Opinion ID: 1525205
Heading Depth: 1
Heading Rank: 5

Heading: Substantial EvidenceDecisional Imprudence Disallowance [11]

Text: The Commission concluded that due to imprudent decisions, $32 million of EPEC's costs should not be included in rate base. Both the City and OPUC argue that the disallowance is unsupported by substantial record evidence, claiming that the amount disallowed should have been greater. At its core, the substantial evidence rule is a reasonableness test or a rational basis test. Railroad Comm'n of Texas v. Pend Oreille Oil & Gas Co., 817 S.W.2d 36, 41 (Tex.1991). The reviewing court, then, concerns itself with the reasonableness of the administrative order, not the correctness of the order. Id. In applying this test, we may not substitute our judgment as to the weight of the evidence for that of the agency. Id. (the substantial evidence rule prevents the court from `usurping the agency's adjudicative authority even though the court would have struck a different balance'). Although substantial evidence is more than a mere scintilla, the evidence in the record actually may preponderate against the decision of the agency and nonetheless amount to substantial evidence. Texas Health Facilities Comm'n v. Charter Medical-Dallas, Inc., 665 S.W.2d 446, 452 (Tex.1984). The true test is not whether the agency reached the correct conclusion, but whether some reasonable basis exists in the record for the action taken by the agency. Id. The findings, inferences, conclusions, and decisions of an administrative agency are presumed to be supported by substantial evidence, and the burden is on the contestant to prove otherwise. Id. at 453; Imperial American Resources Fund, Inc. v. Railroad Comm'n, 557 S.W.2d 280, 286 (Tex.1977); City of San Antonio v. Texas Water Comm'n, 407 S.W.2d 752, 758 (Tex.1966). The City argues that although the City, EPEC, and the Commission staff each offered expert testimony on the decisional imprudence issue, the evidentiary record contains no specific reference to amount. Further, the City contends that the court of appeals erred by relying, in part, on matters included in the non-unanimous stipulation to conclude that the Commission's decision was supported by substantial evidence because the matters relied on were not independently supported by a preponderance of the evidence. In the Findings of Fact, the Commission provided: 101. The Company was not entirely prudent in its planning and management of its participation in the Palo Verde project. 102. There is evidence in the record of imprudence in the Company's continuing evaluation of the level of its participation in the Palo Verde Project. The parties to the Amended and Restated Stipulation have quantified The [sic] cost of such imprudence as $22 million as applied to Units 1 and 2. The Company has conceded an additional $10 million disallowance to be applied to PVNGS Units 1 and 2. 103. Quantification of the effects of imprudence requires the exercise of judgment based upon the evidence. In light of the evidence relating to prudence and the difficulties in quantification, the quantification of decisional imprudence at $32 million for Units 1 and 2 is reasonable and appropriate. Docket No. 7460, supra note 1, at 1250. The record before this Court is extensive and contains substantial information relevant to the Commission's inquiry on this issue. The evidence includes expert testimony offered by the City, EPEC, and the Commission staff. The City's witness, Ben Johnson, stated that in his opinion the EPEC had made several imprudent decisions and that, as a result, the Commission should disallow 50% of its costs. [12] EPEC testified that there should be a zero disallowance because there simply was no decisional imprudence. The Commission staff offered testimony that certain aspects of the Company's decision making process were imprudent. However, the Commission's witnesses did not conclude that the decision to participate in the project was itself imprudent. Rather, they focused on the perceived errors associated with EPEC's decision making process. The Commission's witnesses noted that they were unaware of any theory that would enable them to recommend any specific disallowance of project costs or capacity based on their conclusions. [13] The evidence before the Commission therefore ranged from expert testimony that no imprudence disallowance should be imposed, to testimony that a 50% imprudence disallowance should be imposed, and finally to testimony that there is no known theory to quantify the flaws in EPEC's decision making process giving rise to its investment. In other words, several experts had significant differences of opinion on the proper method to determine and the proper amount of EPEC's imprudence disallowance. These differences are understandable when considering the enormous complexity involved in a utility's decision to construct or purchase new generating capacity. In conducting a substantial-evidence review, we must determine whether the evidence as a whole is such that reasonable minds could have reached the conclusion the agency must have reached in order to take the disputed action. Texas State Bd. of Dental Examiners v. Sizemore, 759 S.W.2d 114, 116 (Tex.1988), cert. denied, 490 U.S. 1080, 109 S.Ct. 2100, 104 L.Ed.2d 662 (1989). The true test is not whether the agency reached the correct conclusion, but whether some reasonable basis exists in the record for the action taken by the agency. Texas Health Facilities Comm'n v. Charter Medical-Dallas, Inc., 665 S.W.2d 446, 452 (Tex.1984). We agree with the court of appeals that the record contains substantial evidence to support a disallowance figure of zero for decisional imprudence; and, the record contains substantial evidence to support a Commission finding that 50 percent of EPEC's costs should have been disallowed. See 839 S.W.2d at 907. Thus, because of the admitted complexity in valuing the decisional imprudence in this case, we hold that there is a reasonable basis for the Commission to, in its discretion, select an amount within the range of figures provided by expert testimony of the parties. [14] Moreover, the City and OPUC have failed to explain why any one amount within that range is more reasonable or better supported by the evidence than the $32 million figure eventually reached by the Commission. The findings, inferences, conclusions, and decisions of an administrative agency are presumed to be supported by substantial evidence, and the burden is on the contestant to prove otherwise. Texas Health Facilities Comm'n v. Charter Medical-Dallas, Inc., 665 S.W.2d 446, 452 (Tex. 1984); Imperial American Resources Fund, Inc. v. Railroad Comm'n, 557 S.W.2d 280, 286 (Tex.1977); City of San Antonio v. Texas Water Comm'n, 407 S.W.2d 752, 758 (Tex. 1966). We do not accept that the City and OPUC have met their burdens to overcome the presumption in this case.