Public Utility Commission of Texas and Southwestern Electric Power Company v. Texas Industrial Energy Consumers, 620 S.W.3d 418

SWEPCO built the John W. Turk, Jr. coal plant after the Public Utility Commission (PUC) approved a certificate of convenience and necessity but capped Texas-ratepayer exposure to $1.522 billion of total plant cost.
During construction (completed 2012), SWEPCO did not maintain contemporaneous records showing periodic reassessment of the project’s economic viability.
Administrative Law Judges (SOAH) found SWEPCO should have stopped construction by June 2010 and proposed disallowing $171 million of costs based on falling natural-gas prices and alternative options.
On rehearing the PUC independently reviewed the record, applied a prudence standard (whether a reasonably prudent utility manager could have chosen to complete the plant), and concluded completion was within the range of reasonable options; it allowed the Texas share of construction costs into rate base.
The trial court affirmed the PUC; the court of appeals reversed, holding the PUC had effectively required independent retrospective (outside expert) analyses and that SWEPCO’s employee testimony was insufficient.
The Texas Supreme Court reversed the court of appeals, holding the PUC applied its prudence standard correctly, that substantial evidence supports the PUC’s decision, and remanded for consideration of a separate AFUDC (financing-cost) issue.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Prudence of continuing construction after June 2010	PUC decision arbitrary and unsupported because SWEPCO failed to present independent retrospective (outside expert) analyses; employee testimony insufficient	PUC properly applied prudence standard: whether a reasonably prudent utility manager could have chosen completion; outside expert testimony not required	Reversed court of appeals: PUC’s standard valid; employee and historical evidence can suffice; substantial evidence supports PUC finding that completion was within a reasonable range of options
Inclusion of AFUDC (capital financing costs) in rate base	AFUDC was part of capped capital costs and should be excluded from rate base	PUC concluded AFUDC was separately calculated and not part of capped cost; allowed AFUDC to be included	Texas Supreme Court remanded for the court of appeals to consider AFUDC issue in the first instance (did not decide on merits)

Gulf States Utils. Co. v. Pub. Util. Comm’n of Tex., 841 S.W.2d 459 (Tex. App.—Austin 1992) (discusses utility’s burden when contemporaneous documentation is lacking)
State v. Pub. Util. Comm’n of Tex., 883 S.W.2d 190 (Tex. 1994) (certificate to construct does not guarantee prudence recovery in rates)
R.R. Comm’n of Tex. v. Torch Operating Co., 912 S.W.2d 790 (Tex. 1995) (explains substantial-evidence review and deference to agency expertise)
City of El Paso v. Pub. Util. Comm’n of Tex., 883 S.W.2d 179 (Tex. 1994) (defines when agency action is arbitrary or capricious)
Cities for Fair Util. Rates v. Pub. Util. Comm’n of Tex., 924 S.W.2d 933 (Tex. 1996) (explains rate base and AFUDC concepts)
Duquesne Light Co. v. Barasch, 488 U.S. 299 (U.S. 1989) (notes complexity of economic judgments in rate proceedings)