Opinion ID: 1984632
Heading Depth: 1
Heading Rank: 7

Heading: does the commission have the power to set rates?

Text: The Commission argues that the court of appeals erred in holding that the Commission has no statutory authority to set wholesale transmission rates. The Commission contends that PURA95 explicitly gives it such authority. Even if PURA95 does not, the Commission asserts that it has always had ratemaking power at least for HL & P, because HL & P is an investor-owned utility traditionally subject to the Commission's jurisdiction to establish rates. As we will explain, we agree that the Commission has the power generally to set HL & P's rates for wholesale transmission service, and that the court of appeals erred in this respect. But we do not agree that the same rationale applies to San Antonio, a municipally owned utility. The court of appeals erred when it looked only to chapter 35's provisions to find ratemaking authority. The statute must be construed as a whole, and PURA as a whole gives the Commission broad power over certain electric utilities, including investor-owned utilities like HL & P. This power includes the explicit authority to establish and regulate rates, found in chapter 36. [39] As we have pointed out, the definition of rate includes any compensation or charge that a utility demands for a service. [40] PURA defines service to include: any act performed, anything supplied, and any facilities used or supplied by a public utility in the performance of the utility's duties under this title to its patrons, employees, other public utilities, and the public. [41] This definition encompasses wholesale transmission service that one utility supplies to another. Further, chapter 36 specifies that [a]n electric utility may not charge or receive a rate for utility service except as provided by this title. [42] And service provides the starting point for setting rates under chapter 36. This point is evident from section 36.051, which commands that: [i]n establishing an electric utility's rates, the regulatory authority shall establish the utility's overall revenues at an amount that will permit the utility a reasonable opportunity to earn a reasonable return on the utility's invested capital used and useful in providing service to the public in excess of the utility's reasonable and necessary operating expenses. [43] In view of these statutory provisions, we conclude that chapter 36 permits the Commission to set rates for wholesale transmission service provided by investor-owned utilities. The chapter further states that the Commission shall ensure that the rate a utility demands or receives is just and reasonable. [44] Moreover, rates may not be unreasonably preferential, prejudicial, or discriminatory but must be sufficient, equitable and consistent in application to each class of consumer. [45] Finally, the chapter has detailed provisions explaining how the Commission shall determine a utility's rates. For instance, a utility's revenues must permit it to earn a reasonable return on its invested capital. [46] The statute specifies the factors to consider in a reasonable return, and also delineates invested capital components. [47] In establishing a reasonable return for a utility on its invested capital, the Commission must consider the quality of the utility's services. [48] Additional provisions describe in detail how the Commission must treat other elements involved in establishing rates. [49] Thus, we conclude that the court of appeals erred when it dismissed chapter 36 as applying only to the rates charged to end-users for electricity sales. [50] In fact, HL & P specifically concedes that chapter 36 gives the Commission the authority to set its wholesale transmission rates. It now argues, however, that the Commission may not set these rates by a statewide rule, but only in a contested-case hearing as chapter 36 requires. But HL & P did not raise this point as a ground for summary judgment in the trial court, and did not argue it before the trial court or the court of appeals. We therefore decline to address it. San Antonio, however, is another matter. San Antonio is a municipally owned utility, and PURA treats municipally owned utilities differently from investor-owned utilities. Throughout most of PURA, including chapter 36, the term electric utility excludes municipally owned utilities like San Antonio. [51] Thus, the Commission's jurisdiction over municipally owned utilities is restricted. Unlike investor-owned utilities, municipally owned utilities retain the ability to set their own rates without the Commission's approval. [52] The Commission may establish rates for a municipally owned utility only in limited circumstances. [53] Thus, the Commission's chapter 36 ratemaking authority does not extend to San Antonio. But chapter 35, in contrast to the rest of PURA, specifically includes municipally owned utilities in its definition of electric utility. [54] Consequently, all powers that chapter 35 gives the Commission extend to municipally owned utilities. For the Commission to have the power to set wholesale transmission rates for San Antonio, then, chapter 35 must grant that power. But chapter 35 contains no explicit grant of ratemaking authority. Nor is the power to set rates initially by rule necessarily implied from the specific authority chapter 35 does contain. [55] First, chapter 35 lacks the clear language the Legislature used in chapter 36nowhere does chapter 35 give the Commission the explicit power to establish and regulate rates. [56] Nor does chapter 35 contain any detail comparable to chapter 36's provisions regarding the factors to be considered in setting wholesale transmission rates. The Commission asserts that the Legislature did not need to repeat such language in chapter 35, because it need not restate in each new statutory section all powers already bestowed on the Commission. While this may be true, the powers bestowed in chapter 36 do not extend to municipally owned utilities. And section 35.001 says that electric utility includes municipally owned utilities for Subchapter A of chapter 35 only. [57] Consequently, chapter 35 does not sweep municipally owned utilities into chapter 36's scheme. Moreover, the specific powers that chapter 35 gives the Commission do not necessarily imply the authority to set rates. The Commission is to adopt rules relating to wholesale transmission service, rates and access, which must be consistent with chapter 35's standards. [58] Excluding the specific power to adopt rates in favor of the power to adopt rules relating to ... rates suggests that the Legislature deliberately declined to give the Commission the same kind of authority that it has under chapter 36. [59] The unchallenged parts of Rule 23.67 contain examples of such rules. For instance, Rule 23.67(d) requires utilities to provide ancillary services in conjunction with wholesale transmission service and provides that such services shall be discretely priced and separately provided on a nondiscriminatory basis[.] [60] Rule 23.67(e) allows a utility to supply additional ancillary services, with the price to be determined by negotiations between utility and customer. [61] Rule 23.67( o ) instructs utilities to make filings with the Commission separating out their costs and rates, based on the costs associated with generation, transmission and distribution operations. [62] Similarly, the specific power to review rates for reasonableness, which chapter 35 explicitly gives the Commission, is distinct from the power to set rates in the first instance. [63] Although the Commission argues that we must read the phrase relating to rates to include the ability at least to set rates, citing Morales v. Trans World Airlines, Inc., [64] and Continental Airlines, Inc. v. Kiefer, [65] these cases are inapposite for the reasons the court of appeals explained. [66] Chapter 35 gives the Commission other express powers as well. The Commission is to ensure that all utilities provide nondiscriminatory access to transmission service. [67] The Commission may also require a utility to provide wholesale transmission service to another utility, and may determine whether the terms for the transmission service are reasonable. [68] And, when a utility provides transmission service at a third party's request, the Commission is to ensure that the utility recovers its reasonable costs from the entity receiving the services so that the utility's customers don't bear those costs. [69] None of these powers and duties grants or necessarily requires the ability to initially set wholesale transmission rates. An argument is made that, because the Commission may decide whether the terms of service are reasonable, it may determine in advance that, in every case, the postage-stamp method is the only reasonable one for setting rates. This argument does not comport with the limited authority that chapter 35 gives the Commission that we have just described. For if the Commission has the authority initially to set rates, then it could of course predetermine what rate is reasonable. Absent the authority to set rates, though, it is not at all certain that the Commission could set a blanket rate. Finally, the Commission may require that parties to a dispute concerning prices or terms of wholesale transmission service engage in a nonbinding dispute resolution process before coming to the Commission to resolve the dispute. [70] But if all rates for wholesale transmission service are set up front, there will be no dispute[s] concerning prices. The Commission's rules thereby render this part of the statute meaningless. [71] The Commission points out several pending cases in which utilities are challenging the outcome of individual contested-case hearings in which the Commission set their wholesale transmission rates, arguing that these cases show that disputes still exist that could be subject to ADR. The short answer to this contention is that these are not the disputes between utilities that the statute contemplates. Instead, by its plain language the statute anticipates disputes between individual utilities about the price for wholesale transmission service-which can't exist when the Commission has already said precisely what each utility must pay to each other utility for such service. In sum, we agree with the court of appeals that chapter 35 envisions largely an oversight role for the Commission with respect to wholesale transmission transactions. [72] The statute contemplates that one utility will request transmission service from another utility. Should those parties not be able to agree on the terms for service, they can turn to the Commission. In that circumstance, the Commission can order one utility to provide service to another, can determine whether the terms for that service are reasonable, and can ensure that the utility providing service recovers its costs from the utility receiving service. [73] Once confronted with a dispute between utilities, the Commission can arrive at a reasonable rate to resolve that dispute. The Commission also has the option to refer parties to alternative dispute resolution to settle disputes over transmission service pricing. [74] Moreover, to ensure that utilities are providing comparable prices and services and non-discriminatory access, and to protect a utility's customers from bearing others' transmission costs, the Commission has the independent ability to order utilities to appear before it even without a dispute. [75] But the Commission does not have the authority under chapter 35 to dictate by rule the rates that each utility must charge each other utility for wholesale transmission service. The Commission further argues that minor changes made to chapter 35 in the codification process demonstrate that the Legislature approved its rules. In section 2.057(a) of PURA95 as originally enacted, the Commission was instructed to adopt rules relating to wholesale transmission service, rates, and access within 180 days of the effective date of this section.... [76] When the statute was codified, the 180 day requirement was dropped. The Commission argues that this change indicates the Legislature's approval of its rules. It does not. Rather, it demonstrates no more than the fact that the Legislature was aware that the Commission had adopted rulesthat is, the deletion recognized the rules' existence; it did not comment on the rules' substance. The Commission also points to the fact that section 2.057(a) commanded utilities to file their tariffs within 60 days after the commission has adopted transmission pricing and access rules pursuant to this section.... [77] This language was also dropped in the codification. The Commission argues that the phrase transmission pricing ... rules recognizes its authority to set rates by rule. But this phrase will not bear the weight the Commission puts on it. A simple reference to pricing rules, which refers back to previous language, cannot grant additional substantive powers. Thus, we conclude that PURA95, as originally enacted and codified, did not give the Commission any authority to set wholesale transmission rates for municipally owned utilities, including San Antonio. But the Commission retains its existing authority to set wholesale transmission rates for investor-owned utilities, including HL & P, pursuant to chapter 36.