*1 CHRISTI, CITY OF CORPUS al., Appellants,
et
v.
PUBLIC UTILITY COMMISSION TEXAS, al., Appellees. et
OF Choice, Inc., Appellant,
Power
v. Utility of Texas
Public Light Central Power
Company, Appellees. 00-0816,
Nos. 00-0821.
Supreme Court of Texas. Nov.
Argued
Decided June
Rehearing Aug. Overruled *4 Moss, Dougher- Kay, Ron H. Graves
ley & Austin, Irving Jacob ty Moody, Hearon & Houston, Botts, Golub, Robert J. Baker & Hearon, Jr., Dougherty Hearon & Grаves Minton, Roy Q. Minton Burton Moody, Collins, Austin, Robert M. Fill- Foster & more, Forsythe Wooldridge, Worsham Dallas, Mary Keeney, Dougher- A. Graves Austin, Appellee Moody, & ty Hearon in No. 00-0821.
PER CURIAM. Legislature substantially Utility Regulatory Act revised the Public Porter, Lloyd A. Blev- Steven Gosselink (PURA) major restructur- about a bring Townsend, Austin, ins Rochelle Baldwin & industry in ing power of the electric Texas Appellant No. 00-0816. to be to allow retail electric rates deter- *5 Anson, Maley Thomas K. Sheinfeld & by part As of that competition. mined Schenkkan, Melvin, A. Kay, P.M. Robin restructuring, permits existing the PURA Moody, Graves Hearon & Davi- Dougherty “regulatory assets” and utilities to recover Pratt, Grant, Broyles Larry son W. & W. fi- through securitization “stranded costs” Brewer, Rourke, Ray K. Suzi James accomplished nancing. Securitization McClellan, Counsel, Utility of Public Office by through financing a order issued Baron, Attorney Steven of Office General Utility that authorizes Public Texas, Austin, Day, Mayor Jonathan transition bond. The a to issue a Keeton, Houston, Day Caldwell & Lino repaid or secured transition bond is Mendiola, Keeton, Day <& Mayor Caldwell power to electric con- Boyle, Boyle, James G. Law Office of Jim in a area. Central sumers service Austin, Appellee for in 00-0816. No. Company, existing an Light Power and Susman, Stephen Godfrey, utility, applied H. Lee for and the Commission D. R. Eskridge, Godfrey, Charles Susman order assures approved Houston, Webb, Austin, of its Ap- regula- A. will certain Robert that CPL recover in Two pellant tory through No. 00-0821. securitization. brought proceedings were separate Rourke, Porter, A. James Steven K. County seeking court re- Travis district Lloyd Blevins Rochelle Baldwin Gosselink grounds. of that on different view order Townsen, Mendiola, Day, Jonathan & Lino judgments rendered both Final were Keeton, Houston, Mayor Day & Caldwell affirming the Commission’s proceedings Boyle, of Jim Boyle, James G. Law Office granted appeals from We direct order. Grant, Pratt, Broyles Larry W. & Davison to section judgments pursuant those Melvin, Brewer, A. W. Robin Graves 39.303(f) of and consolidated the PURA Bar- Dougherty Moody, Hearon & Steven proceedings. the two Texas, on, Attorney Office of General Inc., Choice, appellant in one Schenkkan, Power Dougherty Hear- P.M. Graves that the securiti- Austin, contends Hugh Kelly, appeals, Rice Moody, on & are facially the PURA provisions zation Company, Houston & Power Lighting Texas Houston, Anson, under the Constitu- K. Sheinfeld Ma- unconstitutional Thomas HECHT, ENOCH, they impose tion because a tax that is not Justice Justice Justice public purpose, taking for a constitute a BAKER, ABBOTT, Justice Justice adequate compensation, without or are an HANKINSON, and Justice JEFFERSON grant private pur- appropriation joined. judg- affirm trial court’s
poses. We filed a concurring Justice HECHT provisions ment that the securitization PHILLIPS, not unconstitutional on of those opinion, which Chief Justice grounds. ABBOTT, HANKINSON, Justice Justice joined. and Justice JEFFERSON appeal numerous cities includ- Christi, ing City Corpus dissenting Justice OWEN filed a Energy Texas Industrial Consumers and opinion, in which ENOCH and Justice Counsel, Utility the Office of Public we joined. BAKER Justice judgment. also affirm the trial court’s We 1) regulatory that: hold assets known as participate Justice did not O’NEILL may “SFAS 109 assets” be securitized the decision. though they currently no even earn return 2) costs; carrying and have no the Com- OWEN, joined by Justice Chief Justice tax properly mission treated investment PHILLIPS, HECHT, Justice Justice 3) credits; the Commission did not err BAKER, ENOCH, Justice Justice securitizing regulatory assets reflected in ABBOTT, HANKINSON, Justice Form 10-K rather than CPL’s SEC JEFFERSON, concurring. Justice balance of those assets as of December 4) 2001; the PURA authorizes the Com- I prescribe
mission to what calls “non- *6 5) true-up”; standard the did Act Utility Regulatory The Public declining adjust err in the allocation (PURA) in At being first came into factors for industrial customer classes to time, a Legislature the established 6) loss; reflect load the Commission did for elec- comprehensive regulatory system not err its allocation of transition tric The had con- Legislature utilities.1 charges to non-firm industrial customer “by cluded that were defini- these utilities 7) classes; and the Cities were not denied serve,” monopolies they the areas process proceedings due the before the of and that as a result “normal forces Accordingly, we affirm the Commission. regulate in a free competition prices which judgment. trial court’s Justice Owen’s society operate.”2 Reg- do not enterprise concurring opinion opinion is the of the ulation was intended to be a substitute respect with to the issues that Court Although were competition.3 there addresses, concurring and Justice Hecht’s changes years over the the manner the opinion opinion Court regulated which the PURA the electric to the that it addresses. respect issue although by 1997 the power industry, and Legislature recognized had that the whole- concurring Justice OWEN filed a PHILLIPS, industry becoming more opinion, in which Chief Justice sale electric was 1446c 1446c, 1.Former Tex.Rev.Civ. Stat. art. 2.Former Tex.Rev.Civ. Stat. Ann. art. Ann. 2, 1975, R.S., 721, Leg., Act of June 64th ch. § 2. (.current § ver- 1975 Tex. Gen. Laws 11.001, seq.). sion at Tex. Util.Code et 3.Id. produc- finds that the regulation legislature the PURA The under competitive,4 a mo- electricity of is not tion and sale “comprehensive.”5 remained rates, warranting of regulation nopoly chart Legislature the decided the and services and operations, provision the electric course for new in competitive interest electric public intervening years in Texas. In the service that, for trans- requires except markets deregulation fed- partial at the since and and distribution services mission deregulation in eral level and other states costs, recovery of elec- for the stranded in the wrought significant changes had and their should be prices tric services industry on a national level. electric and by customer choices determined in the concluded that it was Legislature competition.11 forces of Strand- normal public “fully compet- interest to establish a precise, defini- costs have a technical ed It power industry” electric in Texas.6 itive chapter of the PURA: tion under 39 of and other chapter enacted the PURA positive cost” “Stranded means accomplish goal amendments to genera- of the net book value of excess protect public during “to interest over the value of tion assets market transition.”7 assets, taking into account all of achieve competition In order to assets, any utility’s generation electric market for amend- electricity, retail costs, purchased power market above existing the PURA utili- require ments to a utili- deferred debit related to they to “unbundle” the ties services ty’s application discontinuance provide.8 sepa- Each electric must Accounting of Financial Stan- Statement rate its business into distinct activities Ef- (“Accounting No. 71 for the dards 1) 2) generation power company; units: Types Regulation”) of Certain fects 3) provider; electric a trans- retail if generation-related required and distribution This is to utility.9 mission chapter. For provisions this through accomplished be the creation of [true-up pro- of Section 39.262 purposes cre- separate nonaffiliated companies, ceeding], book value shall established separate companies ation of affiliated 31, 2001, the date a as of December *7 holding company, owned a common a through market value established to the sale of assets a third party.10 market valuation method under Section earlier, 39.262(h), whichever is and shall Underpinning the decision Legislature’s under include stranded costs incurred industry restructure the electric power to recovery of 39.263 cost [stranded Section regulation finding long- was its was no cleanup costs].12 environmental warranted, except regulation er of and distribution services and can de- generally transmission Stranded costs more be of of regulation rеcovery portion of stranded scribed as the the book value utility’s generation project- a assets that is costs: 39.051(b). (b), (c). § M§ 31.001 9. 4. Tex. Util.Code 31.001(a). Id. §
5. 39.051(c). 10. Id. § 39.001(a). Id. § 39.001(a). 11. Id. § Id. 39.251(7). 12.Id. § 39.051. through Legislature similarly ed to unrecovered rates that The concluded are prices. based on market Under the recoverable “regulatory assets” should be regulatory prior scheme that existed The through nonbypassable charges.15 1999, utility opportu- would have had an is, like the “regulatory definition of assets” nity prudent capital to recover investments costs, definition of stranded technical: through in its depreciation. rates The “Regulatory gener- assets” means the concluded, Legislature after intensive juris- portion ation-related of the Texas study by Utility the Public reported portion dictional of the amount others, and that those investments are un- in its 1998 annual electric likely competitive to be recovered once a Exchange on Com- report Securities price retail market based on the market mission Form 10-K as assets electricity is established. That is because liabilities, applicable offset come, years existing utilities would portion generation-related investment have -with costs associated historical costs tax the Internal permitted credits under of service or investments in facilities while Revenue Code of 1986.16 electricity new sellers of Ac- would not. cordingly, new able marketers should be genera- Regulatory assets are a subset electricity prices sell at that are lower than by a reasonably incurred tion-related costs prices permit that would incumbent utili- has deter- utility that the Commission ties existing, to recover all their embedded included prior mined in rate cases could be capital costs and investments. In order to period in rates recovered over a utilities, compete, existing precise- or more years expendi- instead of at the time the shareholders, ly their would to ab- have They ture was made. differ from “strand- sorb those costs and on losses investments costs,” above, ed because defined prices provide because market would not stranded costs are investments or the largest part sufficient return. The cost of assets tangible Regulatory assets. Texas, stranded costs includ- for utilities essentially bookkeeping entries that CPL, ing is attributable to investments in in a charge reflect to be included power plants nuclear the Commission reports future rates. the Commission’s previously proceedings found in rate were Legislature major about issues prudently incurred. industry pоwer would arise if the electric Legislature determined that it is in project- deregulated, were the Commission public existing interest for utilities utility’s regulatory ed that all of a in charges recover certain stranded costs if in retail competition would be stranded “nonbypassable.” that are That means provision sales occurred and no was includ- exceptions, that with limited all retail elec- regu- ed to address them. That is because *8 existing utility’s tric customers an ser- latory assets have no market value absent to allow that pay charges vice area will re- regulatory a scheme that assures their utility regardless to recover stranded costs covery. purchase of whether those customers their deciding proceed deregulation utility, from that switch to one electricity rates, concluded Legislature or own of retail competitors, generate of its their allowed electricity.14 that incumbent utilities should be 39.252, 39.301, 39.302(4),(5), (7). 39.201(i), 39.302(7), §§ §§ 15. Id. 13. Id. 39.306. 39.302(5). § § 14. Id. 39.252. 16. Id. achieved absent would have been regulatory stranded costs and
to recover The “competi- of transition bonds.... through nonbypassable assets a issuance exceed the charge” imposed may under sub- tion transition amount securitized F chapter require- E and 39 of chapters value of the revenue present ultimately be charge That would tran- proposed PURA.17 the life of the ment over in- in an paid by retail electric customers regulato- associated with sition bond area utility’s geographic cumbent service to be sought costs ry assets or stranded part they pay of the rates for electric as securitized.22 receive regardless they of whether service financing order estab- A securitization utility the incumbent or service from paid by charges” to be lishes “transition exemp- provider.18 choose a new The area utility’s in a service retail customers competition from transition
tion costs.”23 recovery “qualified that allow power who receive from certain users all an electric Qualified costs include facili- cogeneration or on-site qualifying seventy-five utility’s regulatory assets and ties.19 costs, plus certain stranded percent of Legislature also established an al- servicing and issuing, supporting cost of by utility a could ternative method which bonds, or retiring and costs of transition regula- recover certain stranded costs and equity securi- refunding existing debt and assets, tory through which is securitization the issuance ties connection with financing subchapter chapter under G of are transition bonds.24 Transition bonds Legislature 39 of the PURA. The autho- “trаnsi- by payable to be secured or from to adopt rized the Commission right includes the property,” tion which utility to permit orders that an electric charges.25 collect transition impose and issue transition bonds or other evidences charges to retail Accordingly, transition proceeds of indebtedness.20 The the transition bonds customers will retire bonds must be used to reduce the amount and interest. The by paying principal all recoverable transi- charges, competition like transition through refinancing or stranded are nonbypassable charges, retiring equity.21 debt in an among electric consumers allocated The Commission is directed section utility’s service area incumbent 39.301 of the PURA to ensure that securi- competition same manner utility tization of costs results charges.26 pro- benefits consumers. Section 39.301 vides: “true-up” mech- The PURA sets forth no to ensure that anism that is intended shall ensure that securi-
The commission through stranded costs overrecovers provides tangible quantifia- tization charges.27 There ratepayers, greater competition ble benefits to than 39.302(2). 39.201(f)-©, § §§ 23. Id. 17. Id. 39.252. (i), (j), §§
18. Id. 39.201 39.253. 39.302(4). Id. 39.262(k). §Id. 39.302(6), §§ 39.304. *9 39.301, 39.302, §§ 39.303.
20. Id. 39.303, 39.302(7), §§ 39.306. 26. Id. §
21. Id. 39.301. § 27. Id. 39.262.
22. Id. they a for transition are unrelated to the true-up electricity also mechanism cost of charges imposed part actually as of the securitiza- that is used retail customers. also procedure tion to those Power Choice contends that transition ensure charges they are not rates are charges will be to meet transi- because sufficient any provided unrelated service to cus- obligations generate tion bond but will not if they purchase tomers choose to electrici- any beyond revenue requirements.28 those ty providers from retail other than an financing order at issue in this case utility. incumbent Power further Choice fi- authorizes CPL to obtain securitization charges asserts that transition have no $763,734,489 nancing for the net amount of underlying public purpose they because regulatory financing assets. The order money a transfer of from one charges establishes transition to ensure result, private party to another. The Pow- payment of the transition bonds. None of contends, er Choice is that the securitiza- generating plant CPL’s stranded costs are provisions protections violate “the included in the financing order. Stranded tax, taking, appropriation and generating plant costs are to be estimated grant clauses of the Texas Constitution.” in a proceeding pending was before VIII, Power relies on Article Sec- Choice the Commission at the time this case was 3; I, 17; XVI, tion Article Artiсle Section That proceeding part submitted. is not III, Article 51 of the Section Section Nevertheless, appeals. appeal these Texas Constitution. by Power broadly challenges Choice order, approving financing In CPL’s constitutionality charges, of transition irre- address specifically Commission did not spective underlying of whether the transi- arguments, Power Choice’s constitutional tion bonds securitize assets or apparently concluding that it lacked the stranded costs. Power Because Choice’s power to rule on them. Power Choice principal challenges would moot the appeal others, appealed County to Travis district court City Corpus Christi and 39.303(f) in accordance with we turn first to Power section appeal. Choice’s rejected That all Power PURA. court II arguments, holding Choice’s that the secu- Power hopes compete Choice provisions ritization of the PURA did not geographic CPL area which CPL violate of the sections of the Texas currently authorized the Commission relied. Constitution on which Power Choice provide service. The order Court, court, In this the district under consideration establishes a facial primarily Power Choice mounts sup- and directs all retail electric constitutionality of the challenge to the area, pliers CPL’s service which would provisions securitization of the PURA. Choice, include Power to collect those Texas Compensation Workers’ Commis- pass them on sion v. we the difference explained Garcia CPL. challenge ap- a facial and an “as between
Power Choice contends that the entire challenge.29 In the plied” party latter securitization scheme under the PURA is generally concedes that a statute is consti- grounds. unconstitutional on several Pow- tutional but contends that the statute is argues nonbypassable applied particu- er Choice unconstitutional when to a because, contends, person are not rates lar or set of facts.30 To sustain a Krusen, v. 678 S.W.2d Id. 39.307. and Nelson (Tex.1984) (holding two-year medical limita- 29. 893 S.W.2dat518n. applied tions statute unconstitutional as plaintiff injury who could not discover the (citing Texas Ass’n Bus. v. Texas Air Bd„ (Tex.1993) during two-year period)). Control 852 S.W.2d
241
A
challenge,
complaining party
facial
statute, by
we must
question
its
The first
“must establish that
ap
analytical framework
resolve is what
terms, always operates unconstitutional-
by a
determining
charges
whether
plies
ly.”31 We consider each of Power Choice’s
unconstitutional tak
utility amount to an
in turn.
challenges
constitutional
Historically,
regulated
states have
ing.
police
rates under the
utilities
Supreme
The
Court
power.
United States
Ill
is
regulation
“the
of utilities
has said that
Power
transi
Choice asserts
of
functions
important
one
most
charges
taking money
a
of
tion
constitute
traditionally
police
with the
associated
of
States have
power
the States.”33
electricity
of
un
from consumers
rates as
authority
regulate public utility
are un
compensated because
“depri
not result in a
long as
rates do
provision
to the current
of electric
related
of
property
process
vation
without due
qf
competitive
in a
market.
service
Power
private property
of
taking
law or
contends that for customers of an
Choice
just compensation.”34
use
public
without
utility,
incumbent
the transition
confines, a
broad
those
state has
Within
relation
current
bear no
to the
market
Supreme
discretion.35 The United States
reviewing
rates
received,
Court has also said that
electricity
value of the
and that
authority,
“do
set under
courts
a state’s
of a
will
provider
customers
new
receive
revision,
en
not sit as a
but to
board
payment
at all in
their
nothing
return for
rights.”36
question
force
constitutional
charges.
unpersuad
of transition
We are
as fixed
confisca
is “whether the rates
are
taking
ed that
“[cjourt may
interfere
tory,”
adequate compensation
violation
without
authority
State’s
exercise
I,
of Article
Section 17 of our Texas Cons
clearly
estab
unless
confiscation
37
titution.32
lished.”
Leg-
Barshop
County Underground
privileges
granted by
31.
v.
franchises
Medina
islature,
authority
Dist.,
or
under its
shall
618,
created
Water Conservation
925 S.W.2d
subject
thereof.
to the control
(Tex.1996) (citing
Comp.
627
Workers'
Texas
I,
art.
17.
Const,
Garcia,
504,
Tex.
(Tex.
518
Comm’n v.
893 S.W.2d
1995));
Appraisal
see also
Review Bd. Gal-
Coop. Corp.v.
Pub.
33. Arkansas Elec.
Arkansas
Inc.,
Comm’n,
375, 377,
County
Helicopters,
v.
970
veston
Tex-Air
U.S.
103 S.Ct.
Serv.
461
1905,
(1983)
530,
(Tex.1998).
(citing
76
v.
L.Ed.2d 1
Munn
534
S.W.2d
Illinois,
113,
(1876)).
24
U.S.
L.Ed. 77
94
takings
Texas
32. The
clause in the
Constitu-
States,
Joseph
St.
Yards Co. v.
Stock
United
provides:
720,
38, 51,
U.S.
S.Ct.
242
This Court has not previously consid- under the Fifth Amendment as is that of
any
ered in
depth
when
States under the
rates consti-
Fourteenth [Amend-
regulate
prices
ment]
tute a
taking within the
of commodi-
meaning of the
ties in intrastate
Therefore,
commerce.”41
Texas or United States Constitutions. We
when
consumer filed a complaint, the
have
similarity
noted the
between the fed-
Federal Power Commission was free to
eral takings
prohibitions
clause and the
establish rates as long as those rates were
I,
Article
Section 17 of the Texas Constitu-
just and reasonable.42 The United States
tion.38 And in Railroad Commission v.
Supreme
explained
Court later
in Permian
Houston Natural
Corp.,
Gas
we looked to
Cases,
Basin Area Rate
that
just
“the
Supreme
United States
Court decisions for
reasonable standard of the Natural Gas
general guidance on when rates would con-
Act ‘coincides’
applicable
with the
constitu-
stitute
taking
of a utility’s property.39 In
standards,”
tional
and that “any rate se-
case,
this
a utility is not contending that
lected
the [Federal Power] Commission
rates have been set so low that there has
from the broad zone of reasonableness
taking
been a
Instead,
of its property.
permitted by the Act cannot properly be
Power Choice contends that
rates
attacked as confiscatory.”43
Supreme
The
form of transition charges will constitute a
Court
explained
had also
in Hope Natural
taking from
regardless
consumers
“rate-making process
Gas
under
amount of
regardless
those rates and
Act, i.e.,
the [Natural
fixing
Gas]
which
consumers
them.
‘just
rates,
and reasonable’
involves bal-
ancing of the investor and the consumer
reasoning
in decisions of the United
interests.”44 The Court
elaborated
Per-
Supreme
States
Court that have
arisen
mian Basin
long
that as
a regulatory
the context of complaints by consumers
authority has balanced the interests of
that a utility’s
unjust
rates are
and unrea-
investors,
consumers and
rates established
sonable is instructive.
within a zone of reasonableness are not
subject to attack as confiscatory:
In Federal Power
Hope
Commission v.
Co.,40
Natural Gas
consumers and regula-
Accordingly, there can be no constitu-
tory
agencies
contended
rates
objection
tional
if the [Federal Power]
charged by a utility were excessive Commission,
rates,
in its calculation of
unreasonable within the meaning of the
fully
takes
into account the
in-
various
Natural Gas Act. The United States Su-
Congress
terests which
required
has
preme Court
reaffirmed
that case that
to reconcile. We do not suggest
Congress had the
authority
constitutional
maximum
computed
rates
group
for a
regulate
the rates at issue and that
geographical area can never be confisca-
Congress’s authority
great
was “at least as
tory;
rates,
we hold
such
575, 582,
Mayhew
Sunnyvale,
736,
v. Town
964 S.W.2d
315 U.S.
62 S.Ct.
86 L.Ed.
922,
(Tex.1998).
(1942)).
933
1037
502,
559,
(1956).
39. 155 Tex.
289 S.W.2d
602,
Id. at
40. 320 U.S.
64 S.Ct.
88 L.Ed.
747, 770,
43. 390 U.S.
88 S.Ct.
(1944).
(1968).
L.Ed.2d 312
(quoting
Id. at
Rates
be
lowest
rate that
er than the
reasonable
B
utility
a
not be
confiscatory
yet
to
and
contends that consumers
Power Choice
charged
when
to a consumer.46
excessive
obligations
not be burdened with
should
Supreme
The
has said
United States
Court
incurred
utility
that an incumbent
that
“is not re
regulatory authority
a
facilities
past
service or build
provide
to
rates
to be
quired
prescribe
to
so low as
costs
unrelated to
because those
are
barely
sufficient to withstand attack on
of
provision
current
electric sendee.
confiscation,
liberty
ground
but
at
of
decide, then, is
that we
question
must
first
may
just
[it]
within limits that
find to
whether,
to and
“during
transition
higher
to
reasonable
establish
fully competitive
of a
the establishment
47 Accordingly,
rates.”
the zone of reason
unjust or
power industry,”50 it is
electric
lies
takings
purposes
for
ableness
clause
for the
to estab-
Legislature
unreasonable
a con
between rates that would constitute
that will “allow utilities
lish rates
and rates
property
fiscation of
generation-related assets
uneconomic
unjust
that
be excessive or
or unrea
would
purchased power contracts to recover
to
required
sonable if a consumer were
of
market
excess costs over
reasonable
pay them.
con-
purchased power
those assets
51
unjust
way, is it
tracts.”
Stated another
Recently,
Supreme
of New
Court
unreasonable, and
or
therefore confiscato-
utilized the
reason-
Hampshire
“zone of
consumers,
ry
Legislature
as to
principles
ableness”
when it was called
to recover
utility
an incumbent
allow
upon
legislation
deregulated
review
incurred
through
charges
costs
aspects
certain
of that
pow-
state’s electric
in-
power
of a
generation
for construction
er
industry.48
considering the conten-
frastructure?
tion that
for stranded costs are an
taking,
analy-
unconstitutional
the court’s
unjust
have held
it is not
We
allowing
sis
whether
turned on
the rate
to recover
permit
unreasonable
just and
recovery of stranded costs was a
through
past
period
over
future
“
Indeed,
‘falling] within the zone
we
held
previously
reasonable one
rates.52
Utility
v. Public
State
between
reasonableness
confiscation
N.H.,
770,
(citing Hope
(quoting
Co.
45.
at
88
49.
Id. at 706
Pub. Serv.
390 U.S.
S.Ct. 1344
Gas,
603,
281).
265,
263,
(1988)).
U.S. at
Natural
320
64 S.Ct.
539
268
N.H.
A.2d
130
Ry. Corp.,
46.
v. Belt Line
268 U.S.
Banton
39.001(a).
§
50. Tex.
Util.Code
413, 422-23,
534,
S.Ct.
L.Ed. 1020
45
69
(1925).
39.001(b)(2).
Union Stock Yard Co. v. United
Denver
483,
990,
States,
S.Ct.
82
304 U.S.
58
Comm’n,
S.W.2d
v. Pub. Util.
52. State
(1938).
L.Ed. 1469
(Tex. 1994).
197-200
Ratepayers Rights,
A.2d
Campaign
(N.H.2001).
largest part
ad-
portunity
recover
rates are to be
dressed
order at issue in
At
refinanced.
least one court has charac-
case,
this
which
Ac-
is CPL’s Deferred
terized transition
like those at is-
asset,
counting
may be recovered over a
“nothing
sue here as
more than a different
period
years
participat-
rates.53 CPL
previously regulated
manifestation of the
ed in the construction of the South Texas
rates.”56 That court went on
explain
nuclear plant.
plant
When that
first went
simply
a novel
*13
operation,
into
there were costs incurred
regulation:
continuing
means of
operation
between the date of commercial
Pennsylvania
system
Had
continued the
and the effective date of new rates set
Act,
prior
Competition
in effect
to the
the Commission. The Commission created
PUC would have allowed PECO to re-
deferred
for
accounts
those costs and
through
cover these costs
the rates it
found that all amounts in certain of CPL’s
charged for its “bundled” services with-
relating
deferred accounts
to the South
labeling
out
charges.
them transition
Project
prudent
Texas Nuclear
were
and
provisions
The stranded-cost
simply
are
reasonable and should be recovered in
way
a novel
to accommodate
need
forty-year
CPL’s rates over the
life of the
recovery
for
of these costs consistent
project.54
ap-
South Texas
This Court
regulation.57
with traditional state
proved of the creation of deferred account-
ing assets for CPL’s investment
in the
Spreading
recovery
of costs incurred
Project.55
South Texas Nuclear
Under the
past
over a
not a
period
years
of
regulatory scheme that existed until the
concept unique
regulation
to
of utilities
1999 amendments to the PURA that are at
Recently,
Texas.
the United States Court
case,
existing
issue
and future cus-
Appeals
for the District of Columbia
tomers
system
served
CPL’s
would pay
Circuit had occasion to review orders of
time,
those costs over
though
even
Energy Regulatory
the Federal
Commis-
expenditurеs
actual
or
were
investments
partially deregulated
sion that
the inter-
years ago.
made a number of
industry
provided
state electric
and
for
costs,
recovery
including regu-
of stranded
that
are estab-
latory assets.58 The D.C.
lished under the 1999
Circuit observed
amendments to
essentially
“nonrecurring
a
assets are
PURA
conversion from
that,
approved by regulators
one form of
recovery
rate
to another.
order
bonds,
increases,
to avoid rate
Through transition
the costs that a
were recovered
utility
op-
would otherwise have had the
a period
years
over
instead of at the
Pennsyl-
Indianapolis
Light
Id. at
199-200.
Power &
Co. v.
Comm’n,
1071,
vania Pub. Util.
711 A.2d
1079
Comm'n, Application
54. Tex. Pub. Util.
cert, denied,
(Pa.Commw.Ct.1998);
526 U.S.
Light Company
Authority
Central
&
Power
1005,
1143,
119 S.Cl.
time the if a Similarly, Supreme ratepayers of Connecti- and future Court as between them cut in- has observed that order avoid “[i]n allowed recover costs were shock, permit often will rate commissions curred in facilities connection expenses their utility companies recover planned go online for several were not basis, ratepayers from on a deferred list- expenditures for held that years. We ing ratepayers’ ‘regulatory debt as use, or PHFU” could “plant held for future ”60 The fact recovery asset.’ that rate rate base before be included in spread service,64 these costs was is to be over recog- into We plant went unjust not render rates time does make regulated utility must nized The Supreme unreasonable. Court of to meet long-term plans investments recently rejected the ar- Hampshire New those its the future needs of service gument recovery that stranded cost was differ- balancing area. We said *14 because it allowed recov- unconstitutional future ing present and interests between ery generation of investment in as- past permissible it was for ratepayers, “ That court that ‘cur- sets.61 confirmed require existing customers Commission to past rent rates often include fu- plans with for pay costs associated in utilities deferred order to avoid rate ture service: ”62 increases.’ charge present it not fair to While if in Implicit, explicit, not these ratepayers the cost future ser- of ratemaking principles fundamental vice, future is it fair burden neither particular a recognition though even unnecessarily high ac- ratepayers with consumer does derive a direct benefit utility a was dis- quisition costs because assets, particular from of the use does long- couraged making from prudent rates not render that include costs associ expenses are used plans. term PHFU unjust with those ated assets unreason they necessary and useful because are a proposition able. We considered a similar Most part planned investments. Fair Utility Cities Rates v. Public in states include PHFU rate base Commission,63 Utility The issue was some circumstances.65 existing can be whether consumers re utility held that a could accordingly We quired to bear costs that would benefit customers, include million of costs approximately $93 than future rather whether generating incurred in with a connection can be to bear required consumers histori build years.66 that it in ten Cit plant planned cal But the made in argument costs. can- ies utility ultimately essentially argument though Even was the same Cities, plant, was completion celled there existing Power Choice makes. bring utility had complained plans that there would be evidence that consumers (Tex.1996). Id. at 699. 63. S.W.2d 933 59. Dep’t v.
60.
Consumer Counsel
Pub.
Office of
64.
Id. at 936-37.
Control,
742 A.2d
Util.
Conn.
(2000).
65. Mat 937.
Rights,
Campaign
Ratepayers
766 A.2d
at 706.
Id. at 941.
Policy
Access
(quoting
Transmission
708).
Study Group, 225 F.3d at
plant
point
online at some
utterly impracticable
future
to set and then con-
tinually adjust
when it
rates on such a
included costs associated with the
basis.
plant
previously
its rate base.67
hadWe
ground
Another
on which Power
Telephone
held
Southwestern Bell
Co. v.
takings
Choice
argument
bases
is that
Utility
Public
that a utility
utility
unless a
has the constitutional
could include
rate base the cost of land
right to recover stranded
regu
costs and
acquired for future use.68
assets,
latory
it would be unconstitutional
Legislature
for the
to allow recovery of
PURA,
utility’s recovery
Under the
a
those costs and assets. We need not and
has,
through
rates
do not decide whether an incumbent utili
definition, been
in previous
determined
ty’s
rights
constitutional
would be
rate cases to be within the zone of reason-
if
abridged
permitted
it were not
to re
ableness as between a
and the cus-
cover stranded costs. As we have seen
tomers who would
its rates. And
from some of the decisions discussed
definition, stranded costs were incurred in
above,
regulator may lawfully
allow
providing
power
electric
service. Under
utility to recover certain costs even
PURA,
the 1999 amendments to the
though a denial
recovery
of those costs
“net, verifiable,
utility may
recover
would not amount to confiscation from a
nonmitigable stranded costs incurred in
utility.70 In balancing
competing
in
purchasing power
providing
electric
*15
terests of
and a utility’s
consumers
inves
generation service.”69 Rates that permit
tors,
there is a
zone
reasonableness
net,
recovery
regulatory
assets or
verifi-
a regulatory authority may
within which
able, nonmitigable costs incurred in con-
set rates.71 The
not
Constitution does
provision
gen-
nection with the
of electric
prohibit
regulator
permitting
the
from
re
confiscatory,
eration service are not
even if
covery,
long
as the rates consumers
period
the time
over which those costs are
excessive,
required
are
to
are
un
not
recovered does not coincide with the time
just, or
In balancing
unreasonable.72
the
actually
that
the costs were
incurred or
utilities,
public
interests of consumers and
generation
the time that the electric
ser-
Legislature
the
can constitutionally con
provided.
vice was
clude that a utility is entitled to recover
reasonable costs associated with
gen
otherwise,
Were it
no residential rates
eration
power.
of electric
pass
could
constitutional muster. Resi-
dential
continually
customers
move
sum,
regulatory authority,
a
and cer-
out of a utility’s service area. Rates are
tainly
Legislature, may
conclude that it
adjusted
pays
not
so that each consumer
appropriate
spread recovery
of a utili-
by
utility
ty’s
for costs incurred
when
a par-
costs over time. The fact that
actually
that consumer
lived in the area
ticular
a
consumer does not derive
direct
by
utility.
It
past
particular
and was served
would be benefit from the
use of
Basin,
71. Permian
not for expenditures by the historical made 1, 2002, January 1999 and an utili- electric years incumbent utilities over the to con- ty’s September rates are frozen at the generating capacity, struct the extensive level, exceptions.77 with certain Ex- power grid electric that will now allow new isting customers and new customers enter- suppliers to enter the market would not an ing incumbent service area are in present exist its form. There would be certainty during thus assured of rate this far fewer transmission and distribution interim. today lines existence if fewer generating Residential and small commercial cus- facilities had been built. Competition, right tomers will also have the to continue service, much less statewide would not be purchase electricity from an incumbent economically generation feasible without utility provid- or its affiliated retail electric
facilities and the infrastructure that was er at a “price period frozen to beat” for a connected to them. up January of time 2007.78 There are requirements detailed of how the PURA Although takings it is not critical to our determined, “price beat” is but analysis, we note that retail customers who percent in essence six than less the rates otherwise would have been served an January According- effect on 1999.79 existing utility but who will choose another ly, new residential and small commercial provider competition may the new era of customers will purchas- have the choice of electricity have their generated by facili- ing from an power incumbent at ties built existing utility their frozen purchasing power rates or from an- PURA, service area. Under an exist- other provider. ing utility must sell at auction at least percent generation capacity.75 fifteen of its foregoing scheme indicates that the obligation That until Legislature continues the earlier intended that the overall years impact five from the date customer choice structure and of the securitization or the provisions partial deregu- introduced date the Commission and the move to forty percent determines that or more of lation would benefit most consumers. power tangible likely the electric that was consumed There are services many residential and small commercial custom- provided existing customers *17 utility’s many ers an incumbent service area as well as new consumers who enter before began provided customer choice is an incumbent service area after its utility’s by someone other than the utili- regulatory incumbent assets were created and its incurred, ty or an affiliate.76 Accordingly, particularly consum- stranded costs were ers in an utility’s incumbent service area if those consumers would been have served or their new will suppliers oppor- by utility have the the incumbent had the former tunity to at purchase percent regulation place. least fifteen scheme of remained power generated by Legislature’s of the the incumbent The scheme does not result facilities, utility’s including plants taking nuclear in an unconstitutional as to these 39.153(a). 39.202(a). § § 75. Tex Util.Code 78.Id. 39.153(b). § Id. 79.Id. 39.052. argues, Power Choice passable charges, It is existing consumers. within
new utility’s from a share- Legislature’s to decide that to shift risk and cost province This, Power Choice industry, holders to consumers. segments power all of the includ- consumers, sovereign power says, bear is an exercise of ing new should the costs purpose is not for a there- deregulation through public rates. that partial Article fore amounts to a tax violation the securitiza- We do not decide whether VIII, Section 3 of the Texas Constitution.81 would provisions of the PURA result contends that Alternatively, Choice Power applied taking in an unconstitutional public charges pur- if transition are for a new consumer if that consumer could collected from pose, they then should be service demonstrate that its electric would tax, general people all the of Texas as have an provided not been incumbent rate. utility not levied as a Power if utility regulation had been continued and arguments unpersuasive. Choice’s part that no of the electric service that the generated consumer has or will receive A incumbent, purchas- or a
by an its affiliate assets, er of its or is transmitted or dis- transition determining whether through tributed over or facilities utility rate, are a rather than a charges tax by an were owned or constructed incum- is to important it is to consider who A bent affiliate. challenge or its regulato- those under the PURA’s particu- mounted on be a that basis would ry charges represent. scheme and what larized “as applied” challenge Power implemented Legislature When Choice does not make this case. For PURA, securitization provisions above, reasons considered we conclude made a about who is to conscious decision that the err in reject- district court did not bear certain associated with tran- ing Power constitutional Choice’s chal- retail regulated sition from electric rates lenges charges. transition The Legisla- to market-based retail rates. excep-
ture that with limited determined IV tions, transition certain costs of the should electricity contends all Power Choice be borne consumers nonbypassable utility’s an incumbent service area rather contem tax, plated by are a than shareholders. The the PURA a rate regulatory Legislature’s or a fee. limited consistent excep With decision was tions, have paid by will be all how those same costs would been if power electric consumers in allocated the former scheme geo CPL’s had been left in As we discussed graphic regardless place. service area whether above, an electricity utilities had obli- buy those consumers from CPL incumbent prudently plan to serve future supplier.80 gation or some other Power Choice electricity allow asserts that the PURA will Texas consumers. Consumers *18 power part purchased retail the most have pass through utilities to consum would utility would approximately billion for from an have genera ers incumbent $8.4 taxes, rates, through not costs that paid of no benefit to those capacity in utility past incurred nonby- consumers. The effect of these the incumbent 39.201(i), §§ "Taxes be levied and collected (j), 80. Id. 39.253. that: shall only.” general public purposes laws and for provides Texas Constitution under VIII, § Const, Tex. art. laws; heading public purposes” of "General service, in preparation to in product, render service or commodity” and partial dereg- future. It is because of satisfy thus do not the “used and useful” suppliers, ulation that other such Power as test. Power Choice also asserts that tran- Choice, will compete be able to with in- charges sition amount to retroactive rate- utilities, CPL, cumbent such as and con- in making violation of the filed rate doc- suppliers. sumers will have a choice trine. Many of the costs that are to be securi- support In of its argu- “used and useful” tized and through recovered transition ment, Power Choice cites this deci- Court’s charges are costs that the Commission de- sion in Cities Fair Utility Rates v. in prior termined rate cases should be Utility Public Commission.83 recovered directly by utility through its case, quoted we former PURA section rates those prudently because costs were 2.203(a), which phrase used the “used and
incurred in connection with providing elec- useful,” and we said that under that code tric If service.82 the PURA had been provision, component rates must include a amended to restructure the electric indus- that allows a reasonable return on invested try, opportunity CPL would have had the capital rendering that is useful in used and regulatory to recover stranded costs and service.84 through Existing its rates. and fu- ture served Stranded bricks customers CPL would have costs include so-called time, paid these though capital generating costs over even and mortar expenditures expenditures the actual or investments facilities were lities.85 Those faci were made by years ago. CPL a number of used or held in past to enable The fact that recovery rate of these same utility provide service. Power Choice through costs will now be complains only that will these investments charges does not convert the nature of regard not be “used” or “useful” with charges these from rates to taxes. true, future Even service. were that this above, explained As we in more detail recognized and other courts have that a under the PURA regulatory authority may legitimately con essentially a conversion from one form of clude that in past costs incurred should recovering the same costs in rates to an- be out in in in spread rates the future other. sharp order to avoid increases rates
“rate shock.”86
regard
regulatory
With
B
assets,
definition,
the Commission has
In arguing that transition
can-
previously found that these costs are re
not be lawful rates and therefore
be
through
they
must
coverable
rates because
were
tax,
prudently
considered a
Power Choice asserts
incurred
and used and useful
that transition
are not
generation
power.87
“related
connection
39.259(c)
39.251(3), (7).
(providing
§§
§
82. See Tex. Util.Code
85. Tex.Util.Code
purposes
determining
that for
stranded
capital
than
[other
costs "items
invested
(b)
Comm'n,
86. See State v. Pub. Util.
883 S.W.2d
(a)
approved
]
those
shall
193-96, 202;
Policy
at
Transmission Access
utility's
proceeding
the electric
last rate
be-
699;
Study Group,
F.3d at
Con-
Office of
commission”), 39.302(5) (defining
fore the
Counsel,
sumer
251 under that that doc Supreme Hampshire The of New Power Choice asserts Court trine, prospective have ef rates can recovery that confronted the contention a and that cannot allow fect rates stranded was unconstitutional be- costs explained State recoup past We losses. prin- cause it violated the used and useful that Utility v. Public ciple ratemaking.88 That court held that ratemaking is of against “rule retroactive if it agree even were to that stranded cost misapplied.”94 and We ten misunderstood recovery were associated with costs that could defer associ held utilities longer no used property that was and use- start-up of and new ated construction ful, constitutionally is not “principle facilities and include power generation Rural Tele- Similarly, mandated.”89 In that costs in future rates. case those phone v. Federal Coalition Communica- setting rates the Commission’s orders did Commission,90 tions the United States recoup allow “not the utilities losses Appeals Court of for the District of Colum- resulting from set rates which previously rejected argument bia Circuit an indistin- Similarly, enacting were insufficient.”95 guishable from Power Choice’s “used and , the 1999 to the PURA the amendments case, argument. useful” In that the FCC previous conclude that Legislature did not allowed a gradual phase-out terminal It ly set rates were insufficient. deter equipment telephone costs carriers’ ac- public mined that it interest to was counts even carriers no longer after those genera “allow utilities with uneconomic equipment furnished terminal because of purchased power tion-related assets and deregulation. reviewing court af- the reasonable contracts recover excess treatment, firmed this holding rate over those assets pur market of authority the FCC had the to conclude during “the power chased contracts” tran removal of immediate embedded costs of a fully sition to and in the establishment from rates unacceptably disrup- would be competitive power industry.”96 electric tive and that doctrine “used and Moreover, the filed rate doctrine weight” useful” was one of “limited prohibit regulatory authority does “ had ‘ceased to have constitutional finding existing from that an rate unrea ”91 significance.’ determining just and rea sonable Power relies on our deci Choice charged rate thereafter.97 sonable to be Utility State v. Public Commiss sion rate prohibits regula The filed doctrine ion92 and the States Supreme United in tory authority imposing “from rate Court’s decision in Arkansas Louisiana commodity] already [a crease for sold.”98 Hall,93 contending Co. v. Gas transi Transition do not increase rates They part power already violate the filed rate sold. doctrine. Rights, Campaign Ratepayers 88. 94. 883 at 766 A.2d S.W.2d 199. at 706. 95. Id.
89.
Id.
(D.C.Cir.1988).
90.
future. allow the continued an of the agency state as it considers ment of costs that would have been recov- proper support programs for the cal- by ered utilities through rates under production culated to increase the prior regulatory scheme. particular agricultural use of commodi- programs pro- ties. These doubtless
C
many
mote the economic welfare of
who
Power Choice cites this
decision
Court’s
engaged
producing
are
commodi-
Grain,99 arguing
in Conlen
that because
ties,
paid by
but the assessment
has
assessed transition
particular person
necessarily
is not
re-
order,
charges
under a
those
lated to the
benefits
will be received
charges purport
to raise
for a
revenue
by
person through
ex-
Board’s
public purpose and therefore constitute a
money
of the
he
penditure
paid.
matter,
tax.
It does not
Power Choice
levy
special
is not a
assessment.102
says,
money
paid
that the
is not
into state
power
We then said that because the
coffers. The state is
to
using
power
its
deprive commodity
the state was
to
used
charges.
order collection of transition
producers money
or at least the use of
Grain,
agricultural producers
Conlen
refunded,
money until the assessment was
Commodity
voted under the Texas
Refer-
primary purpose
and because the
of the
endum Act100 create a board that levied
revenues,
assessment
it
was
raise
was
developing
assessments to be used for
re-
tax.103
control,
programs,
search
disease
edu-
cation,
Act,
marketing. Under
charges imposed by
The transition
expressly
agency
board was
an
are different from the
PURA
assessments
state. This Court held that
the assess-
important
Conlen Grain
at least one
occupation
ment was an
tax that violated
respect. Transition
are not used
VIII,
Article
Section of the Texas Consti-
an
by
agency of the state. Transition
tution,
prohibited
occupation
which
an
tax
are used
an electric
agricultural pursuit.101 During
on an
equity
retire debt or
associated with its
Grain,
opinion
course of our
in Conlen
we
stranded costs and
assets relat
that one
said
reason the assessments con-
generation
power.
ed
electric
a tax
primary
stituted
was because their
analogous
Transition
are
to an
purpose
generate
was to
revenue to be
allocation of costs between intrastatе and
agency
used
an
of the state and that
interstate
telephone
providers
service
agency
could use that
revenue as
not to
a tax
the United
was held
proper
public purposes:
considered
the District of
Appeals
Court of
States
Telephone
lev-
Circuit in Rural
Coa
producers]
[The assessments on
Columbia
case,
fairly
lition.104 In that
the FCC deter
periodically
provide
ied
con-
Mercantile,
Grain,
253 areas, pay utilities’ service should carriers should bent mined interstate This in the form of a tax. twenty-five percent phone of local those costs shoulder would, course, into another “non-traffic costs of breathe life exchanges’ sensitive” chal- those costs increase as constitutional though did not of Power Choice’s even In of increased interstate use.105 that tax cannot a result which is dollars lenges, this not amount do holding that allocation did to paid private corporations to because tax, regula III, the court that “a of to a Article 51 violate Section so would observed (We primary purpose a tax when its tion is consider that Texas Constitution. the revenue,” raising context judged legal is sec- challenge in the next constitutional “[tjhere way no to tion.) and that reasonable Legislature unques- the But the has cost al [non-traffic sensitive] construe the seen, to power, we have police tioned of having purpose the primary location as well utility rates.107 It acted regulate federal revenue.”106 raising when power within that it decided are as a charges to be collected beyond dispute prior, in the It is in the power utility rate consumed environment, Legislature regulated a general rather than tax. future authority to require had the retail electric pay to represented customers V utility utility’s regulatory through that tran Power Choice contends authority That even rates. still exists money grant are a public sition of though Legislature par- has decided of Arti corporations in violation private tially deregulate power electric indus- III, 51 of the Texas Constitut cle Section try. The fact that has Legislature disagree. Transition ion.108 We to continue to require chosen consumers to expenditures. They are an are not state pay represented utility’s the costs aby utility’s elec under allocation оf costs between regulatory assets a different mecha- consumers and a share regulated power nism than it did under the tric prior regime does not were un- holders. transform what deniably utility rates into taxes. The secu- Aus- City held State v. This Court of of provisions ritization the PURA do not III, purpose that the of Article Sec- tin a tax and do Article constitute not violate XVI, Article of 51 and of Section 6
VIII, 3 of the Section Texas Constitution. prevent “is to the Texas Constitution pur- argument application public private
Power Choice’s alternative
of
funds to
words,
truly
poses;
gra-
if transition
prevent
other
interest,
individ-
public
public,
grant
any
then the
not
of such funds to
general
tuitous
corporation
consumers in
incum-
just energy
particular
ual or
whatsoever.”109
grant
moneys
making
any
public
105. Id. at 1310-11.
of
individual,
individuals,
association
106. Id. at 1314.
municipal
corporations whatsoev-
or other
er;
provisions
provided that the
of this Sec-
Corp.,
Elec.
461 U.S. at
Coop.
107. Arkansas
prevent
not be construed so as to
tion shall
Illinois,
377,
(citing
Once of charges among classes cates 39.302(5) dispositive. PURA are Section customers, CPL interpreted.128 should be “regulatory defines assets” as the amount They in of customers. eight classes has reported in CPL’s Form 10 K.126 1998 SEC class, commercial clude residential provides “regulatory The PURA that all customers, classes, non-firm firm industrial on application assets” are to be securitized customers, and industrial others. utility, subject requirement “the total to be amount revenues collect- costs, includ- The allocation of stranded ed under financing order” meets assets, has basic ing regulatory two com- requirements sections 39.301 and ponents. by applying One determined 39.303(a).127The provide PURA does not methodology the same used allocate adjustment for an to the amount shown in underlying of the elec- the 1998 SEC Form 10-K to reflect subse- tric most recent commission order quent recovery. addressing design.129 rate rate The other respective energy consumption We note that Commission and CPL on the classes130 “based relevant class contend that certain financ- sections 1, 1999, May adjusted characteristics as of ing provisions order and of the PURA for normal weather conditions.”131 mitigate should or eliminate over-re- design last rate case was CPL’s covery by They point CPL. to the final allocating among provision of true-up order *25 customers, the Commis- classes CPL’s through and sections 39.254 and 39.257 in applied methodology used that sion 39.261 the PURA. We need not decide consumption to data power rate case any provisions whether of those will actu- in developed that same case. This resulted ally or eliminate ameliorate over-re- factors, expressed percent- in as allocation covery. question may That be raised each The ages, for class customers. proceedings. future The order financing used those allocation factors Commission at issue in this case complied section to allocate transition costs. 39.302(5) using the 1998 Form 10-K of regulatory amount assets. The Cities Energy a Texas Industrial Consumers is validity do not attack the of section that voluntary companies op- association 39.302(5). They say its express that large erates small and industrial facilities applied. directive should have been area. It contends that in CPL’s service Because the PURA does not authorize the determining the factor initially allocation class, to use De- the balance as of for each customer the Commission determining cember adjusted have the historical data should may that usage by amount the industrial that reflected securitized, inquiry our in this case is at an customers classes account industrial or CPL’s that have since left will leave end. 39.302(5). competition charge § be allocat- 126. Id. transition shall according among classes ed retail customer 39.301, 39.201(0(1), 39.303(a) §§ Id 39.253”). Section 39.253; 39.303(c) (directing §§ 128. See id. 39.253(c)-(e). §Id. charges that are to be "allocated transition among as customers the same manner 39.253(c). § 130. Id. competition transition under Section 39.201”); 39.253(g). 39.20KJ) (directing "[a]ny system exempt exempt to obtain service from facil- tomer becomes from paying transi- ities. charges, tion customer’s class is also from exempted paying what would have
To the a extent customer’s load is served that customer’s share been of transition by qualifying cogeneration facility before charges. date, disagree. exemptions We power certain an on-site 39.262(k) facility in section capacity mega- apply specific that has a of ten cus- less, 39.262(k) exempt watts or that customer is give tomers. Section does not paying from transition under sec- corresponding exemption to a class when 39.262(k).132 undisputed tion It is that a power one of its customers obtains from a number of CPL’s industrial customers 39.253(i) qualifying facility. Section reaf- exempt have switched to power sources pay firms that all customer classes must required and thus will not be transi- their share of but recog- charges. requests TIEC this Court to may nizes that an entire class of customers remand the order with instruc- exempt power switch to facilities. tions that the allocation be recalcu- factors Moreover, give effect adjusted posi- to TIEC’s lated and then at the end of each tion, year during the life of the transition bonds we would have to construe section to remove the load of industrial customers directing 39.253 as the Commission to es- exempt who switch to other service from tablish allocation factors on data based exempt facilities and therefore become at year obtained the end of each over the from paying charges. We con- life of the transition rather bonds than clude that the provide PURA does not utility’s data used in the recent rate most the method advocated to estab- TIEC above, design case. As noted section lish allocation factors. says 39.253 component one of how among transition costs are allocated all first
TIEC asserts that this is re other customer classes is “the methodolo- 39.253(f), quired by says section which gy used to allocate the costs of the under- 39.262(k), “[e]xcept provided by Section lying assets in the electric most no may customer or customer class avoid *26 addressing recent order rate commission obligation the to the amount of strand conclude, design.” similarly We as we ed costs allocated to that customer ,135 TXU argues today phrase class.” TIEC that when a cus- conclude in that this 39.262(k) provides: 132. Section utility or its affiliated transmission dis- 39.252, (k) Notwithstanding Section to tribution under their tariffs before extent that a the customer’s actual load has operation qualifying facility. the of that To lawfully by fully operational been served subsection, qualify qualifying under this 1, qualifying facility September before facility substantially have must made com- by power production an on-site plete filings on or before December facility capacity mega- with a rated of 10 necessary site-specific for all environ- less, any charge recovery watts or of permits the the mental under rules of Texas stranded costs under this section or Sub- Natural Resource Conservation Commis- chapter G assessed on that customer after filing. at time sion in effect the facility fully operational the becomes shall 39.262(k). § be included in those tariffs or actually provid- associated with the services added). 39.253(i) (emphasis 133. Id. § util- ed the transmission and distribution ity, any, facility if the customer after the to 39.253(c)-(e). 134. Id. fully operational may in- became not clude costs associated with the service 135. provided by the S.W.3d at to the customer electric that after the require the terms of PURA clear.136 It could be con- entirely is to residential cus- to be allocated apply amount permit to the Commission to strued determined, section in a last has been methodology used tomers the is to that amount be in that rate case or to directs that rate case to data 39.253 at total amount of transi- data to arrive allocation from the more current subtracted However, an is made the allocation for each class.137 before factors customers. construed section 39.253 to non-firm industrial Commission has is be make that subtraction. methodology mean the to Commission did not to costs percentage in rate transition to data the most recent It the applied based custom- case, industrial which historical data. That inter- borne non-firm is con- amount of the reasonable and does not the entire pretation is ers on in section any plain language charges. tradict Leg- It also consistent with the
39.253. and, we complex con- 39.253 is Section that historical data is islature’s directive says: It clude, regard. unclear in this in applying component be used the other (c) to the residential The allocation charges. That allocating by allocating clаss shall be determined consumption component energy of the percent all customer classes 50 1, 1999, May the customer classes as of with the in accordance stranded costs adjusted for normal weather conditions.138 methodology to allocate the costs of used accordingly accept the Commission’s We electric util- underlying assets re- construction of section 39.253 this order ad- ity’s most recent commission gard.139 allocating design dressing rate light our Commission’s and costs on the remainder the stranded 39.253(c)-(i), the interpretation of section of the energy consumption of the basis did not err in to use declining classes. than the customer load data other data (d) allocation the residen- After the energy CPL’s last rate case and the con- (c) has class Subsection required tial 1, 1999, as of sumption May adjusted data calculated, remaining stranded been conditions, for normal weather deter- remaining costs shall be allocated to mining how transition to be accordance customer classes among allocated CPL’s customer classes. methodology used allocate in the electric underlying X commission order utility’s most recent addressing design. Non-firm in- rate disagreement Another is how sec *27 allocated dustrial customers shall be tion 39.253 allocates transition costs percent of equal costs stranded non-firm industrial customers. A class. amount allocated that the may service to non-firm custom interrupt (e) reasons, specified during After the allocation to the residen- typically ers for (c) required by cus class Subsection periods high of demand from other tial to the nonfirm industrial utility’s system. tomers on that Nucor the allocation (d) Steel, have required Subsection one of CPL’s non-firm industrial class customers, calculated, remaining the stranded TIEC that literal insist the been Id. at 39.253(g). 136. 286. 138. Tex. Util.Code TXU, at 51 S.W.3d remaining
costs shall be allocated allocation demand factor for all other customer fifty classes accordance percent. para- with the classes totals Because (d) methodology used to allocate the of graph requires costs non-firm industrial cus- underlying assets the electric util- tomers 150 percent to bear amount ity’s most class, recent commission order ad- allocated to that alloca- demand dressing design.140 rate tion factor for class fifteen becomes percent. Both TIEC’s and the Commis- (c) There is tension paragraph between sion’s of section application 39.253 this (d) hand, on the one and paragraphs example allocates of transi- $40 $100 (e) other, on the partly because of the use to the residential class. “remaining” the word in the latter two diverge TIEC on and the paragraphs. There is also ambiguity be happens what next. (c) paragraph cause contemplate seems to an allocation of all costs to all classes subtract TIEC would residential based fifty percent on demand allocation class’s share costs from the $100 $40 fifty total, factors and on percent energy apply percent con and then the fifteen (c) sumption. Paragraph says fifty demand allocation for non-firm industrial . (which percent of stranded costs remaining also customers to the of costs. $60 means That results in an allocation to that of $9 assets141) are allocated to all customer class. then the re- spread TIEC would classes in accordance with the maining methodolo non- among costs of the firm $51 utility’s used in gy most recent rate residential propor- classes based on their case, and that remaining fifty percent factors, tionate demand allocation rather is allocated on the basis of the than energy applying the demand fac- allocation Then, consumption of para the classes. fifty percent tors which total for those (d) graph says that after the step residential classes. refers to TIEC this latter (c), allocation is “grossing made under “the for the up” remain the allocation factors ing” classes, stranded are allocated to the firm non-residential which is not customer classes based on the conformity para- methodolo the literal terms of (e). gy utility’s used in graph last rate argues “grossing case. TIEC (d) Paragraph similarly says up” that after the the firm non-residential class’s de- residential and nonfirm industrial alloca mand factor nec- allocation is nonetheless made, remaining” tions “the essary interpretation costs are under its of section (i.e. otherwise, among allocated the other classes firm 39.253 because there would be classes) non-residential based on the an charges. meth undercollection of transition odology used in last rate case. Using the application Commission’s example 39.253,
TIEC offers an to demonstrate section the fifteen percent demand the difference application between its allocation for the factor non-firm industrial section 39.253 and the Commission’s. In applied customers is to the total $100 example, the transition The non-firm total costs. industrial $15, Residential customers are allocated customеrs would rather than $100. $9 forty percent of costs. example example. appli- those TIEC’s The Commission’s *28 further based on assumes that the last rate cation of section 39.253 then allocates the case, the non-firm industrial of costs firm remaining among customers’ the $45 is ten classes. percent demand allocation factor and non-residential As Nucor Steel 39.253(h). 39.253(c)-(e). § § 140. Tex. UtiiXode Id.
261 in non-firm brief, transition out in its amicus allocated the Commis- points customer classes. in an ov- dustrial methodology result would sion’s fifty if de- percent of the ercollection $5 XI for classes mand allocation factor those the argue that Com- Finally, the Cities total than applied to the rather were $100 (1) by: process due mission denied them remaining” simply spreading “the $45 time prepare allowing adequate not among proportionately the stranded costs hearing on the financ- the contested case classes. The Commis- firm non-residential (2) order; restricting the Cities’ unduly ing it applying that is the words sion counters witnesses; to cross-examine opportunity in remaining stranded costs” used “the (3) order issuing financing a that and (e) application in its of section paragraph with- adopts stipulation non-unanimous a 39.253. hearing on that holding separate a out first that it is making findings stipulation section TIEC’s construction of evidence, reasonable, by and supported in an undercollection of 39.253 results with the We con- compliance PURA. charges. The Commission’s were not denied due clude that the Cities construction, if its conclu logical carried to process in this case. sion, No would result an overcollection. suggests a that one construction allows A recovery percent 100 contemplates that The PURA charges, explained no more. As we but financing will be ac adoption of a order TXU,142 we explain today above and as procedural complished on an accelerated ambiguous provi with an code when faced Legislature has directed schedule. sion, we some deference to the Com give financing a shall be issued with order interpretation when it is reason mission’s a days request after a files ninety with the able does not conflict code’s financing A financing a order order.144 clear the circum language.143 Under rehearing the Commiss subject by is not here, presented say stances we cannot a filing appeal in The time for an ion.145 interpretation the Commission’s of section days fifteen County Travis district court is is or that by 39.253 an unreasonable one signed after the order is plain language. conflicts with section’s appeal There is a direct Commission.146 Commission, with Accordingly, we hold that district court this Court from the ap- court of review a manner in which it no intermediate did err ambiguous, particularly so if the statute is Id. long agency’s is construction reason- 259; at supra, 143. See 51 S.W.3d see also plain lan- able does not contradict Butler, 692, S.W.2d v. 142 Tex. Stanford statute); guage Gov’t Code Tex. (1944) (observing that courts will 311.023(6) construing (providing § a that in adopt uphold construction ordinarily statute, ambigu- is whether or not statute department placed upon a statute face, may consider the ous its a court on charged its administration if the statute with statute). construction of administrative uncertain, ambiguous or and the construc- is reasonable); Long Ass’n Dis- Texas 39.303(e). § 144. Tex. Util.Code Comm'n, v. Cos. Pub. Util. tance Tel. (Tex.App. writ S.W.2d —Austin 39.303(f). 145. Id. denied) (observing construction of stat- agency charged ute an administrative weight, great its enforcement entitled *29 262
peals.147
flexibility,
cedural
the
has
Commission
adequate explanation
failed
offer an
CPL
request
financing
filed its
for a
why,
public
a case
importance,
of such
18,
order with the Commission on October
severely
so
restricted the time for cross-
1999.
among eighteen
The Cities were
examination of witnesses.
the
Even within
parties that
intervened. Consistent with
confines
the ninety-day statutory dead-
the
expedited
PURA’s
procedures,
for concluding
line
proceedings when
briefing
established a
and
request
financing
for a
order has been
hearing schedule.
argue
The Cities
filed, the Commission could have devoted
this schedule allowed insufficient time for
more time in the schedule to the actual
discovery. They
particularly ag-
were
Furthermore,
hearing.
CPL
an
filed
grieved, they say, by the hearing schedule
application
amended
evidentiary
after the
they
because
“39 min-
only
were afforded
hearing had
that gave
concluded
the Com-
utes of cross examination [of witnesses]
36
an
seventy-one days
mission
be-
additional
reduced
any
open-
time
an
presenting
yond the original ninety days it would
ing
Accordingly,
statement.”
the Cities
otherwise have had to issue an order. Yet
argue,
process
their
rights
due
were violat-
Commission did
allow additional
ed
they
first instance because
did
hearing time.
do not
We
condone
not have a reasonable amount of time to
truncated hearing schedule that was estab-
prepare,
Lowe v.
citing
City
Arling-
ton,148
Nevertheless,
lished
this case.
based on
witnesses,
or to cross examine
citing
us,
the record
before
Cities have failed
Rector v.
Beverage
Texas Alcoholic
Com-
mission,149
flowing
demonstrate
harm
from the
Commission’s actions.
This Court has held that in admin
proceedings,
istrative
process requires
due
merits,
hearing
Before the
on the
that parties be
and
accorded a full
fair
parties joined
by submitting
issue
written
hearing
disputed
on
fact issues.150 This
discovery
pre-filing
testimony.
direct
requirement
right
includes the
cross-
filed
testimony
CPL
its
its
direct
present
examine adverse witnesses and to
order,
request for a
and all of
process
rebut evidence.151 But due
respond
intervenors were
to this
able
require
does not
pro
administrative
testimony.
hearing,
At the
witnesses were
ceedings have the full procedural frame
into
grouped
panels
topic, and counsel
“
work of a civil trial.152
process
‘[D]ue
shared
traded time allotted to allied
rigid
require
not so
as to
signifi
that the
counsel for the examination and cross-ex-
cant
informality, flexibility,
interests
hearing,
amination of
After
witnesses.
must
economy
always
sacri
parties
all
an initial
submitted
brief and
”153
ficed.’
reply
brief.
one
exception,
With
which,
recognize
While we
that an administra-
do not identify any
Cities
instance in
tive
agency
pro-
is entitled
considerable
procedural
pre-
Commission’s
schedule
Id.
Id. at 4.
379,.
(Tex.Civ.App.
148. 453 S.W.2d
382
—Fort
County
152. Bexar
Civil Serv. Comm’n
Sheriffs
1970,
n.r.e.).
Worth
writ ref d
Davis,
1990).
(Tex.
v.
802 S.W.2d
(Tex.1980).
149.
263 to follow section the failure They that making urge arguments them from vented capricious arbitrary 22.206 policy a fact or issue was offering proof on vacat- financing order be As that the requires the decision. material to Commission’s Utility Com- cite Public the did identi- Cities issue that Cities ed. The the one Co.,156and rate of States Utilities interest mission v. fy the assumed Gulf —whether Inc. v. Cooperative, bene- Electric on the transition bonds Sam Houston percent 8.5 support fact made Utility Cities in Public Commission157 fits consumers—the argument proof. position. and offered The their their findings required by Commission made importance recognized the We have The merits of 39.301 of the PURA. section agency to con- administrative requiring an adequate were determined on an that issue its stipulation on a non-unanimous sider record. pro- have also said that due merits.158 We case, in this of the entire record In view [the satisfied “[i]f are requirements cess that were persuaded
we are the Cities finding independent an agency] makes particularly since due process, accorded evidence on the by ‘substantial supported appeals these dispositive the issues agency if a whole’” and the record as provi- legal involving ones constitutional including non-signa- parties, all “prоvide[s] The Cit- statutory construction. sions tories, on the opportunity to be heard the identify any material ies have failed to Indeed, the stipulation.”159 merits of given they fact had been disputed issue provides that regulation own Commission’s might time to have been prepare more parties have reached some “[w]here hearing, pres- differentlyfor resolved issues, all of the on some or settlement evidence, witnesses. ent or cross-examine proceeding shall have party each hearing spite of the shortness of ... hearing full on issues to have a right cross-examination, limited and the time for dispute.”160 remain have not shown that substantial the Cities pro- did not the Commission Although procedures were violated af- rights evidentiary an non-settling parties vide the forded.154 stipu- hearing following the non-unanimous B lation, have the Cities we conclude pro- that the Commission’s additionally failed to show The contend Cities The process. them due rights violated cedure denied process that their due were adopted order ignored its own rule Commission when non-unanimous part stipulation incorporating by adopting the non-unanimous briefing, only after extensive hearing stipulation conducting without an additional pro- on and comments open meetings, The stipulation. point on Cities continued parties posed rules.155 order. 22.206 of the Commission’s section Comm’n, City El v. Pub. Util. 158. See Paso Fay-Ray Corp. v. Alcoholic Bev Texas 154. See Comm’n, 179, (Tex.App.— (Tex.1994) (citing S.W.2d 362 erage 959 883 S.W.2d 182-83 1998, Comm’n, pet.). no Austin 417 Corp. v. Power Mobil Fed. Oil 2328, 283, 314, 72 94 41 L.Ed.2d U.S. S.Ct. (requiring 22.206 16 Tex. Admin. 155. Code (1974)). hearing settlement after a non-unanimous full dispute”). that remain on "issues Id. at 183-84. (Tex.1991). 156. 809 S.W.2d § 22.206. Tex. Admin. Code (Tex.App. 733 S.W.2d —Austin denied). writ *31 comment after stipulation the was filed. tion financing by issuing transition bonds The urges nothing by secured or paid from transition financing order shows that blindly charges.2 Transition are allocated adopted stipulation, the agree. and we among and collected from the retail elec- tricity customers the utility’s geographi- Moreover, previously we have held that cal certificated service area itas existed on failure procedural to follow requirements 1,1999.3 May by allocation is custom- of statutes or rules is not reversible error residential, (e.g., commercial, er class in- without showing of harm.161 The Cities dustrial, etc.), and the per rate unit of have not demonstrated that they were by service is affected energy the consump- by harmed procedure followed tion of the class.4 Because consumption Commission. The parameters partial time, varies over the unit rate must be deregulation under thе 1999 amendments adjusted periodically so that the total tran- to the subject PURA were the of much charge sition revenue is neither more nor attention while under consideration less than the amount necessary to dis- Legislature, and parties to this case charge the transition obligations bond provided were opportunity to address related financing costs. Section 39.307 re- the issues raised here within the time con- adjustment fers to this as a “true-up” and imposed straints by the PURA. We are provides: troubled the appearance of haste proceedings these, significant as but we A financing order shall include a mecha- say, balance, cannot on the Cities nism requiring that transition charges were denied process. constitutional due adjusted reviewed and at least annu- ally, within days 45 anniversary HECHT, Justice joined by Chief Justice date of the issuance of the transition PHILLIPS, ABBOTT, Justice Justice bonds, to correct overcollections or HANKINSON, JEFFERSON, and Justice undercollections of the preceding concurring. months and expected to ensure the re- covery of amounts timely sufficient to join fully We in the Court’s judg provide all payments of debt service and ment affirming the district court and in other required amounts and Justice Owen’s concurring opinion. This connection with the transition bonds.5 opinion is the of the Court regarding the validity of the true-up” “non-standard in The Commission determined the true- cluded the Public Utility Commission’s up for only adjust CPL should not financing order for Central Power and charge rate for each class based Light Company. on changes consumption within the chapter
Under 39 of the Public Utility class—what the Commission called a Act,1 Regulatory Utility Public Com- “standard true-up” adjust should also —but mission may issue a financing order autho- the allocation of charges among rizing an electric utility to use securitiza- if any classes consumption class’s Fund, Imperial 39.252(b), See Am. 39.253(c)-(i), §§ Res. Inc. v. R.R. (j), 3. Id. 39.201 Comm’n, (Tex.1977). 557 S.W.2d 39.303(c). §§ 1. Tex. UtilXode 39.001-909 [hereinafter Id. PURA], 39.301; 39.302(2), 39.303; (6)-(8); §§
2. PURA 39.307. 39.304. order commission percent utility’s most recent drop than ten forecast more in- ending design. rate Non-firm consumption year addressing for the its below 30,1999 by the Commission allocated customers shall be April dustrial —termed The Office of true-up”. percent “non-standard equal stranded contend Utility Counsel and others Public to that class. amount allocated *32 is not au- true-up this non-standard (e) the residen- the allocation to After 39.307, contrary by thorized section (c) and required by class Subsection tial purposes, supported and PURA’s industrial nonfirm the allocation the the evidence. Before we consider OPC’s (d) have by Subsection required class exрlain we must the allocation arguments, calculated, remaining stranded the been charges in transition more detail. of remaining to the shall be allocated costs 39.303(c) “[transition states that Section with the in accordance customer classes be collected and allocated shall the of used to allocate costs methodology among in the same manner as customers in electric util- underlying assets the the under transition Sec- competition order ad- recent commission ity’s most tion 39.201.”6 Section states 39.201® dressing design. rate charge “[a]ny competition transition shall (f) any provi- Notwithstanding other among retail classes be allocated customer section, of to the extent that sion this according to Section 39.253.”7 Section costs, including stranded the total retail prescribes the allocation of stranded 39.253 assets, util- of investor-owned regulatory costs, assets, including regulatory among on a statewide billion ities exceed $5 utility’s parties of classes customers. basis, stranded costs excess of $5 charges must be agree that transition also among be allocated retail billion shall in the manner section 39.253 pre- allocated with the customer classes accordance provides in 39.253 perti- scribes. Section the costs of methodology used to allocate part: nent in the electric util- underlying the assets (c) The allocation to the residential order ad- ity’s most recent commission be by allocating class shall determined dressing rate design. all the percent customer classes of with the stranded costs in accordance of energy consumption the (g) The methodology to allocate the costs of used classes used Subsections customer underlying electric util- the the (c) (a)(2) on the rele- and shall be based ity’s recent commission order ad- most 1,May as of vant characteristics class the dressing design allocating rate weather condi- adjusted normal costs on the remainder the stranded tions. the energy consumption basis of the section, (h) this purposes For classes. as- costs” includes “stranded (d) After allocation to residen- sets. (c) has required by Subsection tial class (i) Section Except provided calculated, stranded remaining been 39.262(k), or class no customer customer remaining shall allocated costs obligation may avoid the in accordance with customer classes allocated to stranded costs amount of methodology used to allocate that customer class. underlying assets in the electric 39.303(с). Id. l(j). § 39.20 Thus, are to be allocat- area whether buys the consumer electrici- among utility’s ed classes of customers ty from the or not.8 exceptions Two in part utility’s based on the most recent using are for co-generation customers fa- addressing Commission order design rate 1, 2001, cilities operational September characteristic, in part on the classes’ using generators customers on-site weather-adjusted energy consumption as capacity rated not more than ten 1,May eight 1999. CPL has customer megawatts.9 Typically, these industri- classes. The Commission calculated each al If customers. such avoid customers charge class’s transition allocation factor charges by excep- one of these as follows: tions, simply by relocating outside Residential 37.0664% area, service decrease con- Energy Commercial & Small 21.5756% Ind. — *33 in sumption their class will in an Commercial & Small Ind. —Demand result 26.9570% Large Industrial —Firm 4.4891% rate, increase in the class thereby prompt- Large Industrial —Non-firm 5.5190% ing other in the customers class to look for Standby 1.4227% —Firm Standby 0.3844% —Non-firm a way departure out. Each aof customer Municipal & Cotton Gin 2.5858% from the increases transition class the Total 100.0000% charge burden on those encour- remaining, To derive each charge class’s transition aging departures. further In the Commis- service, per rate unit of CPL’s words, “cascading sion’s this loss” load requires order the transition bonds servi- could spiral” reach a “death so that transi- to cer determine total the revenue needed tion charge prohibitive, become driv- rates meet obligations to for the upcoming year, ing all If the customers from the class. multiply by that amount the percentage charge class’s is not transition allocation factors above to each get class’s dollar remaining shifted to the funded classes or allocation, and then that divide allocation means, by some other the total transition the by usage class’s forecast for year the charge will revenue be insufficient meet in terms of billing (e.g., units kilowatt- obligations. transition bond No dis- one hours for residential customers and kilo- putes that the even- possibility such an customers), watts demand to arrive at tuality real very adversely is and would a per-unit charge transition rate to bill the affect ratings by bond financial transition Thus, usage customer. and rate are in- impair marketability. markets and their versely increases, usage related. If the case, In this the Commission determined decreases, unit rate and vice versa. If that a non-standard be true-up should usage year actual during the varies from used to reallocate transition the a forecast so that class charged is among CPL’s customer a classes whenever allocation, or more less than its the class consumption class’s annual is forecast year rate for the following adjusted is up ninety be percent consump- less than of its down compensate or for the overpay- tion for year ending April the 1999. or underpayment prior ment year. adjustment This is the standard true-up, It undisputed consumption it and is not challenged this case. already CPL’s industrial customers has dropped percent April more than ten Transition since nonbypassable; is, they paid by Energy 1999. Texas Industrial Con- every must be con- sumers, electricity case, sumer of party service a to this states 39.306; 39.302(7), 39.262(k). 39.253(0, §§ §§ Id. see id. 39.252. true-up be and that a non-standard used twenty-five fewer than customers CPL has classes, con- projected its two so that a class’s triggered in each of industrial when signifi- a could a few customers percent loss more than ten sumption decreased charge increase the transition rate cantly year for the ended consumption below contrast, residential paid by By others. A testi- April witness for CPL area in- consumption in CPL’s service reallocation of a more fluid fied favor A for the Commission creasing. witness year, prompting after each but had staff testified that most other states as parties to resolve Commission for like the non-standard procedure used many possible, agreed CPL differences in a true-up cascading to avoid load loss true-up proposed non-standard Analyzing class of customers. reve- staff. projected nues to be needed service non- operation To illustrate bonds, he concluded that CPL’s following true-up, OPC offers the standard class experiences “if decrease example. must allocate Suppose (assuming in excess no [usage] of 4%-7% in annual transition under-collection) million $100 will over- class among four classes of customers. Assum- higher charge pro- see a usage, and class ing percentages allocation spective period previous peri- than *34 as rates class are calculated od, may for each cascading and thus be at risk for scenario.” follows: load loss He recommended that Industrial Other
_Residential Commercial (1) 10% 30% Allocationof total annual transí- 40% 20% charges (assumed)_ tion (2) MM MM Annual dollar MM MM$20 $10 $30 allocation $40 (multiply by $100 1)_ MM line (3) usage unit MM 500 MM (assumed)_700 MM_260 MM_23 Annual (divide (4) by2 per Rate unit line 43.5<t 6.0c 5.7c 7.7c 3) line million is drops If million If that usage forecast industrial to 16 deficit. $3 $3 units, by using the four classes consumption MM all reallocatеd to same, in true-up prescribed CPL’s other classes remains the industrial non-standard order, rates class provide only will in for each customers million $7 rate, as a would be calculated follows: leaving at 43.5c Industrial Other Commercial _Residential (1) 30% transí- 10% Allocation total annual 40% 20% charges (assumed)_ K (2) K MM $300 $900 Dollar allocationof deficit K $600 $1.2 (multiply by $3 1)_ MM line (3) $30 MM MM MM_$20 MM_$7 balance_$40 Dollar allocationof (4) $7.3 $30.9 $20.6 MM MM MM reallocation_$41.2 after MM Total (5) MM MM MM_260 MM_16 usage_700 Annual unit (6) (divide per line 4 Rate unit 45.6c 6.2c 5.9c 7.9c 5) line rates and the other three class had borne the creased to If industrial customers 62.5c will stayed same. One rate to their reduced would have entire increase due illustration, although OPC in- in their rate would have notice this consumption, out, point does not that the non-standard correct overcollections or undercollec- true-up increases the rate for industrial tions of the preceding months”. 4.8%, increasing customers while agree We with the Commission rates for the other three classes about CPL, however, argument ig- that OPC’s 2.5% to 3.5%. Without the non-standard nores broader in language section 39.307 true-up, rates these three classes requiring adjustments “to ensure the ex- would remain the same while the industrial pected recovery of amounts sufficient to Moreover, class rate increased 43.7%. all timely provide payments of debt service out, points there is no required and other amounts and for an assumption consumption basis in connection with the transition bonds.” in the non-industrial in- classes will not significant shrinkage A of CPL’s industrial crease. An in increase their total con- unquestionably classes would threaten the sumption by slightly percent over three timely collection of “amounts sufficient to would make up the million deficit $3 provide all payments of debt service”. annual caused fact, dispute does this OPC nor does it consumption, reduction industrial class argue simply we should invalidate the leaving rates unchanged after non-stan- non-standard fi- true-up procedure true-up. greater dard A increase in con- nancing order and means to ad- leave no sumption those would classes result Rather, problem. dress the us urges OPC reductions, rate although those reductions to remand the case to the Commission to larger would be without a non-standard require- find a different solution. But the true-up. adjustments ment of section 39.307 that understanding With this of the non-stan- protect discharge made of transition true-up, argu- dard we return to OPC’s obligations bond does not limit the means *35 First, argues ments. OPC that however available to the Commission. The non-
reasonable and beneficial the non-standard true-up standard does not permit classes true-up might appear, simply it is not au- to avoid charges, prohibited by allocated as thorized the PURA. Section 39.253 re- 39.253(i); procedure section the al- merely quires a fixed allocation based on historical adjustments lows minimal to ensure the data and not contemplate does realloca- payment of transition bonds—which bene- among tions classes based on future all fits of the classes. changes consumption electricity. To argues reading OPC section 39.307 adjust- read section 39.307 to allow true-up to allow a non-standard makes sec- ments in section among 39.253 allocations letter, allowing tion 39.253 a dead the classes, contends, the OPC would violate to make whatever allocations Commission 39.253(f) provision clear of section may disagree. choose. We Section noted, exceptions already with the we have convey 39.307 does not such broad discre- may “no customer or customer class avoid tion, and the makes claim Commission no obligation pay the amount of strand- Rather, authority. for such as the Com- ed costs allocated to that customer class.” Rather, recognized mission itself CPL’s financ- argues, per- OPC section 39.307 order, ing charge allocations only adjustments mits intra-class rate re- among customer classes must start with quired by usage inaccurate forecasts of 39.253, and that must section allocation adjustments and does not allow for remain undisturbed unless and until its allocations made under section 39.253. points recovery in section structure threatens the of suffi- language OPC true-up adjustments 39.307 that are “to cient revenue to the transition bonds percent reduc- measuring the ten support a class Any load loss for other costs. and 30,1999, ending April year against the true-up; a non-standard trigger will not immediately preceding year of the of the instead percent at least ten the loss must be con- OPC more force. true-up, has year ending April consumption fully not did the Commission minor tends 39.307 allows 1999. Section industrial CPL’s that because consider adjustments in class alloca- essential 30, 1999, ex- already April loss since load tions. true- the non-standard percent, ten ceeds true- non-standard argues that the OPC the first determine triggered to up will be rates, making it residential up will raise in- usage rates, if does industrial retailers difficult for non-incumbent more crease, every year after- triggered may be defeating pur- thereby compete ward, becoming the standard thereby But as its deregulation. pose chapter Part fully in morе true-up. explained As shows, impact illustration own of, concurring opinion, XI Owen’s JustiCe rates true-up on residential non-standard the Commission’s troubled that we are incon- may well be minuscule. Somewhat resulted may have proceeding in this haste argues that a non-standard sistently, OPC the com- consideration of incomplete in an threat unnecessary because the true-up is presented. issues With plex and critical great. load loss to CPL is not of industrial trigger, howev- percent the ten respect to correct, course, out to be if that turns Of er, position to the Com- argued its OPC much true-up may not be the non-standard possi- in detail the fully, explaining mission event, much used or have effect. just it has trigger, ble effects the Commis- persuaded we are not supporting evidence here. While jeopardizes competition retail sion’s order we cannot slight, decision is Commission’s simply electricity markets residential was arbi- case that the decision say in this suc- adopts procedure because it used trary. transi- protect states to cessfully other tion bonds. argues that Commis- Finally, OPC fully consider alternatives au- sion did not that even if the PURA argues
OPC respect to true-up. With some the non-standard adopt thorized wit- advanced OPC’s one alternative true-up procedure, non-standard type of *36 true-up among three did not ness—a non-standard proceeding the evidence in this eight combining CPL’s in “super-classes”, decision support the Commission’s fully presented classes—was trigger the non- customer financing order to CPL’s other in the record. discussed true-up procedure whenever standard has advanced here that OPC falls be- alternative consumption one class forecast to have likely in a class customers for the that ninety percent consumption low pay usage required should be decreased argues 1999. OPC ending April year in advance arbitrarily increased figure was percent that the ten later. payments fund for bond noted, provide a chosen, the record but as we have decreased rates due to But if increased a staff testimony by Commission contains class, we from a customers usage will drive with a decrease that a class witness rates due why increased at fail to see percent “may be of four to seven usage not have usage will anticipated decreased scenario.” cascading a load loss risk for for support no We find effect. any evidence same cited to have not been We has record. OPC this alternative figure was too low. percent the tеn that that alternative solution an suggested the record does not argument that OPC’s cannot a ognize consistent with its construction of sec- that we alter statute’s plain meaning merely tion 39.307. to make it more workable, we we explained, but as have dissenting opinion makes Justice Owen’s reading believe our section 39.307 is arguments three additional which we ad- language faithful both to its and to First, briefly. she notes that there dress purposes. PURA’s can pay- be no default on transition bond completely ments until a class has been we conclude that the non- Accordingly, vacated, leaving no one to its share of procedure standard in CPL’s fi- true-up If charges. the transition the Commis- nancing order does not violate the PURA. really “to sion’s concern were ensure recovery expected of amounts sufficient OWEN, joined by Justice Justice timely provide payments all of debt service BAKER, dissenting. and Justice ENOCH required and other amounts and agree disposition I the Court’s in connection with the transition bonds” as in these cases in all appeals the direct 39.307, authorized section the Commis- one, respects but which is the Court’s con- have provided sion need not ad- clusion that was autho-
justments until one to class allocations rized section 39.307 of the PURA to However, class was vacant. we do not adopt trueup. According- a non-standard agree required the Commission was I ly, respectfully part dissent from the nothing predicted do until the exodus from judgment. Court’s complete, thereby the industrial class was impairing, present, marketability at dealing I recognize that mechanism Moreover, if the transition bonds. the non- parties with what the describe as “cascad- true-up prevents complete standard may critical to the mar- ing load loss” class, vacancy of the industrial the other ketability of transition bonds and therefore classes will benefit because industrial cus- viability financing. to the of securitization pay portion remain to tomers will However, I am to conclude constrained transition charges. the PURA ties the Commission’s hands. Neither section 39.253 nor section Second, argues that sec- Justice Owen discretion to gives 39.307 the Commission general provision tion 39.307 is a among cus- reallocate transition therefore cannot be used to sec- “nullify” is different tomer classes a manner that disagree 39.253. the non- We by section required from the allocation true-up “nullifies” the allocations standard 39.253. most, prescribed by At section 39.253. adjustments slight, adjust- and some terms, the non- simplified somewhat if certainly
ments are almost unavoidable if in trueup provides given standard to be met. In our *37 obligations bond year, the load within a class is predicted view, deprive would section Justice Owen projected to decrease more than ten express purpose protecting 39.307 of its percent of what the load for that class was obligations. means of bond satisfying April for the twelve months ended OPC,
Lastly, argues unlike who for a then the amount of lost charges projected that the can devise attributable to the remand so Commission solution, among all customer argues an alternate load are reallocated Owen Justice short, customers in some facing the classes. that the dilemma than pay charges more transition parties simply inescap- in this case is classes prescribed rec- the allocation mechanism legislative able without solution. We allocation de- applying otherwise be others would permits, 39.253 while section is 150 factors, that their allocation mand so mechanism would than that allocation less so, the me- why that is require. percent.9 To see under- of section 39.253 must be
chanics concludes correctly Although the Court stood. ambiguity section is some there 39.303(c) says that of the PURA Section allocations are how 39.253 about “shall be collected customers, it is among classes made manner among allocated customers” 39.253 re- that section nevertheless clear 39.201.1 Section prescribed section to establish order quires says that section 39.253 39.201(j) turn deter- each class that percentage fixed allocation of stranded costs governs.2 The the transition how much of mines 39.253, in- expressly under section which based on to each class are to be allocated assets,3 has two basic cludes does not 39.253 historical data. Section by apply- is determined components. One adjustment of the alloca- subsequent allow methodology used to allocate ing the same or, con- growth into account tion to take in the elec- underlying of the during each class load loss within versely, order tric most recent commission bonds, much less the life of the transition is the addressing design.4 rate other projected load loss. respective energy consumption on relevant class char- classes5 “based the methodolo- applied The Commission 1, 1999, adjusted for May as of acteristics design last rate case gy used in CPL’s normal weather conditions.”6 case to arrive data consumption factors, percentages, that is of customers at allocation eight has classes
CPL of customers. The Court are allo- for each class among which transition class, could says the Commission correctly They cated. include the residential design rate classes, the same apply firm custom- chosen to commercial industrial have recent, nonethe- customers, to more but ers, methodology non-firm industrial historical, data.10 Section 39.253 less 39.253 allocates transition others. Section But the regard. clear in that differently crystal charges to the residential class section construed Commission has now than to the other classes.7 Section 39.253 the latest application of require industrial cus- 39.253 to requires also that non-firm methodology consump- to the design rate differently to be treated from tomers are of the same rate part in- that was of customers.8 Non-firm data other classes methodology design the rate larger case which dustrial customers are allocated agrees with The Court Their alloca- was established. charges. share of transition of the rate Application what it that construction.11 by fifty percent increased tion is 39.303(c) 39.253(g). § (emphasis § add- 6. Id. 1. Tex. Util.Code ed). 39.253(c). § 7. Id. § 39.201Q). Id. 39.253(d). § 8. Id. 39.253(h) ("For purposes sec- of this tion, regulatory as- costs' includes ‘stranded 9. Id. sets.”). *38 S.W.3d at 259. 39.253(c)-(e). § Id. 39.253(c). 11. Id. §
5. Id. design methodology consump- to historical to a customer class under section 39.253 tion data results in a percentage, fixed also class, are reallocated to another the class known as a demand allocation factor. whose transition charges are reallocated percentage That applied to the transi- has obligation pay “avoid[ed] the charges tion and results in an allocation to amount of stranded costs allocated to that each class of a dollar amount of transition customer class.”13 charges for which it is liable. There is no This can be seen from examples mechanism in section 39.253 for reallocat- given by the Court. The Court assumes ing some or all of one responsibility class’s million annual $100 to another class. To the contrary, section charges among must be allocated four 39.253(i)says that “no customer or custom- classes of customers based each on class’s er may obligation class avoid the pay historical usage. Applying the allocation the amount of stranded costs allocated to class,” Court, by factors assumed customer each class is excep- certain assigned tions obligation not relevant here.12 pay When transition dollar charges that would otherwise be allocated amount:
_Residential Commercial Industrial Other (1) Allocation of total annual transí- 40% 20% 10% 30% (assumed, charges tion based on historical usage)_ (2) Annual dollar allocation MM MM MM $40 $20 MM $10 $30 (multiply by 1) $100MM line
In the example, Court’s a load loss of 16 and each responsibility class’s its MM units is forecasted in the assigned industrial dollar amount is reallocated. Un- class, which is more than a ten percent der the example, Court’s million tran- $3 decrease that class’s year charges load as of the sition that would otherwise be April ended 1999. That load loss borne the industrial class is reallocated trigger would trueup, non-standard across all classes: _Residential Commercial Industrial Other (1) Allocationof total annual transí- 40% 20% 10% 30% (assumed, based on historical usage)_ (2) Dollar allocationof deficit MM K K K $1.2 $600 $300 $900 (multiply $3 1)_ MM line (3) balance_$40 $20 Dollar allocationof $7 $30 MM MM MM MM (4) $20,6 reallocation_$41.2 $7.3 Total after MM $30.9 MM MM MM (5) Resulting allocation factor after 41.2% 20.6% 7.3% 30.9% reallocation of annual readily
It is apparent that allocation fac- in section obligation higher 39.253. Its is a reality tors for each class have in been Likewise, percentage. the industrial class changed. longer The residential class no longer required is no to shoulder 150 per- bears percentage responsibility as- cent of the transition allocated to signed methodology to it set forth 39.253(i). 12. Tex. Util.Code
273 re- service other payments But its less debt obligation something it. is 39.253(d) requires. than section And more in connec- quired amounts decision, importantly, under Court’s But the tion with the transition bonds.”15 nothing prevent there is to Commis- under which the stan- only circumstance altering more al- drastically sion from result in insufficient trueup dard would factors in a trueup. location non-standard other debt service and collections to cover in with bonds connection transition agree Utility I with the of Public Office in would be if all customers a class were and the Texas Retailers Associa- Counsel least, Theoretically, long lost. at as one trueup tion that non-standard contra- class, given in a requirements in customer remained venes section 39.253 that ambiguous. agree obligated are not I with those to all customer would be may parties Commission not take allocated that class.16 that are actions in excess of or inconsistent trueup is designed The non-standard not express statutory provisions. The remedy of a of custom- the default class of Appeals Third Court “restated the fa- its allocated share of transi- paying ers principles” miliar Southwestern Bell trueup tion The is charges. non-standard Utility v. Telephone Co. Public Commis- transi- designed еquitably spread to more sion: projected when load loss with- agency adopt only can such rules
“[A]n
just
percent.
in a class
ten
as are
authorized
consistent with
design
The Commission knows how to
statutory
authority.”
its
Railroad
provision
protect
that would
Co.,
Comm’n v. Lone Star Gas
844
complete
of cus-
bondholders from the
loss
(Tex.1992)
679,
(quoting
S.W.2d
685
It
so
financ-
tomers in a class.
did
Bd.
Deffebach,
State
Ins. v.
631
v.
ing order at issue
TXU Electric Co.
794,
1982,
(Tex.App.
S.W.2d
798
—Austin
fi-
Public
Commission.17 TXU’s
Utility
n.r.e.)).
connection,
ref d
writ
this
any of the
nancing
says:
order
“Should
well
agency
may
settled that an
rule
Recovery
cease
burdens,
Regulatory Asset
Classes
impose
not
additional
condi-
customers, the
fac-
tions,
any
[allocation
to have
or
in excess of
in-
restrictions
or
adjusted proportionately such
statutory
tors]
consistent with the relevant
will be
provisions.14
factors]
of the [allocation
sum
The
never-
equals 100.0000%.”
those
Commission and
who side
true-up
theless included a non-standard
rely
authority
with it
on section 39.307 for
financing
order identi-
provision
TXU’s
adopt
trueups.
pro-
non-standard
That
financing
order.
cal to the one
CPL’s
says
vision of the
that a
PURA
true-
This underscores that non-standard
adjustment
order must include an
mecha-
designed
not and are
up provisions do
“to correct
or un-
nism
overcollections
expected recovery of
to “ensure the
12
preceding
dercollections of the
months
all
timely
provide
amounts sufficient
recovery
expected
and to ensure the
n
re-
timely provide
payments
all
of debt service and other
amounts
sufficient
921,
might
challenges
(Tex.App.
S.W.2d
16. Such a
result in
14. situation
—Austin
denied)
validity
constitutionality of the true-
(quoting R.R.
v.
to the
writ
Comm’n
Co.,
challenge in
up provision,
there is no
&
S.W.2d
but
such
ARCO Oil Gas
denied)).
(Tex.App.
this case.
writ
—Austin
(Tex.2001).
added).
17.
19.
theless were so; legislative, problem is one recog- This judicial solution.”22 Court plain effect to the give
nized that we must statute, may if even to do so
meaning of plan impracticable:
effectuate a that is statutory construction problem
“The Legisla-
is to ascertain the intent plain
ture. When we abandon words, statutory construc-
meaning of obscure upon
tion rests insecure and perhaps
foundations at best. It should have no con-
be reiterated Courts acts, legislative
cern the wisdom of plain duty give our effect to
but Legis- purpose plan
the stated
lature, ill although may to us it seem impracticable.”23
advised or
I did would hold that the Commission to include statutory authority
not have the trueup
a non-standard CPL’s Accordingly, respectfully I dissent.
order. COMPANY,
TXU ELECTRIC al., Appellants,
et
v.
PUBLIC UTILITY COMMISSION TEXAS, al., Appellees.
OF et
No. 00-0936. Texas.
Supreme Court of 31, 2001.
Argued Jan. 6, 2001.
Decided June
Rehearing Aug. Overruled Betts, (quoting v. Id. State Bd. Ins. 21. Mat 346. (1958)). S.W.2d Tex.