (Tex. App.—Austin 2003,

no pet.). The scope of a validity challeng e also includes whether the ag ency had statutory authority to promulg ate the ru l e. City of Alvin v. Public Util. Comm’n , 143 S.W .3d 872, 878 (Tex. App.—Austin 2004, no pet.). We presume that an age ncy rule is valid, and the p ar t y ch al leng ing the rule has the burden of d em o n s t rating its invalidity

. See McCarty v. Texas Parks & W ildlif e Dep’ t , 919 S.W .2d 853, 854 (Tex. A pp.—Austin 2004, no pet.). An a g ency ’s rules must comport with the ag ency ’s authorizing statute. See Office of Pub. Util. Counsel v. P u b l i c Util. Comm’n , 131 S.W .3d 314, 321 (Tex. App.—Austin 2004, pet. denied)

. To establish a rule’s fac ial invalidity , the challeng er must show that the rule (1) contra venes specific statutory lang uag e; (2) is counter to the statute’s g ener al objectives; or (3) imposes addit i o n al b u rdens, conditions, or restric tions in excess of or inconsistent with the re levant statutory provisions. See id. (citing Office of P ub. Util. Counsel , 104 S.W .3d at 232).

The ear lier proce eding had addre ssed—and reje cted—Cente rPoint’s applica t i o n for 2 approva l of an EECRF that would allow it to rec over $1,436,550 of reve nue losses it claimed wer e attributable to its 2009 ener g y -ef ficienc y prog rams. 4CenterPoint contends that PURA section 3 9

. 9 05 require s that the Commi ssion

include a provision for an L RAM in rule 25.181 and that its failure to do so contra venes the statute and rende rs the rule invalid. CenterPoint arg ues that when the leg is l at u re enacted PURA section 39.905(b-1) and direc ted the Commi ssion to establish an EECRF to “ena ble utilit ies to match

reve nues ag ainst ener g y

eff iciency costs and any

incentives to which they are g rante d,” it diveste d the Commi ssion of any discretion to decline to adopt an L RAM “as part of its eff orts to en able utilit ies to meet the leg islature’s ener g y eff iciency g oals.” See Tex. Util. Code Ann. § 39.905(b-1)

. The Commi ssion cou n t er s t h at section 39.905 authorizes only compensa tion for a utilit y ’s expe nditures associate d with ener g y -ef ficien cy prog rams, not for any reve nues lost as a result

o f i mplementing those prog rams. The dispute, there fore , turns principally on the constructi o n of a s t at ute, a question of law that we revie w de novo. See First Am. Titl e Ins. Co. v. Combs , 258 S.W .3d 627, 632 (Tex. 2008).

Our primary objective in construing statutes is to g iv e e f f e c t to th e le g is lature’s intent. Galbraith Eng ’g C onsultants, Inc. v. Pochuc ha , 290 S.W .3d 863, 867 (Tex. 2009). The plain meaning of the text is the best expression of leg islative intent unless a differ ent meaning is supplied by leg islative definition or is a ppare nt f rom the context, or unless the plain meaning would lead to absurd or non s en s i ca l results that the leg islature could not have intended. City of Rock wall

v. Hughes , 246 S.W .3d 621, 625-26 (Tex. 2008); see Tex. Gov’t Code Ann. § 311.011 (West 2005) (“Words and phrase s shall be rea d in c ontext and construed acc ording to the rules of g rammar and common usag e.”) . We look to the entire ac t in deter mining the leg islature’s intent with re spect to

a specific provision. Upjohn Co. v

. Rylander , 38 S.W .3d 600, 607 (Tex. App.—Austin 2000, pe t.

5denied)

. When a statute is ambig uous, we are requi re d to g ive “ser ious consideration” to the

construction of the statute by the administrative ag ency char g ed wi t h i t s enfor ceme nt, Railroad Comm’n v. Texas Citi

zens for a Safe Future & Clean W ater , 336 S.W .3d 619, 624 (Tex. 2011), and uphold the ag ency ’s interpre tation if it is rea sonable, First Am. Titl e Ins

. C o. , 258 S.W .3d at 632 (quoting Tarrant Appraisal Dist. v. Moore , 845 S.W .2d 820, 823 (T ex . 1993)). We do not defe r to an ag ency in t erpretation when a statute is unambig uous. See Texas Citi zens , 336 S.W .3d at 624 & n.6. We a lso “‘do not def er to a dminist rative inter

preta tion in reg ard to que stions which do not lie within administrat i v e ex pertise, or [which] deal with a nontechnical question of l aw.’ ” Rylander v. Fisher Controls Int’l Inc. , 45 S.W .3d 291, 30 2 (T ex. App.—Austin 2001, no pet.) (quoting 2B Sing er, Sutherland Statutory Const ruction § 49.04, at 23-24 (6th e d. 2000)).

CenterPoint contends that the pl ain l ang uag e of PURA section 39.905 require s the inclusion of an L RAM beca use the statute mandates that a utilit y be compensa ted for reve nues lost

as a result of its ener g y -ef

ficienc y prog rams. CenterPoint’s position depends on construing the term “costs” as used in PURA section 39.905 to include such lost reve nues. CenterPoint asser ts that the plain meaning of t he ter

m “includes the losses or sacrifice s sustained as a result of an endea vor.” Considered in conte x t, however , we do not believe the s tatute permits such a broad reading of the term “costs.” See Continenta l Cas. Co. v. Downs , 81 S.W .3d 803, 805 (Tex. 2002) (cour ts must consider statute as whole and not words or provisions in i s o l at i o n ). Rather, PURA section 39.905(b)( 1) di rects the Commi ssion to establish an EECRF “for ensuring timely and

rea sonable cost recov ery for utilit y expe nditures made to satisfy the g oal of this section.” Tex. Util. Code Ann. § 39.905(b)( 1) (empha sis added)

. T h e s t at u te thus provides that the “costs” the

6leg islature intended for a utilit y to rec over throug h the EECRF are its “expenditures” associate d with

its attempts to comply with the ener g y -ef ficienc y m an d ate. See id. The ordinary meaning of the t er m “e x p enditure” is: (1) the act or proce ss of pay ing out; disbursement; (2) a sum paid ou t
. Bla ck’s L aw Di ct i o n ar y 658 (9th ed. 2009). I n this context, the term “expenditures” does not contemplate lost re venues.

I n at least two other provisions o f P UR A, the leg islature expressly distinguishes “costs” from “re venues,” indicating that its use of the term “costs” by itself does not encompa ss lost

reve nues. For example, PURA s ec tion 55.024(b) provides that a telecommunica tions utilit y may

rec over “all costs incurre d and all loss of reve nue ” resulting from imposit ion of char g es for providing m an d at o ry two-wa y extended are a service to customers. See Tex. Util. Code Ann. § 55.024(b) (West 2007) (empha sis added)

. I n PURA section 56.025(e) , the leg islature direc ted the Commi ssion to “implement a mecha nism to repla ce the rea sonably projec ted incre ase in costs or decre ase in reve nue ” cause d by a g overnme ntal ag ency ’s order , rule, or policy

. See id. § 56.025(e) (West 2 0 0 7 ) (e m p hasis added)

. These provisions further support our conclusion that the term “costs,” as used b y t h e leg islature in PURA, is not intended to include lost reve nues. The leg islature’s failure in PURA section 39.905 to specific ally provide for rec overy of “lost reve nues,” in addition to “costs,” indicates that it intended for the EECRF to serve as a mecha nism for a utilit y to rec over out-of-poc ket expenditures associate d with its imple m entation of ener g y -ef ficienc y prog rams, not to compensa te a utilit y for any associate d lost reve nues attributable to those prog rams.

CenterPoint asser

ts that this interpre tation of the term “costs” i s inconsistent with PURA section 39.905(b-1) , which provide s that the EECRF may be adjusted e ach y ear

to “ena ble

7utili ties to match reve nues ag ainst ener g y eff iciency costs and any incentives to which they are g rante d.” See id. § 39.905(b-1)

. CenterPoint interpre ts the term “re venues” to means reve nues from its overa ll opera tions and contends that the EECRF is desig ned to match the utilit y ’s actua l reve nues with the total reve nues it would have ear ned absent the ener g y -ef

ficienc y prog rams. W e do not believe this i s a reasonable interpre tation of the rele vant provisions. The second sentenc e of PURA section 39.905 (b-1) states: “The [cost-recove ry ] fac t o r s h al l be adjusted to ref lect any

over- collection or under- collection of energy efficiency cost recov ery reve nues in previous y ear s.” Id. (empha sis added)

. Fr om the context, it is clea r that the matching contemplated by the statute is betwee n the actua l reve nues the utilit y collects through its EECRF —i.e., ener g y eff

iciency cost

rec overy reve nues—and the expenditures ma d e b y th e u ti lity for the ener g y eff iciency prog ram—i.e.,

ener g y eff

iciency costs. The matching is n o t i n t ended to addre ss any lost reve nues attributable to a gene ral decre ase in ener g y consumption resulting f

rom ene rg y -ef

ficienc y prog rams. Rather, the purpose of this provision is to ensure that a utilit y neither over- rec overs nor under- rec overs its actua l

ener g y -ef ficienc y prog ram e x penditures. CenterPoint also arg ues that the Commission’s failure to include an L RAM in rule 25.181 rende rs the rule invalid beca use it runs counter to a leg islative mandate contained in PURA

s ection 39.905(b)( 4), which require s that the Commi ssion ensure that “the costs associate d wi t h [energ y -ef

ficienc y ] prog rams provided under [section 39.905] are borne by the customer classes that

rec eive the service s under the prog rams.” See id. § 39.905(b)( 4). Ag ain, this arg ument depends on interpre ting the te rm “c osts” in this section to include lost revenue s. Howeve r, there is nothing in the statute to indicate that the term “c osts” in this section should be rea d more expansively than in

8section (b)( 1). See Sheshunoff v. Sheshunoff , 172 S.W .3d 686, 690 (Tex. App.—Austin 2005, pet. denied) (whe n same or simil ar ter m i s used in same connec tion in differ ent statutes, term will be g iven same meaning in one as in other, unless there is something to indicate that differ ent meaning

was intended). We hold that the term “costs” in both 39.905(b)( 1) and (b)( 4) means a utilit y ’s actua l expenditures associate d with its ener g y -ef ficienc y prog rams. These costs can be rec overe d from a utilit y ’s customers throug h application of a n EECRF that does not include a n L RAM. We conclude that the text of the statute is clea r and unambig uous and evidenc es the leg islature’s intent that the Commi ssion ensure that a util i t y rec overs only its ener g y -ef ficienc y prog ram expenditures throug h an EECRF. The EECRF is not intended to be used as a mecha nism to compensa te a utilit y for any lost reve nues that may result from implementation of these prog rams. CenterPoint’s first appe llate issue is overr uled. I n its second issue, CenterPoint contends that rule 25.181 is invalid bec au s e the Commi ssion’s failure to include an L RAM resulted from an err oneous interpre tation of its authority under PURA section 39.905. Howeve r, an ag ency has onl y t h e au t h o rity expressly provided by statute or necessar ily implied to car ry out the powers the l eg islature has g iven i t. See Public Util. Comm’n v. City Pub. Serv. Bd. , 53 S.W .3d 310, 315-16 (Te x . 2 0 01); Public Util. Comm’n

v. GTE-Southwest , 901 S.W .2d 401, 407 (Tex. 1995). As we have held above, PURA section 39.905 aut h o r iz e s th e Co mm is s io n to a ll o w u ti li ti e s to rec over their ener g y -ef ficienc y prog ram expenditures; it does not authorize the Commi ssion to adopt a rule or proce dure t h at al l ows utilit ies to use an EECRF t o ch ar ge customers for any claimed “lost reve nues” resulting from the energ y -ef ficienc y prog rams they are required to implement. The Commi ssion proper ly exercised its authority

9under PURA section 39.905 and corr ectly conclude d that i n cl uding an L RAM in rule 25.181

would contra vene the statute and exceed its statutory authority

. We overr ule CenterPoint’s second appellate issue.

CONCLUSION

Be cause PURA section 39.905 does not permit, much less require , the Commi ssion to adopt a lost -r ev enue adjustment mecha nism as part of the authorized ener g y eff iciency cost re co v er y fac tor, we overr ule CenterPoint’s two appellate issues challeng ing the validity of rule 25.181, find the r

ule be va lid, and aff

irm it as enac ted.

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ J . Woodfin J ones, Chief Just ice Be fore Chief J ustice Jones, J ustices Pemberton a nd Henson Affir med Filed: Nove mber 10, 2011

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