NO. 01-14-00102-CV

IN THE COURT OF APPEALS 

FOR THE FIRST JUDICIAL DISTRICT OF TEXAS

AT HOUSTON 

NAVARRO COUNTY WHOLESALE RATEPAYERS, et al 

 Appellants

v.

TEXAS COMMISSION ON ENVIRONMENTAL QUALITY, et al

 Appellee

FROM THE 419th JUDICIAL DISTRICT, TRAVIS COUNTY, TEXAS

APPELLEE, CITY OF CORSICANA, TEXAS’ 

REPLY TO APPELLANTS’ MOTION FOR REHEARING 

Respectfully submitted, 

J. KAY TROSTLE 

State Bar No. 20238300

ktrostle@smithtrostle.com

SMITH TROSTLE & HUERTA LLP 

4401 Westgate Blvd. Ste 330

Austin, Texas 78745

(512) 494-9500

(512) 494-9505 - Fax

ATTORNEYS FOR APPELLEE, 

CITY OF CORSICANA, TEXAS

August 14, 2015

ACCEPTED

01-14-00102-CV

FIRST COURT OF APPEALS

HOUSTON, TEXAS

8/14/2015 3:07:37 PM

CHRISTOPHER PRINE

CLERK

 FILED IN 1st COURT OF APPEALS HOUSTON, TEXAS 8/14/2015 3:07:37 PM CHRISTOPHER A. PRINE Clerk
ii

TABLE OF CONTENTS

TABLE OF CONTENTS...............................................................................................ii

INDEX OF AUTHORITIES ....................................................................................... iii

ARGUMENT.................................................................................................................2

I. Reversal and Remand is not required by Texas Government Code

Section 2001.058(e)...................................................................................2

II. Reversal and Remand is not necessary or appropriate as a result of

The Court’s construction of 30 Texas Administrative Code section

291.133 ......................................................................................................4

III. This Court’s opinion should not be modified with respect to its

discussion of the Corsicana mayor’s comments.......................................8

CONCLUSION AND PRAYER ...................................................................................9

CERTIFCATE OF COMPLIANCE ............................................................................10

CERTIFICATE OF SERVICE ....................................................................................10
iii

INDEX OF AUTHORITIES

Cases

Entergy Gulf States, Inc. v. Public Utility Commission of Texas, 173 S.W.3d 199 

(Tex.App.—Austin 2005, pet. denied)....................................................................2

Four Stars Food Mart, Inc. v. Texas Alcoholic Beverage Comm'n, 923 S.W.2d 266, 

270 (Tex. App.—Fort Worth 1996, no writ) ..........................................................2

Ray v. State Bd. of Pub. Accountancy, 4 S.W.3d 429, 433 (Tex. App.—Austin 

1999, no pet.)...........................................................................................................3

Texas Statutes

TEX. GOV'T CODE § 2001.058(e)....................................................................... ii, 1, 2

TEX. GOV'T CODE § 2001.145.....................................................................................2

TEX. GOV'T CODE § 2001.145(a)................................................................................2

Texas Agency Rules

30 TAC § 291.133................................................................................................. ii, 4

30 TAC § 291.133(a)(1)-(4) ......................................................................................3

30 TAC § 291.133(a)(3)(H).......................................................................... 4, 5, 6, 7
Appellee Corsicana’s Reply to Motion for Rehearing 1

TO THE HONORABLE FIRST COURT OF APPEALS

The Court correctly affirmed the trial court’s judgment, and Appellants’ 

Motion for Rehearing raises three issues that do not merit re-examination. First, 

the Appellants did not include in their motion for rehearing before the Texas 

Commission on Environmental Quality a claim under Texas Government Code § 

2001.058(e) and accordingly that argument was waived and this Court properly did 

not address it in the Opinion. Second, the Court’s Opinion properly analyzes 

Appellants’ claim of discrimination, and the arguments raised by Appellants in 

seeking rehearing are without merit because they rest on an incorrect construction 

of the Commission’s findings of fact and application of the law to the facts. 

Rehearing on Appellants’ discrimination argument is therefore not warranted. 

Third, Appellants’ request for clarification is inappropriate because the Court’s 

Opinion correctly explains the applicable law, and the evidence concerning the 

Mayor’s comment was admitted at hearing. The requested clarification concerning 

admissibility is therefore not necessary to the resolution of this administrative 

appeal and should not be the basis for granting Appellants’ Motion for Rehearing. 

The City of Corsicana respectfully urges the Court to deny Appellants’ Motion for 

Rehearing. 
Appellee Corsicana’s Reply to Motion for Rehearing 2

ARGUMENT

I. Reversal and Remand is not required by Texas Government 

 Code Section 2001.058(e)

Appellants’ first argument concerns TEX. GOV’T CODE § 2001.058(e), which 

directs a state agency that changes a finding of fact or conclusion of law made by 

an Administrative Law Judge, to state in writing the reason and legal basis for the 

change. Appellants’ Motion for Rehearing claims that this Court failed to mention 

this requirement in reference to the Commission’s Conclusion of Law No. 17, and 

therefore must reverse and remand this matter. Appellants waived this argument 

by failing to timely raise it before the Commission, and this Court need not address 

an argument that has been waived.

Appellants failed to raise TEX. GOV’T CODE § 2001.058(e) in their motion 

for rehearing before TCEQ, or in their petition on appeal to district court, or in 

their brief before the district court prior to the hearing on the merits. TEX. GOV’T 

CODE § 2001.145 (Administrative Procedure Act) states that "a timely motion for 

rehearing is a prerequisite to an appeal in a contested case."1 In order to preserve 

an issue for review, the party must state in the motion for rehearing the particular 

issue the party asserts was error and the legal basis upon which the claim rests.2

 1 TEX. GOV'T CODE ANN. § 2001.145(a).

 

2 Entergy Gulf States, Inc. v. Public Utility Commission of Texas, 173 S.W.3d 199 (Tex.App.—Austin 

2005, pet. denied), citing Four Stars Food Mart, Inc. v. Texas Alcoholic Beverage Comm'n, 923 

S.W.2d 266, 270 (Tex. App.—Fort Worth 1996, no writ).
Appellee Corsicana’s Reply to Motion for Rehearing 3

Because Appellants did not preserve this issue in their motion for rehearing filed 

with TCEQ, they have waived the right to argue this issue on appeal.3

Appellants’ Motion for Rehearing relegates to a footnote its argument that 

they were not notified that there had been a material change in the conclusion of 

law.

 

4

 That argument is without merit first because the TCEQ Order included, as an 

Explanation of Changes, the following: “Additionally, at its November 2, 2011 

Agenda Meeting, the Commission modified Conclusion of Law No. 17 to remove 

the statement that the public-interest review is ‘limited to’ the factors set out in 30 

TAC § 291.133(a)(1)-(4).”5

 The Explanation of Changes in the Order gave all 

parties notice of the change to the Conclusion of Law, and correctly notes the 

change was discussed at the November 2, 2011 Agenda Meeting, of which 

Appellants now argue they were unaware. Second, in an attempt to excuse their 

failure to raise this issue in the Motion for Rehearing before the Commission, 

Appellants argue that the Commission’s change to the Conclusion of Law was so 

subtle that it obfuscated the materiality of the change.6

 3 Id., citing Ray v. State Bd. of Pub. Accountancy, 4 S.W.3d 429, 433 (Tex. App.—Austin 1999, no pet.)

 Appellants’ argument is 

unsupported by any precedent or legal analysis and cannot be reconciled with the 

plain reading of the Explanation of Changes section of the TCEQ Order. 

4 Appellants’ Motion for Rehearing at 3, fn. 1. 

5 Appellants’ Brief (May 7, 2014), Appendix 2 (TCEQ Final Order at p. 21).

6 Appellants’ Motion for Rehearing at 3, fn. 1. 
Appellee Corsicana’s Reply to Motion for Rehearing 4

For each of these reasons, Corsicana respectfully urges this Court to deny 

the Motion for Rehearing based on Appellants’ first argument. 

II. Reversal and Remand is Not Necessary or Appropriate as a result of 

The Court’s construction of 30 Texas Administrative Code section

291.133

Appellants’ second argument in its Motion for Rehearing rests on a 

continued misunderstanding of the Commission’s public interest rules, and this 

Court’s thorough analysis of same in the Slip Opinion. Simply stated, Appellants’ 

second argument rests on the erroneous contention that TCEQ failed to consider

and therefore failed to make a finding that Corsicana’s rates charged to the 

wholesale customers are discriminatory. This argument ignores both the analysis 

of 30 TEX. ADMIN. CODE § 291.133(a)(3)(H) in the Proposal for Decision,7 which 

the Commission’s Order expressly states it considered,8 and the Findings of Fact 

83 through 92 and Conclusions of Law 21 and 22 in the Commission’s Order.9

 7

Appellee City of Corsicana’s Brief (Jun. 6, 2014), Appendix C, Proposal for Decision at 63-69.

 

The rule addresses abuse of monopoly power, based upon a comparison of the 

retail rates charged by the Seller and the Purchaser. The Commission’s Order 

includes findings of fact making the appropriate “apples to apples” comparison of 

retail rates, and reached the conclusion of law, based upon that comparison, that 

the rates do not evidence Corsicana’s abuse of monopoly power. 

8 Appellants’ Brief (May 7, 2014), Appendix 2 (TCEQ Final Order at p.2).

9 Id. at 14-15 and 19-20.
Appellee Corsicana’s Reply to Motion for Rehearing 5

The rule at the center of Appellants’ argument is §291.133(a)(3)(H) which 

provides that, when determining whether the Wholesale Seller has abused its 

monopoly power, the Commission shall weigh all relevant factors, which may 

include a comparison of seller’s rates for water service charged to its retail 

customers to the retail rates the purchaser charges its retail customers as a result of 

the wholesale rate the seller demands from the purchaser. As this Court explained, 

“the Commission determines whether the rate unfairly discriminates against 

wholesalers by comparing the rate Corsicana charges its own retail customer with 

the rate that the Ratepayer charge their retail customers as a result of the wholesale 

rate it pays Corsicana.”10

The Appellants’ argument rests on the absence of the word “discrimination” 

in the findings of fact, but the findings of fact unequivocally make the comparison 

between the rates the provider charges its retail customers and the rates the 

wholesale customer charges its retail customers, pursuant to 30 TEX. ADMIN. CODE

§ 291.133(a)(3)(H). Ratepayers’ argument at hearing that this comparison of rates 

evidenced discrimination was considered, but was not persuasive. The 

 The Appellants’ claim that the disputed rate treats 

wholesale and retail customers differently, i.e., in a discriminatory manner, was not 

supported by the record, as the Court correctly notes at page 18 of the Slip 

Opinion. 

 10 Slip Opinion at 17.
Appellee Corsicana’s Reply to Motion for Rehearing 6

Commission expressly considered whether there was a difference or disparity or 

discrimination, between the retail rates charged by Corsicana in comparison to 

retail rates charged by the Wholesalers to their retail customers as a result of 

Corsicana’s rates. The Proposal for Decision devotes seven pages to this issue and

concludes as follows:

The ALJ concludes that the comparison called for by 30 TAC §

291.133(a)(3)(H) shows that an average residential retail customer 

pays a Ratepayer $3.45 or less for 1,000 gallons of water due to the 

wholesale rates that Corsicana charges the Ratepayers, while 

Corsicana’s own average retail customer pays Corsicana $5.43 per 

1,000 gallons of water. The ALJ concludes that this comparison does 

not indicate Corsicana’s abuse of monopoly power. 11

Ratepayers argued to the Commission that it had to consider if there was a 

disparate impact of the rate charged to the City’s retail customers in comparison to 

the wholesale rate charged to the Ratepayers. That argument was rooted in 

“discrimination” language in the preamble to the rule, which the ALJ concluded 

Ratepayers were misconstruing. Corsicana’s position on the preamble was, taken 

in context, that language did not support consideration of the disparate impact of a 

rate change on retail versus wholesale customers, and the ALJ, Commission, and 

this Court agreed. Appellants are now attempting to reframe their “discrimination” 

 11 Appellee City of Corsicana’s Brief (Jun. 6, 2014), Appendix C, Proposal for Decision at 69. 
Appellee Corsicana’s Reply to Motion for Rehearing 7

argument by claiming that the Commission erred by not considering discrimination 

at all because the Commission’s Findings of Fact which compare the rates charged 

to the Seller’s and Purchaser’s retail customers under § 291.133(a)(3)(H), do not 

contain the word “discrimination.” As explained above, this subsection of the rule 

which suggests a comparison of retail rates is one factor that may be considered as 

evidence of abuse of monopoly power, informed the terms used in the Findings of 

Fact and Conclusions of Law. Appellants have had their hearing on the claim of 

discrimination under § 291.133(a)(3)(H), in which all of the evidence that they 

offered was admitted. Contrary to their contention, the evidence proffered by 

Ratepayers was considered but that evidence was found neither persuasive nor 

relevant under §291.133(a)(3)(H). The Court’s opinion correctly summarizes this 

point: “However, the Commission did not conclude that rate discrimination was 

irrelevant; instead it decided that comparing the disparate impact of a rate on 

wholesale versus retail customers was not a proper consideration for determining 

rate discrimination.”12 Appellants’ argument on this issue mischaracterizes the

facts, as well as the Commission’s correct application of its rule and the law to the 

facts, and this Court should deny the Motion for Rehearing on this basis. 

 12 Slip Opinion at 19.
Appellee Corsicana’s Reply to Motion for Rehearing 8

III. This Court’s opinion should not be modified with respect to its

discussion of the Corsicana mayor’s comments.

Ratepayers’ third and final basis for seeking rehearing and then reversal and 

remand, concerns the Court’s discussion of a comment attributed to Corsicana’s 

mayor, which Appellants’ argue evidenced Corsicana’s intent to discriminate 

against wholesale purchasers.13 The Court discusses why the mayor’s individual 

mental process and motive is irrelevant to the legislative act of Corsicana’s city 

council in setting the rates which were protested by Ratepayers.14

However, the evidence concerning the Mayor’s comments was admitted into 

evidence by the SOAH ALJ, and therefore there is no need for this Court to offer 

the advisory opinion requested by Appellants. The evidence concerning the 

Mayor’s statement was admitted through the testimony of three of Appellants’ 

witnesses,

 Appellants seek 

rehearing in order to have the Court “clarify” what “irrelevant” means, suggesting 

that this Court should opine on the admissibility of evidence of communications by 

a governmental entity. 

15 over the objection of Corsicana.16

 13 Appellants’ Motion for Rehearing at 8.

 The Court’s opinion correctly states 

14 Slip Opinion at 18 – 19.

15 AR Vol 5, Item 57, Testimony of Chris Ivey, NCWR Exhibit J, page 7, ln. 14 – 16, page 18, ln 15 –

page 19, ln 4, and page 20, ln 4 – 5; AR Vol. 5, Item 48, Testimony of James Metcalfe, NCWR 

Exhibit A, page 21, ln. 20 – page 22, ln. 8; and AR Vol. 5, Item 58, Testimony of Jack Stowe, NCWR 

Exhibit Contract, page 7, ln. 7-13. 

16 Corsicana’s objections, AR Vol 3, Item 42 (CD #1), file .pdf40, pages 2-5. The ALJ’s overruling of 

Corsicana’s objections occurred at the March 24, 2011 prehearing conference (AR Vol 11, Item 113, 

CD #3). 
Appellee Corsicana’s Reply to Motion for Rehearing 9

the law applicable to the evidence concerning the Mayor’s comment, that evidence 

was admitted into the record at the hearing, and the Court need not provide 

clarification on the admissibility of the evidence because that is not a matter in 

dispute. 

CONCLUSION AND PRAYER

For the reasons set out in this Reply, Corsicana requests this Court deny 

Appellants Motion for Rehearing.17

Respectfully Submitted,

/s/ J. Kay Trostle 

J. Kay Trostle

State Bar No. 20238300

SMITH TROSTLE & HUERTA LLP

4401 Westgate Blvd., Suite 330

Austin, Texas 78745

(512) 494-9500 (Telephone) 

(512) 494-9505 (Facsimile)

ktrostle@smithtrostle.com

ATTORNEYS FOR APPELLEE, 

CITY OF CORSICANA

 17 As Appellants note in the Conclusion and Prayer of their Motion for Rehearing, jurisdiction over the 

underlying administrative petition was transferred to the Public Utility Commission effective 

September 1, 2014. The Public Utility Commission adopted the Public Interest rules of the TCEQ, 

under which the administrative case was processed, without substantive change. 
Appellee Corsicana’s Reply to Motion for Rehearing 10

CERTIFICATE OF COMPLIANCE

I certify in accordance with Texas Rule of Appellate Procedure 9(i)(3) that this 

document was produced on a computer using Microsoft Word 2007 and contains 2177

words, as determined by the computer software’s word-count function. 

/s/ J. Kay Trostle 

J. Kay Trostle

CERTIFICATE OF SERVICE

I hereby certify that on the 14th of August 2015, the foregoing document was 

served on each person listed below by the method shown.

Paul M. Terrill III

The Terrill Firm, P.C.

810 W. 10th St.

Austin, Texas 78701

Attorneys for Ratepayers, Plaintiffs

Via E-service

Cynthia Woelk

Assistant Attorney General

Environmental Protection Division

Office of the Attorney General

P.O. Box 12548

Austin, Texas 78711-2548

Attorneys for Texas Commission on

Environmental Quality, its Commissioners,

Bryan Shaw, Carlos Rubenstein and Toby Baker, 

and its Executive Director, Zachary Covar

Via 1st Class Mail and E-mail 

 /s/ J. Kay Trostle 

J. Kay Trostle