Amarillo, Channing, Dalhart and Lubbock v. Railroad Commission of TexasAmarillo, Channing, Dalhart and Lubbock v. Railroad Commission of Texas
OPINION
Any major change in a gas utilities’ rates are subject to approval by the governmental units that regulate them.
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They can justify a rate increase based on their cost of providing gas service, and by statute are accorded a reasonable return on their invested capital in excess of their operating costs.
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But in identifying those costs, geographic boundaries can sometimes come into play. Here for instance, Atmos Energy Corp. provides gas service to cities and unincorporated areas located in its “West Texas Division” which encompasses much of the Panhandle of Texas south to Midland/Odessa and Big Spring.
The Commission preemptively decided that it would set rates on a system-wide basis and accordingly excluded Amarillo and Lubbock’s evidence which addressed differences in the cost of service between the rate jurisdictions. But the ultimate question of considering system-wide rates is only tangentially before us. The issues raised here largely pertain to the procedural fairness of the hearing in which the Commission decided this issue, and the manner in which it justified its final decision. And more importantly, a partial settlement agreement entered into by the parties while they were before the Commission, in conjunction with actions they took after this case was appealed, raise several justiciability issues.
On the record before us, we conclude that we must dismiss the appeal for want of jurisdiction.
FACTUAL SUMMARY
Atmos Energy sells gas to residential, commercial, industrial, and state owned customers. It divides its Texas customers into two divisions. The West Texas Division serves the Panhandle of Texas and various cities in West Texas. The West Texas Division is further broken into three rate jurisdictions: the Amarillo Rate Jurisdiction; the Lubbock Rate Jurisdiction; and the West Texas Cities Rate Jurisdiction. Amarillo (with some variations in the surrounding towns) has been in its own rate jurisdiction since 1983. Lubbock has been its own rate jurisdiction since 2003.
Starting in early 2012, Atmos sought a rate increase. It did so by serving notice if its intent to raise rates on the entities that regulate Atmos. It sent notice to its customers living in unincorporated areas, and at the same time notified the Commission, which has exclusive original jurisdiction over rates in unincorporated areas. Tex. Util. Code Ann. § 102.001(a)(the Gas Utilities Regulatory Act, hereinafter
Atmos’ request was unique to the West Texas District. The prior rate increases had focused on determining the cost of providing service in each of the three rate jurisdictions. But Atmos sought a system-wide increase which would effectively merge the rate increase analysis for the three rate jurisdictions. Atmos’ argument in this regard is that its capital expenditures, call centers, and other associated costs have become so integrated that they can no longer be allocated to what it contends are artificial boundary lines. The West Texas Cities Steering Committee aligned itself with Atmos, and had likely pushed Atmos to adopt system-wide rates.
Amarillo and Lubbock opposed the system-wide rate methodology. Based on pri- or rate cases, Amarillo and Lubbock residents enjoyed lower rates based on what they contend are lower costs to serve those cities. Their argument is that the per customer cost to serve a larger concentrated population center is less than the cost to serve more rural, and smaller cities. As they frame the argument, it is cheaper to serve fifty customers from one mile of gas pipeline than five customers from the same length of pipe.
Prior to the actual rate hearing, the West Texas Cities Steering Committee filed a motion to preclude litigation of the system-wide rate increase issue. Procedurally, the Commission permits parties to file motions to preclude issues that have been already been considered and decided by the Commission. 5 These matters can include previously decided issues of Commission policy, the application of statutes, and the interpretation of rules. One stated rationale for these interim orders is to reduce the expense in rate cases.
West Texas Cities Steering Committee’s motion was heard by a hearing examiner. Amarillo and Lubbock responded to that motion, and asserted there, as they do here, that the issue was far from decided and the Commission should hear evidence
The issue of whether Atmos Energy may seek system-wide rates for the At-mos West Texas Division, ,and whether the Commission may set rates on a system-wide basis, is precluded from further litigation. Accordingly, the parties are precluded from litigating the question of whether Atmos ’proposed rates should be established on a system-wide basis. [Emphasis original]
The examiner explained that the issue of system-wide rates falls within the policy discretion of the Commission and the examiner believed there was a long standing policy allowing for such rates. 6 The examiner ultimately relied on rulings in several prior rate cases to support this view. One of those prior cases bares particular note.
GUD No. 9400 grew out of a requested rate increase in Atmos’ Wes-Tex .division, which includes the City of Dallas. Tex. R.R. Comm’n, Statement of Intent Filed by TXU Gas Company to Change Rates in the Company’s Statewide Gas Utility System, GUD No. 9400, Final Decision (June 24, 2008). That request, like this one, sought system-wide rates. The Commission implemented system-wide rates over the City’s objection, resulting in an appeal to the Third Court of Appeals. That case squarely- faced the issue of whether there was substantial evidence supporting the findings for system-wide rates.
City of Dallas v. Railroad Commission of Texas,
03-06-00580-CV,
Here, Amarillo and Lubbock appealed the interim ruling of the examiner to the Commissioners. The appeal was denied. Amarillo and Lubbock had pre-filed the testimony that they intended to introduce at the final hearing, which included several witnesses addressing the system-wide rate question. 7 On a motion by the West Texas Cities, the examiners later struck that testimony and exhibits.
As the rate case got underway, the parties reached a partial settlement agreement which resolved most of their issues. Atmos had sought a rate increase which would earn it an additional $9.7 million in revenue. Under the terms of the partial settlement, the. parties agreed that the total additional revenue would be limited to
The parties agreed to specific gas rates for different customer classifications in the Amarillo, Lubbock, and West Texas Communities rate jurisdictions, as well as the unincorporated areas in the division. These rates were stipulated as being consistent with implementing a system-wide cost approach. They further agreed that these rates would continue through the pendency of this appeal. And while the case is on appeal, any additional rate increases would be addressed on a system-wide basis. If this appeal results in a remand to the Commission to re-hear the question of system-wide rates, the parties agreed that there could be no reimbursement for excess amounts collected during the pendency of the appeal. Instead, and at most, if the Commission reversed its preference for system-wide rates, there would be a new rate case which would prospectively adjust the system-wide rates implemented under the partial settlement agreement.
The Commission examiners accepted the terms of the partial settlement agreement and issued a proposal for decision with findings of fact and conclusions of law consistent with the agreement. The Commissioners then considered the case and issued a final order based on the proposal for decision and partial settlement agreement. Following an unsuccessful motion for rehearing before the Commission, Amarillo and Lubbock timely filed an appeal to a Travis County District Court. The trial court entered a judgment affirming the Railroad Commission in all respects and this appeal follows. 8
ISSUES FOR REVIEW
Amarillo and Lubbock urge three issues on appeal. In Issue One, they contend the Commission violated the Administrative Procedure Act in denying them the right to present evidence on a contested issue. They contend this denial also violated their due process rights. In Issue Two, Amarillo and Lubbock contend the findings germane to system-wide rates are not supported by substantial evidence. As sub-parts to this issue, they argue that the Commission improperly considered prior final orders from other cases, and failed to issue proper conclusions of law. In Issue Three, they contend that the Commission must provide a reasoned basis for changing its prior practice of allocating costs to the three rate jurisdictions and it failed-to do so here.
The Commission and the other interested parties contest Amarillo and Lubbock’s standing to pursue this appeal. They complain that any opinion we might issue would be solely advisory because the partial settlement agreement precludes any charge-back of the amounts earned under the final order. Moreover, a subsequent set of rates has been agreed upon by the parties taking effect April 1, 2014, which effectively precludes any prospective relief that might be gained from reversing the final order of the Commission below. As standing is an issue that bears on our jurisdiction, we begin (and end) our inquiry there.
Standing is a prerequisite to subject-matter jurisdiction, which is essential to a court’s power to decide a case.
Bland Independent School District v. Blue,
Standing is a part of the “concept of justiciability which includes the questions of advisory opinions, mootness, and ripeness.”
McCarney v. Ford Motor Co.,
We cannot set a gas utility’s rate, nor ultimately decide whether system-wide rates are, or are not, appropriate. Tex. Gov’t Code Ann. § 2001.174 (West 2016)(courts are limited to affirming agency decision in whole or part, or reversing and remanding for further proceedings);
Texas Alcoholic Beverage Commission v. Quintana,
That would leave only the question of future revenue based on those rates. And if there were a continuing future stream of revenue based on the rates in this final order, we might view a. reversal of the final order below differently. But we are informed that on February 27, 2014, Atmos, along with Amarillo and Lubbock, entered into another settlement agreement that set an entirely new set of rates to govern bills from April 1, 2014 forward.
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We are provided a signed copy of the settlement agreement as an attachment to Atmos’ appellate brief. An attachment to a brief, of course, is not an appropriate means to supplement the record.
Robb v. Horizon Communities Improvement Ass’n, Inc.,
The terms of the prior partial settlement, and the more recently enacted ordinances, hit something of a trifecta for jus-ticiability—implicating mootness, ripeness, and the prohibition on advisory opinions.
Mootness
A case is rendered moot when: (1) it appears that a party seeks to obtain a judgment upon some controversy, when in reality none exists; or (2) a party seeks a judgment upon some matter which cannot have a practical legal effect upon a then existing controversy.
Beltran v. Beltran,
In
Olsen,
for instance, a lawyer challenged his suspension from the practice of law, but died before the appeal was submitted. We held his death mooted the appeal because the relief sought—reinstatement of his law license—was no longer possible.
Id.
at 522. Similarly, in
Molina v. State,
08-10-00218-CR,
The partial settlement, in conjunction with the subsequent ordinances enacting a new set of rates, renders this dispute
There is an exception to the mootness doctrine when a claim is “capable of repetition yet evading review.”
In re Uresti,
Amarillo and Lubbock argue that leaving the final order in place would lead the Commission to apply system-wide rates in future rate cases. But we have found no Commission rules that would automatically apply the rationale of this final order in the future. And Amarillo and Lubbock’s very position belies that prospect. They contend the Commission has abruptly changed its prior practice of developing rates separately within the three different rate jurisdictions. The Commission is apparently not bound to always follow what it did in the past. We are not convinced that if a future rate case is ever filed that Amarillo and Lubbock could not re-urge its challenge to system-wide rates. And if they are unsuccessful, they can litigate a challenge on the merits of that dispute. But the procedural challenges to the final order below became moot once the potential for prospective relief ended with a completely new set of rates taking effect on April 1, 2014.
Ripeness
The Commission directs us to
Railroad Commission of Texas v. CenterPoint Energy Resources Corp.,
No. 03-13-00533-CV, 03-13-00534-CV, 03-13-00535-CV,
The ripeness doctrine is often identified in dealing with agency determinations. In
Abbott Laboratories v. Gardner,
Those same concerns apply here. Any decision that we might reach on the procedural fairness of the rate design in this final order might only be relevant to some future rate case before the Commission, and then only if the future rate case is handled in the same fashion as was done here. But this is the sort of hypothetical challenge over a question of administrative policy that the ripeness doctrine seeks to avoid.
Advisory Opinion
The distinctive feature of an advisory opinion is that it decides an abstract question of law without binding the parties.
Texas Ass’n of Bus.,
Based on the terms of the partial settlement agreement, and the advent of an entirely new rate structure as of April 1, 2014, we fail to see how any decision of ours might provide anything other than an advisory opinion to the parties as to the propriety of the procedures used to determine a set of rates in the past. If we reverse the Commission’s final order, At-mos would not be obligated to return any prior revenues for gas service to its Amarillo and Lubbock customers. If the Commission re-decided the rate case, it would at best an academic question because it would not undo the 2014 ordinances implementing new rates. Without the potential for prospective relief, Amarillo and Lubbock lack standing to assert the claims that they do.
See O’Shea v. Littleton,
Notes
. Tex. Util. Code Ann. §§ 104.101 and 104.102 (West 2007).
. Tex. Util. Code Ann. § 104.051.
. Included with Amarillo and Lubbock are the towns of Channing and Dalhart. We collectively refer to them as Amarillo and Lubbock.
. The other towns appeared through the “West Texas Cities Steering Committee” and now include Abernathy, Amherst, Anton, Big Spring, Bovina, Brownfield, Buffalo Springs, Canyon, Coahoma, Crosbyton, Dimmitt, Earth, Edmonson, Floydada, Frosan, Friona, Hale Center, Happy, Hart, Hereford, Idalou, Kress, Lake Tanglewood, Lamesa, Levelland, Littlefield, Lockney, Lorenzo, Meadow, Midland, Muleshoe, Nazareth, New Deal, Odessa, O'Donnell, Olton, Opdyke West, Palisades, Pampa, Panhandle, Petersburg, Plainview, Post, Quitaque, Ralls, Ransom Canyon, Ropesville, Sanford, Seagraves, Seminole, Shallowater, Silverton, Slaton, Smyer, Springlake, Stanton, Sudan, Tahoka, Timber-creek Canyon, Tulia, Vega, Wellman, Wilson, and Wolfforth, The trial court’s judgment and the notice of appeal identify only the Railroad Commission of Texas as Appellee, but Atmos and the West Texas Steering Committee filed pleadings below as intervenors, and have filed briefs on appeal.
. The practice is attributed to an interim order issued in GUD Docket No. 9670 dated August 15 & 22, 2006, that pre-approved a particular method for calculating depreciation. Tex.R.R. Comm’n, Petition for De Novo Review of the reduction of the Gas Utility Rates of Atmos Energy Corp., Mid-Tex Division, by the Cities of Addison, Benbrook, Blue Ridge, et al, Statement of Intent filed by At-mos Energy Corp., Mid-Tex Division to Change Rates in the Company’s Statewide Gas Utility System, and Petition for Review from the Actions of Municipalities Denying Rate Request (Gas Utils. Div. August 15 & 22, 2006)(Interim Orders). The order recited a number of prior decisions approving the same method for calculating depreciation and ordered the parties not to litigate the choice of depreciation methods. Interim orders precluding litigation on various other issues have been issued in subsequent rate cases. We do not find any Commission rules that specifically govern this practice which has the appearance of something akin to a partial motion for summary judgment.
. GURA itself requires that rates be "just and reasonable," not "unreasonably preferential, prejudicial, or discriminatory,” but "equitable, and consistent in application to each class of consumer.” GURA at § 104.003. Nor can there be an "unreasonable difference concerning rates of services between localities.” Id. at 104.004(c). To accomplish those ends, the Commission "may treat as a single class two or more municipalities that a gas utility serves” if the Commission considers that treatment to be appropriate. Id. at § 104.003. The examiners believed that the Commission has determined that system-wide rates are consistent with these statutory goals.
. That testimony included an expert witness, James Daniel, who believed that Atmos’ proposal would raise rates in Amarillo and Lubbock by 22% to 27%, requiring them to pay $5.2 million more than the cost of providing services to those cities. By contrast, revenue from the West Texas Cities would see a net decrease. He concluded that the average cost to serve customers is $268 in Amarillo, $278 in Lubbock, but $344 in the West Texas Communities. These cost differences result from higher population densities in Amarillo and Lubbock. Another tendered expert, Michael Brosch, would have testified that Atmos has separate books and records that would allow it to calculate costs for each of the rate jurisdictions.
. This appeal was transferred to this court ’from the Third Court of Appeals pursuant to the Texas Supreme Court’s docket equalization efforts. See Tex, Gov't Code Ann. § 73.001 (West 2013). We follow the precedents of that court to the extent they might conflict with our own. See Tex. R. App. P. 41,3.
. The new rates, effective for any customer bill after April 1, 2014, are all higher than the 2012 rates, across all classes of customers (residential, commercial, industrial and pub-lie authority) and for.both basic customer charges and consumption charges.
. Amarillo, Tex. Ordinance No. 7452 (March 18, 2014); Lubbock, Tex. Ordinance 2014-