Court Opinion

ID: 4070102
Source: CourtListenerOpinion
Date Created: 2016-09-30 01:00:45.631309+00
Date Added: 2024-06-11T14:33:03.456655
License: Public Domain

ACCEPTED
                                                                               03-15-00313-CV
                                                                                       6023524
                                                                    THIRD COURT OF APPEALS
                                                                               AUSTIN, TEXAS
                                                                          7/10/2015 3:56:40 PM
                                                                             JEFFREY D. KYLE
                                                                                        CLERK

                       NO. 03-15-00313-CV
_______________________________________________________________
                                                      RECEIVED IN
                                                 3rd COURT OF APPEALS
                  IN THE COURT OF APPEALS            AUSTIN, TEXAS
                                                 7/10/2015 3:56:40 PM
    THIRD SUPREME JUDICIAL DISTRICT AT AUSTIN,         TEXAS
                                                   JEFFREY D. KYLE
________________________________________________________________
                                                         Clerk

                       HERMENIA JENKINS,
                                                   Appellant,
                                 v.

         CROSBY INDEPENDENT SCHOOL DISTRICT AND
    MICHAEL L. WILLIAMS, COMMISSIONER OF EDUCATION,
                                             Appellees.
________________________________________________________________
    On Appeal from the 200th District Court of Travis County, Texas;
               Trial Court Cause No. D-1-GN-14-000619
________________________________________________________________
                BRIEF OF AMICUS CURIAE
TEXAS ELEMENTARY PRINCIPALS AND SUPERVISORS ASSOCIATION

                                DANIEL A. ORTIZ
                                State Bar No. 15323100
                                GIANA ORTIZ
                                State Bar No. 24053824

                                The Ortiz Law Firm
                                1304 West Abram Street, Suite 100
                                Arlington, Texas 76013
                                817-861-7984 Telephone
                                817-861-8909 Facsimile
                                dortiz@ortizlawtx.com
                                gortiz@ortizlawtx.com

                                ATTORNEYS FOR AMICUS CURIAE TEXAS
                                ELEMENTARY PRINCIPALS AND
                                SUPERVISORS ASSOCIATION
                    IDENTITY OF PARTIES AND COUNSEL

       Amicus curiae Texas Elementary Principals and Supervisors Association

adopts the parties’ identity of parties and counsel to the order appealed from,

and supplements as follows:

Attorneys for Amicus Curiae TEPSA:

Daniel A. Ortiz
Giana Ortiz
1304 West Abram Street, Suite 100
Arlington, Texas 76013
817-861-7984 Telephone

                         IDENTITY OF BRIEFING PARTY

       Pursuant to Texas Rule of Appellate Procedure 11(b), this amicus curiae

brief is tendered on behalf of Texas Elementary Principals and Supervisors

Association.

                               SOURCE OF FEE PAID

       Pursuant to Texas Rule of Appellate Procedure 11(c), this amicus curiae

brief is funded wholly by Texas Elementary Principals and Supervisors

Association, by and through member contributions.

Brief of Amicus Curiae TEPSA                                          Page i
                                       TABLE OF CONTENTS
Cases                                                                                                    Page

IDENTITY OF PARTIES AND COUNSEL ................................................. i

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

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

INTEREST OF AMICUS CURIAE TEPSA ................................................... 1

STATEMENT OF THE CASE ...................................................................... 2

ISSUES PRESENTED.................................................................................... 2

STATEMENT OF FACTS ............................................................................. 2

SUMMARY OF ARGUMENT ...................................................................... 3

ARGUMENT ................................................................................................. 4

         I.       The Unique Role of Principal .................................................... 4
                  A.   Principals Are Treated as Unique by the Legislature ...... 6
                  B.   Principals Are Treated as Unique by the School
                       Community ...................................................................... 9

         II.      “Principal” Is a Protected “Professional Capacity” ................. 10

         III.     Jenkins’ Contract is Not an “Administrator Contract” ............ 14

         IV.      The Commissioner’s Decision is Not Entitled to Deference ... 16

PRAYER ....................................................................................................... 17

CERTIFICATE OF SERVICE ..................................................................... 20

APPENDIX INDEX ..................................................................................... 21

Brief of Amicus Curiae TEPSA                                                                             Page ii
                                INDEX OF AUTHORITIES
Cases                                                                                      Page

French v. School Bd., 568 So. 2d 497 (Fla. Dist. Ct. App. 1990) ...................... 11

Joyce v. Spring-Ford Area Sch. Dist.,
  600 A.2d 1302 (Pa. Commw. Ct. 1991) .......................................................... 11

Murphy v. St. Paul Pub. Schs., 795 N.W.2d 30 (Minn. Ct. App. 2011) ............ 11

Pub. Util. Comm’n v. Gulf States Utils. Co.,
 809 S.W.2d 201 (Tex. 1991)........................................................................ 3, 17

Commissioner Decisions

Barich v. Canadian Independent School District,
 Docket No. 106-R1-585 (Comm’r Educ. 1985) ........................................ 12, 14

Jenkins v. Crosby Independent School District,
  Docket No. 043-R10-1211 (Comm’r Educ. 2013) ........................ 12, 13, 15, 16

Lehr v. Ector County Independent School District,
 Docket No. 003-R3-0908 (Comm’r Educ. 2011) .............................. 3, 8, 13, 17

Pasqua v. Fort Stockton Independent School District,
 Docket No. 011-R3-1102 (Comm’r Educ. 2004) ............................................ 12

Ramos v. El Paso Independent School District,
 Docket No. 002-R10-900 (Comm’r Educ. 2002) ............................................ 12

Tuck v. Alief Indep. Sch. Dist.,
 Docket No. 008-R10-1007 (Comm’r Decision 2012) ............................... 14, 15

Veliz v. Donna Independent School District,
 Docket No. 011-R3-999 (Comm’r Educ. 2000) .............................................. 12

Brief of Amicus Curiae TEPSA                                                                Page iii
Wheeler v. Austin Independent School District,
 Docket No. 008-R3-1108 (Comm’r Educ. 2011) ............................................ 14

Statutes

19 TEX. ADMIN. CODE § 149.2001 ........................................................................ 8
19 TEX. ADMIN. CODE § 232.2 (b) ........................................................................ 8
19 TEX. ADMIN. CODE § 241.1 .............................................................................. 8
19 TEX. ADMIN. CODE § 242.1 .............................................................................. 8
TEX. EDUC. CODE § 11.201 ................................................................................... 6
TEX. EDUC. CODE § 11.201(a)) ............................................................................. 3
TEX. EDUC. CODE § 11.202 ........................................................................... 3, 6, 7
TEX. EDUC. CODE § 11.202(a)............................................................................... 3
TEX. EDUC. CODE § 11.253 ................................................................................... 7
TEX. EDUC. CODE § 21.046 ................................................................................... 8
TEX. EDUC. CODE § 21.201(1) .................................................... 10, 12, 14, 15, 16
TEX. EDUC. CODE § 21.202 ........................................................................... 10, 11
TEX. EDUC. CODE § 21.206 ................................................................................. 10
TEX. EDUC. CODE § 21.206(b) ............................................................................ 16
TEX. EDUC. CODE § 21.211 ................................................................................. 10
TEX. EDUC. CODE § 21.354 ................................................................................... 7
TEX. FAMILY CODE § 52.02(7) .............................................................................. 9

Rules

Texas Rule of Appellate Procedure 38.1 .............................................................. 2

Board Policies

Crosby Indep. Sch. Dist. Bd. Policy DP (Local) .................................................. 7
Crosby Indep. Sch. Dist. Bd. Policy FOE (Legal)................................................ 9

Brief of Amicus Curiae TEPSA                                                                     Page iv
                    INTEREST OF AMICUS CURIAE TEPSA

       Formed in 1917, the Texas Elementary Principals and Supervisors

Association (“TEPSA”) consists of some 5,800 Pre-K-8th grade principals and

supervisors working in the public schools of Texas. TEPSA provides support

for its members by way of advocacy, legislative representation, and professional

development. TEPSA members are the chief leaders in hundreds of public

school districts across the state, in rural, urban, and suburban areas. The vast

majority of TEPSA members serve as principals and assistant principals in

public elementary schools. TEPSA is interested in this case because the ability

of a school district to unilaterally transfer Texas public school principals to any

position other than principal creates a career crisis, and economic detriment,

from which TEPSA seeks to protect Texas public school principals. TEPSA

further seeks to promote the legal rights of such principals throughout Texas.

       Each of the thousands of educators serving Texas public school children

plays a vitally important role in our state’s future. Principals, not unlike

superintendents, serve a uniquely crucial role: As the superintendent is the chief

instructional leaders of the school district, the principal is the chief instructional

leader of the school building. It takes a great deal of dedication, personal

sacrifice, and devotion to service to become a principal. Those individuals who

Brief of Amicus Curiae TEPSA                                                Page 1
have succeeded in attaining the credentials and experience to become a

principal should not be unilaterally demoted to a non-principal position without

some form of notice and hearing. The title is not easily earned and should not be

freely stripped away.

                               STATEMENT OF THE CASE

       This is an appeal from a decision of the Texas Commissioner of

Education (the “Commissioner”). This amicus curiae brief is presented to the

Court advocating a reversal of the Commissioner’s decision by way of an

appropriate and equitable interpretation of the statutes and case law.

                                   ISSUES PRESENTED

       Pursuant to Texas Rule of Appellate Procedure 38.1, TEPSA presents this

brief not to raise additional issues but to advocate a position on issues raised by

the parties.

                                STATEMENT OF FACTS

       TEPSA adopts the parties’ statements of the facts to the extent such facts

are undisputed. To the extent there exist disputed facts, TEPSA does not take a

position on such facts unless otherwise noted herein.

Brief of Amicus Curiae TEPSA                                             Page 2
                         SUMMARY OF THE ARGUMENT

       Involuntarily stripping the principal of a principal’s title is tantamount to

a public termination—the effect on the educator’s reputation and earning

potential being swift and not easily reversed. TEPSA does not posit that Texas

principals have a right to a principal’s position, but rather that Texas principals

have a right to process before being stripped of that title.            Because the

principal’s role garners unique treatment both under the law and in the school

district community, to strip the principal of the title and duties constitutes a

deprivation of a property interest such that due process is required.

       First, the legislature treats a principal and a superintendent differently

than any other person employed by a school district—but agency law has not

abided by that distinction. Agency law through Commissioner’s decisions,

reflects application of an arbitrary distinction between superintendent—as “sui

generis” the educational leader and chief executive officer of the school

district—and treats all other “administrators” as equal. E.g., Lehr v. Ector

County Ind. Sch. Dist., Docket No. 003-R3-0908 (Comm’r Educ. 2011)

(quoting TEX. EDUC. CODE § 11.201(a)). This distinction ignores the plain

language of the statute which also identifies the principal’s role as sui generis

on the campus—“the instructional leader of the school.” TEX. EDUC. CODE

Brief of Amicus Curiae TEPSA                                               Page 3
§ 11.202(a).      The principal, unlike any other person on a campus, has a

statutorily defined role and attendant duties. TEX. EDUC. CODE § 11.202.

       Second, the principal’s visibility in the community is second only to that

other unique role—the superintendent.        Principal reassignments are public

events and, thanks to the internet, follow the principal for the rest of her career.

The courts’ duty of deference to agency decisions does not permit this Court to

affirm the agency’s decision where, as here, it is inconsistent with the statute.

See Pub. Util. Comm’n v. Gulf States Utils. Co., 809 S.W.2d 201, 207 (Tex.

1991). This Court should overturn the Commissioner’s decision in this case to

apply fundamental principles of statutory construction. The notion that the

legislature meant to treat a superintendent as beyond compare—but treat the

principal as if she were any other “administrator”—is a fiction created by the

Commissioner and which must be corrected by this Court.

                                  ARGUMENT

 I. The Unique Role of Principal

       The principal is the single chief instructional leader of each public school

campus in Texas. The principal reports directly to the highest ranks in the

school district—the superintendent(s) and the elected school board.             The

principal is charged with direction of all activities on a campus from custodial

Brief of Amicus Curiae TEPSA                                              Page 4
and maintenance services, to athletics, extracurricular activities, instruction, and

testing. In this role, the principal performs a balancing act at all times—

implementing policy promulgated by central administration, while maintaining

high standards and morale on the campus. At times forced to choose sides (e.g.,

central office vs. teachers, parent vs. teacher, student vs. student, parent vs.

parent, etc.), there are some battles a principal cannot win. The principal must

make the most reasonable and intelligent choice with the information she has at

that given moment, and face the fallout.

       For this reason, and because almost every reassignment will constitute a

demotion for the principal, the position dictates some minimal process to

insulate principals from the inherent political risks associated with the job. That

is, when a principal is “reassigned” to a role of significantly less authority (as is

any non-principal role), this information is not only reflected on the person’s

work history but it is also a very public event. It makes the newspapers and

television news, even in large cities. However, a demotion from a principal

position—the chief instructional leader position—to assistant principal,

attendance coordinator, or any other non-principal position has the same

practical effect for the educator as a termination or nonrenewal without

requiring the school districts to abide by the procedures set forth in the Texas

Brief of Amicus Curiae TEPSA                                               Page 5
Education Code.          By permitting the school districts to circumvent those

processes to avoid risks, or inconvenience, the Commissioner’s decision in

effect condones the school district’s de facto termination or nonrenewal without

the due process protections afforded Texas educators in the Texas Education

Code.

        A.     Principals Are Treated as Unique by the Legislature.           Like

superintendents, the role and duties of a principal are expressly set forth by

statute. State law defines the job duties for superintendent and principal. TEX.

EDUC. CODE §§ 11.201, 11.202. All other school positions are subject to being

completely defined by the school district—through the superintendents and

principals or their designees. There is no mystery as to the principal’s duties.

The duties, and the role, are clearly stated in state law, and may be augmented

by the school district.

        Specifically:

        a.     The principal of a school is the instructional leader of the
               school and shall be provided with adequate training and
               personnel assistance to assume that role.

        b.     Each principal shall:

               1.       Except as provided by Subsection (d), approve all
                        teacher and staff appointments for that principal’s
                        campus from a pool of applicants selected by the

Brief of Amicus Curiae TEPSA                                            Page 6
                      district or of applicants who meet the hiring
                      requirements established by the district, based on
                      criteria developed by the principal after informal
                      consultation with the faculty;

               2.     set specific education objectives for the principal’s
                      campus, through the planning process under Section
                      11.253;

               3.     develop budgets for the principal’s campus;

               4.     assume the administrative responsibility and
                      instructional leadership, under the supervision of the
                      superintendent, for discipline at the campus;

               5.     assign, evaluate, and promote personnel assigned to
                      the campus;

               6.     recommend to the superintendent the termination or
                      suspension of an employee assigned to the campus or
                      the nonrenewal of the term contract of an employee
                      assigned to the campus; and

               7.     perform other duties assigned by the superintendent
                      pursuant to the policy of the board of trustees.

TEX. EDUC. CODE § 11.202; see also Crosby Indep. Sch. Dist. Bd. Pol’y

DP(Local) (setting forth additional qualifications unique for the principal).

       Principals not only have a unique job description provided by state law,

principals are also assessed by specific statutory appraisal guidelines, separate

and apart from teachers, assistant principals, and other administrators. See TEX.

EDUC. CODE § 21.354.           The Texas Administrative Code also sets forth

Brief of Amicus Curiae TEPSA                                             Page 7
professional standards for principals as distinct from teachers, assistant

principals, and other administrators. See 19 TEX. ADMIN. CODE § 149.2001.

Moreover, unlike for any other administrator position, state law dictates the

certification requirements for superintendent and principal. TEX. EDUC. CODE

§ 21.046.      Additionally, there are only two categories of administrator

certificates in Texas: the superintendent and principal. See 19 TEX. ADMIN.

CODE §§ 241.1 et seq., §§ 242.1 et seq.1

       The school district in this case has asserted that because an assistant

principal is required to hold a principal’s certificate, the two positions are equal

for reassignment purposes. Using this same analysis, a superintendent could be

reassigned to be a principal, because a superintendent is required to hold a

principal’s certificate.       However, the Commissioner has prohibited such

demotion. E.g., Lehr v. Ector County Ind. Sch. Dist., Docket No. 003-R3-0908

(Comm’r Educ. 2011). Indeed, the arbitrary distinction between the protection

afforded to the superintendent from unlawful reassignment to principal—

whereas the principal’s demotion to assistant is lawful—has no support in the

statutes.

1
  19 TEX. ADMIN. CODE § 232.2 (b): Classes of certificates include the following: 1.
superintendent; 2. principal; 3. classroom teacher; 4. instructional educator other than
classroom teacher, including reading specialist; 5. master teacher; 6. school librarian; 7.

Brief of Amicus Curiae TEPSA                                                     Page 8
       B.      Principals Are Treated as Unique by the School Community.

Principals are unique, indispensable, members of the campus community. For

each public school campus in this state, there exists only one principal. The

same is not true for assistant principals. Indeed, each principal is aided in that

role by one or several “assistants,” depending on the size of the campus. A

principal is strengthened and the campus is made more successful with a good

assistant principal.      The principal often delegates responsibilities related to

student discipline, teacher appraisals, special education, lunch duty, bus duty,

textbooks, and others to her assistant. See, e.g., Tex. Family Code § 52.02(7)

(providing that a principal or his designee must assume responsibility of a child

taken into custody and returned to the school); Crosby Indep. Sch. Dist. Bd.

Pol’y FOE(Legal) (permitting the principal or his designee to place a student in

alternative education or expel a student immediately under certain conditions).

Delegation and designation of duties is left to the discretion of the principal and

varies from campus to campus. The assistant’s job is to carry out the duties as

assigned by the principal. While the assistant principal is a crucial component

of the well-oiled campus machinery, the reality is that no person on the school

district staff—from the paraprofessional to the superintendent—considers the

school counselor; 8. educational diagnostician; and 9. educational aide.

Brief of Amicus Curiae TEPSA                                               Page 9
assistant to be the “same professional capacity” as the principal. The legal

fiction that they are the “same professional capacity” exists only in

Commissioner decisions and finds no support either in the law or in practice.

II. “Principal” Is a Protected “Professional Capacity”

       Chapter 21 of the Texas Education Code provides certain protections and

procedures for the nonrenewal or the termination of the educator, affording the

educator (or principal, as in this case) notice of the reasons for the adverse

employment action, and an opportunity for a hearing. See TEX. EDUC. CODE

§§ 21.206, 21.211. However, when the educator is reassigned, such procedural

protections are not invoked—unless the reassignment constitutes a “change in

professional capacity.” Texas Education Code § 21.202 provides that if the

school district does not nonrenew the educator contract, that the teacher must be

employed in the same professional capacity for the following school year.2

       That is, the Texas Education Code § 21.201(1) defines “teacher” broadly:

“A superintendent, principal, supervisor, classroom teacher, counselor, or other

2
  The District and the Commissioner have relied on the well-established right of public school
supervisors to reasonably reassign personnel. And indeed, the vast majority of professional
employment contracts contain a reassignment clause like Jenkins’ that says something similar
to this: “The District shall have the right to assign or reassign the Employee to positions,
duties, or additional duties and to make changes in responsibilities, work, or transfers, at any
time during the contract term.” However, the reassignment authority is always limited by the
professional capacity of the employee.

Brief of Amicus Curiae TEPSA                                                        Page 10
full-time professional employee who is required to hold a certificate issued

under Subchapter B, or a nurse.” Just five sections later, § 21.202 says that the

“teacher” must be employed in the same professional capacity for the following

school year unless the school board elects to nonrenew the employee’s contract.

Plainly, “principal” is a specific subset of the broadly defined “teacher,” and is

considered by the legislature to be a distinct professional capacity. When the

principal is reassigned to a different professional capacity—for example to an

assistant principal—TEPSA argues that such reassignment constitutes a

termination or nonrenewal of the existing contract with the teacher and invokes

certain rights to process. See also Joyce v. Spring-Ford Area Sch. Dist., 600
A.2d 1302 (Pa. Commw. Ct. 1991) (transfer of principal to newly created

coordinator position in central office constituted a demotion); French v. School

Bd., 568 So. 2d 497 , 498-99 (Fla. Dist. Ct. App. 1990) (transfer of elementary

school principal to position of assistant junior high school principal affects

substantial interests and therefore requires a hearing); Murphy v. St. Paul Pub.

Schs., 795 N.W.2d 30 (Minn. Ct. App. 2011) (“[The principal] suffered a

reduction in rank or a transfer to a lower branch of service when she was

assigned to an assistant-principal position.”).

       In this case, the Commissioner devotes a great deal of discussion to the

Brief of Amicus Curiae TEPSA                                            Page 11
concept of “same professional capacity.” Jenkins v. Crosby Indep. Sch. Dist.,

Docket No. 043-R10-1211 (Comm’r Educ. 2013). However, the legislative

history and statutory analysis therein sheds little or no light on why principals—

unlike the other professional capacities set forth in § 21.201(1), including

superintendent, teacher, and nurse, have been excluded from recognition as a

“professional capacity.”       The end result is arbitrary and detrimental:               A

superintendent is a superintendent. A teacher is a teacher. A counselor is a

counselor.      A librarian is a librarian.         A nurse is a nurse.            But all

“administrators” are equal.3

       The Commissioner has arbitrarily interpreted “administrator” broadly to

include assistant elementary school principal, high school principal, middle

school assistant principal, attendance coordinator, and others. See e.g., Pasqua

v. Fort Stockton Ind. Sch. Dist., Docket No. 011-R3-1102 (Comm’r Educ.

2004); Ramos v. El Paso Ind. Sch. Dist., Docket No. 002-R10-900 (Comm’r

Educ. 2002); Veliz v. Donna Ind. Sch. Dist., Docket No. 011-R3-999 (Comm’r

3
  And indeed, teacher/coaches, teacher/deans, nurses, and counselors have all been preserved
as a “professional capacity” by Commissioner’s decisions. E.g., Jenkins v. Crosby Ind. Sch.
Dist., Docket No. 043-R10-1211 (Comm’r Educ. 2013) (“A classroom teacher cannot be
reassigned as a counselor. A counselor cannot be reassigned as a nurse. A nurse cannot be
reassigned as a librarian.”); Barich v. Canadian Ind. Sch. Dist., Docket No. 106-R1-585
(Comm’r Educ. 1985).

Brief of Amicus Curiae TEPSA                                                    Page 12
Educ. 2000). This broad interpretation of the word “administrator,” by which

the Commissioner erroneously equates principal with any number of other

administrative positions, becomes an improper circumvention of the due-

process type protections set forth in the Texas Education Code. Principals are

entitled to the nominal legal protections that come with the unique nature of the

job as evidenced by state law.

       The Commissioner’s approach to analyzing administrator reassignments

is not workable. Prior Commissioner’s decisions equate all administrators,

other than the superintendent, paving the way for school districts to reassign a

principal to any other administrative or quasi-administrative position. Lehr v.

Ector County Indep. Sch. Dist., Docket No. 003-R3-0908 (Comm’r Educ.

2011). However, and as set forth supra, one can clearly conclude that the

legislature intended for principals to be treated as unique, and deserving of

protection from reassignments.

       In the decision before the Court, the Commissioner portends that to

recognize the principal’s status would be to overturn decades of precedent.

TEPSA respectfully disagrees. Pursuant to the plain language of the statute,

principals are among the specifically identified protected professional

capacities.     Jenkins v. Crosby Ind. Sch. Dist., Docket No. 043-R10-1211

Brief of Amicus Curiae TEPSA                                           Page 13
(Comm’r Educ. 2013). A correct reading of the statute does not equate to a sea

change in all administrator reassignment cases.                    The traditional factors—

including duties, responsibilities and salaries—would apply to consider the

comparative “professional capacity” of non-principal administrator positions.

See Barich v. Canadian Ind. Sch. Dist., Docket No. 106-R1-585 (Comm’r Educ.

1985).     The Commissioner’s analysis has heretofore failed to explain why

principals are excluded as a “professional capacity” when they are specifically

named in Texas Education Code § 21.201(1).

III. Jenkins’ Contract Is Not an “Administrator” Contract

       Educator employment contracts must contain a valid “professional

capacity.” See, e.g., Tuck v. Alief Indep. Sch. Dist., Docket No. 008-R10-1007

(Comm’r Decision 2012); Wheeler v. Austin Indep. Sch. Dist., Docket No. 008-

R3-1108 (Comm’r Educ. 2011). Such a professional capacity may be “broad,”

but not overly broad.4 See Tuck v. Alief Indep. Sch. Dist., Docket No. 008-R10-

4
   However, there is no remedy for a school-district employee when her employer fails to
follow this requirement. Rather, the Commissioner asserts that he will protect school
employees from school districts that abuse their reassignment authority, but he has shown
little or no inclination to do so with administrator reassignments. In response, school districts
have broadened the employment categories to a point beyond recognition. A “teacher”
contract is apparent on its face. But, what about “administrator”? Or, as in the case of Ms.
Jenkins’ contract, an “employee”? Neither is decipherable and both are intended to be as
broad as possible to insulate the school district from any claims of wrongful reassignment.
Their breadth, at least as applied to principals, is an abuse by the school district of its right to
reassign.

Brief of Amicus Curiae TEPSA                                                           Page 14
1007 (Comm’r Decision 2012). In Ms. Jenkins’s contract, her professional

capacity was defined only as “employee.” Jenkins v. Crosby Ind. Sch. Dist.,

Docket No. 043-R10-1211 (Comm’r Educ. 2013). “Employee” is overly broad

and not a legitimate professional capacity. See Tuck v. Alief Indep. Sch. Dist.,

No. 008-R10-1007 (Comm’r Decision 2012). Where the professional capacity

listed in the contract is not legitimate, the Commissioner holds that he “must

then evaluate the two positions primarily by comparing professional duties and

responsibilities but also including other factors such as salary and who an

employee reports to.” See id. Here, the Commissioner improperly inserted the

word “administrator” into Jenkins’ contract, where it did not exist. Jenkins v.

Crosby Ind. Sch. Dist., Docket No. 043-R10-1211 (Comm’r Educ. 2013).

Based on that improper reconstruction of the contract terms, the Commissioner

is able to justify his own holding as consistent with prior decisions. A review of

Ms. Jenkins’ position which she had held for a number of years (principal), the

duties attendant to that position, and a review of § 21.201(1) should have led

the Commissioner to an easy result: Jenkins was hired as a principal. When

given the opportunity to repair the contract to the employee’s favor, and in

Brief of Amicus Curiae TEPSA                                            Page 15
compliance with statutes and contract law, the Commissioner went in the

opposite direction.5

IV. The Commissioner’s Decision Is Not Entitled to Deference

       The Commissioner writes: “Precedent should not be lightly overturned.

Teachers and school districts base important decisions in reliance on

Commissioner’s Decisions.” Jenkins v. Crosby Indep. Sch. Dist., Docket No.

043-R10-1211 (Comm’r Educ. 2013). It is exactly for this reason that this case

is so important.        The Commissioner’s decision equating “principal” and

“administrator” will be relied upon and exploited by school districts—and it is

contrary to the plain language of the statute.            In making statements such as,

“The positions described in the first sentence of Texas Education Code section

21.201(1) may or may not be professional capacities for purposes of Texas

Education Code section 21.206(b),” the Commissioner exhibits a disregard for

the language of the statute. Jenkins v. Crosby Indep. Sch. Dist., Docket No.

043-R10-1211 (Comm’r Educ. 2013) (emphasis added). In drawing arbitrary

5
  Educator contracts specifying “Administrator” professional capacity are very common but
problematic in a way not experienced with any other contract category. Administrator
contracts are used for every administrator position from assistant superintendent to textbook
coordinator; from principal to transportation director. The range and breadth of the possible
reassignments for administrators is greater than for any other job category, and is limited only
by the imagination of the district. There is a wider hierarchy of “administrator” positions than
in the other professional categories. That is why this case is so important. The commissioner
has reached a point where he approves every administrator reassignment, because in his view,

Brief of Amicus Curiae TEPSA                                                        Page 16
lines which include superintendents and counselors as professional capacities—

while creating a new label for principals as “administrators”—the

Commissioner’s holding is wholly inconsistent with the language of the statute.

       Further, affording superintendents reassignment protections as “sui

generis” the educational leader and chief executive officer of the school district

ignores the legislature’s treatment of superintendents            and principals

congruently. E.g., Lehr v. Ector County Ind. Sch. Dist., Docket No. 003-R3-

0908 (Comm’r Educ. 2011). That is, the superintendent and principal are the

same in that they are both treated differently by the legislature.             The

Commissioner’s refusal to do the same is arbitrary and inconsistent with the

language of the statute. As such, the decision is not entitled to deference of this

Court. See Pub. Util. Comm’n v. Gulf States Utils. Co., 809 S.W.2d 201, 207

(Tex. 1991).

                                       PRAYER

       It has been said that no one in a school district has a harder job than the

principal. Every day, these leaders serve thousands of campuses filled with

children of diverse ethnic, socio-economic, and cultural backgrounds, who

come to school, each with his own educational history and needs. The public

one administrator is like another.

Brief of Amicus Curiae TEPSA                                             Page 17
schools turn no child away. The principals serve the families—as community

and instructional leaders. They serve legions of professional and supporting

staff from the custodians to the head football coach. No person within a school

district is expected to wear more hats than the principal.

       The Commissioner has missed the mark in interpreting a principal to be

the same professional capacity as an assistant principal—or as a general

“administrator.” The treatment of the position in the statutes, along with the

clear language therein, point toward an intent of the legislature to distinguish

the principal from other administrators. It is beyond reason to read the statute,

as the Commissioner does, to equate “principal” with the word “administrator.”

TEPSA prays this Court would overturn the Commissioner’s decision in this

case to apply fundamental principles of statutory construction.

Dated:         July 10, 2015

Brief of Amicus Curiae TEPSA                                           Page 18
                                        Respectfully submitted,

                                        __/s/ Giana Ortiz____________
                                        DANIEL A. ORTIZ
                                        State Bar No. 15323100
                                        GIANA ORTIZ
                                        State Bar No. 24053824

                                        The Law Office of Daniel A. Ortiz
                                        1304 West Abram Street, Suite 100
                                        Arlington, Texas 76013
                                        817-861-7984 Telephone
                                        817-861-8909 Facsimile
                                        dortiz@ortizlawtx.com
                                        gortiz@ortizlawtx.com

                                        ATTORNEYS FOR AMICUS CURIAE
                                        TEXAS ELEMENTARY PRINCIPALS
                                        AND SUPERVISORS ASSOCIATION

                               CERTIFICATE OF COMPLIANCE

      I certify that this Brief was produced on a computer using Microsoft
Word 2007 and contains 4,256 words, as determined by using the computer
software’s word-count function, excluding the sections of the Brief listed in
Texas Rule of Appellate Procedure 9.4(i)(1).

Signed this 10th day of July 2015.

                                              __/s/ Giana Ortiz_____________
                                              Giana Ortiz

Brief of Amicus Curiae TEPSA                                          Page 19
                               CERTIFICATE OF SERVICE
      Pursuant to the Texas Rules of Procedure and the Texas Rules of
Appellate Procedure, I certify that a true and correct copy of the foregoing
document was served on the following person by certified mail, return receipt
requested, and by email on the 10th of July, 2015:

David Hodgins                            Andrew Lutostanski
Thompson & Horton LLP                    Assistant Attorney General
3200 Southwest Freeway, Suite 2000       P.O. Box 12548, Capitol Station
Houston, TX 77027                        Austin, TX 78711-2548
dhodgins@thompsonhorton.com
                                         Andrew.lutostanski@texasattorneygene
                                         ral.gov
Kevin F. Lungwitz
The Lungwitz Law Firm, P.C.
3005 S. Lamar Blvd.
Suite D-109-362
Austin, Texas 78704-4785
kevin@lungwitzlaw.com

                                             __/s/ Giana Ortiz_____________
                                             Giana Ortiz

Brief of Amicus Curiae TEPSA                                        Page 20
                                  APPENDIX

A.     Cases:

       Public Utility Comm’n v. Gulf States Utils. Co., 809 S.W.2d 201, 207
       (Tex. 1991)

B.     Decision of the Texas Commissioner of Education:

       Pasqua v. Fort Stockton Independent School District, Docket No. 011-
       R3-1102 (Comm’r Educ. 2004)

C.     Crosby Indep. Sch. Dist. Board Policies:

       Policy DP (Local)
       Policy FOE (Legal)

Brief of Amicus Curiae TEPSA                                        Page 21
APPENDIX A
Caution
As of: August 4, 2014 12:48 PM EDT

                             Public Utility Com. v. Gulf States Utilities Co.
                                                  Supreme Court of Texas
                                                  April 3, 1991, Delivered
                                                        No. C-9731

. Reporter: 809 S.W.2d 201; 1991 Tex. LEXIS 42; 34 Tex. Sup. J. 49.5
PUBLIC UTILITY COMMISSION OF TEXAS and                           avoided costs, found in 16 Tex. Admin. Code § 23.66(e)
OFFICE OF PUBLIC UTILTIY COUNSEL, Petitioners,                   (1988), did not apply to voluntary contracts arranged
v. GULF STATES UTILITIES COMPANY, Respondent                     outside the requirements of 16 Tex. Admin. Code ·§
                                                                 23.66(d), bui only applied to compelled purchases. The
Subsequent History: [**1] Dissenting Opinion of June             court held ·that petitioner's decision regarding the
19, 1991.                                                        allocation of proceeds was not supjJorted by substantial
                                                                 evidence and did not take all relevant factors into
Prior History: From Travis County; Third District.               consideration. The court remanded for determination of
                                                                 proper allocation and to a11ow respondent to recover
ICore Terms                                                      purchased price payments.

ratepayers, cogeneration, qualifying, rates, purchases,          Outcome
costs, electric utility, regulationS, Venture, energy, plants,   The court affinned the judgment that revei'sed petitioner's
electricity, customers, public interest, public utility,         final order. The court held that the restrictiOns on recovery
negotiated, shareholders, proceeds, facilities, factois,         of payments in excess of avoided costs did not apply-to
requirements,      contractual,     increment~,     provides,    volutilary arrangements with qualifying co-gener~ting
industrial, substantial evidence, federal regulation,            facilities and that respondent should be allowed to rei::over-
arrangements, state regulation, electric energy                  those costs. The court held that allocation of proceedS was
                                                                 not supported by substantial evidence and remanded for
                                                                 redetermination.
ICase Summary
Procedural Posture                                               ILexisNexis® Headnotes
Petitioner Public Utility Commission sought review of a
                                                                   Energy & Utilities Law > Cogenerntion & Independent Companies >
judgment from the Court of Appeals (Texas) that reversed            General Overview
petitioner's final order approving respondent utility              Energy & Utilities Law > Cogenerntion & Independent Companies >
company's request to sell and then repurchase generating            Public Utility Regulntory Policies Act > General Overview
units, but imposed conditions regarding the recovery of            Energy & Utilities Law> Cogeneration & Independent Companies>
payments in excess of avoided costs and allocation of               Public Utility Regulatory Policies Act > Purchasing Requirements
proceeds. Petitioner asserted its decision was supported by        Energy & Utilities Law > Electric Power Industry > State
substantial evidence.                                              Regulntion > General Overview

Overview                                                         HNl To encourage cogeneration, Congress enacted § 210
The court affinned a judgment that reversed a final order        of the Public Utility Regulatory Policies Act of 1978
                                                                 (PURPA), 16 U.S.C.S. § 824a-3_ An obstacle to the
of petitioner Public Utility Commission. Respondent
                                                                 development of cogeneration facilities in the past had been
utility company proposed to sell two generating units to a
                                                                 the reluctance of the traditional utilities to purchase excess
joint venture, then purchase the entire electrical output        power from, or sell bacl"Up power to, these nontraditional
from the plants for ·distribution to its customers. Applying
                                                                 facilities. Section 210 of PURPA attempts to remove this
the state and federal regulations governing the purchase of
                                                                 obstacle by requiring that electric utilities purchase
power from a qualifying co-generating facility, petitioner       electrical energy from qualifying co-generating or small
a11owed the sale, but prohibited respondent from
                                                                 power production facilities (QFs) and provide back-up
recovering from its ratepayers payments in excess of             power to QFs on a nondiscriminatory basis.
respondent's avoided costs and required respondent to
divide the proceeds of the sale between ratepayers and             Energy & Utilities Lnw > Regulntors >US Federnl Energy Regulntory
shareholders. The court held that the restrictions regarding       Commission > General Overview

                                                         Giana Ortiz
                                                                                                                             Page 2 of 15
                                         809 S.W.2d 201, *201; 1991 Tex. LEXIS 42, **l

    Energy & Utilities Lnw > Cogenerntion & Independent Compnnies >     utility, detennines that a lower rate is in the public interest
     Genernl Overview                                                   and is sufficient to encourage cogeneration.
    Energy & Utilities Law > Electric Power Industry > Electric Power
    Rntes > General Overview                                               Energy & Utilities Law> Regulators >US Federal Energy Regulntory
    Energy & Utilities Law > Electric Power Industry > Electric Power      Commission > Authorities & Powers
    Rates > Retail Rntes                                                   Energy & Utilities Law > ... > US Federul Energy Regulatory
                                                                           Commission >Civil Actions >Jurisdiction
    Energy & Utilities Law > Electric Power Industry > State
    Regulation> General Overview                                           Energy & Utilities Law > Cogenerntion & Independent Companies >
                                                                            General Overview
    Energy & Utilities Law > Utility Companies > Rates > General
    Overview                                                               Energy & Utilities Law > Cogenerntion & Independent Companies >
                                                                           Public Utility Regulatory Policies Act> Compliance Enforcement
 HN2 Congress provides that the rates established by the                   Energy & Utilities_ Law > Electric Power Industry > Electric Power
 U.S. Federal Energy Regulatory Commission for the                         Rates > Retail Rntes
 purchases of electricity by a utility ( 1) shall be just and              Energy & Utilities Lnw > Pipelines & Transportation >Pipelines >
                                                                            Rates
 reasonable to the utility's customers, and (2) shall not
 discriminate against qualifying co-generating facilities. 16              Energy & Utilities Lnw > Utility Companies > Rates > General
                                                                           Overview
 U.S.C.S. § 824-3!bl.

   Energy & Utilities Law> Co.generation & Independent Companies>       HN6 Nothing in 18 C.F.R. § 292.JOl!b)(]) limits the
    Genernl Overview                                                    authority of any electric utility or any qualifying
   Energy & Utilities Law > Electric Power Industry > State             co-generating facility to agree to a rate for any purchase
   Regulation > General Overview                                        which differs from the rate which would otherwise be
   Energy & Utilities Law > Utility Companies > Rates > General         required by this subpart.
   Overview
                                                                           Energy & Utilities Law > Cogeneration & Independent Companies >
  HN3 16 U.S.C.S. § 824a-3!d) provides that no rule                         Generul Overview
  prescribed under subsection (a) .of this section shall                  Energy & Utilities Law·> Electric Power Industry >: Electric Power
  provide for a rate which exceeds the incremental cost ·to               Rates > General Overview

  the electric utility of alternatiVe electric energy. The                Energy & Utilities Law > Oil, Gas & Mineral Interests > Purchase
                                                                          Contrncts > Price Tenns
  incremental cost of alternative electric energy is defined as
                                                                          Energy & Utilities Law > Utility Companies > Rntes > General
  the cost the utility would have incurred if it bad generated
                                                                          Overview
· itself or purchas~d from another utility the same amount of
  po~er it purchased from the qualifying co-generating                  HN7 Rates for purchases from a qualifying facility. ( 1)
  facility (QF).16 U.S.C.S. § 824a-3(d). By setting a ceiling           Rates for purchases of energy and capacity from any
  of incremental cost on the amount a utility could be forced           qualifying facility shall be just and reasonable lo the
  to pay for a QF's power, Congress intended to encourage               consumers of the electric utility and in the public interest,
  cogeneration without requiring a utility's ratepayers to              and shall ·not discriminate against qualifying cogeneration
  subsidize co-generators.                                              and small power production facilities. (2) Rates for
                                                                        purchases .of energy ad capacity from any qualifying
   Energy & Utilities Law> Regulators >US Federal Energy Regulntory
   Commission > Authorities & Powers                                    facility shall not exceed avoided costs; however, in the
   Energy & Utilities Law > Cogeneration & Independent Companies >      case in which the rates for purchase are based upon
   General Overview                                                     estimates of avoided costs over the specific term of the
                                                                        contract or their legally enforceable obligation, the rates
 HN4 18 C.F.R. § 292.304119901 require that each electric               for such purchases do not violate this subsection if the
 utility purchase any energy and capacity which is made                 rates for such purchases differ from avoided costs at the
 available from n qualifying co-generating facility.                    time of delivery. 16 Tex.·Admin. Code § 23.66(e)(l), (2)
                                                                        (1988).
   Energy & Utilities Law> Cogeneration & Independent Companies>
   Genera). Overview                                                      Energy & Utilities Law> Cogeneration & Independent Companies >
   Energy & Utilities Law > Pipelines & Transportntion > Pipelines >       General Overview
   Rntcs                                                                  Energy & Utilities Lnw > Electric Power Industry > Electric Power
   Energy & Utilities Law > Utility Companies > Rules > General           Rates > General Overview
   Overview                                                               Energy & Utilities Law > Utility Companies > Rntes > General
                                                                          Overview
HNS 18 C.F.R. § 292.304 (]9901 sets the rate of payment
for such purchases equal to the utility's full avoided cost             HN8 Rates for purchases satisfy the requirements of
unless the state regulatory authority, or an unregulated                paragraph (1) of this subsection if they equal avoided cost.

                                                               Giana Ortiz
                                                                                                                          Page 3 of 15
                                        809 S.W.2d 201, *201; 1991 Tex. LEXIS 42, **l

(4) Rates for purchases from qualifying facilities shall be           HNJI The court reads 16 Tex. Admin. Code § 23.66(e)
in accordance with paragraph (1)-(3) of this subsection,              (1988) as operating solely to set the rates that the Public
regardless of whether the electric utility making· such               Utility Commission can compel a utility to pay for a
purchases is simultaneously making sales to the qualifying            qualifying co-generating facility's (QF) power if the utility
facility. (5) Payments by a utility to any qualifying facility,       and the QF are unable to reach a voluntary agreement. 16
if in accordance with paragraphs (1)-(3) of this subsection,          Tex. Admin. Code § 23.66(e) does not impose a ceiling on
shall be considered reasonable and necessary operating                the amount a utility can contract to pay for a QF' s power,
expenses by that utility. 16 Tex. Admin. Code §                       nor does it limit the amount a utility can recover from its
23.66(e)(3)-(5) (1988).                                               ratepayers under such voluntary arrangements.

   CivilProcedure > ... > Eminent Domain Proceedings >                  Energy & Utilities Law> Cogeneration & Independent Companies>
   Commissioners > Reports                                               General Overview
  Energy & Utilities Law > Regulators >Public Utility Commissions >     Energy & Utilities Law > Utility Companies > Rates > General
   Rntemnking Procedures                                                Overview
  Energy & Utilities Law > Cogenemtion & lnd!!pendent Companies >
   Genernl Over<;ew                                                   HNJ2     16 Tex. Admin. Code § 23.66(e) (1988)
  Energy & Utilities Law > Electric Power Industry > State            avoided-cost rules therefore do not apply to voluntary
  Regulation > Geneml Overview
                                                                      contracts arranged outside the requirements of 16 Tex.
  Energy & Utilities Law > Utility Companies > Ownership &            Admin. Code § 23.66(d). This interpretation of
  Restructuring
                                                                      subsections (d) and (e) is in harmony with the plain
HN9 Tex. Rev. Civ. Stat. Ann. art. 1446c, § 63 (Supp.                 language of 16 Tex. Admin. Code § 23.66(b), which
1991) requires public utilities to report to the Public Utility       permits a utility and a qualifying .co-generating facility to
Commission (Commission) any sale of a plant when the                  agree to a rate which differs from the rate that would
total consideration exceeds $ 100,000. The Commission                 otherwise be required whether above, below, or equal to
then must determine if the transaction is consistent with             avoided cost.
the public interest. If .the Commission finds that the
transaction is not in the public interest•. the Comrilission            Energy & Utilities Law > Cogeneration -& lndepende.nt Companies >
                                                                         Geneml Overview
shall take the effect of the transaction into consideration in
the rate-making proceedings and shall disallow the effect               Energy & Utilities Law > Oil, Gas & Mineml Interests > Purchase
                                                                        Contracts > Price Tenns
of such transaction if it will unreasonably affect rates or
service.                                                                Energy & Utilities Law > Utility Companies > Rates > General
                                                                        Overview
  Administrative Law > Judicial Review > Standards of Review >
  General Overview                                                    HN13 Because 16 Tex. Admin. Code § 23.66(e) (1988)
  Administrative Law > Judicial Review > Standards of Review> Rule    does not apply to contractual arrangements between
  Interpretation                                                      utilities and qualifying co-generating facilities, it does not
  Criminal Law & Procedure > ... > Standards of Review > Plain        impose any limitation on the amount a utility can recover
  Error > Definition of Plain Error                                   from its customers for such contractual payments.
  Energy & Utilities Law> ... >Public Utility Commissions >Hearings
  & Orders > Judicial Review                                            Energy & Utilities Lnw > Regulators > Public Utility Commissions >
  Energy & Utilities Law > Utility Companies > General Overview          Authorities & Powers
  Environmental Law > Administrative Proceedings & Litigation >         Energy & Utilities Law > Cogeneration & Independent Compnnies >
  Judicial Review                                                        General Overview
                                                                        Energy & Utilities Law > Electric Power Industry > State
HNJO The Public Utility Commission's (Commission)                       Regulation > General Overview
interpretation of its own regulations is entitled to                    Energy & UtilitieS Law >Utility Companies > General Overview
deference by the courts. The appellate court's review is
limited to determining whether the administrative                     HN14 The court holds that the federal regulations do not
interpretation is plainly erroneous or inconsistent with the          grant the Texas Public Utility Commission any more
regulation. However, if the Commission has failed to                  authority to regulate negotiated purchases than do the state
follow the clear, unambiguous language of its own                     regulations.
regulation, the court must reverse its action as arbitrary
and capricious.                                                         Energy & Utilities Law > Cogeneration & Independent Companies >
                                                                         General Overview
  Energy & Utilities Law> Cogeneration & Independent Compnnies >        Energy & Utilities Law > Pipelines & Transportation > Pipelines >
  General Overview                                                       Ra Ies
  Energy & Utilities Law > Utility Companies > Rntes > General          Energy & Utilities Law > Utility Companies > Rates > Genernl
  Overview                                                              Overview

                                                             Giana Ortiz
                                                                                                                     Page 4 of 15
                                       809 S.W.2d 201, *201; 1991 Tex. LEXIS 42, **1

HNJS 18 C.F.R. § 292.3031a) 11990) provides that a utility            that group, as between shareholders and ratepayers, that
is obligated to purchase any energy and capacity made                 has borne the financial burdens and risks of the asset sold.
available from a qualifying co-generating facility. Such              In addition to these two general equitable factors, ·courts
purchases must be made in accordance with 18 C.F. R. §                have also considered numerous other factors, including
292.304, which sets the rate for purchases at avoided cost.           whether the asset sold had been included in the rate base
Because § 292.304 is applied through § 292.303, the                   over the years, whether the asset was depreciable property,
avoided-cost limit applies only to compelled purchases.               nondepreciable property, or a combination of the two
   Administrative Law > Judicial Review > Standards of Review >
                                                                      types, the impact of the proposed allocation on the
   Substantial Evidence                                               financial strength of the utility, the reason for the asset's
                                                                      appreciation, any advantages enjoyed by the shareholders
HN16 The appellate court's inquiry is.whether the Public              because of favored treatment accorded the asset, the
Utility Commission's decision is reasonably supported by              dividends paid out to the shareholders over the years, and
substantial evidence in view of the r~liable and probative            any extraordinary burdens borne by the ratepayers in
evidence in the record as a whole.                                    connection with that asset.
   Administrative Law > Judicial Review > Standards ·of Review >
                                                                      Counsel: The Honorable Dan Morales, Attorney General
   Arbitrary & Capricious Standard of Review
                                                                      of Texas, Ms. Susan D. Bergen, Office of Attorney General
   Administrative Law > Judicial Review > Standards of Review >
   Substantial Evidence                                               of Texas, Dan Morales, A. G., Ms. C. Kingsbery Ottmers,
                                                                      Office of Public Utility Counsel, Mr. John L. Laakso,
HN17 Agency decisions that are not supported by                       Assistant Public Counsel, Office of Public Utility Counsel,
substantial evidence are deemed arbitrary and capricious.             Austin, Texas, for Petitioners.

   Administrative Law > Judicial Review > Stnndnrds of Review >       Mr. Barry Bishop, Clark, Thomas, Winters & Newton, Mr.
   Substantial Evidence
                                                                      John F. Williams, Clark, Thomas, Winters & Newton,
                                                                      Austin, Texas, for Respondent.
HNJS In applying the substantial evidence test, the
appellate court-may not, however, .substitute its judgment
                                                                      Judges: Thomas R. Phillips, C.J. Concurring and
as to the weight of the evidence for that of the agency.              dissenting opinion by' Justice Raul A. Gonzalez and Oscar
  Energy & Utilities Lnw > Cogeneration & Independent Companies >
                                                                      H. Mauzy JJ.
   General Overview
                                                                      Opinion by: PHILLIPS
  Energy & Utilities Law > Utility Companies > Rates· > General
  Overview

HN19 The issue of the proper a11ocation of proceeds from
                                                                      IOpinion
the sale of assets is a complicated one that cannot be                 [*202] OPINION
resolved simply by reference to who paid for the property.
                                                                   This case is an administrative appeal from a final order of
  Energy & Utilities Lnw > Cogeneration & Independent Companies   >the Texas Public Utility Commission. Gulf States Utilities
   General Overview                                                Company (GSU) sought the Commission's approval of the
  Energy & Utilities Law > Utility Companies > Rates > General     sale of two of GSU's generating units and of GSU's
  Overview
                                                                   proposed rate treatment of certain revenues and expenses
                                                                   associated with that transaction. GSU proposed to sell the
HN20 A proper allocation of proceeds from the sale of
                                                                   two plants to a joint venture comprised of GSU and three
assets can be detennined only by an analysis of an the
                                                                   of its Louisiana industrial customers; GSU then planned lo
equities involved.
                                                                   purchase the entire electrical output [**2] from the plants
  Energy & Utilities Lnw > Cogeneration & Independent Companies >  for distribution to its ·customers. GSU requested. the
   General Overview                                                Commission to rule that, in future rate proceedings, it be
  Energy & Utilities Law > Utility Companies > Rates > General , allowed to recover from its ratepayers its total purchase
  Overview                                                         price for the electricity and furthermore that it be allowed
  Energy & Utilities Lnw > ... > Rates > Rntemnking Factors > Rate to allocate the proceeds from the sale of the depreciated
  Buse                                                             plants to its shareholders rather than to its ratepayers.

HN21 The equitable principles commonly used to resolve                The Commission concluded that the proposed sale was
allocation problems are that benefits should follow                   generally in the public interest but imposed two conditions
burdens and that gain should follow risk of Joss. In other            on GSU's treatment of the transaction in future rate
words, in the general case, the gain should be allocated to           proceedings. First, the Commission determined that it was

                                                           Giana Ortiz
                                                                                                                   Page 5 of 15
                                      809 S.W.2d 201, *202; 1991 Tex. LEXIS 42, **2

not in the public interest for GSU' s ratepayers "to pay in       1978 (PURPA). Pub. L. No. 95-617,92 Stal. 3117 (1978)
excess of GSU's avoided cost" for power purchased from            (codified as amended al 16 U.S.C. § 824a-3 (1988)). An
the joint venture. Therefore, tlie Commission held that it        obstacle to the development of cogeneration facilities in
would not allow GSU to recover from its Texas ratepayers          the past had been the reluctance of the traditional utilities
payments for electricity from the joint venture in excess of      to purchase excess power from, or sell backup power to,
GSU's avoided cost. Second, the Commission determined             these nontraditional facilities. FERC v. Mississivpi. 456
that GSU must divide the proceeds from the sale of the            U.S. at 750-51. 102 S.ct. at 2132-33, 72 LEd.2d at 541.
plants between the ratepayers and its shareholders in             Section 210 ofPURPAattempts to remove this obstacle by
proportion to the amount each group contributed to the            requiring that electric utilities purchase electrical energy
cost of the plants.                                               from qualifying cogenerating or small power production
                                                                  facilities 1 [**5] (QFs) and provide back-up power to QFs
The district court affirmed the Commission's-order. The           on a nondiscriminatory basis. 2
court of appeals then reversed [**3] the judgment of the
district court and remanded the case to the Co1n1nission.         In section 21.0, Congress directed the Federal Energy
784 S.W.2d 519. The Commission and the Office of Public          Regulatory Commission (FERC) lo prescribe., within one
Utility Counsel now appeal to. this court. We must first          year of the statute's enactment, rules requiring electric
determine whether the applicable stale and federal                utilities to purchase power from and sell power to QFs.
regulations permit a utility purchasing power from a              PURPA § 210(a), 16 U.S.C. § 824-J(a) (]9881. HN2
cogenerator to recover from its ratepayers payments in            Congress further provided that the rates established by
excess of its avoided cost. Second, we must determine             FERC for the purchases of electricity by a utility (1) shall
\V~ether the Commission's allocation of the utility's             be just and .reasonable to the utility's customers, and (2)
proceeds from the sale of its plants was proper. For the          shall not discriminate against QFs. PURPA § 210(b), 16
reasons that follow, we affirm the judgment of the court of       U.S.C. § 824-3(b) (]988). HN3 Section 210(b) also
appeals.                                                          provides that "nb . -.. rule prescribed under subsection (a)
                                                                  of this section shal.l provide for a rate which exceeds the
I                                                                  [**6] incremental cost to the electric utility of alternative
A                                                                 electric en~rgy." Id. The 1rincremCntal cost of alternative
                                                                  electric energy" is defined as the cost the utility would
In 1978, in response to rising energy costs and recent fuel       have incurred if it had generated itself or purchased from
shortages, Congress sought ways to conserve energy to             another utility the same amount of power it purchased
reduce [*203] the nation's dependenCe on foreign oil and          from the QF. PURPA § 210(d), 16 U.S.C. § ;~24a-3(d)
on natural gas. See Federal Energy Rer:ulaton1 Con11n '11 v.      (/988). By setting a ceiling of incremental cost on the
Mississippi. 456 U.S. 742. 745-46. 102 S. Ct. 2126, 2130,          amount a utility could be forced to pay for a QF's poW-er,
72 LEd.2d 532. 538 (1982). One possible remedy was to             Congress intended to encourage cogeneration without
increase the use of cogeneration. Cogeneration involves           requiring a utility's ratepayers to subsidize cogenerators.
the simultaneous production of electrical power and               H.R. CONF. REP. NO. 1750, 95th Cong., 2d Sess. 98,
thermal energy, such as heat or steam, usually at an              reprinted in 1978 U.S. CODE CONG & ADMIN. NEWS
industrial site. Id. at 750 & n.11, 102 S. Ct. at 2132 & n.11,     7797, 7832.
72 LEd.2d at 541 & n.11. By making [**4] productive
use of the "waste" heat produced in the generation of            Pursuant to this statutory authority, FERC has adopted
electricity, cogeneration can reduce fuel consumption by         regulations governing an electric utility's purchases from
as much as one half. See C. PHILLIPS, THE                        QFs. Seel8 C.F.R. pt. 292 (1990). HN4 The regulations
REGULATION OF PUBLIC UTILITIES: THEORY AND                       require that each electric utility "purchase, in accordance
PRACTICE 452 n.92 (1988); see also 45 Fed. Reg. 12,215           with § 292.304, any energy and capacity which is made
(1980).                                                          available from a qualifying facility." Id.§ 292.303. HNS
                                                                 Section 292.304 sets the rate · of payment for such
HNl To encourage cogeneration, Congress enacted                  purchases equ~l to the utility's full avoided cost unless the
section 210 of the Public Utility Regulatory Polities Act of     slate regulatory authority (or an unregulated utility)

1
   Small power production facilities are those which use biomass, waste, geothermal resources, or renewable resources such as
wind, water, or solar energy to produce electrical power.
2
    A further obstacle to cogeneration had been the risk that a cogenenllor would be considered a public utility and thus be
subject to burdensome state and federal regulation. FERC v. !vfississipvi. 456 U.S. at 750-51. 102 S.Ct. at 1133. 72 L. Ed. 2d at
541. PURPA directs FERC to prescribe rules exempting QFs from certain state and federal Jaws governing conventional electric
utilities. PURPA § 210(e), 16 U.S.C. § 824a-3(el (1988).

                                                         Giana Ortiz
                                                                                                                        Page 6 of 15
                                        809 S.W.2d 201, *203; 1991 Tex. LEXIS 42, **6

determines [**7] that a lower rate is in the public interest         enacted its own rules governing a utility's purchases of
and is sufficient to encourage cogeneration. Id.§_                   power from a QF. Tex. Pub. Util. Comm'n, 16 TEX.
292.3041b )(2 I. (The term "full avoided cost" is equivalent         ADMIN. CODE § 23.66 (West Sept. I, 1988) ("Rule
to PURPA's "incremental cost.") Finally, the regulations             23.66").
provide that "HN6 nothing in this subpart ... limits the
authority of any electric utility or any [QF] to agree to            The Texas rules apply to FERC-certified QFs, id. §
 [*204] a rate for any purchase ... which differs from the           23.66(a)(l5), and are very similar to FERC's rules. Rule
rate . . . which would otherwise be required by this                 23.66(d) of the Texas rules provides that "in accordance
subpart." Id.§ 292.30J(b)(/).                                        with subsections (e) - (h) of this section, each electric
                                                                     utility shall purchase any energy and capacity that is made
Because      Congr~ss     intended     that   state   regulatory     available from a qualifying facility . . . ." Id. §
authorities be the primary enforcers of PURPA, section               23.66(d)(l)(A). Rule 23.66(e) requires that rates for such
210(!) of PURPA orders each state regulatory authority to            purchases "shall be just and reasonable to the consumers
implement FERC's rules. 3 [**10] I6 U.S.C. § 824-3([)                of the electric utility and in the public interest, and shall
(/ 988 ). In 1981, the Texas legislature added a provision to        not ·discriminate against" QFs. Id. § 23.66(e)(l). The rates
the Texas Public Utility Regulatory Act (Texas PURA) to              "shall not exceed avoided cost.'' Id. § 23.66(e)(2).
the effect that the Commission "shall make·and enforce               "Avoided cost" has the same meaning as in FERC's
rules reasonably required to implement the rules and                 regulations. Id. § 23.66(a)(2). Rates which equal [**9]
regulations of the Federal Energy Regulatory Commission              avoided cost are deemed to be just and reasonable, id. §
pertaining to the production of electric energy by [QFs]."           23.66(e)(3), and such payments are considered
Act of Apr. 1, 1981, 67th Leg., R.S., ch. 31, § 2, 1981 Tex.         "reasonable and necessary operating expenses of [the]
Gen. Laws 70, 71. This provision was later amended to                utility." Id. § 23.66(e)(5). 4 Finally, as in FERC's rules, the
order the Commission to "make and enforce rules [**8] to             Texas rules provide that nothing in the rules "shall limit
encourage the economical production of electrical' energy            the authority of any electric utility or any qualifying
by [QFs]." Act of May 26, 1983, 68th Leg., R.S., cb. 274,            facility to agree to a rate for any [*205] purchase, or
§ l, 1983 Tex. Gen. Laws i258, 1280 (codified at TEX.                terms or conditions rela~ng to any purchase, which differ
REV. CIV. STAT. ANN. art. 1446c, § I61g) (Vernon Supp.               from the rate or terms Or conditions that would otherwise
1991)). Pursuant to these directives, the Commission has             be required by this subsection." Id. § 23.66(b)(2)(A).

3
    The U.S. Supreme Court has held that the federal government may constitutionally order the states to implement FERC's·
regulations through state courtS or agencies. FERC v. !v!ississippi. 456 U.S. at 760-61. 102 S.Ct. at 2138. 72 L. Ed. 2d at 547-48.
Under this federal command, states. have the authority to· promulgate regulations mirroring the federal regulations. 45 Fed. Reg.
12,216 (1980). However, it is unclear ·Whether, under PURPA, a state may promulgate additional regulations in the .field of
cogeneration. In general, a state may enact its own laws or regulations as long as the federal authority has not preempted all
state efforts to regulate in the area and as long as the state laws or regulations do not conflict with federal la\VS or regulations.
Citv of New York v. FCC. 486 U.S. 57, 64. 108 S.CL. 1637, 1642, 100 L. Ed. 2d 48, 57 (19881. Whether PURPA and the FERC
regulations completely preempt state regulation in the area of cogeneration is an open question. The issue of preemption is discussed
at infra note 11.
4
    In full, Rule 23.66(e) provides:
HN7 (e) Rates for purchases from a qualifying facility.

(1) Rates for purchases of energy and capacity from any qualifying facility shall be just and reasonable to the consumers of the
electric utility and in the public interest, and shall not discriminate against qualifying cogeneration and small power production
facilities.
(2) Rates for purchases of energy ad capacity from any qualifying facility shall not exceed avoided costs; however, in the case in
which the rates for purchase are based upon estimates of avoided costS over the specific tenn of the contract or their legally
enforceable obligation, the rates for such purchases do not violate this subsection if the rates for such purchases differ from avoided
costs at the time of delivery.
HNS (3) Rates for purchases satisfy the requirements of paragraph (1) of this subsection if they equal avoided cosL

(4) Rates for purchases from qualifying facilities shall be in accordance with paragraph (1)-(3) of this subsection, regardless of
whether the electric utility making such purchases is simultaneously making sales to the qualifying faci1ity.
(5) Payments by a utility to any qualifying facility, if in accordance with paragraphs (1)-(3) of this subsection, shall be considered
reasonable and necessary operating expenses by that utility.
16 TEX. ADMIN. CODE§ 23.66(e) (West Sept. 1, 1988).

                                                            Giana Ortiz
                                                                                                                         Page 7 of 15
                                        809 S.W.2d 201, *205; 1991 Tex. LEXIS 42, **II

    [**11]   The first issue we must address in this case             Venture as a QF, contingent on the Venture' s reaching
concerns the proper interpretation of the above federal and           certain milestones in converting the plants from natural
state regulations governing a utility's purchases of                  gas to petroleum coke operation.
electricity from a QF. The questions presented are (1)
whether the regulations prohibit a utility from contracting           Completion of the agreement to form the Venture was
for and paying a rate in excess of its avoided cost and (2)           made contingent on the Commission's [**14] approval of
whether, if a utility may pay more than avoided cost, the             GSU's proposed rate treatment of certain revenues and
regulations impose a limitation on how much of these                  expenses arising out of the sale. GSU requested such
payments the utility can recover from its ratepayers. The             approval under section 63 of the Texas PURA. HN9 This
controversy arises because both sets of regulations                   section requires public utilities to report lo the
expressly allow a utility and a QF to agree to any rate for           Commission any sale of a plant when the total
purchased power, see 18 C.F.R. § 292.30Jlbl!ll (]9901: 16             consideration exceeds $ 100,000. The Commission then
TEX. ADMIN. CODE § 23.66(b)(2)(A) (West Sept. 1,                      must determine if the transaction "is consistent with the
1988), but in subsequent provisions limit pur<:=hased po.wer          public interest." TEX. REV. CN. STAT. ANN. an. 1446c. §
payments to av.aided cost. Seel8 C.F.R. § 292.304(a)(2)               63 (Vernon Supp. 1991). If the Commission finds that the
(]9901; 16 TEX. ADMIN. CODE § 23.66(e)(2) (West                       transaction is not in_ the Public interest, the Commission
Sept 1, 1988).                                                        "shall take the effect of the transaction into consideration
                                                                      in the rate-making proceedings" and "shall ... disallow the
B                                                                     effect of such transaction if it will unreasonably affect
                                                                      rates or service." Id.
We consider these questions in light of the circumstances
presented by this case. GSU is a public electric Utility              [*206] Section 63 does not require a utility to obtain the
located in Texas near the Louisiana border. In 1984, two of          Commission's approval prior to such sales. Furthermore,
GSU's 1a.rgest industrial customers, both situated in                the Commission does not set electric utility rates in a
Louisiana, notified GSU that they were ·planning to build            section 63 proceeding. Nevertheless, .the Commission
 [**12] a cogeneration facility, which would enabl.e them            must determine the effect of a transaction on future
eventually to withdraw from GSU's system. 5 Normally,                ratemaking prOceedings in order to determine whether the
the loss of such major customers from GSU's ·system                  transaction as proposed wiU be in the public interest. In
would result in increases in the rates paid by the remaining         their section 63 application, therefore, the [**15] parties
customers. These increases would occur because the                   to the Venture requested a prospective ruling on the future
utility's fixed costs would have to be spread over a smaller         rate treatment that would be granted the transaction.
number of ratepayers. As a way to keep the industrial                Specifically, GSU requested a ruling from the Commission
customers in its system· and thereby to prevent such rate            that GSU be allowed to pass on the full amount of its
increases, GSU proposed the formation of a joint                     payments to the Venture for electricity (the purchased
cogeneration venture with the customers.                             power payments) to its ratepayers and that it be allowed to
                                                                     allocate the entire proceeds from the sale of the plant to its
GSU and three of its Louisiana-based industrial customers            shareholders.
eventually entered into an agreement to form the Nelson
Industrial Steam Company Project (the Venture). Under                After a hearing, the Hearing Examiner detennined that the
the terms of this agreement, GSU agreed to sell two of its           sale of the plants to the Venture was generally in the public
electrical generating plants to the Venture and to run the           interest. The Examiner then found that GSU' s purchased
plants on behalf of the Venture. 6 GSU further [**13]                power payments might at times exceed GSU's avoided
agreed to purchase the entire electric output from the               cost The Examiner determined that avoided cost was the
plants for its general power supply at a price calculated by         maximum rate that would be deemed just and reasonable
a contractual formula. 7 In return for GSU's undertakings,           and in the public interest under Rule 23.6(\(e). However,
the three industrial members of the Venture agreed to                she concluded that GSU should be allowed to seek
continue as GSU's customers. FERC later certified the                recovery of any purchased power payments in excess of its

5
  The customers' desire to withdraw was motivated in part by rate increases produced by an expensive nucJear power p1ant that
GSU had recently brought on line.
6
    GSU would have a 1% interest in the Venture.
7
    The contractual formula is based on the current Louisiana tariff for large industrial customers and on the Venture's production
costs, rather than on GSU's avoided cost. Depending on the values for the factors in the formula, the purchased po\ver rate may
be less than or greater than avoided cost If the rate exceeds avoided cost, the industrial customers are required to purchase additional
amounts of electricity to partially offset GSU's increased cost

                                                             Giana Ortiz
                                                                                                                       Page 8 of 15
                                        809 S.W.2d 201, *206; 1991 Tex. LEXIS 42, **15

avoided cost in future rate or fuel-reconciliation                  sale proceeds was not supported by substantial evidence in
proceedings. 8 In order to recover the payments, GSU                the record. 784 S.W.2d at 533.
Would have to show that the
                                                                    II
    costs were necessary as a means to keep its industrial load
    on the system, that the ratepayers benefited by the
                                                                    We first address that part of the Commission's order
    retention of the industrial [**16] load on the system, that
                                                                     holding that GSU cannot recover from its ratepayers
    the costs in excess of avoided costs were at a minimum,
                                                                    purchased power payments in excess of avoided cost. The
    and tPat given these circumstances, its fuel costs were at
                                                                     Commission's ·ruling is based on its interpretation of the
    their lowest reasonable level.
                                                                    state regulations, in particular Rule 23.66. As described
Tex. Pub. Util. Comm'n, Application of Gulf States Utils.            above; Rule 23.66(b)(2)(A) allows utilities and QFs to
Co. for Approval of a Joint Ve.nture Cogeneration Project           agree to any rate, while Rule 23.66(e) st~tes that purchases
and Treat1nent of Revenues, Docket No. 7147, 14 TEX.                of energy from QFs shall not exceed avoided cost. Thus,
P.U.C. BULL. 49, 66-67 (Mar. ·21, 1988) [hereinafter                the two rules appear to conflict. The Commission atteinpts
Docket No. 7147]. The Examiner further determined that              to harmonize the two rules by interpreting them to permit
it would be unreasonable for the ratepayers to absorb all           a utility and a QF to contract only .for rates below avoided
the costs associated with the purchased power payments.             cost. The Commission also argues that, ·even if Rule
As to the allocation of the sale proceeds, the Examiner             23.66(b) allows a utility [**19] to pay a rate above
concluded that the ratepayers should be credited with 83            avoided cost, Rule 23.66(e) prohibits a utility from
percent of the proceeds because they paid ~or 83 percent of         recovering from its ratepayers any payments, whether
the cost of the plants. The ratepayers' 83 percent share of         negotiated or compelled, in excess of avoided cost.
the proceeds would be deemed "other electric utility                According to the Commission, Rule 23.66(e) provides that
income" and would be used to offset the amount of                   only thos.e payments that are equal to avoided cost are just,
revenue otherwise required to be generated by the rates.            reasonable, and in the public·interest. Therefore, it is not
                                                                    just; reaSonable, or in the public interest for the ratepa)iers
 [**17] The Commission's final order deleted the Hearing
Examiner's fmdings that GSU could seek recovery of the              to pay more than avoided cost under any circumstances.
full amount of its purchased power payments and                     Finally, the Commission argues that FERC' s regulations
substituted findings that GSU could not recover anything            also place a limit of avoided cost on purchased power
above avoided cost. Th~ final order thus stated that "it is         payments.
not in the public interest for GSU's Texas ratepayers to
pay in excess ·of GSU's avoided cost for purchased power
                                                                    HNIO The CommiSs~on's interpretation of its own
from a qualifying cogeneration project" and that "in future         regulations is entitled to deference by the courts. See Udall
rate proceedings, [GSU] is limited to recovering those              v. Tallma11. 380 U.S. 1. 16. 85 S. Ct. 792. 801. 13 LEd.2d
purchased power payments to the Venture that do not                 616. 625 119651; Lloyd A. Frv Roofing Co. '" State. 541
exceed GSU's avoided costs." 9 Docket No. 7147, supra p.            S. W.2d 639. 644 !Tex. Civ. App. -- Dallas 1976. writ refd
10, at 98. The parties to the Venture later went ahead with         n.r.e. l. Our review is limited to determining whether the
the transaction despite the Commission's disallowance of            administrative interpretation "is plainly erroneous or
the requested rate treatment.                                       inconsistent with the regulation." United States v.
                                                                    Lario11off, 431 U.S. 864. 872. 97 S. Ct. 2150. 2155, 53
GSU appealed to the district court, which affirmed the              l.Ed.2d 48. 56 119771 (quoting Bowles v. Seminole Rock
Commission's order. GSU then appealed to the court of               Co .. 325 U.S. 410. 414. 65 S.Ct. [**20] 1215. 1217. 89
appeals, which reversed the judgment of [**18] the                  L.Ed. 1700. 1702 (!945ll. However, if the Commission
district court and remanded to the Commission. The court            has failed to follow the clear, unambiguous language of its
of appeals held that the Commission's interpretation of             own regulation, we must reverse its action as arbitrary and
Rule 23.66 as imposing a ceiling on negotiated purchased            capricious. See Sani Houston E/ec. Coop .. Inc. v. Public
power payments· was unreasonable under the text of the              Util. Comm'n, 733 S.W.2d 905. 913 !Tex. App. -- Austill
provision and contrary to the provisions and purposes of            1987. lVrit den 'dJ; see also Lelvis v. Jacksonville Bldg. &
the Texas [*207] PURA. 784 S.W.2d at 528. The court of
appeals also held that the Commission's allocation of the

8
   At reconciliation proceedings, a utility's fuel costs over a period are reconciled with the projected costs for that period and a
credit or charge is assessed to the ratepayers accordingly. See 16 TEX. ADMIN. CODE§ 23.23(b)(2)(H) (West Sept. 1, 1988).
9
      One of the Commissioners dissented from the part of the final order limiting GSU' s recovery to avoided cost

                                                            Giana Ortiz
                                                                                                                       Page 9 of 15
                                       809 S.W.2d 201, *207; 1991 Tex. LEXIS 42, **20

 Loan Ass'n, 540 S.W.2d 307, 310 !Tex. 1976), and Ex parte          interpretation that subsection (b) allows a utility to
 Roloff. 510 S.W.2d 913. 915 !Tex. 1974). 10                        contract for any price belolv avoided cost but not for a
                                                                   · price above avoided cost. Finally, HN13 because Rule
We hold that the Commission acted arbitrarily in adopting            23.66(e) does not apply to contractual arrangements
an interpretation contrary to the [**21] plain language of           between ulilities and QFs, it does not impose any
its regulation. Rules 23.66(b)(2)(A) and 23.66(e) can be             limitation on the amount a utility can recover from its
hannonized, but not in the manner suggested by the                   customers for such contractual payments. The provision
Commission. HNJJ We read Rule 23.66(e) as operating                  that payments equal to avoided cost "shall be considered
solely to set the rates that the Commission can co1npel a            reasonable and necessary operating expenses of that
utility to pay for a QF's power ifthe utility and the QF are         utiliiy" merely ensures that a utility can recover the full
unable to reach a voluntary agreement. Rule 23.66(e) doe_s           amount of the payments it is conzpel/ed to make by the
not impose a ceiling on the amount a utility can contract            Commission. 'Subsection (e)(5) does not provide that
lo pay for a QF's power, nor does it limit the amount a              contractual payments above. avoided cost can never be
utility can recover from its ratepayers under such                   considered reasonable and necessary operating expenses
voluntary arrangements·.          ·                                 .of the utility.                             ·

Our interpretl)tion is based on the interaction between Rule        We must also [**23) consider the application of PURPA
23.66(e) and Rules 23.66(d) and 23.66(b). Rule 23.66(d)             and the federal regulations because the transaction
obligates a utility to purchase power from a QF if the QF           between GSU and the Venture is governed by federal law
makes such power available. Subsection (d) also provides            as well as by Texas law. The interstate activities of GSU
that the rates for purchases made under that subsection are         clearly bring it within the reach of the federal regulations.
governed by Rule 23.66(e). See 16 TEX. ADMIN. CODE                  FERC v. Mississippi. 456 U.S. 742, 757," 102 S. Ct. 2126,
§ 23.66(d)(l)(A) (West Sept. l, 1988) ('Tu accordance               2136, 72 LEd.2d 532, 545 11982 I. In addition, to the
with subsection[] (e) . . . of this section, each electric          extent that the state regulations implement PURPA, the
utility shall purchase any energy and capacity that is made         federal regulations _serve as a· guideline to and may control
available from a [QF] . . . · ."). HN12 Rule 23.66(e)'s.            the scope of the state regulations.
avoided-cost rules therefore do [*208) not apply to
voluntary contracts arranged [**22]              outside the        HN14 We hold that the federal regulations do not grant the
requirements of Rule 23.66(d). This interpretation of               Commission any more authority to regulate negotiated
subsections (d) and (e) is in harmony with the plain                purchases than do the-state regulations. II [**26] Like Lhe
language of Rule 23.66(b), which permits a utility and a            Texas-regulations, the federal regulations do not authorize
QF "to agree to a rate which differs from the rate that             the Commission to alter the terms of a purchased power
would otherwise be required" whether above, belo1v, or              contract between a utility and a QF. Neither do they set a
equal to avoided cost. We find no justification in the              limit of avoided cost on the amount of such payments a
language of Rule 23.66(b) to support the Commission's               utility can recover from its ratepayers. Thus, HNlS section

10
     The standard for reviewing the Commission's interpretation of its regulations that were promulgated to implement federal
law, as well as for reviewing the Commission's interpretation of federal regulations, might well be less deferential. However, in
the absence of any requests from the parties to use a different standard, we-apply the deferential standard enunciated in the text to
all of the Commission's interpretations in the present case.
11
    Because we find that the federal and state regulations are identical in this regard, we do not reach the issue of whether the
federal law preempts state regulation in the area of cogeneration. To the extent that the Texas regulations imposed different
requirements than did the federal regulations, it would be necessary to detennine whether the federal law preempted Texas regulation.
The answer is unclear. As discussed supra note 3, PURPA directs states to implement FERC~s rules; however, neither PURPA
nor the federa). regulations expressly state whether additional state regulation is preempted._

The preemption issue has previously arisen in situations where states have tried to impose a compeUed rate that is higher than
FERC.'s avoided cost ceiling. FERC originally stated that "the States are free ... to enact laws or regulations providing for rates
which -would result in even greater encouragement of these technologies," i.e., rates·above avoided cost. 45 Fed. Reg. 12,221
(1980). In 1988, FERC proposed changes to the regulations that would prohibit states from setting a compelled rate higher than
avoided cost. 53 Fed. Reg. 933 l (1988); see Occidental Chem. Corp. v. FERC. 869 F.2d 127. 128 (2d Cir. 1989). These changes are
still pending. Prior to these recent developments, the lower federal courts had disagreed on whether PURPA preempts state
regulations that set a price above avoided cost. Compare Consolidated Edison Co. v. Public Sen: Con11n 'n. 63 N. Y.2d 424. 436
n.8. 483 N.Y.S.2d 153. 157 n.8. 472 N.E.2d 981. 985 n.8 0984)with Kansas Ctn• Power & Light Co. v. State Corn. Co111m'n. 234
Kan. 1052. 1057-58. 676 P.2d 764. 767-68 (1984). The Supreme Court has declined to address the issue. See Consolidated
Edison Co. v. Public Sen'. Comn1'11. 470 U.S. 1075. 105 S. Ct. 1831. 85 L. Ed. 2d 132 (1985) (dismissing the appeal from the
Court of Appeals of New York for want of a substantial federal question).

                                                           Giana Ortiz
                                                                                                                       Page JO of 15
                                         809 S.W.2d 201, *208; 1991 Tex. LEXIS 42, **26

292.303(a J of the federal regulations provides that a utility        that previous opinion was to have prospective effect only);
is obligated to purchase any energy and capacity made                 Bates Fabrics Inc. i~ Public Utils. Conun 'n. 447 A.2d
available from a QF. Such purchases must be ·made in                  1211. 1214 (Me. 1982) ("We conclude that the federal·
accordance with section 292.304, which sets the rate for              scheme expressly excludes from its reach a1l otherwise
purchases [**24] at avoided cost. Because section                     binding contracts between utilities and" QFs.). Finally, the
292.304 is applied through section 292.303, the                       regulations say nothing about hoW much of its purchased
avoided-cost limit applies only to compelled purchases.               power payments a utility can recover from its ratepayers.
This interpretation of sections 292.303 and 292.304 is in
harmony with the language of section 292.30Jlb)(J ),                  [**27] Our holding that the state and federal regulations
which provides that nothing is to limit the authority of a            governing a utility's purchases of power from a QF do not
utility or QF "to agree lo a rate for any purchase ... which          apply to voluntary arrangements between a utility and a
differs from the rate . . . which would otherwise be                  QF. does not deprive the Commission of its regulatory
required by this subpart." 12 [*209] 18 C.F.R. §                      authority over the amount of such contractual payments
292.30J(b)(J J 11990}. See An1erica11 Paper-Inst.. Inc. v.            that a utility may "recover from its customers. GSU may
A1nerican Elec. PolverSe111. Com .. 461 U.S. 402. 416. 103            contract for any purchase price it wishes; however,
S.Ct. 1921. 1930. 76 L. Ed. 2d 22, 35 (1983) ("The                      whether such cost will be fully recoverable from the
Cqmmission 's [full-avoided-cost] rule simply establishes             ratepayers Vo'.ill be subject to the Commission's ordinary
the rate that applies in the absence of a waiver or a specific        ratemaking powers. GSU's purchase of electricity from
contractual agreement."); 13 see also In re Vicon Recoven•            the Venture is a fuel cost, see 16 TEX. ADMIN. CODE §
Sys .. 153 Vt. 539, 572 A.2d 1355, 1358 Cl 990) ("The rate            23.23(b)(2)(B) (West Sept. I, 1988), which, like any other
provisions of§ 292 apply only ... in a situation where the            expense, is subject to disallowance by the Commission
electric utility is forced to purchase power from the small           upon a finding that the expense is unreasonable,
producer. The regulations make clear that uti1ities and               unnecessary, or not in the public interest. 14SeeTEX. REV.
[QFs] can agree to a rate different than would otherwise be           ClV. STAT. ANN. nrt. 1446c, §§ 38, 39(a), 4l(c)(3)(D)
mandated."); Barasch v. Public Util. Co1n111'n. 119 Pa.               (Vernon Supp. 1991); 15 16 TEX. [*210] ADMIN. CODE
Commw. 81. [**25] 546 A.2d1296. 1300 (Pa. Commw.                      § 23.23(b) (West Sept. I, 1988) (utility must show that
ill ("privately negotiated contracts setting rates for QF            contract negotiations for puri::hased power have produced
power are essentially outside the federal and state rules"),         the lowest reasonable cost of fuel. to ratepayers); see also
modified,550 A.2d 257 !Pa. Commw. Ct. 1988) (holding                 Suburban Util. Corn. v. Public Util. Con1ni 'n. 652 S. lV.2d

12
     _   FERC's comments accompanying the federal regulations.adopt this interpre.tation:

Paragraph (b)(l) [allowing utilities and QFs to agree to any rate] reflects the Commission's view that the rate provisions of
section 210 of PURPA apply only if a [QF] chases to avail itself of that section. Agreements between an electric utility and a
[QF] for purchases at rates different than rates required by these rules ... do not violate the Commission's rules under section
210 of PURPA. The Commission recognizes that the abi1ity of a [QF] to negotiate with an electric utility is buttressed by the existence
of the rights and protections of these rules.
45 Fed. Reg. 12,217 (1980).
13
    We disagree witlt the Commission's interpretation of the Supreme Court's comment that "a qualifying facility and a utility
may negotiate a contract setting a price that is lower than a full avoided cost rate." A111erican Paper Inst.. 461 U.S. at 416. 103 S.Ct
at 1930. 76 L. Ed. 2d at 35. We do not read this statement to mean that a utiJity may not negotiate for a price above avoided cost
because the Court was not asked to consider the status of prices above avoided cost
14
     Allowing the Commission to examine the fairness and reasonableness of GSU's payments to the Venture will not result in
the improper application of ratemaking principles to cogenerators, as the Commission warns. Congress intended that cogenerators
nqt be subject to the "type of examination that is traditionally given to electric .utility rate applications to determine what is the
just ad reasonable rate that they shou1d receive for their electric power." H.R. CONF. REP. No. 1750, 95th Cong., 2d Sess. 97,
reprinted in 1978 U.S. CODE CONG. & ADMIN. NEWS 7797, 7831. However, the Commissioner's task in this case is to analyze
the purchased power rate in terms of its fairness to GSU's ratepayers, not its fairness to the Venture, and the fonner inquiry
will not involve application of ratemaking principles to the Venture.      ·
15
     We do not agree with the court of appeals that Texas PURA section 41A is applicable here. Under section 41A, a voluntary
purchased power agreement between a utility and a QF may be certified by the Commission if "the payments provided for in the
agreement over the contract tenn are equal to or Jess than the utility's avoided costs as established by the commission and in
effect at the time the agreement was signed .... " Once certified, the payments under the agreement are presumed to be reasonable
and necessary expenses of the utility in any future rate proceedings. In the present case, however, section 41 A does not apply
because GSU has not requested section 41A certification. Furthennore, we do not think this specific certification procedure was
meant to deprive a utility of its Rule 23.66(b) power to contract for a rate above avoided cost.

                                                             Giana Ortiz
                                                                                                                   Page 11of15
                                      809 S.W.2d 201, *210; 1991 Tex. LEXIS 42, **27

358. 362 !Tex. 1983) (''The [**28] PUC's ratemaking                III
power includes the discretion to disallow improper
expenses."). In fact, section 63, under which this                 The second issue we must resolve is whether the
proceeding was brought, expressly orders the Commission            Commission properly allocated the gains from the sale of
to disallow any effect of the transaction that will                the plants between GSU's ratepayers and its shareholders.
unreasonably affect rates.                                         Under the agreement, the Venture is to pay for the plants
                                                                   in twenty annual installments of$ 6.35 million each (the
 [**29] The Commission suggests that it would never be             fixed asset payments), for a total income stream of$ 127
fair to the ratepayers for a utility to pay in excess of its       million. GSU requested that it be allowed to allocate the
avoided costs for power since by definition the utility
                                                                   entire amount of each fixed asset payment, Le., the entire
could obtain the same amount of power elsewhere by
                                                                   proceeds of the sale, to its shareholders. [**32] The
paying avoided cost. But using this argument to set an
                                                                   Commission instead ordered that GSU allocate 83 percent
absolute ceiling on purchased power payments ignores the
                                                                   of each fixed asset payment, or 83 percent of the total sale
plain language of the Commission's own rules, which do
not authorize the Commission to impose a ceiling of                proceeds, to its ratep_ayers, thereby reducing the amount
avoided cost on such payments. Under the rules, the                the utility w'as entitled to recover through its rates by_ that
Commission must conduct an independent, factual inquiry            amount.
in each case to detennine whether payments in excess of
avoided cost are reasonable and necessary, considering the         We must reverse the Commission's allocation of the
effects of the transaction as a whole. 16                          profits if it is not [*211] reasonably supported by
                                                                    substantial evidence in the record or if the Commission's
  [**30] Because the Commission was not called upon to              action was arbitrary, capricious, or an abuse of discretion.
 set rates in the section 63 proceeding from which this case       Administrative Procedure and Texas Register Act, TEX.
 arose, we do not remand this part of the case to the              REV. CJV. STAT. ANN. art. 6252-13a. § 191ell5), i.Ql
Commission. Instead, we order the Commission to allow               (Vemori Supp. 1991); Railroad Con1n1'11 v. Continental
GSU to recover purchased power payments in excess of its           Bus Svs., 616 S. W'.2d 179. 181 !Tex. 1981). HN16 Our
avoided cost in future rate proceedings if GSU establishes         inquiry is whethef the COmmission's decision is
to the C.ommission's satiSfactiOn that the payments are            reasonably suppo],1ed by substantial evidence in view of
reasonable and necessary expenses. The Commission                  the reliable and probative evidence in the record as a
contends that, since GSU and the industrial customers              whole. Texas Health Facilities Co11un '11 v. Charter
have already gone ahead with the Venture, GSU can no               Medical-Dallas. Inc .. 665 S. \Y.2d 446, 452 (Tex. 1984).
longer justify the payments on the grounds that they are
                                                                   HN17 Agency decisions that are not supported by
necessary to retain the customers in the system. However,
                                                                   substantial evidence are deemed arbitrary and capricious.
we believe that it may still be possible for GSU to
                                                                   id. at 454. HN18 In applying this test, we may not,
establish the necessity of the Venture and the contractual
                                                                   however, substitute our judgment as to the weight of the
rates. GSU should be allowed to show that, absent the
Venture, the industrial customers would have left its              evidence for that of the agency. [**33] ld. at 452.
system       because independent cogeneration           was
economically more attractive than remaining in the                The Commission's decision to a11ocate 83 percent of the
system, that the contractual rates are necessary to make the      fixed asset payments .to the ratepayers is based on the
Venture more attractive the independent cogeneration, and         testimony of the Office of Public Utility Counsel's witness
that such rates are at the minimum level. If GSU is able to       Dr. Steven Anderson and of the Commission's staff
satisfy the Commission that payments above avoided                accountant Paul Bellon. GSU has indirectly recovered 83
  [**31] cost are justified, then the Commission should           percent of the cost of the plants from the ratepayers
determine what portion of the costs of the Venture it is          thr5Jugh depreciation expense allowed for the plants and
reasonable and necessary for the ratepayers to bear, given        figured into the rate base. Both Anderson and Bellon
the distribution of benefits from the Venture to the              testified that "because the Company and the shareholders
ratepayers and to the shareholders. 17                            have recovered 83 percent of the costS related ·to [the

16
     We reject the Office of Public Utility Counsel's alternative argument that the Commission's holding was based on its
independent determination that, on the facts of this case, payments in excess of avoided cost were unreasonable expenses under
the general standards for allowability of expenses or fuel costs. It is clear from the Commission's Final Order, as wen as from the
Commission's own position in this appeal, that the Commission's interpretation of Rule 23.66 fanned the only basis for its
decision.
17
     In conducting this latter inquiry, the Commission should consider the benefits accruing to GSU's shareholders because of
GSU's 1% share in the Venture, as well as any other income earned by GSU as a result of its operation of the plants on behalf
of the Venture.

                                                          Giana Ortiz
                                                                                                                Page 12 of 15
                                      809 S.W.2d 201, *211; 1991 Tex. LEXIS 42, **33

 generating facilities], the ratepayers should receive 83          (MacKinnon, J.• concurring in part and dissenting in part);
 percent of the fixed asset payment GSU receives from the          ivashington Pub. Interest Org.. 393 A.2d at 89. 91-92;
 sale·of the units." Docket No.. 7147, supra p. JO. at 56.         Kansas Poi~·er & Light Co .. 620 P.2d at. 341.
  We hold that the Commission's decision is not reasonably         In the present case, the Commission allocated the sale
  supported by substantial evidence in the record. The             proceeds in direct proportion to the amount the
  Commission based its decision solely on conclusory               shareholders and the ratepayers contributed to the cost of
  testimony that cites only the evidence of the ratepayers'        the plants. This fonnula is based on only one of the above
  contribution to depreciation. The Commission did not             principles, that benefits should follow burdens. In addition
  consider any other factors that would be relevant to             to ignoring the [*212] other considerations outlined
  allocation of a utility's proceeds from the sale of assets.      above, [**36] 18 the Commission did not articulate its
  HN19 The issue of the proper allocation of.such proceeds         reasons for concluding that the ratepayers are entitled to a
  is a complicated [**34] One that cannot be resolved              percentage of the proceeds exactly equal to the percentage
  simply by reference to who paid for the property. See            of the cost they have paid. The Commission cited only the
  Washington Pub. Interest qrg. v. Public Serv. Co1n1n'n.          testimony of witnesses Anderson and Bellon but there is
  393 A.2d 71. 72 (D.C. 1978): see also Democratic Cent.           no evidence in the record to explain· how they reached
  Conznt. v. Washington MetrO. Area Transit Con1m'n. 158           their conclusions. We therefore hold that the
  App. D.C. 7. 485 F.2d 786 !D.C. Cir. 1973); Kansas Power         Commission's allocation is not supported by substantial
  & Light Co. v. State Corv. Co1n1n 'n. 5 Kan. App. 2d 514.        evidence because we find that the evidence the
  620 P.2d 329 !Ct. App. 1980!. HN20 A proper allocation           Commission cited does not support its decision and
  of proceeds can be determined only by an analysis of all         because the Commission failed to consider evidence
· the equities involved. See, e.g., De1nocratic Cent. Co1111n ..   relating to other relevant factors. We remand the case to
485 F.2d at 821; Kansas Power & Light Co .. 620 P.2d at          the Commission for it to recalculate the allocation of the
  340.                                                             fixed asset .payments along the lines Of the analysis
                                                                   suggested above, although we d.o not require the
HN21 The equitable princ~ples commonly used to resolve             Commissio.n to consider all of the abpve factors nor forbid
allocation problems are that "be'nefits should follow              it from· considering others. However. the Commission
burdens" and that "gain should follow risk of loss."               should set forth the factors it considers relevant and should
Deniocratic Cent. Co1n1n .. 485 F.2d at 806; Washington            explain how these factors are evaluated in the present case.
Pub. Interest Org.. 393 A.2d at 92. In other words, in the
general case, the gain should be allocated to that group (as        [**37] N
between shareholders and ratepayers) that has borite the           For the reasons stated above, we affirm the judgment of
financial burdens (e.g., depreciation, maintenance, taxes)         the court of appeals. This case is therefore remanded to the
and risks of the asset sold. In addition to these two general      Commission for it to determine the proper allocation
equitable factors, courts have also considered numerous            between the shareholders and ratepayers of the fixed asset
other factors, including [**35] whether the asset sold had         payments after consideration of the factors the
been included in the rate base over the years, whether the         Commission determines are appropriate. The Commission
asset was depreciable property, nondepreciable property,           is further ordered to allow GSU to recover its purchased
or a combination of the two types, the impact of the               price payments in future rate proceedings if GSU shows
proposed allocation on the financial strength of the utility,      that the payments are reasonable and necessary expenses.
the reason for the asset's appreciation (e.g., inflation, a
general increase in property values in the area), any              Concur by: GONZALEZ (In Part); MAUZY (In Part)
advantages enjoyed by the shareholders because of
favored treatment accorded the asset, the dividends· paid          Dissent by: GONZALEZ (In Part); MAUZY (In Part)
out to the shareholders over the years, and any
extraordinary burdens borne by the ratepayers in
connection with that asset. See Detnocratic Cent. Contm ..
                                                                   IDissent
485 F.2d at 791-92. 821-22; id. at 831-32 841-44                   CONCURRING AND DISSENTING OPINION

18
    The Commission itself had previously recommended that some of these factors be considered in allocation of gain cases. See
Tex. Pub. Util. Comm'n, Application of Gulf States Utils. Co. for Authority to Clwnge Rates and Inquiry of the Public Util.
Comm'n of Tex. into the Pntdence and Efficiency of the Planning and Manage1nent of tile River Bend Nuclear Generating Station,
Docket Nos. 7195 & 6755, 14 TEX. P.U.C. BULL. 1943, 2217 (May 16, 1988) (suggesting that the analysis described in Judge
MacKinnon's concurring and dissenting opinion in Democratic Cent. Comm be used in future allocation cases). Whi1e we do not
necessarily endorse these precise factors, we do endorse the general approach of considering various equitable fac!ors, such as
those discussed in the text, in allocation detenninations.

                                                          Giana Ortiz
                                                                                                                       Page 13 of 15
                                       809 S.W.2d 201, *212; 1991 Tex. LEXIS 42, **37

Raul A. Gonzalez, Justice                                            incremental cost to the electric utility of alternative
                                                                     electric energy.
I concur with the· co_urt that PUC' s allocation of the fixed
asset payments is not supported by the record. However, I             16 U.S.C. § 824a-3(b) [**39] (1988). In enacting
disagree with the court's conclusion that PUC's                       PURPA, Congress was mindful to maintain the balance
interpretation of its own rule was erroneous or arbitrary. In         between encouraging cogeneration and not shifting the
my opinion, PUC correctly interpreted its own Rule 23.66              burden of cost to the ratepayer. The congressional intent
to hold Lhat GSU cannot recover from its ratepayers an                for the incremental cost limitation "was to ensure that
amount exceeding its "avoided costs." 1 For this reason, I            PURPA did not become a utility-funded welfare program
dissent from part II of the court's opinion.                          for QFs, since such 'funding' would essentially come from
                                                                      th_e pockets of electric cqnsumers. Greensboro Lt.unber Co.
    [**38] FEDERAL LAW - THE AVOIDED COST RULE                        1•. Georgia Power Co., 643 F.S1mp. 1345. 1369 n.30 (N.D".
                                                                      Ga. 1986), ajf'd,844 F.2d 1538 Ultlr Cir. 1988). The
In 1978, the United States Congress enacted the Public                ~oncept of limiting purchased power payments to QFs at
Utility Regulatory Policies Act of 1978 (PURPA). PURPA                or below avoided cost maintains that balance. Pursuant to
established the utility's incremental cost of alternative             the authority grunted to it by PURPA, the Federal Energy
electric energy as the ceiling on payments.to cogenerators.           Regulatory Commission (FERC) adopted rules and
The term incremental cost is defined in the Act as the cost           regulations pertaining to cogeneration and small power
of the energy which, but for the purchase from the                    production. 18 C.F.R. Part 292 11990). These regulations
cogenerator, such utility would generate or purchase from             require the rates for the purchase of electricity from
another source. 16 U.S.C. § 824a-31dl 11988). Incremental           . federal qualifying cogeneration facilities to be based on
cost is referred to as "avoided cost" in the Texas Public             avoided cost and establish avoided cost as the maximum
Utility Regulatory Act (PURA). TEX. REV. C1V. STAT.                   rate. 18 C.F.R. § 292.3041bl(3) 119901. The United Stales
ANN. art. /446c (Vernon Supp. 1991). With respect to                  Supreme Court has found that FERC has the authority to
rates for purchases of electricity from qualifying facilities         adopt a full avoided cost rule, and to set full avoided cost
(QFs), Congress provided that the rate                                 [**40] its the maximum· rate. Auierican PaDer Inst.. Inc.
                                                                      v. Anzerican Elec. Polver Serv. Corp .. 461 U.S. 402. 103
(1) shall be just and reasonable to the electric consumers            S.Ct. 1921, 76 LEd.2d 22 11983). 2 FERC has done so.
of the electric utility and in the public interest, and               Thus, federal law sets avoided cost as the maximum rate.
                                                                     3
(2) shall not discriminate against qua1ify~ng cogenerators
or qualifying small power producers.                                  [**41] THE PUBLIC UTILITY REGULATORY ACT

 [*213] No such rule prescribed under subsection (a) of              In section 41A of the Public Utility Regulatory Act, the
this section shall provide for a rate which exceeds the              Texas legislature enacted similar provisions controlling

1
     "Avoided costs" is defined by the substantive ru1es of the PUC as:
The incremental costs to an electric utility of electric energy or capacity or both, which, but for the purchase from the qualifying
facility or qualifying facilities, such utility would generate itself or purchase from another source.
Tex. Pub. Util. Comm'n, 16 TEX. ADMIN. CODE § 23.66(a)(2) (West Sept. 1, 1988) (Arrangements Between Qualifying
Facilities and Electric Utilities).
2
    In referring to contractual agreements, the Court cited lS C.F.R. § 292.301fb){l), which is identical to§ 23.66(b)(2)(A), for
the principle that "a qualifying facility and a utility may negotiate a contract setting a price that is lower than a full-avoided-cost
rate." 461 U.S. at 416 (emphasis added). Thl!S, the full-avoided-cost rule sets the maximum rate that applies in the absenc.e of
a FERC waiver. Nowhere in American Paper is there any indication that a utility and a QF may negotiate a rate that is above avoided
cost.
3
    All parties agree that the FERC regulations preempt a contrary interpretation by the PUC. The PUC and the Office of Public
Utility Counsel (OPC) contend that the PUC has no authority under federal law to approve a rate in excess of avoided cost. GSU
argues that the PUC is misinterpreting the FERC regulation. GSU' s interpretation is contrary to the stated purpose of PURPA.
If GSU is given free rein to charge the public for QF purchases in excess of avoided cost, the revenue collected from the utility's
customers will exceed the revenues that would h:Uve been collected if the utility had procured power from other sources. Such a
free rein would permit a utility and willing cogenerator to circumvent the rule's protection of the general public by simply converting
the transaction into contractual form. So long as the utility may freely pass~through excessive QF prices to the general public,
there is no inherent motivation for either the utility or the cogenerator to protect ratepayers from rapidly escalating revenue
requirements. This result is inconsistent with the congressional intent behind PURPA.

                                                            Giana Ortiz
                                                                                                                     Page 14 of 15
                                         809 S.W.2d 201, *213; 1991 Tex. LEXIS 42, **41

    transactions between electric utilities and qualifying            QF were not tied to its avoided cost but rather to a
    cogenerators. Section 4IA states in pertinent part:               contractual rate, the PUC rejected GSU's request for an
                                                                      automatic pass-through under section 63 of PURA and
    (b) If an electric utility and a qualifying facility enter into   limited GSU's recovery for those payments from its Texas
    an agreement providing for the purchase of capacity ...           ratepayers to its avoided cost.
    the commission shall detennine whether:
                                                                      GSU contends that section 23.66(b)(2)(A) allows it to
    (1) the payments provided for in the agreement over the           contractually agree to a rate in excess of its avoided cost.
    contract te~ are equal to or less than the utility's avoided      Section 23.66(b)(2)(A) provides:
    costs as established by the commission and in effect at the
    tim~ the agreement was signed ....                                Nothing in   ~s   subsection:

PURA, § 41A(b)(J) (emphasis added). Section 41A of                    (A) shall limit the authority of any electric utility or any
PURA requires an automatic determination that prices                  qualifying facility to agree to a rate for any pllrchase, or
paid for power from a qualifying facility that are at or              tenns or conditio~s relating to any purchase, which differ
below avoided cost are just and reasonable. 4 The PUC's               from the rate or terms· or conditions that would otherwise
prohibition on prices in [*214] excess of avoided cost                be required by this subsection.
conforms to the requirement of PURA § 41A which
obligates the PUC to approve an agreement between a QF                GSU argues that pursuant to section 23.66(b)(2)(A), the
and a utility so long as it detennines that payments "are             avoided cost ceiling in Rule 23.66(e) applies only to
equal to or less than the utility's avoided cost.".                   contracts that are initiated under the mandatory terms of
                                                                      the rule, as opposed to voluntarily negotiated contracts ·
 [**42] RULE 23.66(e)(2) - THE AVOIDED COST                           between electric utilities like GSU and QFs. The PUC
LIMITATION                                                            rejected this argument. I agree with the PUC.

Pursuant to its obligation under PURA § ! 6(g), the PUC               In a seemingly innocuous statement purporting to interpret
enacted rules governing the recovery of fuel costs and                Rule 23.66(d), ·the majority states that "Rule 23.66(e)'s
agreements between electric utilities and QFs: The PUC                avoided-cost [**44] rules ... do not apply to voluntary
limited a utility's recovery of purchased power payments              contracts arranged outside the requirements of Rule
to a QF to that utility's "avoided cost." Tex. Pub. Util.             23.66(d)." S.W.2d at . Although Rule 23.66(d) does
Comm'n, 16 TEX. ADMIN..CODE §§ 23.23(b)(4){A),                        require utilities to purchase power when a QF makes it
23.66(e) (West Sept. 1, 1988). In pertinent part, section             available, the language of the rule does not support the
23.66(e) states:                                                      majority's contention that "th~ avoided-cost limit applies
                                                                      only to compelled purchases."ld. at . The conclusion that
(1) Rates for purchases of energy and capacity from any               the avoided-cost rules do not apply to voluntary contracts
qualifying facility shall be just and reasonable to the               is without foundation. PURA simply does not distinguish
consumers of the electric utility and in the public interest,         between voluntary and involuntary agreements.
and sha11 not discriminate against qualifying cogeneration            Subsection 23.66(b)(2) in no way provides that rule 23.66
and small power production facilities.                                does not apply to a "negotiated" rate. It merely makes clear
                                                                      that the parties can negotiate a rate other than the avoided
(2) Rates for purchases of energy and capacity from any               cost. See, e.g., 16 TEX. ADMIN. CODE §
qualifying facility shall not exceed avoided cost; ....               23.66(d)(l)(F)(iv) (West Sept. 1, 1988) (when purchasing
                                                                      capacity parties can negotiate for price lower than avoided
(3) Rates for purchases satisfy the requirements of                   cost). Nothing in rule 23.66 provides that the utility may
paragraph (1) of this subsection if they equal avoided cost.          recover an amount greater than the avoi~ed cost from the
                                                                      ratepayers.
The PUC interprets this rule to mean that only if a utility's
purchased power payments to the QF equal avoided costs                Further, the court's construction ~ould effectively destroy
or are lower than the avoided costs may those rates be                the avoided cost rule. The court's interpretation allows the
deemed just and reasonable and in the public interest.                utility and QF freedom to agree on a rate as provided
 [**43] Because GSU's purchased power payments to the                  [**45] for in section 23.66(b)(2)(A) to trump the rule that

4
     Section 41A(c) requires the PUC to certify that the agreement meets the avoided cost limitation of subsection (b)(l). Subsection
(c) provides that "in setting the electric utitlity's rates for a period during which the certification is effective, the regulatory
authority sha11 consider paymenlS made under the agreement to be reasonable and necessary operating expenses of the electric
utility.".

                                                             Giana Ortiz
                                                                                                                 Page JS of 15
                                     809 S.W.2d 201, *214; 1991 Tex. LEXIS 42, **45

rates for purchases shall not exceed avoided costs (Rule          would hold that the PUC correctly interpreted Rule 23.66
23.66(e)(2)), yet still requires the agreed rate to ''be just     to limit GSU's recovery to its avoided [**47] costs.
and reasonable," as is required          [*215]     in Rule
23.66(e)(l). There is no logical reason to interpret Rule         CONCURRING AND DISSENTING OPINION
23.66(2)(a) to trump Rule 23.66(e)(2), yet be subject to the
                                                                  Oscar H. Mauzy, Justice
requirement of Rule 23.66(e)(J). Further, the very avoided
cost limitation of Section 23.66(e)(2) which GSU asserts          This utility case presents two issues involving the
to be inapplicable to "negotiated contracts" contains             respective burdens of shareholders and ratepayers. In
explanatory language referring to "estimates of avoided           disposing of both issues, the majority heeds the complaints
costs over the specific term of the contract or other legally     of the utility company, but fails to recognize the burdens
Senforceable obligation." Thus, the drafters of section           borne by the ratepayers. I dissent from part II of the
23.66 envisioned the application of an avoided cost               majority opinion, and concur only in the result of part III.
standard to negotiated contracts.
                                                                  AS to the first issue, I agree with Justice Gonzalez that
To allow GSU to pass on the costs of prOduction from the          Rule 23.66(e) prohibits a utility from recovering
venture even if they exceed the avoided cost rule allows          purchased 'power payments in excess of the utility's
utilities to make a complete end run around the rule and in       avoided cost. Nothing in either the language or the history
the process completely eviscerate it. In other words, GSU         of that rule suggests that its tenns are inapplicable to
is restricted from raising its rates by the avoided cost rule     negotiated contracts. Certainly, a utility may contract for a
so it sells its plants to a joint venture in which it maintains   rate which is lolver than its incremental cost; but the
an ownership interest. GSU the°: repurchases the                  governing federal statute explicitly prohibits the. adoption
electricity [**46] at a higher rate than its avoided cost         of a rate which exceeds the utility's incremental cost. 16
a.nd, because of the majority's opinion, is allowed to pass       U.S.C. § 824a-3(b)(l988). Thus, Rule 23.66(e)(2) should
through that extra expens·e to its Texas ratepayers while         be read to mean exactly what it says: that a utility's
creating windfall earnings for GSU's investors. GSU is            purchase rate "shall not exceed avoided -cost." See
having its cake and eating it too. It receives management         A1nerican Paper Inst.. Inc. v. An1e1ican Elec. Po1i er Sen1.
                                                                                                                        1

fees, a percentage of the price that is. paid to the ventu·re,    Caro.. 461 U.S. 402, 416. 103 S.ct. 1921, [**481 1930,
and it receives a profit when that verY same energy is sold       76 L. Ed. 2d 22. 35 (1983)("[A] qualifying facility and a
at higher rates as a result of the production costs that are      utility may negotiate a contract setting a price that is lo1ver
passed through to ratepayers even though those costs are          than a full avoided cost rate.")(emphasis added).
in excess of the avoided cost rule. This is exactly the type
of activity that is prohibited by the avoided cost rule.          As to the allocatiQn of proceeds from asset sales, I agree
                                                                  that the Commission should have considered factors other
An agency's interpretation of its own regulations should          than the relative contributions to depreciation. I would
be given deference by the courts. See United States i•.           emphasize, however, that the Commission's discretion in
Larimzoff431 U.S. 864. 872-73. 97 S. Ct. 2150. 53 L.Ed.2d          this context is sharply limited. By shouldering the main
48 11977); Calverl v. Kadane. 427 S. W2d 605. 608 (Tex.           financial burdens associated with utilities, and by
1968): Lloyd A. Frv Roofing Co. v. State, 541 S. W2d 639.         assuming the risk of loss, ratepayers establish valid
644 !Tex. Civ. App. -- Dallas 1976. writ refd n.r.e.). In my      interests in utility assets. Those interests must be taken
opinion, the PUC's interpretation of its rules is not             into account whenever such assets are sold; any failure to
arbitrary, capricious nor plainly erroneous. Accordingly, I       do so will necessarily rise to an abuse of discretion.

                                                         Giana Ortiz
APPENDIXB
                                     2004 TX Educ. Agency LEXIS 17
                                      Copyright (c) 2004 Texas Education Agency
                                            June 15, 2004; June 15, 2004
                                             DOCKET NO. Oll-R3-1102

 Reporter: 2004 TX Educ. Agency LEXIS 17

 IPAUL PASQUA ; v. ; FORTSTOCKTON INDEPENDENT SCHOOL DISTRICT
  Core Terms

 reass~gnment, constructive discharge, high school principal, middle school, .fair dealing, good faith, grievance,
 exhaust, resign, school district
 Panel: [*1] ROBERT SCOTT, CHIEF DEPUTY COMMISSIONER BY DESIGNATION

  Opinion

 DECISION OF THE DESIGNEE OF THE COMMISSIONER

 Statement of the Case

 Petitioner, Paul Pasqua, appeals the action of Respondent, FortStock/011 Independent School District, concerning
 his grievance. Joan Stewart was initially appointed as the Administrative· Law Judge to -preside over this cause.
 Subsequently, Christopher Maska was appointed substitute Administrative La\v Judge. 'Petitioner is represented by Sam
 D. Sparks, Attorney at Law,· San Angel~, Texas. Respondent is represented by Shellie Hoffman Ctow, Attorney at-
 Law, Austin, Te{Cas.

 The Administrative Law Judge issued a Proposal for Decision recommending that Petitioner's appeal be denied. No
 exceptions were filed.

· Findings of Fact

 After due consideration of the record and matters officially noticed, it is concluded that the following Findings of
 Fact are supported by substantial evidence and are the Findings of Fact that can best support Respondent's decision:

 1. For eleven years, Petitioner, Paul Pasqua, served as a high school principal for Respondent, FortStockton
 Independent School District.

 2. On April 8, 2002, Petitioner received a two-year contract. The [*2] contract was entitled "Two-Year Tenn
 Contract for Certified Administrator Position as Assigned." The contract provides:

      2. The board will pay Employee in twelve installments an annual salary according to the compensation
      plan adopted by the Board, but in no event less than the 2001/2002 annual salary.

      4. Employee. shall be subject to assignment and reassignment of positions or duties, additional duties,
      changes in responsibilities or work, transfers, or reclassification at any time during the contract term.·

3. On August 19, 2002, after the completion of the first day of the 2002-2003 school year, Petitioner was called lo
the Superintendent's office and was assigned to the position of assistant middle school principal.

4. Petitioner filled the position of assistant middle school principal until his resignation on November 6, 2002.

5. Petitioner received full compensation until he resigned.

6. Board members did not conduct a meeting without posting notice to decide whether Petitioner should be
reassigned.

                                                      Giana Ortiz
                                                                                                                Page 2 of 4
                                          2004 TX Educ. Agency LEXIS 17, *4

7. Petitioner did not file a timely grievance concerning the lack of evaluations.

8. Petitioner failed to raise a constructive discharge argument before the board of trustees. [*3]

Discussion

Petitioner contends that Respondent demoted him by reassigning him from high school principal to assistant middle
school principal, constructively terminated his contract, failed to evaluate him, and violated the Open Meetings
Act. Respondent denies these allegations, alleges that Petitioner failed to exhaust administrative remedies, and argues
that the case is moot.

Mootness

Respondent contends that this -case is moot because Petitioner has resigned from his contract. However, Petitioner
alleges that Respondent's actions amount to constructive discharge. If Petitioner were correct as to the constructive
discharge claim, relief could be grri.nted. Based on this allegation, the case is not moot.

Contract

Petitioner contends that his reassignment from high school principal to assistant middle school principal was a
demotion which resulted in constructive discharge. Petitioner also contends that his property rights in his contract
were violated. The Commissioner's jurisdiction over such claims must be based upon Texas Education Code section
7.057 la):

      (2) actions or decisions of any school district board of trustees that [*4] violate:

             (B) a provision of a written employment contract between the ~chool district and a sChool
             district employee, if a violation causes or would cause monetfily harm.

Petitioner had a property interest in his tt?rm contract during the contract's term. The issues are whether
the contract was violated and did this result or would it result in monetary harm.

For eleven years, Petitioner served as a high school principal for Respondent. On April 8, 2002, Petitioner received
a two-year contract The contract was entitled ''Two-Year Term Contract for Certified Administrator Position as
Assigned." The contract provides:

      2. The board will pay Employee in twelve installments an annual salary according to the compensation
      plan adopted by the Board, but in no event Jess than the 2001/2002 annual salary.

      4. Employee shall be subject to assignment and reassignment of positions or duties, additional duties,
      changes in responsibilities or work, transfers, or reclassification at any time during the contract term.

On August 19, 2002, after the completion of the first day of the 2002-2003 school year, Petitioner was called
to the Superintendent's office and was assigned to [*5] the ·position of assistant.middle school principal. Petitioner
filled this position until November 6, 2002, when he resigned.

Propertv Right

Petitioner's contract is not a contract for the position of high school principal. It is a contract for a certified
administrator position as assigned. Assistant middle school principal is a certified administrator position. 19 Tex.
Admin. Code ch. 241. The Commissioner has held that the professional capacity of administrator is to be broadly
interpreted for reassignment purposes. Carpenter v. Wichita Falls Independent School District, Docket No. 247-R3-491
(Comm'r Educ. 1993). While Petitioner was not assigned to the assistant principal position until after he had
completed his first day of the new school year as a high school principal, the contract itself allows Petitioner to be

                                                       Giana Ortiz
                                                                                                            Page 3 of 4
                                         2004 TX Educ. Agency LEXIS 17, *5

reassigned as long as compensation is not reduced from that in the 2001-2002 school year. Petitioner did not lose
any compensation. Petitioner's reassignment did not violate his contract.

Good Faith

Petitioner contends that the timing of the reassignment was unfair and that he should have been given a chance to
remediate if his perfonnance were questioned. [*6] Petitioner alleges that if Respondent had notified him at the
beginning of the summer that he would be reassigned for the next school year that he could have sought other high
school principal positions. During that time frame, districts would still be looking to fill principal positions and
Petitioner could still represent that his position with Respondent was high school principal. Petitioner's argument is
that Respondent owe~ Petitioner a duty of good faith and fair dealing . However, in Texas th~re is no duty of good faith
and fair dealing in the employment context. Citv of' Midland v. O'Brvallf. 18 S.W.3d 209. 216 !Tex. 2000). Further,
even if a cause of action for good faith and fair dealing existed, the only damages in the present case would be lost
earnings capacity or loss of reputation. The Commissioner lacks jurisdiction over an employment contract case
based on such damages. Smith v. Nelson. 53 S.W.3d 792. 795 (Tex.· App.-Austin 2001, pet. denied),

Constructive Discharge

It has been held that "A constructive discharge occurs when the employer makes conditions so intolerable that a
reasonable person in the employee's [*7] position would have felt compelled to resign." Jett v. Dallas Indep. Sch.
Dist.. 798 F.2d 748. 755 (5th Cir. 1986) aff'd in part 109 S. Ct. 2702 (}989). Petitioner has failed to exhaust
                                                                   a
administrative remedies as to this issue. Petitioner did not make constructive discharge argument before the
board of trustees. This is not surprising because the board hearing occurred on October 28, 2002 and Petitioner did
not resign until November 6, 2002. But even assuming that Petitioner-had exhausted administrative remedies he would
not prevail. The record does not support a finding that Respondent made Petitioner's working conditions intolerable.
While Petitioner's anger at being reassigned is understandable, being assigned to position of less prestige does
not by itself constitute constructive discharge.

Evaluations

Petitioner notes that be was not formally evaluated during the 1999-2000 and 2000-2001 school years. While this
could be related to a violation of Texas Education Code sections 21.354 and 39.054, Petitioner should ha:ve brought
a grievance as to those events under the district's [*8] grievance policy. Wittman v. Nelson. JOOS. lV.3d 356. 360
(Tex. App.-San Antonio 2002 pet. denied). Respondent limited Petitioner's presentation concerning evaluations to
arguments as to how he exhausted local remedies. TR. 4. Even if Petitioner were correct that the failure to provide
evaluations violated the school laws of this state, the Commissioner could not as a result order the requested relief
of reinstatement and back pay.

Open Meetings Act

Petitioner contends that board members violated the Open Meetings Act by agreeing to the reassignment of
Petitioner outside of a properly called meeting. Tex. Gov't Code§ 551.041. The record is scant as to this issue.
Petitioner's representative's allegations taken alone do not constitute a violation of the Open Meetings Act. Tr. 16-17.
However, the superintendent's testimony was that he made the decision himself without board approval. Tr. 24.
The record does not support a finding that a vi~lation occurred. Even if a violation occurred it would not result in
the vote on Petiti.oner's grievance being overturned. A discussion that was not properly conducted according to the Open
Meetings Act does not result [*9] in voiding a vote at a properly called meeting on the same subject. Hill v.
Palestine !11dep. Selz. Dist.. 113 S.W.3d 14. 17 (Tex. App.-Tyler 2000, pet denied).

Conclusion

Respondent did not violate Petitioner's contract by reassigning Petitioner. Petitioner's contract allowed for the
reassignment. Petitioner failed to exhaust administrative remedies as to his constructive termination and evaluation
claims. Respondent did not violate the Open Meetings Act. Petitioner's appeal should be denied.

Conclusions of Law

                                                     Giana Ortiz
                                                                                                              Page 4 of 4
                                          2004 TX Educ. Agency LEXIS 17, *9

After due consideration of the record, matters officially noticed, and the foregoing Findings of Fact, in my capacity
as Designee of the Commissioner of Education, I make the following Conclusions of Law:

1. The Commissioner has jurisdiction to hear this cause under Texas Education Code section 7.057 except as
specified in Conclusions of Law Nos. 2, 6-8.

2. Because Petitioner failed to exhaust administrative remedies as to his constructive discharge and evaluation
claims, the Commissioner lacks jurisdiction over these claims. 19 Tex. Ad1nin. Code § 157.1056(a) [*10]

3. As pied, this caSe is not moot.

4. Assistant middle school principal is a certified administrator position. 19 Tex: Adrnin. Code ch .. 241.

5. Petitioner's reassignment did not violate ·his contract.

6. There is not a duty of good faith and fair dealing in the employment law context.

7. The Commissioner lacks jurisdiction over Petitioner's good faith and fair dealing claim. 19 Tex. Atbnbz. Code §
I 57. 10561a /.

8. Even if there were a duty of good faith and fair dealing in the employment context, jurisdiction would not exist
under Texas Education Code section 7.057fa)(2)fB) be~ause the Commissioner lacks jurisdiction on a claim of lost
earnings capacity or loss of reputation. 19 Tex. Ad1ni11. Code § 157. /056fa).

9. Members of Respondent's board of trustees did not violate the Open Meetings Act as they did not preapprove
Petitioner's reassignment outside of a properly called meeting. Tex. Gov't Code§ 551.041

10. Even if members of Respondent's board of trustees had violated the Open Meetings Act by preapproving
Petitioner's reassignment outside of a properly [*11] ·Called meeting, this does not result in the board's vote to deny
Petitioner's grievance being declared void.

11. Petitioner's appeal should be denied.

ORDER

After due consideration of the record, matters officially noticed and the foregoing Findings of Fact and Conclusions
of Law, in my capacity as Designee of the Commissioner of Education, it is hereby

ORDERED that Petitioner's appeal be, and is hereby, DENIED.

SIGNED AND ISSUED this 15th day of JUNE, 2004.

                                                       Giana Ortiz
APPENDIX C
Crosby ISD
101906

PERSONNEL POSITIONS                                                                     DP
                                                                                    (LOCAL)

PRINCIPAL            In addition to the minimal certification requirement, the principal
QUALIFICATIONS       shall have at least:
                     1.   Working knowledge of curriculum and instruction;
                     2.   The ability to evaluate instructional program and teaching ef-
                          fectiveness;
                     3.   The ability to manage budget and personnel and coordinate
                          campus functions;
                     4.   The ability to explain policy, procedures, and data;
                     5.   Strong communications, public relations, and interpersonal
                          skills;
                     6.   Three years’ experience as a classroom teacher;
                     7.   Prior experience in instructional leadership roles; and
                     8.   Other qualifications deemed necessary by the Board.

DATE ISSUED: 12/2/2002                       ADOPTED:                                 1 of 1
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STUDENT DISCIPLINE                                                                   FOE
EMERGENCY AND ALTERNATIVE PLACEMENT                                               (LEGAL)

EMERGENCY            The principal or the principal’s designee is not prohibited from or-
PLACEMENTS           dering the immediate placement of a student in a disciplinary alter-
  DAEP               native education program (DAEP) if the principal or designee rea-
                     sonably believes that the student’s behavior is so unruly, disruptive,
                     or abusive that it seriously interferes with a teacher’s ability to
                     communicate effectively with students in class, with the ability of
                     students to learn, or with the operation of school or a school-
                     sponsored activity.
  EXPULSION          A principal or designee may order the immediate expulsion of a
                     student if the principal or designee reasonably believes that such
                     action is necessary to protect persons or property from imminent
                     harm.
  PROCEDURE          At the time of an emergency placement or an emergency expul-
                     sion, the student shall be given oral notice of the reason for the ac-
                     tion. The reason must be a reason for which placement in a DAEP
                     or expulsion may be made on a nonemergency basis. Within a
                     reasonable time, but not later than the tenth day after the place-
                     ment or expulsion, the student shall be accorded the appropriate
                     due process required for a removal or an expulsion. [See FOA,
                     FOC, and FOD]
  STUDENTS WITH      If the student is a student with disabilities who receives special ed-
  DISABILITIES       ucation services, the emergency placement is subject to federal
                     law and regulations and must be consistent with the consequences
                     that would apply under Education Code Chapter 37, Subchapter A,
                     to a student without a disability. [See FOF]
  IMMUNITY           A principal or designee is not liable in civil damages for an emer-
                     gency placement.
                     Education Code 37.019
TITLE 5 FELONY OR    The Board or designee, after an opportunity for a hearing may ex-
AGGRAVATED           pel a student and elect to place the student in an alternative setting
ROBBERY              as provided below if:
                     1.   The student has been arrested for, charged with, referred to a
                          juvenile court for, received deferred prosecution for, received
                          probation for, received deferred adjudication for, found by a
                          court or jury to have engaged in, or been convicted of, con-
                          duct defined as a felony offense in Penal Code, Title 5 [see
                          FOC(EXHIBIT)] or the felony offense of aggravated robbery
                          under Penal Code 29.03; and
                     2.   The Board or the Board’s designee determines that the stu-
                          dent’s presence in the regular classroom:
                          a.   Threatens the safety of other students or teachers;

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                          b.   Will be detrimental to the educational process; or
                          c.   Is not in the best interests of the District's students.
                     The Board or designee may expel the student and order the
                     placement regardless of:
                     1.   The date the conduct occurred;
                     2.   The location of the conduct;
                     3.   Whether the conduct occurred while the student was enrolled
                          in the District; or
                     4.   Whether the student has successfully completed any court
                          disposition requirements imposed in connection with the con-
                          duct.
  ALTERNATIVE        The student must be placed in:
  SETTING
                     1.   A juvenile justice alternative education program (JJAEP), if
                          the District is located in a county that operates a JJAEP or the
                          District contracts with the juvenile board of another county for
                          the provision of a JJAEP; or
                     2.   A DAEP.
  DURATION OF        Notwithstanding Education Code Section 37.009(c) or (d) (place-
  PLACEMENT          ments beyond one year) or any other provision of Education Code
                     Chapter 37, Subchapter C, the student is subject to the placement
                     until:
                     1.   The student graduates from high school;
                     2.   The charges are dismissed or reduced to a misdemeanor of-
                          fense; or
                     3.   The student completes the term of the placement or is as-
                          signed to another program
                     These provisions continue to apply if the student transfers to an-
                     other district in the state.
                     The student is entitled to periodic review [see FOC at 120-DAY
                     REVIEW OF STATUS].
                     Any decision of the Board or designee under the above provisions
                     is final and may not be appealed.
                     The above provisions apply notwithstanding any other provision of
                     Education Code Chapter 37, Subchapter A, except that Section
                     37.007 (expulsion) prevails to the extent of a conflict.
                     Education Code 37.0081
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STUDENT DISCIPLINE                                                                      FOE
EMERGENCY AND ALTERNATIVE PLACEMENT                                                  (LEGAL)

REGISTERED SEX       The following provisions apply to a student who is required to reg-
OFFENDERS            ister as a sex offender under Code of Criminal Procedure, Chapter
  APPLICABILITY      62 (Chapter 62), but not to a student who is no longer required to
                     register as a sex offender, including a student who receives an ex-
                     emption from registration or a student who receives an early termi-
                     nation of the obligation to register.
  REMOVAL FROM       Notwithstanding any provision of Education Code Chapter 37,
  REGULAR            Subchapter A, on receiving notice under Code of Criminal Proce-
  CLASSROOM          dure article 15.27 or Chapter 62 that a student is required to regis-
                     ter as a sex offender, the District shall remove the student from the
                     regular classroom and determine the appropriate placement.
                     Education Code 37.302–.303
  STUDENT UNDER      The District shall place a student who is a registered sex offender
  COURT              and who is under any form of court supervision, including proba-
  SUPERVISION        tion, community supervision, or parole, in the appropriate alterna-
                     tive education program for at least one semester.
                     If a student transfers to another district during the placement, the
                     district to which the student transfers may:
                     1.   Require the student to complete an additional semester in the
                          appropriate alternative education program without conducting
                          a review of the student’s placement for that semester; or
                     2.   Count any time spent by the student in an alternative educa-
                          tion program in the district from which the student transfers
                          toward the mandatory placement requirement.
                     Education Code 37.304
  STUDENT NOT        The District may place a student who is a registered sex offender
  UNDER COURT        and who is not under any form of court supervision in the appropri-
  SUPERVISION        ate alternative education program for one semester or in the regu-
                     lar classroom. The District may not place the student in the regular
                     classroom if the Board or designee determines that the student’s
                     presence in the regular classroom:
                     1.   Threatens the safety of other students or teachers;
                     2.   Will be detrimental to the educational process; or
                     3.   Is not in the best interests of the District’s students.
                     Education Code 37.305
  APPROPRIATE        Except as provided below, the District shall place a student who is
  PROGRAM            required by the Board or designee to attend an alternative educa-
                     tion program in a DAEP. Education Code 37.309

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EMERGENCY AND ALTERNATIVE PLACEMENT                                                  (LEGAL)

    EXCEPTION        The District shall place the student in a JJAEP if:
                     1.   The memorandum of understanding between the District and
                          juvenile board provides for the placement of students who are
                          registered sex offenders in JJAEP; or
                     2.   A court orders the placement of the student in a JJAEP.
                     A JJAEP is entitled to funding for the student in the same manner
                     as for students who are subject to discretionary expulsion.
                     Education Code 37.309–.310
  REVIEW             At the end of the first semester of a student’s placement, the Board
                     or designee shall convene a committee to review the placement.
    REVIEW           The committee must be composed of:
    COMMITTEE
                     1.   A classroom teacher from the campus to which the student
                          would be assigned were the student not placed in an alterna-
                          tive education program;
                     2.   The student's parole or probation officer or, in the case of a
                          student who does not have a parole or probation officer, a
                          representative of the local juvenile probation department;
                     3.   An instructor from the alternative education program to which
                          the student is assigned;
                     4.   A District designee selected by the Board or designee; and
                     5.   A school counselor employed by the District.
    RECOMMEN-        The committee by majority vote shall determine and recommend to
    DATION           the Board or designee whether the student should be returned to
                     the regular classroom or remain in the alternative education pro-
                     gram.
                     If the committee recommends that the student be returned to the
                     regular classroom, the Board or designee shall return the student
                     to the regular classroom unless the Board or designee determines
                     that the student’s presence in the regular classroom:
                     1.   Threatens the safety of other students or teachers;
                     2.   Will be detrimental to the educational process; or
                     3.   Is not in the best interests of the District’s students.
                     If the committee recommends that the student remain in the alter-
                     native education program, the Board or designee shall continue the
                     student’s placement in the alternative education program unless

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                     the Board or designee determines that the student’s presence in
                     the regular classroom:
                     1.   Does not threaten the safety of other students or teachers;
                     2.   Will not be detrimental to the educational process; and
                     3.   Is not contrary to the best interests of the District’s students.
                     If the Board or designee determines that the student should remain
                     in an alternative education program, the Board or designee shall
                     reconvene the committee before the beginning of each school year
                     to review the student’s placement in an alternative education pro-
                     gram.
                     Education Code 37.306
  APPEAL             A student or the student’s parent or guardian may appeal a deci-
                     sion by the Board or designee to place the student in an alternative
                     education program by requesting a conference among the Board
                     or designee, the student’s parent or guardian, and the student.
                     The conference is limited to the factual question of whether the
                     student is required to register as a sex offender under Chapter 62.
                     If the Board or designee determines at the conclusion of the con-
                     ference that the student is required to register as a sex offender,
                     the student is subject to placement in an alternative education pro-
                     gram.
                     The decision of the Board or designee is final and may not be ap-
                     pealed.
                     Education Code 37.311
  LIABILITY          The above provisions regarding placement of a student who is a
                     registered sex offender do not:
                     1.   Waive any liability or immunity of a governmental entity or its
                          officers or employees; or
                     2.   Create any liability for or a cause of action against a govern-
                          mental entity or its officers or employees.
                     Education Code 37.312
  SPECIAL            The placement of a student with a disability who receives special
  EDUCATION          education services must be made in compliance with the Individu-
  STUDENT            als with Disabilities Education Act (20 U.S.C. Section 1400 et seq.).
                     The review of the student’s placement may be made only by a duly
                     constituted ARD committee [see EHBAB]. The ARD committee

DATE ISSUED: 10/5/2011                                                                 5 of 6
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STUDENT DISCIPLINE                                                                 FOE
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                     may request that the Board or designee convene a review commit-
                     tee to assist in conducting the review.
                     Education Code 37.307
  TRANSFER           Except where a student under court supervision transfers during a
  STUDENTS           mandatory placement, the District shall determine whether to place
                     a transfer student who is a registered sex offender in the appropri-
                     ate alternative education program or in a regular classroom. The
                     District shall follow the procedures at REVIEW, above, in making
                     the determination. Education Code 37.308

DATE ISSUED: 10/5/2011                                                             6 of 6
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