Oncor Electric Delivery Company LLC v. Public Utility Commission of Texas, 507 S.W.3d 706

Background

PURA deregulated retail electricity in ERCOT (effective Jan 1, 2002), unbundling utilities into generation, REPs, and TDUs; TDUs remain PUC‑regulated and bill REPs (not retail customers).
Oncor, the largest Texas TDU, sought a comprehensive rate increase in 2008; PUC approved a $115M increase after hearings and ALJ recommendation of $30M.
Multiple parties appealed; only three issues reached the Texas Supreme Court: (1) whether PURA §36.351’s 20% discount to state colleges/universities applies to TDUs in deregulated areas; (2) whether Oncor’s income tax expense must be calculated as if it filed a consolidated federal return with affiliates under former §36.060(a); and (3) whether renegotiated municipal franchise charges are reasonable and includable as operating expenses under §33.008.
Fact relevant to taxes: Oncor was a disregarded subsidiary included in EFH’s consolidated return in 2007, but after EFH sold ~19.96% of Oncor in Nov 2008, Oncor became a multi‑member entity (tax partnership) and did not elect corporate treatment.
On franchise fees: Oncor sought to recover about $254M in municipal franchise charges, including ~5.7M from recent renegotiations; PUC disallowed renegotiated charges, and the court of appeals affirmed that disallowance.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Does PURA §36.351’s 20% discount to state colleges/universities apply to TDUs in deregulated areas?	State Universities: discount applies to facilities served by TDUs because TDUs deliver electricity to campus meters.	Oncor/PUC: TDUs charge REPs, not retail customers; §36.351 doesn’t require discounts to REPs.	§36.351 does not apply to TDUs in deregulated areas; TDUs bill REPs and any passthrough discount depends on REP negotiation.
Should Oncor’s income tax expense be computed as if it filed a consolidated federal return with affiliates (former §36.060(a))?	OPUC/Cities/TIEC: Oncor should be treated as part of EFH’s consolidated group (use 2007 test year savings).	Oncor: After Nov 2008 it was not a member of an affiliated group eligible to file consolidated returns; compute tax as stand‑alone.	Court: §36.060(a) applies only if the utility "is" a member of an eligible consolidated group; after Nov 2008 Oncor was not such a member, so PUC correctly computed tax expense as if it were a corporation (stand‑alone).
Are renegotiated municipal franchise charges reasonable and recoverable under §33.008?	Oncor/Cities: renegotiated charges (including the 5% increase) are allowable operating expenses if reasonable and necessary.	PUC/court of appeals: §33.008(b) caps charges at 1998 average rates; §33.008(f) limits alternative charges to those agreed upon expiration of pre‑1999 franchises.	Court: §33.008(f) does not restrict renegotiations to expirations in 1999; municipalities may renegotiate and the PUC erred in disallowing Oncor’s renegotiated charges without considering their reasonableness.

Key Cases Cited

Suburban Utility Corp. v. Public Utility Commission of Texas, 652 S.W.2d 358 (Tex. 1983) (allowing inclusion of shareholder taxes for pass‑through entities in rate‑making)
Public Utility Commission v. GTE Southwest, Inc., 901 S.W.2d 401 (Tex. 1995) (income tax calculation is part of ratemaking and Commission has discretion over tax treatment)
R.R. Comm’n of Texas v. Texas Citizens for a Safe Future & Clean Water, 336 S.W.3d 619 (Tex. 2011) (agency statutory interpretation deference principles)
Thompson v. Texas Department of Licensing & Regulation, 455 S.W.3d 569 (Tex. 2014) (deference to agency interpretation only when statute ambiguous and interpretation reasonable)
State v. Public Utility Commission, 883 S.W.2d 190 (Tex. 1994) (rates set for the future; ratemaking principles)
State v. Public Utility Commission, 344 S.W.3d 349 (Tex. 2011) (administrative‑procedure standards for agency action)
Gulf States Utilities Co. v. Public Utility Commission, 947 S.W.2d 887 (Tex. 1997) (agency action review standards)