DATA FOUNDRY, INC., Appellant V. CITY OF AUSTIN, TEXAS, Appellee
NO. 14-18-00071-CV
Fourteenth Court of Appeals
April 23, 2019
In The Fourteenth Court of Appeals
NO. 14-18-00071-CV
DATA FOUNDRY, INC., Appellant
V.
CITY OF AUSTIN, TEXAS, Appellee
On Appeal from the 419th District Court Travis County, Texas Trial Court Cause No. D-1-GN-17-000937
O P I N I O N
The City of Austin’s municipally owned utility provides retail electricity to two Austin data centers owned by appellant Data Foundry, Inc. Data Foundry sued the City over its pricing of electricity, and the trial court dismissed the suit on the ground that Data Foundry lacked standing. We conclude that Data Foundry has standing to complain that the City’s retail electricity rates are excessive in that the City’s alleged 12% rate of return and its 2.36 debt-service coverage ratio are claimed
I. BACKGROUND
Until 2002, investor-owned utilities (“IOUs”) were permitted to operate monopolies, selling the power they generated directly to municipal retail customers at rates set by the municipality. Effective January 1, 2002, however, the state legislature determined that, with certain exceptions discussed further infra, “electric services and their prices should be determined by customer choices and the normal forces of competition.”
Most of the state falls within an area known as the Electric Reliability Council of Texas, or ERCOT, that is, “the area in Texas . . . that is not synchronously interconnected with electric utilities outside the state” and in which ERCOT acts as the system operator. See
Municipally owned utilities (“MOUs”) differ from IOUs in at least two important respects. Unlike IOUs, MOUs retain the right to operate as monopolies in providing retail electric service to customers within the municipality. And, unlike IOUS, MOUs are not required to “unbundle,” structurally or functionally. An MOU has discretion to choose if and when it will offer customer choice,
The City provides retail electricity to two Austin data centers owned by appellant Data Foundry. Data Foundry’s data center on Smith School Road is in the City’s “Primary Service 2” (PS2) commercial rate class, which serves high-consumption customers who take electricity at high-voltage or “primary” levels and use between 3 and 20 megawatts of electricity. Data Foundry’s data center on East Ben White Boulevard is in a different rate class; it takes electricity at low-voltage or “secondary” levels and uses more than 300 kilowatts of electricity.
Data Foundry sued the City, alleging that the City’s retail rates are illegal, unenforceable, excessive, and discriminatory. Data Foundry’s primary complaint is that the City includes in the rates it charges retail customers some of the costs of generating the electricity the City sells on the wholesale market. Data Foundry seeks declaratory and injunctive relief to end this practice. In addition, Data Foundry contends that the rates it must pay on its two accounts are excessive or discriminatory for a variety of reasons.
II. STANDARD OF REVIEW
Standing is a component of subject-matter jurisdiction,1 and Rule 91a2 may be used, as it was here, to challenge the trial court’s subject-matter jurisdiction. See City of Dallas v. Sanchez, 494 S.W.3d 722, 724–25 (Tex. 2016) (per curiam). We review de novo the trial court’s ruling on the motion, construing Data Foundry’s pleadings liberally and accepting as true Data Foundry’s factual allegations and the inferences reasonably drawn from them to determine if Data Foundry alleged facts affirmatively demonstrating the trial court’s subject-matter jurisdiction. See id. at 725.
Texas’s standing requirements are derived from the state constitution’s separation-of-powers provision,3 “which denies the judiciary authority to decide issues in the abstract,” and from its open-courts provision, “which provides court access only to a ‘person for an injury done him.’” Meyers v. JDC/Firethorne, Ltd., 548 S.W.3d 477, 484 (Tex. 2018) (quoting
“[A] plaintiff must demonstrate standing for each claim he seeks to press and for each form of relief that is sought.” Andrade v. NAACP of Austin, 345 S.W.3d 1, 14 (Tex. 2011) (quoting Davis v. FEC, 554 U.S. 724, 734, 128 S. Ct. 2759, 171 L. Ed. 2d 737 (2008)). Data Foundry’s claims and requests for relief are based on its allegations that the rates it is required to pay are either excessive or discriminatory. See State v. Sw. Bell Tel. Co., 526 S.W.2d 526, 529–30 (Tex. 1975) (explaining that a utility enjoying a monopoly is legally obligated to offer its services at reasonable rates and without undue discrimination). We treat each of these broad categories separately.
Among Data Foundry’s excessive-rate claims are its allegations that the City charges retail rates that are unreasonable and confiscatory. Data Foundry claims the City seeks an excessive rate of return5 and that the rates constitute an illegal tax.
A. Claims to Exclude Wholesale Power-Generation Costs and a Return on Wholesale Power-Generation Assets from the Calculation of Retail Rates
In what it describes as “the heart of this lawsuit,” Data Foundry contends that the City unlawfully includes recovery of wholesale power-generation costs and a return on power-generation assets in its calculation of retail electricity rates. Because the City is required to sell the power it generates only on the wholesale ERCOT nodal market and similarly is required to buy all of the power it provides to its retail customers from the same ERCOT market, the City cannot bypass ERCOT and sell the power it generates directly to its retail customers. According to Data Foundry, the City’s power-generation services are unprofitable, and because the revenue from the City’s wholesale power-generation sales is insufficient to cover the costs of generating the power, the City includes recovery of those costs in its retail rates. Data Foundry contends that charging retail customers for the City’s wholesale services is illegal, unjust, excessive, constitutes a taking, is confiscatory, and does not reflect a reasonable measure of use by, or benefit to, retail ratepayers. Data Foundry pleaded for declaratory and injunctive relief to prevent the City from enforcing its current ratemaking ordinance or tariff and from maintaining or enacting any other ratemaking ordinance or tariff that includes in retail rates the recovery of
The requested relief could not resolve this dispute because the trial court lacks jurisdiction to render it. Where, as here, a utility is owned by a municipality, the municipality’s governing body, or a body vested with the power to manage and operate the MOU, has exclusive jurisdiction to determine “whether to unbundle any energy-related activities.”
Data Foundry further asserts that the City already has partially unbundled, but the examples it cites do not support this characterization. For example, the City identifies the part of its retail rates that recover wholesale power-generation fixed costs separately from the part of its retail rates that recover wholesale power-generation variable costs.7 These arguments appear to rest on the assumption that by identifying the components of its retail rates, the City has functionally unbundled
Because the City alone must choose whether to unbundle or to offer customer choice, the trial court lacks jurisdiction over Data Foundry’s claims and requests for relief seeking a ruling that would prevent the City from enacting, maintaining, or enforcing a retail rate structure that includes recovery of wholesale expenses or a return on wholesale assets. These include the following claims and requests for relief:
- Data Foundry’s request for a declaration that, because the MOU’s rates are designed to recover the City’s wholesale power-generation expenses or a return on the City’s wholesale power-generation capital assets, the retail rates are unjust, unreasonable, excessive, discriminatory, confiscatory, constitute a taking, and do not reflect a reasonable measure of use by, or benefit to, ratepayers; and thus, the City’s ordinance approving the tariff is illegal and unenforceable;
Data Foundry’s request for a declaration that wholesale costs are not allowable or reasonable and necessary operating expenses or eligible for base-rate treatment; and thus, the rates lead to an excessive and unreasonable return or profit on the fair value of the electric system’s properties that are dedicated to, and used and useful for, the furnishing of retail electric service; - Data Foundry’s request for a declaration that the City Council acted arbitrarily and capriciously and abused its discretion by promulgating retail base rates that include the recovery of wholesale expenses or a return on wholesale assets, and thus, the City Council knew that the rates were designed to recover, and do recover, more than is required for the City to recover its reasonable and necessary expenses for the provision of retail electric service and obtain a reasonable return or profit on the capital assets that are used by, or useful to, captive retail electric customers;
- Data Foundry’s request for a declaration that the purposeful effort to require the MOU’s retail ratepayers to pay rates designed to recover costs related to wholesale power generation constitutes an illegal tax; and
- Data Foundry’s request for an injunction enjoining the City’s enforcement of the ordinance approving the tariff, and enjoining the enforcement of any other ratemaking ordinance or tariff, on the ground that the ordinance or tariff prescribes rates for retail electricity service designed to partially or wholly recover the City’s power-generation costs through inclusion of those costs as operating expenses or by earning a return or profit on the value of the assets used to provide wholesale power-generation service.
To the extent that any other claims or requests for relief raised in Data Foundry’s pleadings similarly are based on the premise that it is unlawful for the City to include recovery of wholesale costs or a return on wholesale power-generation assets in its calculation of retail rates, the trial court lacks jurisdiction over those claims as well. We affirm the trial court’s dismissal of these claims.
Some of Data Foundry’s claims that the City’s retail rates are unlawfully high are not based on the City’s inclusion of power-generation costs and a return on power-generation assets in the calculation of retail rates. For example, Data Foundry claims that the City transfers 12% of its average base-rate revenue to its general fund, and that its debt-service coverage ratio is 2.36 times the amount of the City’s electric utility bonds. According to Data Foundry, these amounts are too high.10
The trial court has jurisdiction to consider these claims if standing requirements are satisfied, because a court can review a claim that an MOU’s rates are exorbitant or that the amount of its return is so high as to violate the ratepayer’s constitutional rights. See San Antonio Indep. Sch. Dist. v. City of San Antonio (“SAID”), 550 S.W.2d 262, 265 (Tex. 1976).
1. Particularized injury
The City argues that Data Foundry is asserting only a generalized injury for which it lacks standing, but the cases on which it relies do not support that position. For example, in Schenker v. City of San Antonio, 369 S.W.2d 626 (Tex. App.—San Antonio 1963, writ ref’d n.r.e.), the appellate court dismissed a rate-challenge appeal on the grounds that “the plaintiffs had not exhausted their administrative remedies through petition to the City Council,” and alternatively, that “the plaintiffs lacked justiciable interest to bring the suit” because, absent allegations of a special injury, “[o]nly lawfully constituted guardians of the public interest” may sue to redress injuries to the general public. SAISD, 550 S.W.2d at 265. The City also relies on
Here, however, Data Foundry has alleged a particularized injury. It contends that the City is requiring it to pay unlawful charges, and Data Foundry has a cognizable property interest in its own money. See Andrade, 345 S.W.3d at 8 (“[W]here a harm is concrete, though widely shared, the Court has found injury in fact.” (quoting FEC v. Akins, 524 U.S. 11, 24, 118 S. Ct. 1777, 141 L. Ed. 2d 10 (1998) (citation omitted))). Requiring a person to pay unlawful charges therefore results in “an actual grievance, not one that is merely hypothetical or generalized.” Tex. Dep’t of Transp. v. City of Sunset Valley, 146 S.W.3d 637, 646 (Tex. 2004) (citing Brown v. Todd, 53 S.W.3d 297, 302 (Tex. 2001)). Because we conclude that Data Foundry has sufficiently alleged a particularized injury as to these claims, it is unnecessary to consider its arguments that no particularized injury was required.
2. Statutory preemption
The City next points out that the Public Utility Regulatory Act (PURA) allows a customer of an IOU or a non-resident customer of an MOU to appeal the setting of retail rates to the Commission, but the statute does not authorize an MOU’s ratepayer who takes service inside the City’s boundaries to appeal to the Commission. PURA is silent, however, on the question of whether judicial review is available to a ratepayer who takes service inside the City limits. The City argues that because PURA is a comprehensive statute, no remedies exist outside of it. But
In sum, we conclude that Data Foundry has alleged a particularized injury from the City’s alleged charging of unreasonably high rates due to an allegedly excessive rate of return or an allegedly excessive debt-service coverage ratio.11 To the extent that those claims do not seek to prohibit the City from continuing to bundle wholesale power-generation costs and a return on power-generation assets into its calculation of retail rates, the trial court has jurisdiction to address those claims. We therefore reverse the portion of the judgment dismissing those claims for lack of standing.
C. Claims That Are Not Necessarily Based on the Exclusion of Wholesale Costs
Data Foundry seeks a permanent injunction enjoining the City from maintaining or enacting a rate structure that fails to distinguish charges between customers using only judicially accepted factors such as the cost of service, the purpose for which the service or product is received, the quantity or amount received, the different character of the service furnished, the time of its use or any
Data Foundry also seeks similar declaratory relief.
By these requests, Data Foundry may seek to prevent the City from including in its retail rates recovery of wholesale expenses or a profit or return on wholesale assets. To the extent that this is so, the trial court lacks jurisdiction to render the requested relief for the reasons previously explained.
But, regardless of the basis of this request, and regardless of whether Data Foundry correctly identifies the “judicially accepted factors” applicable to an MOU under the facts alleged here, Data Foundry lacks standing for the additional reason that this request runs afoul of the separation of judicial from legislative power. See id.; DaimlerChrysler Corp. v. Inman, 252 S.W.3d 299, 304 (Tex. 2008). “[S]tanding doctrines reflect in many ways the rule that neither citizens nor taxpayers can appear in court simply to insist that the government and its officials adhere to the requirements of law.” Andrade, 345 S.W.3d at 7 (quoting Charles Alan Wright, et al., FEDERAL PRACTICE & PROCEDURE § 3531.10 (3d ed. 2008)). Because Data Foundry lacks standing merely to insist that the City adhere to the law, and because there is not a substantial likelihood that the vague relief requested will remedy an alleged injury or resolve a real controversy between them, Data Foundry lacks standing to pursue these claims. We accordingly affirm the trial court’s dismissal of these claims and requests for relief.
IV. ALLEGEDLY DISCRIMINATORY RATES
A utility may not unjustifiably discriminate in its rates between similarly situated persons. See SAISD, 550 S.W.2d at 264–65; Sw. Bell Tel. Co., 526 S.W.2d at 529; cf. El Paso Elec. Co. v. Pub. Util. Comm’n of Tex., 917 S.W.2d 846, 864 (Tex. App.—Austin 1995, writ dism’d by agr.) (stating that unequal treatment is not
First, although the City recently reduced base rates generally, Data Foundry alleges that the City allocated too much of the base-rate reduction to residential and small-business customers and allocated too little to the rate classes covering Data Foundry’s two data centers. But “[w]hether differences in rates between classes of customers are to be made, and, if so, the amount of the differences, are legislative rather than judicial questions, and are for the determination of the governing bodies of the municipalities.” Gillam v. City of Fort Worth, 287 S.W.2d 494, 497 (Tex. App.—Fort Worth 1956, writ ref’d n.r.e.). Given the differences in the rate classifications of these customers, Data Foundry’s claim is not that the City unjustifiably discriminates between “similarly situated” customers.
Second, Data Foundry alleges that the City’s base-rate reductions went into effect on January 1, 2017, but that an increase in the pass-through regulatory charges assessed against the PS2 rate class became effective on November 1, 2016. Data Foundry does not complain of the increase in the regulatory charges that the PS2 rate class was required to pay, but of its timing. Due to the difference in the effective dates of the regulatory-charge increase and the base-rate reduction, the PS2 rate class was, for two months, the only rate class that experienced an overall increase in the cost of electricity. Nevertheless, the rate reduction was effective for all retail customers on the same day; thus, Data Foundry was treated the same as all other customers in that respect. And, unlike the base rate, the regulatory charge is passed through on a dollar-for-dollar basis, so that comparing the date of the regulatory charge’s increase with the date of the base rate’s reduction is to compare apples with
Third, Data Foundry alleges that it is not given enough credit for its data centers’ high load factors, which means that the data centers consume electricity at a more constant rate than other customers. The City has a rate class that confers benefits on high load-factor users with a demand of at least 20 megawatts but does not have a separate rate class for high load-factor users with a lower demand such as Data Foundry. Here, too, Data Foundry does not allege a true discrimination complaint, for its two data centers are treated the same as others in those respective rate classes.
Fourth, Data Foundry contends that the rate classes covering its two data centers bear too large a share of power-generation expenses, and that even within those rate classes, the power-generation expenses have a greater impact on Data Foundry based on factors such as the amount of power it uses. For example, Data Foundry complains that the City allocates fixed power-generation costs among the various retail classes based on each class’s individual contribution to the system’s peak use in each of the twelve months of the year. According to Data Foundry, the City’s stated rationale for using this method is that the City must have its power-generation plants ready to sell power year-round. Data Foundry asserts that this rationale does not justify using this method in setting retail rates, because the power the City generates must be sold wholesale through the ERCOT market rather than directly to retail customers. As previously explained, however, the City integrates its wholesale costs into its retail rates, and the trial court has no jurisdiction to require the City to do otherwise. Although the method may have a larger impact on Data Foundry based on its rate class and the amount of power it uses, the quantity of service is recognized as a proper factor for distinguishing among individual
For the foregoing reasons, we conclude that the trial court did not err in dismissing Data Foundry’s discrimination complaints.
CONCLUSION
Because Data Foundry has alleged a particularized injury from the City’s alleged charging of unreasonably high rates due to an unlawfully high rate of return or an unlawfully high debt-service coverage ratio, we reverse the dismissal of those claims to the extent that Data Foundry does not seek to prohibit the City from continuing to bundle wholesale power-generation costs and a return on power-generation assets into its calculation of retail rates. We affirm the trial court’s judgment dismissing Data Foundry’s remaining claims and requests for relief, and we remand the case for further proceedings consistent with this opinion.
/s/ Tracy Christopher
Justice
Panel consists of Chief Justice Frost and Justices Christopher and Jewell.