### 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. 03-07-00730- CV

Appellan t, P ioneer Nat ural Resource s USA, Inc. // Cross-Appellan t,

Cap Rock Energy Corporat ion

v. Appellees, P ubl ic Utility Com m ission of T exas and Cap Rock En ergy C orporation

// Cross-Appellees, P ubl ic Utility Com m ission of T exas and

P ioneer Nat ural Resource s USA, Inc.

F ROM TH E DISTRI CT COURT O F TRAVIS CO UNTY, 250 TH JUDICI AL DISTRICT NO. D-1 -GN-0 6-0 0028 2, H ONO RAB LE STEP HEN Y ELENOSK Y , JUDGE P RESIDING

O P I N I O N

This case is an administrative appea l of a rate order of the Public Utility Commi ssion of Texas that set t h e ra t es o f Cap Rock Energ y Corporation, an elec tric utilit y . The district court aff irmed the final order of the Commi ssion. Pioneer Natura l Resource s USA, I nc., an intervenor in th e administrative case befor e the Commi ssion, appea ls the judgme nt, asser ting that the Comm is s io n

err ed by including 35% of the cost of a computer sy stem in Cap Rock’s rate s, by approving a capital structure of 75% debt and 25% equity , by ado p t i n g a ra t e of return on equity of 11.75%, and by approving the re imbursement of cer tain rate case expenses. Cap Rock also arg ues that the Com m i s s ion err ed by imposing a per- kilowatt discount for a cer tain sub-class of Cap Rock’s
customers. The district court aff irmed the Commi ssion’s final order

. We aff irm the judgme nt of the district court.Factual an d Procedural Background Cap Rock has provided elec tric service to consumers in northern and wester n Texas for many y ear s. Cap Rock opera ted as an elec tric cooper ative and as an investor-owne d utilit y . I n 2003, due to a

mendments to the Public Utility Reg ulatory Act (PURA), Cap Rock beca me subject
to the rate -setting jurisdiction of t h e C o m m ission. See Act of May 16, 2003, 78th L eg ., R.S., ch. 1327, 2003 Te x . Gen. L aws 5010, 5010.

On October 24, 2003, Commi ssion Staff filed a petition inquiring into Cap Rock’s elec tric utilit y rate s an d s er v i ce s . After the Staff order ed Cap Rock to submit a full rate -filing packa g e, Cap Rock filed a s t atement of intent with the Commi ssion seeking to chang e its
rate schedule s such that its rate s would incre ase. Electric util i t y ra t es are established throug h a reg ulatory proce ss with a g oal of permitting the utilit y “a rea sonable opportunity to ear n a rea sonable

re t u rn . ” See Tex. Util. Code Ann. § 36.051 (West 2007). I n this proce ss, the Commi ssion m u s t q u an t i fy the utilit y ’s invested capital used and useful in providing service to the public, t h e appropr iate rate of return on that invested capital, and the utilit y ’s rea sonable and nece ssary opera ting e x penses:

I n establishing an electric uti lity ’s rates, the reg ulatory authority shall establish the utilit y ’s o v er all reve nues at an amount that will permit the utilit y a rea sonable opportunity to ear

n a rea sonable return on the utilit y ’s in v ested capital used and useful in providing service t o the public in excess of the utilit y ’s rea sonable and nece ssary opera ting e x penses.

Id. ; see also id. § 36.052 (West 2007) (establishing rea sonable ret u rn ), § 36.053 (West 2007) (compone nts of invested capital) , § 36.057(c) (West 2007) (author i z i ng rulemaking reg arding

2allowable expenses). The Commi ssion ref err ed the Cap Rock contested case to the State Offic e of Administrative Hea

ring s (SOAH) on F ebrua

ry 26, 2004. Pioneer filed a motion to intervene in the proce eding , asser ting that it was an independe nt oil and g as produce r with prod u ct i o n fac iliti es in Cap Rock’s service are a, it was a customer of Cap Rock, and it purcha sed larg e quantities of elec tric power and ener g y under sever al of Cap Rock’s rate classifica tion s . I n Marc h 2004, Pioneer was g rante d leave to intervene

. The SOAH administ rative law judge s issued their proposal for decision on Marc h 16, 2005. The Commi ssion then issued its final orde r on Nove mber 10, 2005, a dopting the pr oposal for de cision with some modifications, and appr oving r ates to be c harg ed by Cap Rock. Both P i o n ee r and Cap Rock filed suit in district court in J anuar y 2006, appea ling portions of the Commi ssion’s or der. See id. § 15.001 (West 2007)

. The case s wer e consolidated. On Novembe r 1 6 , 2007, the district court aff irmed the Commi ssion’s final order in all respe cts. Pioneer a nd Cap Rock sepa

rate ly appea l the judgme nt of the district court.

Stan dard of Revie w

This appea l conce rns the propriety of the Commi ssion’s order , including its finding s and c o n c lu s io n s . Wh e n r e v ie w ing these ty pes of deter

minations, we employ the substantial-evidenc e sta n dard to asce rtain whether the Commi ssion’s actions are adequa tely supported by the evidenc e prese nted. See id. (substantial-evide nce st an d ard applies to judicial revie w of Commi ssion’s proce edings ); T ex . Gov’t Code Ann. § 2001.174 (West 2008) (allowing court to

reve rse a g ency

deter mination if not reasona

bly supported by

substantial evidence ).

3Under this standard, we are prohibited from substitut ing ou r judgme nt for the

Commi ss i o n ’s “as to the weig ht of the evidenc e on questions committed to ag ency discretion.” Citi es of Abilene v. Public Util. Comm’n , 146 S.W .3d 742, 748 (Tex. App.—Austin 2004, no pet.). The Commi ssion “is the sole judge of the weig ht to be acc orded the testimony of eac h wi t ness,” Central Power & Light Co. v. Public Util. Comm’n , 36 S.W .3d 547, 561 (Tex. App.—Austin 2000, pet. denied) , and “may acc ept or reje ct in whole or in part the testimony of the various witnesses who testify ,” Citi es of Corpus Christ i v. Public Util. Comm’n , 188 S.W .3d 681, 695 (Tex. App.—Austin 2005, pet. denied)

. We are not asked to deter mine whether the ag ency re ac h ed t he corr ect conclusion, but whether some rea sonable basis exis ts in the rec ord for the ag ency ’s action. See id. I n fac t, e ven if the evidenc e ac tually preponde rate s ag ainst the Commi ssion’s f inding, that finding may be upheld as long as there is enoug h evidenc e to sug g est that the Commi ssion’s deter mination

was within the bounds of rea sonablene ss. Id. We will sustain the Commi ssion’s order i f the evidenc e is such that rea sonable minds could have rea ched the conclusion that the Commi ssion must have rea ched in order to justify its action. Texas Health Facilities Comm’n v. Charter Med.- Dallas, Inc. , 665 S.W .2d 446, 453 (Tex. 1984).

Pioneer’s Points on A

ppeal Pionee r a p p e a ls th e f

o ll o w in g c o mp o n ents of the Commi ssion’s final order approving Cap Rock’s rate s: (1) inclusion of 35% of the cost of a parti al ly installed computer sy stem in Cap Rock’s rates; (2) adoption of a capital structure of 75% debt and 25% equity ; (3) adoption of

an 1 1 .75% rate of return on equity ; and (4) reimburse ment of expenses incurre d by Cap Rock i n

connec tion with two of its wit nesses in the rate ca se.
4Computer System Costs Pioneer asser

ts that the Commi ssion err ed by allowing Cap Rock t o re co v er 35% of the cost of its purcha sed computer sy stem in its rate s. Pioneer contends that none of the sy stem’s cost should have be en included a s costs in setting Cap Rock’ s rates.

Cap Rock purcha sed a fully outsou rc ed information technolog y (I T) sy stem for

acc oun t i ng and customer billing, consisting of softwar e, hardw are , installation, maintenanc e, and ong oing opera tional service s. The sy stem was purcha sed from Delinea Corporation, and the various I T functions we re also outsourced to De linea. I n the administrative proc eeding , Cap Rock soug ht
to include in its rate base and cost of service approximately $3.1 milli on in pay ments for the sy stem, $870,000 in amortization expenses, and $1

. 6 million in annual opera tion and maintenanc e expenses. I n its order , the Commi ssion deter mined that the I T sy stem was “nec essar y to sy stem reliability and the ability to opera te in the complex elec tric marke tplace,” that outsourcing was an acc eptable approa ch for Cap Rock to meet its I T require ments, and t h at 3 5% of the sy stem’s cost was

rea sonable a

nd nece ssary . First, Pioneer arg ues that th e p urcha se of the I T sy stem was not “re asonable and

nece ssary ” and the purcha sed sy stem “ used and useful” and, there fore , that no portion of the sy stem’s
cost should be included in Cap Rock’s rate s. Pioneer contends that t h e s y s t em i s “massively oversized” for Cap Rock’s curr ent rate pay ers and was only acquir ed to support “hig hly specula tive” future gr owth. An asset is “used and u s ef u l ” i f i t is acquir ed in g ood faith and held for use i n the

rea sonably near future in order to enable the utilit y to supply and furnish adequa te and uninterrupted service

. See Citi es for Fair Utility Rates v. Public Util. Comm’n , 924 S.W .2d 933, 935 (Tex. 1996).

5A Pio n ee r witness testified that an investment of the mag nitude of the I T sy stem

in question was “extreme and excessive” for a utilit y the siz e of C ap R ock. A Cap Rock witness defe nded the siz e based on the company ’s pl ans to quadruple in siz e over the nex t four y ear s, and alleg ed that the I T sy stem would handle both Cap Rock’s curr ent I T needs and its future needs upon such a r apid expansion. There was a lso testimony , howeve r, that such g rowth wa s speculative, a s well as testimony from a Pioneer witness to the eff ect that the sy stem would be oversized even if Cap Rock quadr

upled in siz e. I n response to testimony questioning the rea sonablene ss of the I T sy stem’s cost as well as the ne ed for

the sy stem, a Cap Rock witness testified that a new I T sy stem was re quired in

connec tion with Cap Rock becoming an inve s to r - o w n e d u ti li ty

. Re g arding the sy stem’s cost, another Cap Rock witness testified that the new I T sy stem was obtained for a “ver y rea sonable and very competitive price ,” that when taking the entirety of the I T sy stem into acc ount the cost was compar able to that paid by simil arly siz ed utilit ies, and that the annual char g es will be less than the

aver ag e investor-owne d utilit y spends for in-house I T service s. I n addition, the Cap Rock witness testified that the sy stem would not be rende red obsolete over time beca use Delinea was responsible
to keep softwar e versions curr ent, and that the sy stem would be flexibl e enoug h to be modified in the
event Cap Rock enter ed the Texas dere g ulated marke t. Acc ording to Cap Rock, the future expansion contemplated by Cap Rock did not result in an incre ase in the price Cap Rock paid for the sy stem. Fa ced with this conflicting evidenc e, it was the Commi ssion’s responsibility to ev al u ate and deter mine the weig ht and cre dibilit y to g ive the evidenc e. See Texas State Bd. of Med. Exam’ rs v. Sche ffey , 949 S.W .2d 431, 437 (Tex. App.—Austin 1997, writ denied).

6Pioneer also arg ues that the I T sy stem was not prudently in v est iga ted beca use Cap Rock eng ag ed Delinea to prese nt bids and options for acquir ing an I T sy stem and then, afte r selec ting the sy stem, outsourced its opera tion to Deline a. W e fi nd no evidenc e in the rec ord that Cap Rock’s eng ag ing Delinea both to rese arc h the ty pes of I T sy s t ems that wer e available and to install and maintain the selec ted I T sy stem actua lly selec ted amounted to some sort of a conflict of interest. We conclude that the Commi ssion’s deter mination that the I T sy stem was “re asonable and

nece ssary ” and “ used and use ful”—a t least in part—is supported by substantial evidence

. Even if Cap Rock’s purcha se of the I T sy stem was rea sonable and nece ssary , Pioneer arg ues that the 35% multipl ier employ ed by the Commi ssion—repre sentin g th e portion of the sy stem that was used and useful as to Cap Rock—is not support ed by substantial evidenc e, and that as a result zero per cent of

the sy stem’s cost should instead be include d in Cap Rock’s ra tes. The 35% mult i plier actua lly is the product of two components: (1) a 70% fig ure attributable to the acc ounting trea tment of the comput er sy stem cost; and (2) a 50% fig ure attributable to the portion of the computer sy stem that was opera tional during the test y ear . Pioneer

co m p lains that no single witness or party expli citly proposed a 35% m ultipli er, or supported b o t h the 70% fig ure and the 50% fig ure. Howeve r, even when n o ev i d ence sug g ests a specific fig ure expli citly , the Commi ssion may infer the fig ure if it is supported by the body of evidenc e as to that issue. See Public Util. Comm’n v. GTE-SW , 833 S.W .2d 153, 159 (Tex. App.—Austin 1992), aff’d in part, rev’ d in part , 901 S.W .2d 401 (Tex. 1995). Moreove r, the Commi ssion may “ac cept or reje ct in who l e o r i n part the testimony of the various witnesses who testify .” Citi es of Corpus Christ i , 188 S.W .3d at 695 (empha sis added)

. Separa te witnesses testified reg arding the 70% fig ure

7and the 50% fig ure, and the Commi ssion was entitled to acc ept both fig ures, reg ardle ss of whether

there was a

ny one witness who testified to both. Pioneer contends that the 70% apportionment fig ure is not supported by substantial evidenc e. We disag ree . Cap Rock indicate d that both its reg ulated and non-re g ulated opera tions would be using the I T sy stem. Cap Rock’s acc ounting rec ords demonstrated that 30% of Cap Rock’s I T sy stem costs had been allocated d u ri ng the t est y ear to Cap Rock’s non-reg ulated transmissi on provider, NewCorp Resource s Electric Cooperative, I nc. There was no other allocation perc entag e in the rec ord. Whil e it is true that a Staff witness indic ated his suspicion that NewCorp’ s share might be larg er, that witness conce ded that the 30% fig ure could be employ ed as a “minimum.” As

a re sult, the Comm ission determined t hat onl y 70% of the cost of t he I T sy stem was elig ible to be place d into Cap Rock’s rate base.

Pioneer also disputes the 50% component of the I T sy stem allowanc e. A Cap Rock witness testified that two softwar e modules—g ener al ledg er and acc ounts pay able—we re installed and running during the test y ear , but that the o t h er m o d u l es wer e still in the proce ss of being installed. Both Staff and Cap Rock witnesses i n d i cated that the installation of the two modules resulted in the sy stem being 50% installed. As a result, the Commi ssion deter mined that only 50% of the sy stem was “use d and usef ul.” P i o neer arg ues that the Commi ssion’s deter mination was arbitra

ry beca use th er e

was no evidenc e that the installed 50% of the sy stem equate d to 50% of the sy stem’s cost. Howeve r, there wa s testimony to the eff ect that the sy stem was purcha sed as a suite of applications and
t h at t h ere was no separ ate cost as to eac h module. Moreove r, there is no indication in t h e re co rd

8that the price of the total sy stem could have been price d in a ccor dance with the separ ate modules.

We decline to hold that absent evidenc e of p er -m o d u l e costs, the Commi ssion was barr ed from authorizing reimburse ment fo r m o d u les that wer e found used and useful. The Commi ssion has the discre tion to determine the we ight to be a ttributed to undisputed fac ts and the infere nces to be draw n from those fac ts. See Citi es of Port Arthu r v. R a ilroad Comm’n , 886 S.W .2d 266, 270 (Tex. App.—Austin 1994, no writ). Our focus is on the rea sonablene ss of the decision. We are not to set aside the Commi ssion’s chosen infere nce mere ly beca use we might believe another infere nce is more re asonable

. See id.

Pioneer arg u es t h at t h e dual infere nce rule applies. The Tex as S upreme Court has held that when circ umstances are consistent with either o f t wo fac ts and nothing shows that one is more probable than the other, neither fac t can be inferr ed. Litt on Indus. Prods., Inc. v. Gammage , 668 S.W .2d 319, 324 (Tex. 1984). Howeve r, t h i s ru l e ap p lies when the evidenc e g iving rise to two separ ate fac ts is “mea g er circ umstantial evidenc e,” which by itself is no more than a scintilla. See id. I n this case, ther e wa s sufficient e vidence that the sy stem was purc hased a s a pac kag e and that 50% of the sy stem had been installed. The Commi ssion, as the fac t-finder , was entitled to make the infer ence that 50% of the sy stem’s cost could re asonably be included in Cap Rock’ s rates. Pioneer also arg ues t h at the Commi ssion cannot rely on its own expertise, citing Railroad Commission v. Lone Star G as Co. , 611 S.W .2d 911, 913 (Tex. Civ. App.—Austin 1981, writ ref ’d n.r.e.)

. Howeve r, in Lone Star Gas , the Commi ssion admitted that its use of a formula was “not supported by any evidenc e” in the rec ord, and there fore its deter mination was based solely on

9its own ex pertise. See 611 S.W .2d at 913. I n contra st, in thi s case , there is evidence in the rec ord

that 50% of the sy stem was used a nd useful, and e ligible f

or inclusion in Cap Rock’s ra tes. Pioneer arg ues that the Commi ssion, in selec ting a perc entag e allowanc e, is limit ed
to the rang e of options established in the rec ord. See Central Power & Light Co. , 36 S.W .3d at 559. Acc ording to P i o n ee r, when the parties prese nt polar rec ommendations of zero perc ent and

one hundred perc ent, the Commi ssion is not fre e to selec t any fig ure in the middle, but must selec t

one or the other. This mig ht be the case if no evidenc e in the rec ord supported any fig ure betwee n zero perc ent and one hundred perc ent. Howeve r, in this case , as we ha ve discussed, both the 70% fig ure and the 50% fig ure are supported by substantial e vidence

. This is not a case , then, in w hich the Commi ssion selec ted a fig ure that is outside the rang e of the applicable ev i d en ce , o r t hat is otherwise unsuppor

ted by any evidenc e. We conclude that the Commi ssion did not err by including 35% of th e cost of Cap Rock’s purc hased I T sy stem in Cap Rock’s rate s. Capital Structure Pioneer asser

ts that the Commi ssion er re d b y approving a hy pothetical capital structure based on 75% debt and 25% equity

. A utilit y ’s capital structure i s u s ed in deter mining the utilit y ’s rate s. The p er ce n t age of debt capital and the perc entag e of equity capital— i

. e. common stock and pref err ed stock—are eac h fig ures used in the formula that deter mines the appropr iate rate of return, which perc entag e is in turn multipl ied by the rate base—i.e

. the utilit y ’s total, invested capital used and u s ef u l i n p roviding service to the public—in order to calc ulate the reve nue require ment to be allocate d among the customers. See Tex. Util. Code Ann.
10§ 36.051. I n Cap Rock’s case , a larg er perc en t age of equity results in a highe r rate of return and,

conseque ntly , highe r ra tes.

Acc ording to a Cap Rock witness, Cap Rock started with a 96/4 debt-to-e quity ratio, which exis ted due to cooper atives g ener ally being financ ed mainly by debt, and due to Cap Rock’s
return of cash to cer

tain former members. As of September 30, 2003, by havi n g profitable opera tions, Cap Rock was a ble to rea ch a de bt-to-equity ratio of a pproxi mately

83/17. Despite its
actua l capital structure of 83/17, howeve r, Cap Rock proposed that a 60/40 capital structure be used in setting its rate s, so that it mi g ht be able to in fa ct obtain such a structure

. Commi ssion Staff rec ommended ag ainst using a hy pothetical capital structure , arg uing that Cap Rock’s proposed 60/40 capital structure would result in a windfall funded throug h excessive rate s char g ed to rate pay ers, and that Cap Rock has neither sufficie nt equity for a 40% level in its capital structure nor the ability to raise additional equity

. Acc ording t o a S t af f wi tness, Cap Rock d i d n ot adequa tely prepa re its capital structure for its conver sion to an investor owned utilit y , and it s 83/17 debt-to-e quity ratio wa s its own fault. Also, acc ording to another w itness, as

a cooper ative Cap Rock had experience d opera ting losses associate d with three acquisition attempts in u n re l ated fields that failed for various rea sons. Whil e ag ree ing that a 60/40 ratio was an appropr iate g oal, the wi t n es s arg ued that the hy pothetical ratio would result in highe r reta il rate s despite Cap Rock’s asser tions during its conver sion that rate s would not incre ase as a result of the conver sion. These witnesses ag ree d that the Commi ssion s h o u l d u s e Cap Rock’s actua l capital struc ture of 83/17 in setting Cap Rock’s ra tes.

11I n response , the Cap Rock witness testified that Cap Rock has had to delay activities

associate d with restruc turing its balanc e sheet b ec au s e its reg ulatory uncer tainty has adver sely aff ecte d its a bility to acc ess additional equity . Cap Rock proposed a capital structure of 60% debt and 40% equity in order to streng then its financ ial position and i n cr ea s e its acc ess to funds. Cap Rock insi s t ed t hat by using such a hy pothetical capital structure in its rate -setting , it could achie ve such a ratio in r eality , beca use acc ess to the equity marke t would follow from Cap Rock’s

use of the proce eds—obtained from the in cr ea s ed ra t es —to pay down its long term debt and to distribute annual dividends to both new and old share holders. Acc ording to the Cap Rock witness, the reque sted rate incre ase could enable Cap Rock to achie ve a 61/39 debt-to-e quity ratio afte r only three y ear s. The Commi ssion ag ree d with Staf f t h at a 60/40 capital structure would g ive Cap Rock an excessive rate of return an d would likely disproportionately benef it the same manag emen

t team that had g uided Cap Rock throug h signific ant losses due to the conver sion proce ss and failed business venture s. Howeve r, the Commi ssion also ag ree d with Cap Rock that migr ating toward a more balanc ed capital structure and retir i n g a p o rt i o n of the company ’s debt would be p ru dent, and that apply ing a hi g her perce ntag e of equity would help accomplish these goa l s . T h e Commi ssion deter

mined that a capital structure of 75% debt and 25% equity would be appropr iate
to allow Cap Rock to proce ed in a “stepwise fashion,” but require d Cap Rock to apply all additional
return resulting from the use of the hy pothetical capital structure to retire debt. Acc ording to the Commi ssion, failure to so apply the additi onal return would be viewed as “not onl y a viol ation of this Order, but a lso refle ctive of the quality of the utility ’s manag ement.”

12Pioneer arg ues that the Commi ssion is without authority to approve a c a p it a l s tr u c ture t h at is hy pothetical rathe r than actua l. Acc ording to Pioneer, once the Commi ssion i s ab l e t o deter mine the utilit y ’s actua l capital structure , it has no discretion to use another capital structure in the applica

ble ra te-setting formula. Pioneer cites utilit ies code section 36.051, which permits the utilit y the opportunity
to “ea rn a rea sonable return on the utilit y ’s invested capital used and useful in pr oviding service to the public.” Id. Pioneer contends that the term “invested capital” indicates that the allowable return must be based on the utilit y ’s actua l capitalization, not a h y p othetical capitalization. Howeve r, the Commi ssion applied the debt and eq u i ty perc entag es in calc ulating the rate of return, not the “inves t ed ca p i t al , ” which ref ers to the total amount of capital, both debt and equity

. See 16 Tex. Admin. Code § 25.231(c) (2) (2009). The “ra te of return” is multipl ied by the “invested capital” to obtain the “re turn on invested capital.” See id. § 25.231(c)

. Consequently , section 36.051’s la ng uag e does not prohibit the Commi ssion from employ ing a hy pothetical capit a l s tr

u c tu r e in s e tt in g the appr opriate r ate of

return. Pioneer contends that PUC Substantive Rule 25.231(c) (1)( C) requi res the Commi ssion to use the utilit y ’s actual cost of capital beca use it define s “cost of capital” as “the weig hted aver ag e of the costs of the various classes of capital used by t h e el ec t ri c utilit y .” Id. § 25.231(c) (1)( C); see also Railroad Comm’n v. Entex, Inc. , 599 S.W .2d 292, 295 (Tex. 1980) (cost of capital is ratio of the two ty pes of financ ing—de bt and equity ). Howeve r, the rule require s only that the Com m i s s i o n “s hall consider the elec tric utilit y ’s cost of capital.” 16 Tex. Admin. Code § 25.231(c) (1)( C) (empha sis added)

. The rule does not pr ohibit the Commi ssion’s de parture from

13the ac tual cost of ca pital. Pioneer does not dispute that the C ommissi on did consider Cap Rock’s
actua l capital structur e.

Pioneer also relies on Railroad Commission v. E n te x , I n c . , in which the supreme court stated, while addre ssing the Railroad Commi ssion of Texas’s rate -making , “The Public Utility Commi ssion has adopted substantive rules which weig ht the ty pe of debt based on a utilit y ’s actua l capital structure .” 599 S.W .2d at 295. We decline to hold that such an observa tion in dicta require s the Commi ssion to use an elec tric utilit y ’s “ac tual capital structure ,” particula rly g iven the absenc e of an y statute or reg ulation expressly requiring the Commi ssion to use the utilit y ’s actua l capital structure in setting rate s. We note that elsewhe re in Entex the supreme court rec og nized that when an entity ’s rate base is inflated due to inflation or defla ted due to rec ession, the administrative ag ency has the discretion to manipulate the rate of return in order to counter act those circ umstances. See id. at 294. I ndeed, this Court has aff irmed the C o m m ission’s use of fig ures other than those
actua lly computed from a utilit y ’s curr ent balanc e sheet to de termine the cost of capital. I n Public Utility Commissi on v. GTE-SW , althoug h the record contained the actua l costs of debt a nd equity , the Commi ssion had applied a weig hted cost so as to estimate a rate that would be sufficie n t fo r the utilit y to attrac t new capital. See GTE-SW , 833 S.W .2d at 157. The hy pothetical cost of capital

was employ ed beca

use the actua l c ost of capital would not obta in the “re asonable return” require d by statute. See id. at 158. This Court held that such a method was neither require d nor prohibited by statute or reg ulation, and that the Commi ssion d i d n o t abuse its discretion. See id. We ag ain conclu d e t h at t he Commi ssion is not prohibited by statute or reg ulation from employ ing a

14hy

pothetical capital structure when the use of such a hy pothetical s tructure is supported by substantial evidence

.

Pioneer next arg ues that the Commi ssion’s selec ted capital structure of 75% debt and 25% equity is not supported by substantial evidenc e. Pioneer contends that the Commi ssion cannot apply a capital structure that no single witness or party expli citly proposed. Ag ain, howeve r, even when no evidenc e sug g ests a specific fig ure expli citly , the Commi ssion may infer the fig ure if it is supported by some evidenc e in the rec ord. See id. at 159. There was evidenc e that the actua l 83/17 capital structure would be damag ing to Ca p Rock without incr easing the perc entag e of equity , and that the proposed 60/40 capital structure would be damag ing to rate pay ers without decr easing the perc entag e of equity

. There fore , the evidenc e esta blished a ra

ng e within which an appropr iate capital structure could be selec ted. Contrary to Pioneer’s contention, we do not re q u ire that the

rec ord contain an ex plicit rec og nition by a p articula r wit ness or exhibi t that a rang e of rea sonable options exis ts in order for such a rang e to exis t. Whil e the p ar t i es may have arg ued for specific endpoints, the evidenc e prese nted in favor of and ag ainst eac h endpoint was such as would allow for

a hy pothetical capital structure to be selec ted betwee n those endpoints. See City of El Paso v. Public Util. Comm’n , 883 S.W .2d 179, 185-86 (T ex. 1994) (for admittedly complex matter, wher e one expert testifies to zero perc ent, and another to 50%, Commi ssion could “sele ct an amount within the rang e of fig ures” ); GTE-SW , 833 S.W .2d at 158 (not abuse of discre tion for Com mission to make finding of 11.99% when expert witnesses sepa rate ly testified to perc entag es of 10.54, 10.85, 12.1,

15and 15). We conclude that the Commi ssion’s se lecting a 75/25 c apital structure was supported by

substantial evidence

. 1

Pioneer arg ues that, having found that the use of a 60/40 capital structure artificia lly skewe d in favor of equity allowed Cap Rock to ear n an inflated return, the Commi ssion was there by barr ed from using a 75/25 structure that would produce the same eff ect. Pioneer also arg ues that the 75/25 structure unrea sonably rew arde d Cap Rock for its mismanag ement. I n fac t, the Commi ssion in its Orde r rec og nized it ty pically ref uses to incre ase a utilit y ’s rate s to protec t the utilit y ’s financ ial int egrity when such adjustment could rew ard ineffic iency and imprudence , and the Commi ssion noted that Cap Rock’s rate pay ers sh o u l d not be require d to rew ard Cap Rock for its pursuit of its “unre asonable expansion dreams.”

Howeve r, i n setting r ates that a re not e x cessive, the Commi ssion is entitled to take into considera

tion the financ ial integ rity of the utilit y . See Entex , 599 S.W .2d at 296; 16 Tex. Admin. Code § 25.231(c) (1)( A). There was evidenc e that while a 60/40 structure resulted in an inflated return, the actua l 83/17 structure would not assure Cap Rock’s financ ial integ rity and acc ess to capital. There wa s , t h erefore , evidenc e by which the Commi ssion could conclude that the appropr iate course was to balanc e the competing considerations and selec t perc entag es betwee n the
two proff ere d endpoint s . I n this reg ard, we note that the selec ted 75/25 structure is closer to the

Pioneer asser

ts that there was no ev i d en ce t h at established that “a 75/25 structure was 1 more corr ect than a 77/23 structure , a 79/21 structure , or an 81/19 structure .” Howeve r, our inquiry i s n o t wh ether the evidenc e establishes that the capital structure selec ted was the best opt i o n available

. To the co n t ra ry , the rec ord evidenc e may preponde rate against the ag ency ’s decision and y et still provide a rea sonable basis for the decision and, there fore , satisfy the substantial evidenc e standard. See C i t ies of Corpus Christ i v. Public Util. Comm’n , 188 S.W .3d 681, 695 (Tex. App.—Austin 2005, pet. denied). 16actua l structure than to Cap Rock’s re quested structure

. Moreove r, along with setting a 75/25

structure betwee n the endpoints, the Commi ssion ex p ressly require d Cap Rock to use the entire amount of additi onal return aff orded by the hy

pothetical 75/25 s tructure to retire debt. The Commi ssion stated that without such require ment, it would not have approve d a hy pot h et i cal
structure in this case . Given, then, t h at t h e incre ased rate s resulting from using a hy pothetical
structure betwee n Cap R o ck ’s ac tual structure and its desired structure are not to be paid to C ap Rock’s manag ement team, but must be applied toward making Cap Rock more fi n an ci al l y

s o u n d , we find the Commi ssion’s deter mination that the 75/25 capital structure would not al l o w Cap Rock to ear

n an inflated return or re wa rd C ap R ock’s mismanag ement to be supported by substantial evidence

.

We conclude that the Commi ssion did not err b y approving a hy pothetical capital structure consisting of 75% debt and 25% equity for Cap Rock. The Commi ssion’s selec tion of a 75/25 capital structure was based on substantial evidenc e, was not arbitra ry and capr icious, and
was not an a

buse of discr etion. Rate of Return on Equity Pioneer asser

ts that the Commi ssion err ed by approving an 11.75% rate of return on equity

. The use of a rate of return on equity g rea ter than the 9.5% rate rec ommended by Pio n ee r 2

Pioneer’s rec ommendation consisted of a 10% rate of return reduc ed by one-ha lf perc ent 2 to penalize Cap Rock for its imprudent manag ement. Pioneer arg ues on appea l that its proposed rate of return was supported by the evidenc e and should h av e b een approve d by the Commi ssion. Howeve r, our inquiry is not whether any reje cted rate of return could have been rea sonably selec ted, but whether the approve d rate of return wa s re as o n ab ly selec ted. See Tex. Gov’t Code Ann. § 2001.174 (West 2008); Citi es of Corpus Christ i , 188 S.W .3d at 695 (test is whether rea sonable basis for a g ency ’s ac tion ex ists in record, not whe ther c orre ct conc lusion reac hed). 17resulted in a highe r overa ll rate of return and, conseque ntly , highe r rate s as sessed to Cap Rock’s

rate pay ers. The Commi ssion in its Or d er deter mined that the return on equity should include “a risk adjustment, beca use of Cap Rock’s more tenuous financ ial situation, to appro x imate what compar able equity investments would ear n.” A Staff witness had rec ommended a “cr edit-risk premium,” alleg ing that it was nece ssary to ref lect the highe r return that investors would require to make an investment in Cap Rock. Acc ording to the witness, his methods for calc ulating Cap Rock’s
return on equity wer e well-e stablished methods on which the Commi ssion has often relied, and his

use of a premium was also well-e stablished and had been previously relied on by the Commi ssion, althoug h less fre quently

. After des cr i b ing in detail his analy sis, the witness rec ommended a premium in the rang e of 2.0% to 2.4%, and ultimately a return o n equity of 11.75%. Elsewher e 3 in his testimony , the Staff witness d es cribed some of the mismanag ement that contributed to Cap Rock’s financ ial condition and, as a result, g rea ter difficulty in attrac ting investors. The Commi s s i o n re co g nized in its finding s of fac t that Cap Rock’s quality of manag ement had been “poor,” listi ng as evidenc e signific ant financ ial losses d ue to failed business venture s and ag g ressively pursued acquisitions with l i t t l e rela tionship to Cap Rock’s core business, and larg e b o n u s es paid to Cap Rock’s executives during y ear s in which its financ ial condition was deter iorating

.

Cap Rock also rec ommended a return on equity of 11.75%, to enable it to “attra ct capital 3 on rea sonable ter

ms.” 18Pioneer contends that b ec au s e t h e need for a risk adjustment in calc ulating the

appropr iate return on equity was a result of Cap Rock’s mismanag ement, the Comm i s s i o n was prohibited from approving the risk adjustment. Pioneer contends that, in C ap Rock’s case , a risk adjustment would be nothing more than a rew ard f or Cap Rock’s pa st mism anag ement. Pioneer relies on the following lang uag e from the supreme court’s opinion in Entex :

The re t u rn should be rea sonably sufficie nt to assure confide nce in the financ ial soundness of the utilit y , and should be ad eq u at e, under efficient and econom ical manageme nt , to maintain and support its cr ed i t an d enable it to raise the money nece ssary for the pr oper discha

rg e of its public duties.

E n t ex , 599 S.W .2d at 295-96 (quoting Bluefield W aterworks & Improve ment Co. v. Publi c S er v. Comm’n , 262 U.S. 679, 693 (1923)) (empha sis added)

. Pioneer c ontends that this lang uag e prohibits the Commi ssion from incre asing the return on equity when such an incre ase ultimately results from the utilit y ’s ineffic ient or uneconomica l manag ement, beca use such a return would be unrea sonable. We disag ree . The a

bove lang uag e re fer s to manag ement subseque nt to the rate- setting pr ocedur e, during the period in which the rate s apply

. I t provides no g uidance for a situation in which ineffic ient or unec onomical manag ement occ urre d in the past.

Pioneer a lso relies on utiliti es code section 36.052, which pr ovides as follows:

I n establishing a rea sonable return on invested capital, the reg ulatory authority shall consider a

pplicable f

actor s, including: (1) the e ffor

ts and ac hievements of the utilit y in conserving resour ces; (2) the qua lity

of the utility ’s servic es;

19(3) the e fficie ncy of the utility ’s oper ations; and (4) the qua lity

of the utility ’s manag ement.

Tex. Util . Code Ann. § 36.052. Pioneer c ontends that the Commissi on’s fa ilure to reduc e the r ate

o f return on equity demonstrates that the Commi ssion failed to consider the fac tors req u i re d b y section 36.052. Howeve r, this Court has alre ady considere d the Commi ssion’s responsibility when fac ed with manag eria l imprudence , and held a s follows:

Whil e the statute instructs the Commi ssion to consider the quality of the uti l i t y ’s manag ement, it does not require that the Commi ssion lower the return on common equity if it finds any imprudence

. We understand the statute to leave to the Commi ssion’s discretion the dec ision whether the utility ’s manag ement wa rra nts a reduc tion in the overall ra te of re turn.

Texas Util

s . E lec. Co. v. Public Util. Comm’n , 881 S.W .2d 387, 417 (Tex. App.—Austin 1994), aff’d in part, rev’d in part , 935 S.W .2d 109 (Tex. 1997).

The Commi ssion had discretio n re garding how to adjust the rate s in response to Cap R o ck’s mismanag ement, and whether such adjustment would impact the rate -of- return- onequity component of the rate -setting

. See id. I n fac t, the Commi ssion did adjust Cap Rock’s rate s in response to the evidenc e of mismanag ement in the rec ord. As previously discussed, the Commi ssion reje ct ed Cap Rock’s proposed capital structure of 60/40 so as not to rew ard Cap Rock for its mismanag ement. I n addition, the Commi ssion reje cted Cap Rock’s attempt to include various expenses in its rate s based on their unrea sonablene ss, limit ed the amount of reimbursa ble costs for Cap Rock’s executive office rs, and provided that an independe nt “mana g ement audit” be underta ke n by Cap Rock. As for the cre dit risk premium applied to the rate of return on equity , acc ording to
20the rec ord its purpose was to ensure that the final rate of return was compar able to rate s of return

for companies with be low-investment-g rade rating s simil ar to Cap Rock’s and, in turn, to incre ase Cap Rock’s ability to attract investors. See E ntex , 599 S.W .2d at 296 (“r eturn to the equity owner should be commensura te with returns o n i n vestments in other enter prises having corr esponding risks” (quoting Fede ral Power Comm’n v. Hope Natural Gas C o. , 320 U.S. 591, 603 (1944)))

.

We conclude that the Commi ssion did not err by approving a rate of return on equity of 11.75%. The Commission did not a ct unrea sonably by approving a rate of return on equity that included a c redit risk pre mium and that excluded any penalty for pa st mism anag ement. Rate Case Expe nses The Commi ssion al l o wed Cap Rock to rec over approximately $2.5 milli on in
rate case expenses incurre d in prepa ring and prese nting its rate case . Pioneer asserts that the Commi ssion err ed by approving those rate case expenses incurre d for the work of two of Cap Rock’s
rate consultants—L arr

y Crowley and Dr . Stephen Gaske

. The utilit ies code provides that the Commi ssion include in a utilit y ’s ra t es i t s

rea sonable and nece ssary opera ting expenses, which may include rea s onable costs of the utilit y ’s participa ting in the rate -making proce eding

. See Tex. Util. Code Ann. §§ 36.051, .061(b)( 2) (West 2007)

. I f, then, the Commi ssion determines that a utility failed to prove the rea sonablene ss of cer t ai n ex penses incurre d during the rate -making proce eding , the Commi ssion may deny reimburse ment of those rate case expenses. See, e.g. , City of Port Neche s v. R a i l r o a d C o mm’n , 2 1 2 S .W.3d 565, 581 & n.15 (Tex. App.—Austin 2006, no pet.); City of Amarillo v. Rai l r o a d Comm’n , 894 S.W .2d 491, 496-97 (Tex. App.—Austin 1995, writ denied)

. Acc ording to Pionee r,
21the err ors made by Crowley and Gaske wer e so unacc eptably poor and preva lent that it was arbitra ry and capr icious and an abuse of discretion for the Commi ssion to have char g ed the rate pay ers for those consultants’ expenses.

T h e C o mmissi on approve d inclusion of $215,857 in fee s and expenses rela ted t o Cap Rock witness Crowley ’s work, along with subsequent costs incurre d by other witnesses to

corr ect his work. Crow ley was Cap Rock’ s initi al re venue- require ments witness, and he prepa red

a signific ant portion of the rate -filing packa g e. After withdrawing as a witness for family rea sons, Crowley was repla ced by two other witnesses who made numerous corr ections to Crowley ’s work. As a result of those corr ections, Cap Rock’s reque st for a rate incre ase was reduc ed approximately from $10 milli on to $5 milli on. Acc ording to Pioneer, a signific ant portion of the repla ceme nt witnesses’ work and testimony was dedica ted to revising and corr ecti n g C rowley ’s work and explaining the re asons for suc h corr ections.

Whil e Pioneer is corr ect that the two witnesses who repla ced Crowley made sever al

corr ections to his work, one of those witnesses, Ge rald Tuc ker, te stified to the value of Crowley ’s work. Acc ording to Tucke r, althoug h he had to make some “number changes ” wi t h i n the model

cre ated by Crowley , such “cost service model” was a “big p ar t ” of C rowley ’s work, was made by Crowley “fr om scra tch,” was not modified by Tucke r or the other repla ceme nt witness, and worke d very well as to Ca

p Rock’s rate -filing packa g e. Moreove r, acc ording to Tucke r, his chang es made
to the numbers within the model wer e “not a major redo” and did not result in Crowley ’s ear lier time spent on the model being a waste. Tucke r testified that Crowley ’s work allowed him to prepa re his rebuttal testimony more quickly , and stated that he was “impresse d” Crowley had been able to

22perf

orm his w ork within the time fra me he had been g iven. The Commi ssion ha s broad discretion
to deter mine rec overy of expenses in a rate -making proce eding

. See City of El Paso v. Public Util. Comm’n , 916 S.W .2d 515, 522 (Tex. App.—Austin 1995), appeal dism’d by agr. , 1996 Tex. App. L EXI S 1010 (Tex. App.—Austin Mar. 13, 1996). As to evidenc e pr e s e n te d about the rea sonablene ss and nec essity

of ra te ca se expenses, the a g ency is the sole judge of t he weight of the evidenc e and the cre dibilit y of the witnesses. See City of Port Neche

s , 212 S.W .3d at 579-80. Tucke r’s testimony reg arding the value of C rowley ’s work was s ufficie nt to support the C ommissi on’s determination
t hat t he ex penses incurred during the rate-making proce eding in connec tion with Crowley ’s wo rk

wer e re asonable

.

The Commi ssion also approve d inclusion of $689,374 in rate case expenses associate d with the work of Cap Rock’s ra te-de sign c onsultant Gaske

. The S OAH administ rative l aw j u d g es had conclude d in their proposal for decision that Gaske ’s work was “so flaw ed an d unreliable as t o be useless for str u ct u ri n g ra tes in this case .” Acc ording to the admini strative law judge s, Gaske ’s initial p r e s e n ta ti o n r e quired numerous, signific ant chang es, such that the intervenor s h ad to spend signific ant, additional resour ces to addre ss the revisions. I n its final order , t h e Commi ssion a lso r ejec ted the ra te desig n offe red by Cap Rock based on Gaske ’s work. Howeve r, while acknow ledg ing that there wer e “m aj o r p roblems” with Cap Rock’s rate desig n, the Commi ssion in its final order rec og nized the “many difficulties” arising from Cap Rock’s producing the rate desig n in its first rate case “esse ntially from scratch,” and reverse d the admini strative law judge s’ re commendation to disallow Gaske ’s ra te-de sign e x penses.

23The C o mmissi on has broad discretion to deter mine rec overy of ex penses in a ratemaking proce eding , see City of El Paso , 916 S.W .2d at 522, and may reve rse the rec ommendation of administrative law judge s on an issue, see Tex. Gov’t Code Ann. § 2003.049(g ) (West 2008). The Commi ssion was entitled to take into consideration the fac ts th at C ap R o ck ’s rate s had not been reg ulated by the Commi ssion for a subst antial period of time and, there fore , that Cap Rock had
to cre ate much of its rate -filing packa g e from scra tch. See C i t y o f E l P a so , 916 S.W .2d at 522 (ac knowledg ing that natu re an d co m plexi ty of case may be fac tor to be considere d as to

rea sonablene ss of expenses). There fore , even though Gaske ’s rec ommendation was not adopted, it

was wi t h i n t h e Commi ssion’s discretion to deter mine that his work was not useless and that Cap Rock did not act unre asonably in incurring expenses in connec tion with his work. We conclude that the Commi ssion did not err by approving those rate case expenses incurre d by Cap Rock in connec tion with the work perf ormed by its rate consultants Crowley and Gaske as “re asonable costs of participa ting in a [rat e- m ak i n g] p roce eding .” See Tex. Util. Code Ann. § 36.061(b)( 2). Cap Rock’s Point on Appeal

We turn to Cap Rock’s appea l. The Commi ssion imposed a discou n t o f $2.44 per kilowatt for commerc ial customers who rec eive service at primary voltag e. I n its sole point on appea l, Cap Rock arg ues that the imposition of a discount was e rror .

The Commi ssion allocate d $1,711,714 of Cap Rock’s total annual reven ue require ment to the demand component of C ap Rock’s commerc ial-customer class. Also, the Commi ssion deter

mined that 366,661 kilow a tts was the amount of annual billed demand attributable
24to the commerc ial class. The Commi ssion then assig ned to eac h commerc ial class a demand char g e

rate of $4.67 per kilowatt (which equals $1,711,714 divided by 366,661). Cap Rock does not dispute these fig ures. Howeve r, the Commi ssion also found it r e a s o n a b le f o r “ commerc ial service customers who rec eive service at primary voltag e” to rec eive a discount of $2.44 per kilowatt. Cap Rock contends that this discount violates section 36.051 of the utilit ies code, which provides that a utilit y ’s

overa ll r evenue s be set at “an amount that will permit the utilit y a rea sonable opportunity to e arn a

rea sonable return.” See id. § 36.051. Acc ording to Cap Rock, in order to ear n a rea sonable return, it must rec eive on aver ag e the full $4.67 per kilowatt from ea ch co m m ercial customer. Thus, Cap Rock ar g ues, either the discount must be eliminated, or the losses re sulting fr om the discount must be offset by

incre ased r ates c harg ed to the commer cial-c ustomer class. The discount of $2.44 per kilowatt adopted by the Commi ssion in its final order for

commerc ial service customers rec eiving service at primary voltag e was rec ommended by Pioneer. During the administrative proce eding , Pioneer proposed an adjustment to Cap Rock’s rate schedule s to acc ount for the lower costs associate d with serving customers in the commerc ial class who owned their own transfor

mers and, there fore , rec eive d p ower at the highe r transmission-g rade voltag e. Acc ording to Pioneer, ty

pically when a rate is applicable to customers rec eiving service at differ ent voltag e levels, the rate is discounted for service at highe r voltag e levels beca use few er utilit y -owne d fac iliti es are neede d to pr ovide the service

. Cap Rock points to nothing in the rec ord to contra dict Pioneer’s proposal. I m position of a $2.44-per -kilowatt discount, there fore , was supported by substantial evidence

.

25Cap Rock is corr ect that utilit ies code section 36.051 require s that the utilit y be g iven

a “re asonable opportunity to ear n a re asonable return.” See id. Howeve r, we do not a g ree that the imposit ion of the $2.44-per -kilowatt discount eliminates Cap Rock’s rea sonable opportunity to ear n

a re asonable return. [T] he deter

mination of just and rea sonable utilit y rate s is far from a prec ise proce ss; instead, ratemaking relies substantially upon informed judgment and expertise and utiliz es projec tions and estimates in virtually all are as. The rate making proce ss is not capa ble of be ing ne atly

char acte rized as “a ctual” or “hy pothetical.”

Public Util. Comm’n v. GTE-Southwest, Inc. , 901 S.W .2d 401, 411 (Tex. 1995). The Commi ssion exercised its informed judgme nt and expertise in deter mining that a $2.44-per -kilowatt discount for

a cer tain subclass of customers would not interfe re with Cap Rock’s rec eiving a rea sonab le opportunity to ear

n a rea sonable return. Cap Rock has not shown that in order to re ce i v e such a

rea sonable opportun i t y , t h e entire $1,711,714 assig ned to the demand component of Cap Rock’s

commerc ial-customer class had to be rec eived in rate s. Section 36.051 addre sses a utilit y ’s overa ll return, not its retur

n from a pa

rticular c lass of customer s. See Tex. Util

. Code Ann. § 36.051. As previously discussed, in deter mining the appropr iate rate of return, the C ommissi on approve d a capital structur e based on 75% debt and 25% equity , which involved an artificia l incre ase in the equit y p er ce n t age , and an 11.75% rate of return on equity , which incorporated a risk adjustment. Eac h of these selec ted perc entag es resulted in a highe r overa ll rate of return and, conseque ntly , highe r rate s assessed to Cap Rock’s rate pay ers. Cap Rock fails to demonstrate that any potential loss from the $2.44 discount would exceed the potential g ains from such “hy pothetical” incre ases to the
rate of re turn or fr om other portions of the Commission’s order not addr essed in this opinion.
26I n Suburban Utility Cor p . v. Public Utility Commission , the Tex as S upreme Court found, on revie w of the rec ord in a rate -making proce eding , that the Commi ssion had ca l cu l ated

cer tain expenses at $200 less than the total amount to wh ich the utilit y was entitled. 652 S.W .2d 358, 364 (Tex. 1983). Nonethele ss, the court held that the utilit y failed to show substantial prejudice from the shortfall, and there fore , the court did not consider the err or reve rsible. Id. ; see Tex. Gov’t Code Ann. § 2001.174(2) (administrative decision reve rsible if substantial rig hts prejudice d). I n the

same way , even if we wer e to deter mine that the $2.44 discount could result in a shortfall, Cap Rock has failed to show any prejudice from the discount. We do not rea d utilit ies code section 36.051 to

mean that the mere fac t—by itself—that the individual rate s assig ned to customer classifica tions result in a total that is less than—by some amount—the utilit y ’s reve nue require ment established by the Commiss ion in its discretion during the ra te-making

proce eding inevitably

results in rates tha t fail to provide the utility

a “r easona

ble opportunity

to ear n a re asonable return.” The Commi ssion, taking the $2.44 discount into acc ount, deter mined that Cap Rock had a rea sonable opportunity to ear n a rea sonable return. We conclude that the Commi ssion’s deter mination is supported by substantial evidenc e and di d n o t v i o l ate section 36.051 of the utilit ies code

.

27Conclu sion Having overr uled the points on appea l asser ted by Pioneer and b y Cap Rock, we aff irm the judg ment of the district cour t.

__________________________________________ G. Alan Waldrop, Just ice Be fore J ustices Patterson, Pember ton and Waldrop Affir med Filed: De cembe r 31, 2009

28