Friday, September 23, 2005

Today, a divided panel of the Third Court of Appeals issued an opinion in a case involving the deregulation of Texas’ retail electricity market. Justice Pemberton wrote for the majority, he and Justice Patterson; Justice Smith issued a dissenting opinion.

Rather than try to summarize a detailed pair of opinions on a complex regulatory issue, I will simply quote Justice Pemberton’s summary of the case and the majority’s position:

This case presents three sets of issues arising from Texas’s transition from a wholly regulated retail electricity market. First, we will consider the extent to which the Public Utility Commission had power to order electric utilities to refund alleged “over-mitigation” of their stranded costs, as determined from interim computer models, before the final 2004 true-up proceedings. Second, we will determine whether substantial evidence supports the Commission’s characterization of Nuclear Electric Insurance Limited (NEIL) account balances as generation-related rather than transmission-related. Third, we will address whether the Commission may set demand charges for large commercial customers greater than those it set before deregulation. Because we determine that the Commission exceeded its statutory authority in ordering refunds of “over-mitigated” stranded costs determined before the 2004 true-ups, we will reverse the portion of the district court’s judgment compelling such refunds and remand to the Commission for further proceedings. However, we will affirm the district court’s judgment affirming the Commission’s disposition of the issues concerning NEIL member accounts and demand charges.

Justice Smith, in her dissent, summarizes as follows:

While I join the majority in affirming the Commission’s handling of the member account balances with Nuclear Electric Insurance Limited and the demand charge issues, I strongly disagree that prior to 2004 the Commission lacked the authority to require AEP Texas Central Company to refund the excess earnings it had retained to accelerate the recovery of stranded costs when changed market circumstances eliminated the prospect of any stranded costs. I would hold that the Commission’s action is entitled to deference because (1) it was a reasonable method of meeting its statutory obligations of encouraging “full and fair competition among all providers of electricity” and preventing the overrecovery of stranded costs, see Tex. Util. Code Ann. §§ 39.001(b)(1), .262(a) (West Supp. 2004-05); and (2) it did not conflict with any express provision, or the overall intent, of PURA Chapter 39. See City of Austin v. Southwestern Bell Tel. Co., 92 S.W.3d 434, 441-42 (Tex. 2002) (we give weight to Commission’s interpretation of its own powers if it is reasonable and not inconsistent with statute); Southwestern Bell Telephone Co. v. Public Util. Comm’n, 863 S.W.2d 754, 758 (Tex. App.–Austin 1993, writ denied) (we defer to agency’s construction of statute that agency is charged with enforcing).

Cause No. 03-03-00428-CV Cities of Corpus Christi, et al. v. Public Utility Commission of Texas, et al.

The Court also issued a memorandum opinion in a juvenile delinquency case.