Public Utility Commission of Texas // City of Denton Operating as Denton Municipal Electric v. City of Denton Operating as Denton Municipal Electric // Cross-Appellee Public Utility Commission of Texas, 15-25-00018-CV

The City of Denton, through Denton Municipal Electric (DME), is a municipally owned utility (MOU) that filed a Transmission Cost of Service (TCOS) application with the Public Utility Commission of Texas (PUC) to set wholesale transmission rates in ERCOT.
DME’s proposed General Fund Transfer (GFT) was 11% of revenues composed of a 5% franchise-fee component and a 6% return-on-investment (ROI) component adopted by city ordinance under Tex. Gov’t Code §1502.059.
The PUC (adopting a SOAH PFD) approved a TCOS rate but excluded the 6% ROI from DME’s GFT and limited other ratemaking elements, and ordered DME to file an interim TCOS within 90 days.
DME sought judicial review in Travis County; the district court reversed the PUC’s limitation of DME’s debt-service-coverage ratio (DSCR) to 1.25x but denied relief on the GFT-ROI exclusion and on the interim-filing order.
DME (City) now cross-appeals the district court’s denial as to (1) the PUC’s exclusion of the 6% ROI from the GFT and (2) the PUC’s order requiring an interim TCOS filing within 90 days.

Issue	Plaintiff's Argument (Denton)	Defendant's Argument (PUC)	Held (district court)
Whether the PUC erred by excluding the 6% ROI component of Denton’s 11% GFT from TCOS rates	The ROI is a lawful municipal transfer authorized by Tex. Gov’t Code §1502.059 and Denton’s charter/ordinance; ROI is a legitimate component of utility costs/revenues (proxy for owner return) and must be includable under PURA §35.004 comparability/reasonableness principles.	The PUC asserted it may exclude transfers not "directly tied" to transmission costs and relied on administrative discretion and its interpretation of the TCOS rules to deny the ROI.	The district court denied Denton’s challenge and sustained the PUC’s exclusion of the 6% ROI.
Whether the PUC exceeded statutory authority by ordering Denton to file an interim TCOS within 90 days	Chapter 35 grants the PUC limited jurisdiction over MOU wholesale transmission rates and contains no express power to force an MOU to file an interim rate proceeding; the PUC cannot import authority granted for IOUs in other PURA chapters.	The PUC relied on general reasonableness oversight in PURA §35.004(c) and Commission rules to justify requiring an interim filing to protect ratepayers and ensure timely recovery/review.	The district court denied Denton’s challenge and left intact the PUC’s order requiring an interim TCOS filing.

Pub. Util. Comm’n of Tex. v. City Pub. Serv. Bd. of San Antonio, 53 S.W.3d 310 (Tex. 2001) (agencies possess only the authority granted by statute; limits on PUC power over municipal utilities)
City of El Paso v. Pub. Util. Comm’n of Tex., 883 S.W.2d 179 (Tex. 1994) (administrative action arbitrary if it considers irrelevant factors or exceeds statutory directives)
State v. Pub. Util. Comm’n of Tex., 883 S.W.2d 190 (Tex. 1994) (rate of return principle: utility must have opportunity to recover expenses and earn reasonable return)
San Antonio Indep. Sch. Dist. v. City of San Antonio, 550 S.W.2d 262 (Tex. 1976) (cities may earn a profit from utility ownership; transfers to city fund recognized)
Tex. Mun. Power Agency v. Pub. Util. Comm’n of Tex., 253 S.W.3d 184 (Tex. 2007) (scope of PUC jurisdiction over MOUs; limits of Chapter 35 oversight)
Suburban Util. Corp. v. Pub. Util. Comm’n of Tex., 652 S.W.2d 358 (Tex. 1983) (standards for reasonable return on invested capital)
Fed. Power Comm’n v. Hope Nat. Gas Co., 320 U.S. 591 (U.S. 1944) (fundamental ratemaking principle: return sufficient to maintain financial integrity)
Bluefield Water Works & Imp. Co. v. Pub. Serv. Comm’n of W. Va., 262 U.S. 679 (U.S. 1923) (same foundational ratemaking principle)