Office of Public Utility Counsel v. Tnmp

Citations: 344 S.W.3d 446; 2011 Tex. App. LEXIS 3656; 2011 WL 1811440Docket: 03-10-00526-CV

Court: Court of Appeals of Texas; May 11, 2011; Texas; State Appellate Court

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In the administrative appeal involving the Office of Public Utility Counsel and the Public Utility Commission of Texas against Texas-New Mexico Power Company (TNMP), the Court of Appeals of Texas addressed the Commission's decision regarding TNMP's revised competition transition charge (CTC) interest rate. TNMP challenged the Commission's determination of the effective date for this revised interest rate after the Commission had previously set a stranded-cost balance of $128,820,365 as of January 1, 2002, with additional interest of $39,166,214 at a rate of 10.93%. This rate was established during TNMP's true-up case, which assessed stranded costs associated with the utility's unbundling from a vertically integrated utility.

In November 2005, TNMP initiated a separate docket concerning the carrying-charge rate on its CTC, resulting in a non-unanimous stipulation (NUS) where the parties agreed that the 10.93% interest rate would apply from July 22, 2005, unless replaced by a new rule. While this matter was pending, the Commission amended its true-up rule, introducing a new formula for calculating the stranded-cost interest rate, effective July 20, 2006. After a hearing, the administrative law judge (ALJ) recommended rejecting the NUS, but the Commission ultimately adopted it in its CTC Order dated November 2, 2006. The Commission concluded that the new rule would set the interest rate on the stranded-cost balance starting from the rule's effective date. The trial court reversed the Commission's order, prompting an appeal by the Commission and the Office of Public Utility Counsel, which resulted in the appellate court reversing the trial court's decision and affirming the Commission's order.

The Commission established several key findings regarding the interest rate set by the NUS at 10.93%, which remained effective until a new rule was adopted. A revision to P.U.C. Subst. R. 25.263(l)(3), effective July 20, 2006, introduced a formula for interest on post-true-up balances. The Commission approved TNMP's application to modify the CTC, requiring TNMP to file a compliant tariff. TNMP did not appeal the Commission's final CTC Order. Following the new rule, TNMP filed Docket No. 33106 (the "Interest Rate Docket"), where the Commission approved a revised CTC interest rate of 8.31%. This rate was later challenged by ratepayer cities, but the appellate court affirmed the Commission's determination.

The ongoing dispute in Docket No. 35038 (the "Tariff Docket") centers on when the new 8.31% interest rate became effective. TNMP argued for a final order date, while the Commission Staff claimed the effective date was December 27, 2007. OPC contended it should be July 20, 2006, the date of the revised rule's effective date. Evidence was presented by all parties, and while the ALJ recommended the Staff's proposed date, the Commission ultimately decided that the revised interest rate applied from July 20, 2006, as per the CTC Order. This conclusion was formalized in the "Effective Date Order" dated October 22, 2008. TNMP sought judicial review, resulting in the trial court reversing the Commission’s retroactive effective date. The Commission and OPC are appealing this decision, asserting that their interpretation of the CTC Order is reasonable and supported by its language, which they believe warrants deference in judicial review based on the substantial evidence standard.

The Commission's order is presumed to be based on substantial evidence, placing the burden on the complaining parties to challenge this presumption (City of El Paso v. Public Util. Comm'n). Statutory construction questions are reviewed de novo, but the agency's reasonable interpretations are given substantial weight if they align with statutory language (First Am. Title Ins. Co. v. Combs). A court may reverse an agency's order if there is a prejudicial legal error, such as a constitutional violation, or if the order is deemed arbitrary, capricious, or an abuse of discretion (Tex. Gov't Code Ann. 2001.174(2)). When interpreting agency orders, courts apply the same principles as with statutes, focusing on the agency's intent (Railroad Comm'n v. Home Transp. Co.; Boswell v. Brazos Elec. Power Co-op.; Armak Tex. Movers, Inc. v. Railroad Comm'n; Airport Coach Serv., Inc. v. City of Fort Worth). Administrative agencies derive only the powers expressly granted by the legislature and cannot assume new powers under the guise of implied authority (Public Util. Comm'n v. City Pub. Serv. Bd.; CenterPoint Energy Entex v. Railroad Comm'n). Questions regarding an agency's authority must be resolved based on the statutory language conferring that authority (In re City of Georgetown; City of San Antonio v. City of Boerne).

The Effective Date Order confirms that the Commission's previous CTC Order established TNMP's revised CTC interest rate effective July 20, 2006, referencing findings of fact in the CTC Order. The non-unanimous settlement (NUS) adopted by the Commission stated that the interest on the stranded cost balance, beginning July 22, 2005, would be 10.93%, which would remain unless a new rule was validly adopted. The Commission's order clarified that under the NUS, the new rule would set the interest rate from its effective date, with finding of fact 41 reaffirming that the NUS establishes a 10.93% interest rate subject to change upon the adoption of a new rule.

Finding of fact 41A in the Commission's order for Docket No. 31994 establishes that P.U.C. Subst. R. 25.263(l)(3), effective July 20, 2006, includes a formula for interest on post-true-up balances. The Commission determined that this effective date applies to new interest rates on CTC balances revised under this rule, based on a non-unanimous settlement. TNMP contested the Commission's conclusion in a judicial review, claiming it misinterpreted the agreement by asserting July 20, 2006, as the effective date for the new interest rate. TNMP argued that the settlement only indicated that the terms would apply upon the Commission's adoption of a new rule and that the CTC Order merely reiterated this agreement, thereby suggesting that the Effective Date Order effectively amended the 2006 CTC Order to allow retroactive application of the new rate.

The Commission maintained that the CTC Order validated the NUS and that it was within its rights to interpret the effective date language in the NUS. The inquiry focuses on the Commission’s interpretation of the NUS as memorialized in the CTC Order, which TNMP did not appeal, rather than the NUS's original language. Agencies have the authority to interpret their own orders as long as they do not amend prior orders through interpretation. The Commission's interpretation of the Effective Date Order, which clarifies the CTC Order, is given significant weight. Ultimately, the Commission's interpretation that the interest rate would change when the new rule became effective was deemed reasonable and consistent with the CTC Order's findings, which indicate that the previous rate would only apply until a new rule was validly adopted.

A revised interest rate for stranded costs is effective from July 20, 2006, as indicated by the Commission's CTC Order, which aligns with the findings in the Effective Date Order. There is no interim interest rate applicable if the revised rate does not take effect, per Tex. Gov't Code Ann. 311.023(5). Courts interpret administrative orders similarly to statutes, and the Commission is allowed to clarify its orders without amending them. TNMP contends that the Commission's interpretation leads to retroactive ratemaking by recognizing an earlier effective date than when the interest rate was calculated. However, the rule against retroactive ratemaking prohibits the Commission from adjusting rates to cover past losses or refund excess profits; it does not apply here as no prior CTC rates existed for TNMP before the 2006 CTC Order. The Commission's actions were forward-looking, based on a new formula rather than a reassessment of past rates. Furthermore, TNMP's claim that the Commission's amended rule prohibits an earlier effective date than the determination of the revised rate is unfounded. The Commission's interpretation is consistent with its authority to set rates prospectively under PURA. Thus, the Commission's and OPC's positions on appeal are upheld.

The judgment of the trial court is reversed, affirming the order of the Commission and the Office of Public Counsel (OPC). The Cities, including Dickinson, Friendswood, La Marque, League City, Lewisville, and Texas City, intervened and submitted an amicus curiae brief in support of the Commission's decision. The discussion references the case of State v. Public Util. Comm'n, highlighting stranded costs as unrecovered utility generation asset values. The agreement in question is labeled a non-unanimous stipulation (NUS). The Commission's proposed amendment seeks to adjust the interest rate on utilities' Competition Transition Charge (CTC) balances from the utility's established cost of capital to its most recent authorized cost of debt, also requiring utilities like TNMP to seek revised carrying charges. TNMP's argument that it continued to collect interest at a 10.93% rate post-CTC Order issuance is acknowledged but deemed irrelevant to the analysis. The court finds the Commission's interpretation of the CTC Order, which TNMP claims is ambiguous, to be reasonable and consistent with regulatory standards, thus distinguishing this case from others where utilities were treated differently. Furthermore, there is no statutory or regulatory requirement for the CTC interest rate to be quantified before its effective date, as historical practices indicate that interest charges can be applied before the final quantification of principal stranded costs.