CASE LAW UPDATE · CASE LAW UPDATE K ELLIE E. B ILLIN GS-R AY AND S IREE SH A V. C H IRALA Assistant Attorneys General Environmental Protection Division Office of the Attorney General

CASE LAW UPDATE

KELLIE E. BILLINGS-RAY

AND

SIREESHA V. CHIRALA

Assistant Attorneys GeneralEnvironmental Protection Division

Office of the Attorney General300 W. 15th Street, 10th Floor

Austin, Texas 78701512.475.4014

[email protected]@oag.texas.gov

STATE BAR PUBLIC UTILITY LAW SECTION SEMINAR

AUGUST 18, 2017AUSTIN, TEXAS

TABLE OF CONTENTS

INTRODUCTION.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

I. UNITED STATES COURTS OF APPEAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Global Tel*Link v. Fed. Commc’ns Comm’n, No. 15-1461, 2017 WL 3380543 (D.C. Cir.Aug. 4, 2017). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II. TEXAS SUPREME COURT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Oncor Elec. Delivery Co. L.L.C. v. Pub. Util. Comm’n, 507 S.W.3d 706 (Tex. 2017). . . . . 6

III. TEXAS COURTS OF APPEAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Jasinski v. Pub. Util. Comm’n, No. 03-16-00725-CV, 2017 WL 2628071 (Tex.App.—Austin June 14, 2017, pet. filed) (mem. op.).. . . . . . . . . . . . . . . . . . . . . . . . . . 12

City of Dallas v. Sabine River Auth., No. 03-15-00371-CV, 2017 WL 2536882 (Tex.App.—Austin June 7, 2017, no pet.). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Isa v. Pub. Util. Comm’n, No. 06-16-00070-CV, 2017 WL 2299112 (Tex.App.—Texarkana June 6, 2017, pet. denied).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

New Talk, Inc. v. Sw. Bell Tel. Co. d/b/a AT&T Texas, No. 02-15-00199-CV, 2017 WL1955400 (Tex. App.—Fort Worth May 11, 2017, no pet.).. . . . . . . . . . . . . . . . . . . . 22

Chisholm Trail SUD Stakeholders Grp. v. Chisholm Trail Special Util. Dist., No. 03-16-00214-CV, 2017 WL 2062258 (Tex. App.—Austin May 11, 2017, no pet.) (mem. op.).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

CPS Energy v. Pub. Util. Comm’n, No. 03-14-00340-CV, 2017 WL 744694 (Tex.App.—Austin Feb. 24, 2017, no pet. h.).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Cura-Cruz v. CenterPoint Energy Houston Elec., L.L.C., No. 14-15-00632-CV, 2017 WL1251817 (Tex. App.—Houston [14th Dist.] Feb. 16, 2017, pet. filed).. . . . . . . . . . . 36

City of San Antonio v. Pub. Util. Comm’n, 506 S.W.3d 630 (Tex. App.—El Paso 2016, nopet.).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

1

INTRODUCTION

This update is meant to provide a briefoverview of important utility law casesfrom August 2016 through August 2017.It is not intended to be an in-depthreview of all issues in each case, nor doesit include all utility decisions by courtsduring this time period. In addition, thispaper emphasizes Texas law decisions.

I. UNITED STATES COURTS OF

APPEAL

Glo b al Te l*Lin k v . Fe d . Co m m c ’n sCo m m ’n , No. 15-1461, 2017 WL3380543 (D.C. Cir. Aug. 4, 2017).

The D.C. Circuit Court of Appealsconsidered a final order of the FederalCommunications Commission (FCC)that set permanent rate caps andancillary fee caps for interstate callingservice calls. Specifically, the issues inthis case focus on inmate calling services(ICS) and fees and rates charged forthese calls.

Facts

The Communications Act of 1934created a statutory scheme fortelecommunications that dividedauthority between states and the FCCover inter- and intrastate telephoneservices. The FCC regulates interstatetelephone communications and has theauthority to ensure charges “inconnection with” interstate calls are “just

and reasonable.” In general, the FCC1

may not interfere with intrastatecommunication service that is within thestates’ province. 2

The 1996 Act fundamentally changedthe 1933 Act and restructured the localtelephone industry. “While local phoneservices were once thought to be naturalmonopolies, ‘[t]echnological advances ...made competition among multipleproviders of local services seem possible,and Congress [in the 1996 Act] endedthe longstanding regime of state-sanctioned monopolies.’”3

Prior to the 1996 Act, Bell OperatingCompanies dominated the payphoneindustry. Congress attempted to addressthis issue by authorizing the FCC insection 276 to adopt regulations“ensuring that all payphone providersare ‘fairly compensated for each andevery’ interstate and intrastate call.”4

The aim of section 276 was to “‘promotecompetition among payphone service

Global Tel*Link v. Fed.1

Commc’ns Comm’n, No. 15-1461, 2017WL 3380543, at *2 (D.C. Cir. Aug. 4,2017).

Id.2

Id.3

Id. at *1 (citing 47 U.S.C. §4

276(b)(1)(A)).

2

providers and promote the widespreaddeployment of payphone services to thebenefit of the general public.’”5

Payphones in correctional institutionsand ancillary services are covered bythis provision.6

Payphone providers sought to presentcall services to inmates in jails andprisons nationwide. ICS providerscompete with one another through acompetitive bidding process to win long-term ICS contracts with correctionalfacilities. When determining where toaward the contract, correctional facilitiesgenerally give considerable weight to aprovider that offers the highest sitecommission (a portion of the provider’srevenues or profits). These sitecommissions range from between 20%and 63%. An ICS provider can pay over$ 4 6 0 m i l l i o n a n n u a l l y i nsite commissions.7

After a long-term, exclusive contract bidis awarded to an ICS provider,competition ceases for the remainder ofthe contract and for subsequent contractrenewals. This provides winning ICSproviders with a locational monopoly,captive customers, and the need to pay

high site commissions. Based on thissituation, the FCC determined thatinmate calling services “[were] a primeexample of market failure.”8

In 2000, an intervenor filed a class actionsuit against ICS providers on behalf ofinmates and their loved ones tochallenge these fees and rates. This suitwas stayed by the district court to allowthe FCC time to reconsider thereasonableness of rates through arulemaking. In 2013, the FCC issued aninterim order, citing its plenary authorityover interstate calls, that imposed a per-minute rate cap for interstate ICS calls.9

In 2015, several years later, the FCC setpermanent rate caps and ancillary feecaps for interstate ICS calls. The FCCalso ordered a cap for intrastate calls(the Order).10

In order to determine the cap, the FCCused a ratemaking methodology, basedon industry-average cost data, thatexcluded site commissions as a cost.The Order also imposed reportingrequirements on ICS providers for sitecommissions and video visitationservices. Several ICS providers

Id. at *3 (quoting 47 U.S.C. §5

276(b)(1)).

Global Tel*Link, 2017 WL6

3380543, at *3.

Id.7

Id.8

Id. at *4.9

Id. at *5.10

3

filed suit.11

In January 2017, FCC counsel filed aletter notifying the court it hadexperienced “significant changes in [its]composition.” Three of the fiveCommissioners who had voted on theOrder had since left the FCC. “Becausethe dissent’s position now commandeda majority, counsel for the FCCinformed the court that ‘a majority ofthe current Commission does not believethat the agency has the authority to capintrastate rates under section 276 of theAct.’” FCC counsel notified the court12

that the FCC was abandoning its formerargument that the Commission hadauthority to cap intrastate rates—aposition re-affirmed at oral argument.13

Holding and Analysis

The DC Circuit Court of Appealsgranted in part and denied in part thepetitions for review and remanded thecase for further proceedings. The courtalso dismissed two claims as moot.14

The court determined the intrastate ratecaps exceeded the FCC’s authority, the

use of industry-average cost data wasarbitrary and capricious, the impositionof video visitation was beyond the FCC’sstatutory authority, and the proposedwholesale exclusion of site commissionpayments from the cost calculation wasarbitrary and capricious. The courtdenied the Order’s site commissionrequirements, remanded the impositionof the ancillary fee cap issue, anddismissed as moot preemption and dueprocess claims.15

Despite the fact that petitioners hadagreed not to oppose the petitioners’two principle challenges, the courtexplained that “‘voluntary cessation ofallegedly illegal conduct does not deprive[a judicial] tribunal of power to hear anddetermine the case, i.e., does not makethe case moot.’” “‘Voluntary cessation’16

justifies the dismissal of a case ongrounds of mootness only when ‘thedefendants can demonstrate that there isno reasonable expectation that thewrong will be repeated. The burden is aheavy one.’”17

While the FCC argued it would not


3380543, at *5.

Id.12

Id.13

Id. at *14.14

Id. at *2.15


3380543, at *6 (quoting United States v.W.T. Grant Co., 345 U.S. 629, 632(1953)).

Id. (quoting W.T. Grant Co.,17

345 U.S. at 633).

4

defend portions of the Order, it neveracted to revoke, withdraw, or suspendthe Order. Therefore, the courtdetermined there had been no voluntarycessation by the FCC that wouldmerit dismissal. 18

The Order in this case was promulgatedby the FCC “carrying the force of law”and would therefore normally be subjectto review under Chevron. However,19

because the FCC no longer soughtdeference for parts of the Order, thecourt explained it did not make sense todetermine whether the disputed agencyposit ion warranted deference.Therefore, the court determined it mustgive the best reading of the statutoryprovisions at issue in this case.20

Because the FCC offered nointerpretations in support of theprovisions purporting to cap intrastaterates for ICS providers, the court appliedthe rules of statutory construction. Asto the remaining issues, the court appliedthe Chevron framework and section706(2)(A) of the Administrative

Procedure Act.21

The court agreed that, on the record,section 276 did not authorize the FCC toimpose intrastate rate caps as the FCChad in its Order. Section 152(b) sets outa presumption against the FCC’sassertion of regulatory authority overintrastate communications. The Orderdid not come close to overcomingthis presumption.22

Further, section 276 does not give theFCC authority to determine “just andreasonable” rates. Rather, it merelydirects the FCC to ensure that all ICSproviders are fairly compensated forinter- and intrastate calls. In otherwords, the court explained, the Orderimpermissibly conflated two distinctgrants of authority into “a synthetic ‘just,reasonable and fair standard.’”23

The court explained it need notdetermine the precise parameters of theFCC’s authority under section 276.Rather, it simply determined the FCC’sexercise of authority to set permanentrate and ancillary fee caps for intrastateICS calls could not stand.24

Id.18

Chevron, U.S.C., Inc. v. Nat.19

Res. Defense Council, Inc., 467 U.S. 837(1984).


3380543, at *7.

Id.21

Id. at *8.22

Id.23

Id. at *11.24

5

In vacating the exclusion of sitecommission costs from the Order, thecourt explained the FCC’s exclusion ofthese cos ts de f i ed r ea soneddecisionmaking. Site commissions arecosts of doing business incurred by ICSproviders. The court found that based onthe record, “we simply cannotcomprehend the agency’s reasoning.”“Not only does the FCC’s reasoning defycomprehension, the categorical exclusionof site commissions cannot be easilysquared with the requirements of[sections] 276 and 201.”25

The court next considered the FCC’s useof industry-wide averages to set rates.The court explained that even if sitecommissions were disregarded, the capshere were set too low to ensurecompensation for each call. The capswere contrary to the record and operatedinefficiently. The Order’s analysis of therecord was not a result of reasoneddecisionmaking; therefore, the courtvacated the Order on that point.26

The court explained that the Order’simposition of ancillary fee caps inconnection with interstate calls wasjustified. But as to intrastate rate caps,the Order failed review. The FCC had noauthority to impose ancillary fee caps

with respect to intrastate calls. But itwas unclear from the record whetherthose fees could be segregated betweeninterstate and intrastate calls. Based onthis analysis, the court remanded theissue for further consideration.27

In addressing the imposition ofreporting requirements, the courtdetermined that video visitation servicereporting requirements were tooattenuated to the FCC’s statutoryauthority to justify the requirement.Before the FCC could assert jurisdictionto impose that requirement, the FCCfirst must explain how its authorityextends to video visitation services as acommunication by wire or radio fallingwithin section 201(b). The Orderoffered no such explanation. The courtvacated the video visitation reportingrequirement as well.28

Finally, the court held that thepreemption issue and due process claimswere moot.29

This opinion is the second issued by thecourt. The court amended its opinion30


3380543, at *12.

Id. at *13.26

Id.27

Id. at *14.28

Id.29

Global Tel*Link v. Fed.30

Commc’ns Comm’n, 859 F.3d 39 (D.C.Cir. 2017).

6

to respond to one petitioner’s motion forrehearing en banc. The court explainedthat its opinion need not, and did notdecide, whether the court was required tofollow Chevron step two. The importantpoint was that even after careful analysisof the Order, the Order could not survivereview under either the “bestreading”standard or the Chevron steptwo analysis.31

Senior Circuit Judge Silberman filed aconcurring opinion in which he agreedwith the opinion in all respects. Inparticular, he agreed that Chevrondeference would be inappropriate. JudgeSilberman wrote separately to point outthat the analysis would be the same,however, as to the FCC’s claimedjurisdiction to set intrastate rate caps evenif Chevron had been at issue.32

Circuit Judge Pillard filed a dissent as tocertain sections of the opinion andconcurred in part. He argued the opinionscuttles a long-term effort to addresscalling costs not meaningfully subject tocompetition and “that profit off ofinmates’ desperation for connection.”33

Judge Pillard argued that “[i]f the FCCunder new management wishes by notice

and comment to change its rule, thestatute gives it latitude to do so. [Thecourt] should uphold the rule that is onthe books and leave to the agency todecision whether and how tochange it.”34

II. TEXAS SUPREME COURT

O n c o r Ele c . De liv e ry Co . L.L.C. v .Pu b . Util. Co m m ’n , 507 S.W.3d 706(Tex. 2017).

In this case, the Texas Supreme Courtconsidered an appeal of Oncor ElectricDelivery Company’s (Oncor) applicationfor an increase to its rates. The courtconsidered: 1) whether section 36.351 ofthe Texas Utilities Code (which requireselectric utilities to discount charges forservices provided to state colleges anduniversities) applies to a transmissionand distribution utility; 2) whetherformer section 36.060(a) of the TexasUtilities Code(which requires an electricutility’s income taxes to be computed asthough it had filed a consolidated returnwith a group of its affiliates) required autility to adopt a corporate structure soas to be part of the group; and3) whether the record evidenceestablished that franchise charges, whichwere negotiated by the utility withvarious municipalities, were reasonable


3380543, at *16.

Id.32

Id. at *17.33 Id. at *16.34

7

and necessary operating expenses.35

Facts

In June 2008, Oncor initiated aratemaking proceeding at the PublicUtility Commission of Texas (theCommission). In its application, Oncorrequested a $253 million increase due toa large investment it had made in itssystem, mounting operation costs, and ana n t i c i p a t e d n e e d t o m a k ecapital expenditures. 36

The Commission ultimately approved a$115 million increase. The Commissionconcluded that the Utilities Code doesnot require Oncor to discount its ratesfor transmitting and distributingelectricity purchased by state colleges anduniversities. The Utilities Code does notrequire that Oncor’s federal income taxexpense be calculated as if Oncor hadfiled a consolidated return with itsaffiliates. The Commission determinedthat Oncor’s tax expense should becalculated as if it were a stand-alonecorporation. Finally, the Commissionfound that Oncor failed to show thatcertain municipal franchise charges werereasonable and necessary.37

The district court agreed with theCommission on the federal income taxissue, but reversed the Commission onthe university discount and franchisefee issues. 38

State Un iv e rs it ie s an d Co lle g e sDis c o u n t

Section 36.351 of the Utilities Coderequires an electric utility to “‘discountcharges for electric service provided to afacility of a four-year state university,upper-level institution, Texas StateTechnical College, or college.’” The39

discount is a 20% reduction of theutility’s base rate.40

Section 36.251 was enacted in 1995—prior to deregulation. In 1999, after theLegislature passed Senate Bill 7,transmission and distribution utilitiesremained fully regulated. Senate Bill 7did not change the text ofsection 36.351, but it redefined “electricutility” to exclude unbundled powergeneration companies and retail electricproviders. This removed transmissionand distribution utilities from the

Oncor Elec. Delivery Co. L.L.C. v.35

Pub. Util. Comm’n, 507 S.W.3d 706, 709(Tex. 2017).

Id. 36

Id. at 710.37

Id.38

Id. (quoting Tex. Util. Code39

§ 36.351).

Oncor Elec. Delivery Co. L.L.C.,40

507 S.W.3d at 711.

8

provisions of the discount. 41

Section 63 of Senate Bill 7 suspended thischange during the transition to acompetitive market and froze total ratesthat state universities paid for electricitycovered under section 36.351 atDecember 31, 2001 levels untilSeptember 1, 2007.42

When Oncor initiated its rate case in June2008, the rate freeze had expired. Oncorargued that the section 36.351 discountno longer applied to it because Oncor didnot, under the statutes’ words, “charge[] for electric service provided to a facility”or any retail customer, including stateuniversities.” Oncor argued that onlyretail electric providers furnish service toretail customers. State Universitiesopposed this position, and theCommission agreed with Oncor.43

The court of appeals deferred to theCommission’s interpretation and affirmedthe Commission’s decision on this issue.44

Co n s o lid ate d Tax Sav in g s

The Commission was required to set rates

for Oncor at a level that would allowOncor a reasonable return on itsinvestment. One expense theCommission considered was Oncor’sfuture tax liability. Oncor argued thatthis liability should be determined as ifOncor were a separate corporation.Several consumer parties, as well asCities, argued that Oncor’s tax liabilityshould be calculated as if it wereincluded in its parent’s tax return. TheCommission agreed with Oncor.However, the court of appeals reversedthe Commission’s decision. 45

A consolidated federal income tax returnallows affiliated companies to sharelosses and lower collective tax liability.Texas Utilities Code section 36.060allows ratepayers to benefit from a taxsavings that results from filing aconsolidated return.46

Under federal tax law, a parentcorporation and certain subsidiarycorporations are considered an affiliatedgroup and are allowed to fileconsolidated returns. When Oncor filedits rate case in 2008, it was a whollyowned subsidiary of Energy FutureHoldings (EFH). In 2007, EFH and itsaffiliates, which included Oncor, filed aconsolidated tax return. Because it was Id. at 714 (citing Tex. Util.41

Code § 36.351).

Id. at 711-12.42

Id. at 71243

Id.44

Id. at 714.45


507 S.W.3d 714-15.

9

wholly owned by EFH, Oncor wasdeemed a disregarded entity and treatedas a subdivision of EFH. Had Oncorfiled separately, its tax liability would havebeen $151 million. However, EFH’saffiliated group shared losses and as aresult, Oncor paid no taxes.47

In November 2008, while Oncor’s ratecase was pending at the Commission,EFH sold a 19.96% interest in Oncor.As a result, Oncor was a “partnership”for federal tax purposes and could nolonger be regarded as an entity separatefrom its owner. Even though Oncor48

was allowed to be treated as acorporation under federal tax law, Oncordid not make that election in itstax return.49

The Commission determined thatOncor’s tax expense should be based onits tax situation after November 2008;therefore, Oncor was taxed as apartnership. Oncor was no longer amember of a group eligible to file aconsolidated tax return as recognizedunder sect ion 36 .060(a ) , andconsequently, the statute did not requirea calculation of its tax return as if it werestill included in EFH’s consolidatedreturn. Finally, the Commissiondetermined that although Oncor would

be taxed as a partnership, its tax expenseshould be calculated as if it were a standalone corporation.50

The court of appeals held that becauseOncor could have elected to be taxed asa corporation, it remained a member ofan affiliated group that was eligible tofile a consolidated tax return. The courtof appeals reasoned that theCommission should have used the 2007test year and applied section 34.060(a).51

Fran c h is e Fe e Ag re e m e n ts

Municipalities franchise to utilities to usestreets, alleys, and other public areas.Senate Bill 7 added Utilities Code section33.008 to the Utilities Code. Thissection recognizes that 1) a municipalitycan impose a reasonable franchisecharge on a transmission anddistribution utility, 2) a municipality thatimposed franchise charges beforecompetition can continue to charge perkilowatt hour of electricity delivered, 3)charges that are reasonable andnecessary operating expenses of theutility and may be passed on to retainelectric providers; and 4) on theexpiration of a franchise agreementexisting after September 1, 1999, adifferent amount of compensation may

Id. at 715.47

Id.48

Id. at 716.49

Id.50


507 S.W.3d at 716.

10

be agreed upon. 52

Further, section 62(a) of Senate Bill 7stated, “nothing in this Act shall restrictor limit a municipality’s historical right tocontrol and receive reasonablecompensation for use of public streets,alleys, rights-of-way, or other publicp r o p e r t y t o c o n v e y o rprovide electricity.”53

In its application to the Commission,Oncor proposed to include $253,884,976of municipal franchise charges as areasonable and necessary operatingexpense. Of that amount, almost $5.7million was a 5% increase negotiated byOncor and the Cities. The Commissionrejected Oncor’s request and determinedthat a utility cannot pay more than thecharge set out in section 33.008(b). 54

In the court of appeals, the Commissionabandoned that argument, and insteadargued that under the language insection 33.008(f), Oncor could include itsexpenses charged only if it proved thecharge was agreed to “on the expirationof a franchise agreement existing onSeptember 1, 1999.”

The Commission argued that Oncorfailed to meet its burden of proof because

less than a scintilla of evidence existed inthe record. The court of appealsagreed.55


The Texas Supreme Court affirmed thecourt of appeals in part and reversed inpart, and remanding the case to theCommission for further proceedings.56

State Un iv e rs itie s an d Co lle g e sDis c o u n t

The court agreed with the Commissionthat section 36.351 does not apply totransmission and distribution utilities inderegulated areas.57

The court determined the language ofsection 36.351 is clear—in deregulatedareas of the state, a transmission anddistribution utility “may not sellelectricity”—only a retail electricprovider can. Transmission anddistribution utilities cannot chargeconsumers for electric service. Theseutilities charge tariffed rates set by theCommission to retail electric providers.Therefore, it follows a transmission anddistribution utility cannot discount ratesto consumers, it can only do so for retail

Id. at 719.52

Id.53

Id. 54

Id.55


507 S.W.3d at 720.

Id. at 713.57

11

electric providers. 58

The court explained, if universitiescontinue to receive a discount, it is onlythrough negotiation, not due tosection 36.351 provisions. In 1995, whensection 36.351 was enacted, it was clearlyintended to apply to integrated utilities.Senate Bill 7's change in the definition of“electric utility” made section 36.351inapplicable to transmission anddistribution utilities. Section 63 expiredby its own terms in 2007. No change insection 36.351's text was needed toremove its application to transmissionand distribution utilities. Section 36.354,however, was not enacted until 2003, andat that point, the limitation of itsapplication to areas outside the ElectricReliability Council of Texas wasconsistent with section 36.351.59

Co n s o lid ate d Tax Sav in g s

The court disagreed with the court ofappeals. Section 36.060(a) plainly appliesonly to a utility that “is” currently amember of an affiliated group—not autility that could be. The court explainedthat the court of appeals’ concern (thatOncor could use its change of ownershipand federal tax law to give EFH thesavings ratepayers had received whenOncor was included) could not be used to

read section 36.060(a) contrary to plaintext. It is the group itself that must beeligible to file a consolidated return, notthe utility alone.60

The Court held the Commission’sdetermination to calculate Oncor’s taxexpense as if it were a corporation wasnot arbitrary and capricious.61

Fran c h is e Fe e Ag re e m e n ts

The court reversed the judgment of thecourt of appeals and remanded the caseto the Commission on this point.62

The expiration of a franchise agreementexisting on September 1, 1999, cannotbe read as a condition to agreeing to adifferent charge. If it were, amunicipality, which had no franchiseagreement with a transmission anddistribution utility on that date couldnever impose a franchise agreement inthe future. That restriction wouldseverely limit a “municipality’s historicalright to control and receive reasonablecompensation” for the use ofpublic property.63

Id.58

Id. at 714.59

Id. at 717.60


507 S.W.3d at 717.

Id. at 720.62

Id. at 718.63

12

The court determined that reading theprovisions together as it must 1) confirmsthat municipalities may continue toimpose franchise charges aftercompetition, 2) charges per kilowatt hourequal to the average amount chargedmust be considered reasonable andnecessary, and 3) utilities may continue torenegotiate franchise charges.64

III. TEXAS COURTS OF APPEAL

Jasinski v. Pub. Util. Comm’n, No. 03-16-00725-CV, 2017 WL 2628071 (Tex.App.—Austin June 14, 2017, pet. filed)(mem. op.).

The Third Court of Appeals consideredan order of the Public UtilityCommission of Texas (the Commission),which dismissed a complaint brought byKenneth M. Jasinski (Jasinski) for failureto state a claim for which relief canbe granted.

Facts

After Oncor Electric Delivery Company,LLC (Oncor) trimmed a live oak tree onJasinski’s property, Jasinski filed acomplaint with the Commission. In hiscomplaint, Jasinski alleged that Oncorover-trimmed his tree and that the changeto the clearance standard in Oncor’s 2015Vegetation Management Report (from 7to 10 feet in its 2014 Vegetation

Management Report to 10 feet in its2015 Vegetation Management Report)was a violation of the Public UtilityRegulatory Act (PURA), the NationalElectrical Safety Code, Commission’sRules, and “Good Utility Practice” asdefined by the Commission. Jasinskirequested the following relief: 1) that hebe “grandfathered” under the formerclearance standard in the 2014Vegetation Management Report; 2) thatthe Commission conduct an audit ofOncor’s tree-trimming practices; and 3)that the Commission assess anadministrative penalty against Oncor.

In response, Oncor filed a motion todismiss Jasinski’s complaint, stating thatit had not violated any regulations orrules. Pursuant its own procedural rule,rule 22.181(a)(1)(G), and withoutholding a hearing, the Commissiondismissed Jasinski’s complaint for failureto state a claim for which relief can begranted. The Commission concludedthat Jasinski’s complaint stated noviolations by Oncor of its tariff, theCommission’s rules, or PURA, and thatJasinski was not entitled to the relief hesought. On appeal, the district court65

affirmed the Commission’s order.

Mr. Jasinski appealed the district court’sorder, asserting that the Commission’s

Id. at 719.64

Jasinski v. Pub. Util. Comm’n,65

No. 03-16-00725-CV, 2017 WL2628071, at *4 (Tex. App.—AustinJune 14, 2017, pet. filed) (mem. op.).

13

order was an error of law; that Oncor’s66

clearance standard in its 2015 VegetationManagement Report was unreasonableand excessive; that the change to theclearance standard should have beenincluded as part of a tariff revision; andthat Oncor violated PURA, the NationalElectrical Safety Code, the Commission’srules, and Oncor’s tariff. He alsocomplained that the Commission’s orderfailed to rule on each of his proposedfindings of fact and conclusions of law.


The court held that the Commissionproperly concluded Jasinski’s complaintdid not state a claim for which relief canbe granted. The court determinedJasinski’s allegations, claiming that Oncorviolated statutes, regulations, and itstariff, were unsupported legal conclusionsand opinions that need not be taken astrue. The court upheld the district67

court’s judgment affirming theCommission’s order dismissingJasinski’s complaint.

In its analysis, the court reviewed andoutlined the relevant statutes, regulations,and tariff provisions that govern utilities’management of vegetation neartransmission and distribution lines. 6

8

These statutes and rules require utilitiesto “‘furnish service, instrumentalities,and facilities that are safe adequate,efficient, and reasonable;’” to manage69

“vegetation that may come in contactwith and possibly damage a utility’slines;” and to file a Vegetation70

Management Report annually with theCommission describing the utility’svegetation management practices.71

Utilities’ tariffs allow “access to retailcustomers’ premises to, among otherthings, perform tree trimming activitiesand ‘tree removal where such trees, inthe opinion of [Oncor] constitute ahazard to [Oncor] personnel or facilities,or to the provision of continuousDelivery Service.’” 72

The court reasoned that “[f]or Jasinski tobe correct, there must be someprohibition, statutory or otherwise,against Oncor’s vegetation managementpractice of trimming trees to create aten-foot clearance between the trees and

Id.66

Id. at *5.67

Id. at *4.68


§ 38.001).

Jasinski, 2017 WL 2628071, at70

*4 (referencing Nat’l Elec. Safety Code§ 218.A.1).

Id. (citing 16 Tex. Admin.71

Code § 25.96).

Id. (quoting Oncor Electric72

Delivery Company LLC Tariff forRetail Delivery Service § 5.4.8).

14

Oncor’s distribution lines.” After73

discussing the regulatory framework, andnoting that Jasinski had failed to identifya statute, rule, or practice that imposes alimit on Oncor’s discretion to determinethe appropriate clearance distances, thecourt found that the necessary explicitprohibition does not exist in the UtilitiesCode (PURA), the Commission’s rules, orthe National Electrical Safety Code.Therefore , Oncor’s vegetationmanagement practice of trimming trees toa ten-foot clearance distance is notactionable. As a result, the court agreed74

with the Commission’s assessment thatJasinski’s complaint did not state a claimfor which relief can be granted. 75

Because Jasinski failed to include it in hiscomplaint with the Commission, thecourt did not consider Jasinski’sallegation that the change in Oncor’svegetation management practicesconstituted a change to its currentlyeffective tariff. Even if the claim hadbeen in his complaint, the court statedthat these changes were not required tobe included in Oncor’s tariff. The tariffdoes not include tree-trimming clearancesas one of its prescribed terms.

The Commission’s order grating themotion to dismiss states: “‘All other

motions, requests for entry, specificfindings of fact and conclusions of law,and any other requests for general orspecific relief, if not expressly grantedherein, are denied.’” Despite Jasinski’s76

allegations otherwise, the courtconcluded that this language wassufficient as “a ruling on the proposedfindings of facts and conclusions of lawJasinski submitted.” 77

The court also held that theCommission’s rule 22.181, explicitly78

allows the Commission to dismiss acomplaint without an evidentiary hearingif it finds that the complaint fails to statea claim for which relief can be granted.“Even taking his allegations as true,Jasinski’s complaint did not allegeactionable conduct by Oncor.” 79

Id. at *5.73

Id.74

Id.75

Jasinski v. Pub. Util. Comm’n,76

2017 WL 2628071, at *6.

Id.77

The Commission has revised78

rule 22.181. The new version of therule has an effective date of January 5,2017 and is not the version consideredin this case.

Jasinski, No. 03-16-00725-CV,79

2017 WL 2628071, at *6.

15

City o f Dallas v . Sab in e Riv e r Au th .,No. 03-15-00371-CV, 2017 WL 2536882(Tex. App.—Austin June 7, 2017,no pet.).

The Third Court of Appeals consideredthe trial court’s order granting the SabineRiver Authority’s plea to the jurisdictionin a case regarding the increased rate theSabine River Authority (SRA) begancharging the City of Dallas (the City) forwholesale water.

Facts

SRA, a political subdivision of the State,provides wholesale raw water to the Citypursuant to a set of written contracts,which contain a provision for automaticrenewal of a forty-year term. Under thecontract, the amount of compensationthat SRA receives shall be determined bymutual agreement between the City andSRA, considering the price prevailing inthe general area at the time for water ofsimilar quantity, quality, and contract timeperiod. 80

The City and SRA did not reach anagreement as to the amount ofcompensation, so SRA’s board ofdirectors unilaterally approved a newcompensation plan for the next forty-yearrenewal term. The City filed a petition for

review with the Public UtilityCommission (the Commission)complaining of the renewal rate andrequesting interim rates, disagreeing thatthe rate had been made in accordancewith the contract with SRA. The81

Commission referred the case to theState Office of Administrative Hearings,and, pursuant to CommissionRule 24.141(d), the Administrative LawJudge issued an order abating theproceedings because the parties did notagree that the rate was charged pursuantto a written contract. 82

Seeking declarations that 1) the renewalrate set by SRA was not set pursuant toa written contract, and 2) SRA’s“‘legislative act in the nature of anordinance or statute setting those rates’was invalid,” the City filed suit with thedistrict court. SRA filed a plea to the83

jurisdiction, asserting governmentalimmunity. The trial court granted SRA’splea, and the City appealed.


The court determined that SRA, as apolitical subdivision, has “‘governmentalimmunity from suit unless theLegislature has waived that immunity’”

City of Dallas v. Sabine River80

Auth., No. 03-15-00371-CV, 2017 WL2536882, at *1 (Tex. App.—Austin June7, 2017, no pet.).

Id. at *2.81

Id.82

Id.83

16

clearly and unambiguously. The City84

alleged that there was a waiver of SRA’sgovernmental immunity under both theUniform Declaratory Judgment Act(UDJA) and the Texas Water Code. Thecourt handled these bases forwaiver separately.

As part of its analysis of the City’s claimthat SRA’s governmental immunity hadbeen waived under the UDJA, the courtnoted that the UDJA is not a generalwaiver of sovereign immunity. While itdoes contain a limited waiver ofimmunity, the UDJA “‘does not waiveimmunity when the plaintiff seeks adeclaration of his or her rights under astatute or other law’” or for suits based85

on contract disputes. The court86

explained that the UDJA “does not createor augment a trial court’s subject matterjurisdiction.” 87

The City claimed that its request fordeclaratory relief fell under the UDJA’swaiver of immunity for challenges to thevalidity of “a statute, ordinance, or otherlegislative pronouncement, and that SRA’s

action was ‘ratemaking,’ which islegislative in nature.” 88

The court disagreed, stating that theUDJA does not “expressly waiveimmunity for challenges to the broadercategory of ‘other legis lat ivepronouncements’” as the Citysuggested. The term “legislative89

pronouncement” is one used by theTexas Supreme Court merely to refer tothe statutes and ordinances beingchallenged, and not to expand theUDJA’s limited waiver of immunity. 90

Even if the UDJA’s waiver of immunityextended to a broader range ofchallenges like the City alleged, the courtdetermined that “SRA’s act of setting anew rate was not a ‘ratemaking’ orlegislative in nature based on the record. . . .” The court then explained the91

types of actions administrative agenciescan carry out. If the agency addressesbroad questions of public policy andpromulgates rules for future applicationto all or some of those subject to itspower, then the agency may act in alegislative capacity. However, if the

Id.84

City of Dallas, 2017 WL85

2536882, at *3 (quoting Texas Dep’t ofTransp. v. Sefzik, 355 S.W.3d 618, 622Tex. 2011).

Id. 86

Id.87

Id. at *4.88

Id. (citing Tex. Civ. Prac. &89

Rem Code § 37.006(b)).


2536882, at *4.

Id. at *5.91

17

agency determines facts that concern onlythe parties immediately affected, then theadministrative agency has acted in ajudicial capacity. 9

2

While ratemaking has been likened to alegislative activity carried out by anadministrative agency, the courtconcluded that in this case, SRA’s actionwas not a ratemaking. SRA’s action wasan approval of a compensation rate undera contract renewal with the City and onlyaffected the sale of water from SRA tothe City, with no impact on otherpurchasers of wholesale water fromSRA. 93

The City also sought declarations thatSRA’s unilateral change to the rate,instead of by agreement, was a breach ofthe contract. However, the court heldthat the UDJA does not waive immunityfor suits for breach of contract or toenforce performance under a contract. 9

4

Therefore, the court held that the UDJAdid not waive SRA’s immunity from theCity’s request for declaratory relief. 9

5

The court similarly held that the TexasWater Code provisions, which providefor Commission review of the SRA’srate-setting actions, do not create awaiver of immunity. Under CommissionRule 24.131(d), an Administrative LawJudge “may abate a rate-reviewproceeding for resolution ‘by a court ofproper jurisdiction’ of a dispute betweenthe buyer and seller as to whether theprotested rate is charged pursuant to awritten contract.” The City argued that96

the Commission’s adoption of Rule24.131(d) constituted a waiver of SRA’sgovernmental immunity. However, thecourt pointed out that “only theLegislature can waive sovereignimmunity” and must do so in clear andunambiguous language. The court97

concluded that the City had failed topoint to a statutory provision granting oridentifying any power to theCommission to waive the governmentalimmunity of SRA. Therefore, the court98

upheld the district court’s grant of SRA’splea to the jurisdiction.

Id. (citing Marcias v. Rylander,92

995 S.W.2d 829, 833 (Tex.App.—Austin 1999, no pet.)).

Id.93

Id. at *6.94


2536882, at *6.

Id. (quoting 16 Tex. Admin.96

Code § 24.131(d)).

Id. at *6 (citing Kerrville State97

Hosp. v. Fernandez, 28 S.W.3d 1, 10-11 (Tex. 2000).

Id. at *7.98

18

Is a v . Pu b . Util. Co m m ’n , No. 06-16-00070-CV, 2017 WL 2299112 (Tex.App.—Texarkana June 6, 2017,pet. denied).

The Texarkana Court of Appealsconsidered an appeal from a districtcourt’s grant of multiple pleas to thejurisdiction, asserting Appellant’s failureto exhaust administrative remedies whenhe failed to file a motion for rehearingwith the Public Utility Commission(the Commission).

Facts

In 2013, Nawaid Isa installed sixty-foot-tall concrete poles with high-efficiencyflood lights for use at a cricket field hehad built. Isa worked with CenterPoint(the designated transmission anddistribution utility) to connect the lightingsystem to CenterPoint’s existing electricdelivery system. As a result, CenterPointinstalled a utility pole with transformersat a cost to Isa of $3,341. After theinstallation, Isa selected Ambit, a retailelectric provider, to provide his electricservice and began receiving electricservice in August 2013. 99

In October, the cricket field’s electricityconsumption exceeded 10 KVA . Thistriggered a new service classification

under CenterPoint’s tariff. As a result ofthe field’s high energy usage,CenterPoint charged Ambit additionalcharges. These demand charges werethen billed to Isa by Ambit beginning inOctober 2013.100

Isa disputed the demand charges andrefused to pay them. Isa also refused topay the demand charges in hisNovember bill and refused to pay any ofAmbit’s final December bill. InDecember 2013, Ambit received a droporder from Isa who had switched to anew retail electric provider. As of Isa’sfinal bill, he had refused to pay a total of$2,184.56, which included $1,955.74 indemand charges. 101

In December 2013, Isa filed an informalcomplaint with the Commission’sConsumer Protection Division, allegingthat Ambit and CenterPoint had failedto notify him about demand charges hiscricket club began to incur. 102

After the informal complaint was denied,Isa filed a formal complaint with theCommission against Ambit andCenterPoint, disputing the demandcharges. In February 2014, theCommission referred the complaint tothe State Office of Administrative

Isa v. Pub. Util. Comm’n, No.99

06-16-00070-CV, 2017 WL 2299112, at*2 (Tex. App.—Texarkana June 6, 2017,pet. denied).

Id. 100

Id.101

Id.102

19

Hearings (SOAH). Isa subsequentlycomplained of CenterPoint’s failure toprovide him with information regardingalternative construction options andtechnology when he originally contractedwith CenterPoint.103

In three orders , the SOAHAdministrative Law Judge (ALJ) grantedsummary decision in favor of Ambit andCenterPoint on all of Isa’s claims, exceptfor his claims regarding demand charges.The ALJ also decided that the onlyremedy for Isa, if he prevailed on hisclaims, would be a refund or credit ofsome or all of the demand charges. Butduring the litigation, Ambit put a hold oncollection activities. After a year, Ambitcredited $2,184.56 to satisfy the balanceowed on Isa’s account and notified Mr.Isa in January 2015. Ambit andCenterPoint filed a joint motion todismiss his claims as moot. 104

The ALJ determined Ambit had alreadymade Isa whole, and no additional reliefcould be awarded even if Isa prevailed onthe merits. The matter was dismissedwith prejudice. 105

In June 2015, Isa appealed the ALJ’sdismissal order to the Commission.When no Commissioner voted to hear his

appeal, Isa’s appeal was deemed deniedby the Commission. 106

Isa did not file a motion for rehearingwith the Commission. He filed apetition for judicial review of theCommission’s final order in TravisCounty District Court. In September2016, the district court granted pleas tothe jurisdiction filed by the Commission,Ambit, and CenterPoint. 107

Proceedings of the Commission aregoverned by the Public UtilityRegulatory Act, the AdministrativeProcedure Act, and the AdministrativeCode. Any party to a proceeding at theCommission who has exhausted his orher administrative remedies is entitled tojudicial review. In order to exhaustremedies, the party seeking judicialreview of a Commission decision musthave filed a motion for rehearing in theunderlying proceeding at theCommission. 108

The purpose of a motion for rehearing isto provide notice to the agency that 1)the moving party is dissatisfied with itsfinal order, and 2) that an appeal will beprosecuted if the ruling is not changed.Until the party seeking judicial reviewexhausts his or her administrative

Id.103

Isa, 2017 WL 2299112, at *2.104

Id. at *3.105

Id.106

Id.107

Id. at *4.108

20

remedies, the trial court lacks subject-matter jurisdiction. 109

Isa does not contest that the onlypleading he filed after the dismissal orderwas his appeal of the order pursuant toCommission Rule 22.123. However, heargued that this pleading should beconstrued as a motion for rehearing.110


The Third Court of Appeals affirmed thedistrict court’s order, granting the pleas tothe jurisdiction.

The court determined that Isa’s appeal ofthe dismissal order may not be construedas a motion for rehearing.

Former Commission Rule 22.181provides two paths to arrive at the samedestination. First, if the presiding officerdetermines the proceeding should bedismissed, she may either prepare aproposal for decision or issue an orderthat dismisses the proceeding. 111

If the presiding officer prepares aProposal for Decision, the Commissionreviews it and may vacate or modify theorder, remanding the case to the ALJ,

issue its order adopting findings andconclusions, and issue an orderdismissing the proceedings. TheCommission’s order is then subject tobecoming a final order.112

Second, under Commission Rule 22.181,the presiding officer may issue thedismissal order. If that is the case, therule provides an opportunity for reviewby the Commission through an appealpursuant to Commission Rule 22.123.113

Under Commission Rule 22.123,Commissioners are sent separate ballotsto determine whether they will considerthe appeal at an open meeting. If noCommissioner votes to consider theappeal within ten days after the appeal isfiled, the appeal is deemed denied.114

The court explained that an appeal of adismissal order serves two purposes. Itprovides a chance for the Commissionto review the order, and “it provides amechanism that an aggrieved party canuse to secure an order of theCommission subject to becoming afinal order.” 115

Isa, 2017 WL 2299112, at *4.109

Id.110


Code § 22.181(a)(3)).

Id. at *4 (quoting Tex. Gov’t112

Code 2001.141(a)).


Code 22.181(a)(4)).

Isa, 2017 WL 2299112, at *4.114

Id. at *5.115

21

The purpose of the motion for rehearingis “to provide notice to the agency thatthe moving party is dissatisfied with itsfinal order and that an appeal will beprosecuted if the ruling is notchanged.” In addition, “the agency will116

have the opportunity to correct any errorin its decision or to prepare todefend it.”117

The court additionally found that Isafailed to meet his burden to show that amotion for rehearing would be futilebecause he did not demonstrate that sucha motion would be denied. “Futility is anexception to the requirement that a partyseeking judicial review must exhaust hisadministrative remedies.” However,118

Isa could not avoid actually exhaustinghis administrative remedies simplybecause he thought his motion forrehearing would not be successfulwithout providing supporting evidence.119

The court also overruled Isa’s argumentsregarding the deficiency of the dismissal

order. The court explained, although Isais correct that a final order of theCommission must include findings offact, the lack of findings will not preventit from becoming a final order subject toa motion for rehearing. This deficiencyshould have been set out in a motion forrehearing do that the Commission couldhave an opportunity to correct the error.Since Isa failed to do so, he failed topreserve any error.120

The court overruled Isa’s final assertionthat Rule 22.123(b)(1) prevents the filingof a motion for rehearing after appealingan ALJ’s dismissal of the order. Rule22.123(b) only applies to interim orders.By contrast, section 22.123(a) applies toappeals from an interim order of apresiding officer, as well as appeals of apresiding officer’s dismissal order.Unlike section (b), there is no provisionin section (a) which states that an appealfrom an ALJ order that is treated as amotion for reconsideration is not subjectto a motion for rehearing.121

The court determined that because Isafailed to exhaust his administrativeremedies, the trial court lacked subject-matter jurisdiction.122

Id. (quoting Suburban Util.116

Corp. v. Pub. Util. Comm’n, 652 S.W.3d358, 364 (Tex. 1983)).

Id.117

Id. at *6 (quoting Ogletree v.118

Glen Rose Ind. Sch. Dist., 314 S.W.3d 450,454 (Tex. App.—Waco 2010, pet.denied)).

Isa, 2017 WL 2299112, at *6.119

Id.120

Id. at *7.121

Id. at *8.122

22

Ne w Talk, In c . v . Sw . B e ll Te l. Co .d /b /a AT&T Te xas , No. 02-15-00199-CV, 2017 WL 1955400 (Tex.App.—Fort Worth May 11, 2017,no pet.).

In this case, the Fort Worth Court ofAppeals considered an allegation ofovercharges by New Talk againstAT&T Texas.

Facts

Southwestern Bell Telephone Company,d/b/a AT&T Texas (AT&T) is a local-exchange carrier (ILEC) under theFederal Telecommunications Act of1996. Under the Act, an ILEC mustprovide “interconnection with the[ILECs] network’ for ‘the facilities andequipment of any requestingtelecommunications carrier.’” This123

interconnection is done through the useof “interconnection agreements” withcompetitive local-exchange carriers(CLECs) such as New Talk. Allinterconnection agreements must beapproved by the state regulator— in thiscase—the Public Utility Commission(the Commission).124

In 2008, AT&T and New Talk enteredinto an interconnection agreement whereNew Talk agreed to pay AT&T forwholesale resale telecommunicationservices. The agreement stated that ifthere was any dispute related to it,including a billing dispute, either partycould invoke dispute resolutionprocedures under Commission rules.125

In 2010, a billing dispute arose betweenAT&T and New Talk, and New Talkfiled a complaint with the Commission.Specifically, New Talk argued thatAT&T had threatened to discontinueservice and requested an injunctiona g a i n s t A T & T t o p r e v e n ttheir disconnection. 126

New Talk argued that AT&T owed $2.8million in promotional credits undertheir interconnection agreement and hadimproperly assessed $300,000 in latecharges and an improper $260,000security deposit. New Talk requestedthe Commission to enter an orderdirecting AT&T to credit thepromotional credits and late charges.Commission arbitrators entered an orderthat prohibi ted AT&T fromdisconnecting service to New Talk.127

New Talk, Inc. v. Sw. Bell Tel.123

Co. d/b/a AT&T Texas, No. 02-15-00199-CV-2017 WL 1955400, *1 (Tex.App.—Fort Worth May 11, 2017,no pet.) (quoting 47 U.S.C. § 251(c)(2)).

Id. at *2.124

Id. at *1.125

Id.126

Id. 127

23

In August 2010, New Talk and AT&Tagreed to a stay of the Commissionproceeding. The stay was eventuallylifted, and AT&T counterclaimed basedon New Talk’s failure to pay for servicesprovided from May 2009 through March2012. New Talk admitted, in response, ithad not paid the full amounts but arguedthe interconnection agreement permittedit to withhold amounts that werein dispute.128

Each party moved for summary decisionregarding AT&T’s promotional creditcalculation methodology. Commissionarbitrators determined AT&T’smethodology was correct and issued anarbitration award. The award recognizedthat New Talk had unlawfully withheldpayments from AT&T, and based onreview of AT&T’s evidence, found thatAT&T should be awarded a past dueamount of $12,255,887.53. Additionally,the arbitrators required AT&T to issuecredits for late payment charges after thearbitration award was issued. New Talkdid not move for reconsideration and didnot seek judicial review of thearbitrators’ decision.129

New Talk did not pay the arbitrationaward, and in October 2013, AT&T fileda suit against New Talk for breach ofcontract and attorney’s fees. New Talk

filed a counterclaim for breach ofcontract. AT&T filed a motion todismiss and moved for summaryjudgment. New Talk sought acontinuance of the summary judgmenthearing to conduct discovery. New Talkadditionally filed a motion to showauthority, arguing that AT&T’s attorneywas employed by AT&T Services, Inc.,and not AT&T and therefore did nothave authority to represent AT&T.130

The district court heard New Talk’smotion to show authority and AT&T’samended motion for summary judgment.At that hearing, the court orally deniedNew Talk’s motion to show authorityand denied New Talk’s continuancerequest to conduct discovery. 131

In December 2014, the district courtgranted AT&T’s summary judgmentmotion and awarded it $12,224,188.53in damages. AT&T abandoned itsclaims for attorney’s fees andunjust enrichment.132


The Fort Worth Court of Appealsaffirmed the decision of the districtcourt, awarding summary judgment inAT&T’s favor.

New Talk, Inc., 2017 WL128

1955400, at*2.

Id.129

Id. at *2.130

Id. at *3.131

Id.132

24

The court overruled New Talk’s assertionthat because AT&T’s trial counsel wasemployed by a different AT&T entity, itd i d n o t h a v e a u t h o r i t y t orepresent AT&T.133

A party is permitted to file motion tochallenge an attorney’s authority underTexas Rule of Civil Procedure 12. Thatrule places the burden on the challengedattorney bears the burden “to showsufficient authority to prosecute ordefend the suit on behalf of the otherparty.’” If the challenged attorney fails134

to meet its burden, the trial court must“strike the pleadings if no person who isa u t h o r i z e d t o p r o s e c u t e o rdefend appears.”135

New Talk did not argue that AT&T hadnot authorized its trial counsel torepresent it. Rather, it argued “Texas lawgenerally prohibits the corporate practiceof law, except an employee-attorney ispermitted to represent his employer.”136

In overruling New Talk’s claim, the courtdetermined that an attorney employed byone company is not prohibited from

representing an affiliate. Whether AT&TServices, Inc. is engaging in theunauthorized practice is irrelevant to thedetermination of whether its employeeshave authority to represent AT&T. 137

New Talk argued that the arbitrationaward was not entitled to either resjudicata or collateral-estoppel effect.New Talk alleged that the Commissionlacked jurisdiction over AT&T’s claimsbecause it had no authority to awarddamages for common law causes ofaction on the interconnection agreement.AT&T recognized that the Commissioncannot award money damages, butargued that by its interpretation of theinterconnection agreement, theCommission had awarded monetarydamages as a result of a billing disputebetween the parties.138

The court recognized the Commission’sauthority to enforce the interconnectionagreement when disputes arise about itsmeaning or effect. Further, theCommission has primary jurisdictionover the validity and enforceability ofinterconnection agreements betweenILECs and CLECs. The court also139

recognized that the agreement itselfstated that either party could invoke

Id.133


1955400, at *3.

Id. (quoting Tex. R. Civ. P.135

12).

Id.136

Id. at *3-4.137

Id. at *5.138


1955400, at *6.

25

dispute resolution procedures to resolvebilling disputes.140

The court concluded that because theCommission had authority to interpretand enforce the interconnectionagreement, the Commission hadconcomitant jurisdiction to calculate theamounts due under that agreement.141

In overruling New Talk’s next argument(that the Commission’s award was notfinal or binding and, therefore, could nothave a res-judicata effect) the courtexplained that when an administrativeagency acts in a judicial capacity andresolves disputed facts before it, resjudicata bars later lawsuits involving thosesame facts. Here, the court determinedthe arbitration award was entitled to res-judicata effect. “[The Commission],acting in a judicial capacity, resolveddisputed fact issues properly AT&T andNew Talk had an adequate opportunityt o - a n d d i d - l i t i g a t e b e f o r ethe [Commission].”142

The court also overruled New Talk’sargument that it was improperly denied ajury trial. In this case, the Commissiondid not impose or award damages butrather, interpreted the interconnection

agreement and determined thebalance due. 143

The court held res judicata applies—AT&T established as a matter of law,that the Commission’s award was aprior, final judgment on the merits by acourt of competent jurisdiction. Next,the court found that AT&T hadestablished the essential elements of itsbreach of contract claim. The courtstated that it need not address the trialcourt’s grant of summary judgment oncollateral estoppel grounds becausesummary judgment had been properlyg r a n t e d o n A T & T ’ s r e sjudicata grounds. 144

The court additionally overruled NewTalk’s defense that claims were time-barred because New Talk had failed toraise a fact issue or prove each elementof the limitations defense. 145

Finally, the court overruled New Talk’sdiscovery issues, determining thatfreezing discovery was harmless. 146

Id.140

Id.141

Id. at *7.142

Id. at *8.143


1955400, at *9.

Id.145

Id. at *10.146

26

Ch is h o lm Trail SUD Stake h o ld e rsGrp . v . Ch is h o lm Trail Sp e c ial Util.Dis t., No. 03-16-00214-CV, 2017 WL2062258 (Tex. App.—Austin May 11,2017, no pet.) (mem. op.).

The Third Court of Appeals consideredan interlocutory order granting pleas tothe jurisdiction of Chisholm Trail SpecialUtility District, its Directors, the City ofGeorgetown as well as the Public UtilityCommiss ion (the Commission)and its Commissioners, in theirofficial capacities.

Facts

Chisholm Trail Special Utility District(the District) acquired a water supply anddistribution utility system that servedcustomers in Burnet, Bell, andWilliamson counties. The District andthe City of Georgetown (the City) enteredinto an asset transfer and utility systemconsolidation agreement. In exchangefor the District’s agreement to transfer allassets, except $500,000 in cash, theparties agreed to use their best efforts toobtain approval of the transfer of theDistrict’s certificate of convenience andnecessity (CCN) to the City. Under theterms of that agreement, the parties filedan application for transfer. Thatapplication was transferred to the StateO f f i c e o f A d m i n i s t r a t i v eHearings (SOAH). 147

In September 2014, the City and theDistrict entered into a first amendmentto the asset transfer and utility systemagreement. In that agreement, theparties agreed it was in the best interestof the parties for the District to maintainthe CCN at closing and thereafter. Inreturn, the City agreed to certainresponsibilities of operating andmaintaining the water utility system.148

In July 2015, the contested case hearingfor the CCN transfer applicationoccurred. The Stakeholders Group ( anonprofit group of residents andlandowners in Bell, Burnet, andWilliamson counties) were not a part ofthe contested case hearing. After thehearing had concluded, but before theCommission issued its final order, theStakeholders Group filed suit against theDistrict, the District’s Directors in theirofficial capacities, the City, and theCommission, challenging the transfer ofthe District’s water utility assets andcertified service area. The StakeholdersGroup alleged ultra vires conduct andsought declaratory and injunctive reliefunder the Uniform DeclaratoryJudgment Act (UDJA).149

Chisholm Trail SUD147

Stakeholders Group v. Chisholm Trail Special

Utility District, No. 03-16-00214-CV,2017 WL 2062258, *1 (Tex.App.—Austin May 11, 2017, no pet.).

Id.148

Id. at *2.149

27

The District and its Directors, the City,and the Commission subsequently filedpleas to the jurisdiction. The districtcourt granted the pleas.150


The Third Court of Appeals overruledthe Stakeholders Groups’ issue andaffirmed the district court’s order, whichgranted the pleas to the jurisdiction.151

The Stakeholders Group argued that thedistrict court erred in granting the pleasbecause its pleadings alleged facts thataffirmatively showed the trial court hadjurisdiction over its claims.152

“‘A plea to the jurisdiction challenges thecourt’s authority to decide a case.’”153

Governmental immunity precludes suitsagainst political subdivisions of the Stateincluding the City and the District in thiscase. This deprives the court of subjectmatter jurisdiction. Without an expresswaiver, sovereign immunity will normallydeprive the court of subject matter

jurisdiction over agencies, such as theCommission. The court noted the154

Stakeholders Groups’ claims werebrought under the UDJA, but the UDJAdoes not create or augment a trial court’ssubject matter jurisdiction. Rather, theUDJA is “‘merely a procedural devicefor deciding cases already within acourt’s jurisdiction.’”155

The Stakeholders Group argued thedistrict court had jurisdiction over itsclaims under article III, section 52(a) ofthe Texas Constitution. Section 52(a)provides a right of action against thegovernment for violations of thatprovision without a need for a waiver ofsovereign immunity.156

The Stakeholders Group argued theagreements were void and violatedsection 52(a). It argued when a politicalsubdivision transfers funds, it must befor a public purpose, with a clear publicbenefit in return. In order to be incompliance with section 52(a), a districtcourt must retain some degree of controlover the contract’s performance.157

Id. at *2-3.150

Id. at *11.151


Stakeholders Group, 2017 WL 2062258, at*1.

Id. at *4 (quoting Heckman v.153

Williamson Cnty., 369 S.W.3d 137, 149(Tex. 2012)).

Id.154

Id. at *5 (citing Tex. Ass’n of155

Bus. v. Air Control Bd., 852 S.W.2d 440,444 (Tex. 1993)).

Id. at *3.156


Stakeholders Group, 2017

28

The court agreed with the StakeholdersGroup concluded that governmentalimmunity does not bar claims, whichallege constitutional violations andseeking equitable remedies. The courtnext turned to the Stakeholders Groups’declaration that the District transferred itsassets in violation of article III, section 52of the Texas Constitution.

The court disagreed with the assertionthat the District did not receiveconsideration from the agreements. Thecourt determined that in exchange for thetransfer of the District’s assets, the Cityassumed the District’s liabilities andobligations to provide water andsewer service.158

The agreements between the City and theDistrict were for public purposes. Thecourt found that “the StakeholdersGroup failed to allege un-negated factsthat would actually constitute aconstitutional violation under article III,section 52(a) to establish the trial court’sjurisdiction over this claim.” 159

In overruling the Stakeholder Groups’claims against the Commission and itsCommissioners, the court concluded,

that because the Commission has theexpress authority to grant, revoke, andamend CCNs, the Commission’s finalorder could not be subject to collateralattack. Further, the Stakeholder Groupdid not file a motion for rehearing fromthe final order. Therefore, the finalorder may not be challenged.160

In addition, the court explained, to theextent the Stakeholders Group arguedthe trial court had jurisdiction becausethe Stakeholders Group was challengingthe Commission’s interpretation of theWater Code, the court determined theUDJA does not waive immunity for“bare statutory construction claims,” andthe retrospective remedy of reversal ofthe Commission’s order is unavailable.161

The court additionally overruled theStakeholder Groups’ ultra vires claimsagainst the Directors.162

CPS En e rg y v . Pu b . Util. Co m m ’n ,No. 03-14-00340-CV, 2017 WL 744694(Tex. App.—Austin Feb. 24, 2017, nopet. h.).

The Third Court of Appeals consideredthe rates charged by a municipally owned

WL 2062258, *5.

Id. at *6.158

Id. at *8 (citing Texas Dept. of159

Parks and Wildlife v. Miranda, 133 S.W.3d217, 228 (2004)).

Id.160

Id. at *9.161


Stakeholders Group, 2017 WL 2062258,at *10.

29

utility (MOU), CPS Energy, totelecommunication providers and otherentities that attach network facilities to itsutility poles.

Facts

This appeal arises from an issue of firstimpression that addressed the interactionbetween section 54.204 of the PublicUtility Regulatory Act (PURA) andFederal Communication Commission(FCC) rules, federal law, and the scope ofjurisdiction of the Public UtilityCommission (the Commission)over MOUs.163

The dispute in this case arose as a resultof legislation that prohibits discriminationby MOUs in favor of or against acertificated telecommunications provider(CTPs). Specifically, section 54.204(c)164

requires MOUs to charge a rate that doesnot exceed a maximum-allowable rateand to charge a uniform rate for poleattachments. 165

CPS Energy is an MOU owned by theCity of San Antonio. CPS Energy

delivers electricity through the use ofdistribution lines that are attached topoles it owns in the San Antonio area.Other entities, such as telephone andcable companies (Southwestern BellTelephone Company, d/b/a AT&TTexas (AT&T) and Time Warner), leasespace on CPS Energy’s poles to provideservice to area-customers.166

CPS Energy has agreements (Joint UsePole Contract Agreement) with bothAT&T and Time Warner that govern theuse of space on CPS’s poles. AT&T’sagreement allows AT&T to attach toCPS Energy poles. In exchange for thisattachment, AT&T must pay an annualattachment fee of $3.75 per pole. Thepole attachment fee could not beadjusted by the agreement, but eitherparty could terminate the agreementwith six months notice.167

CPS Energy and Time Warner enteredinto their pole-attachment agreement in1984. Their agreement allowed TimeWarner to provide cable services, andCPS Energy charged Time Warner $3.75per pole, per year. This rate could beraised with six months notice. 168

CPS Energy v. Pub. Util.163

Comm’n, No. 03-14-00340-CV, 2017 WL744694, at *1 (Tex. App.—Austin Feb.24, 2017, no pet. h.).

Id. (citing Tex. Util. Code §164

54.204(c)).

Id.165

Id.166

Id.167

CPS Energy, 2017 WL168

744694, at *2.

30

In 2005, the Texas Legislature amendedsection 54.204 of PURA and added au n i f o r m r a t e p r o v i s i o n t osection 54.204(c). Under the maximum-allowable-rate provision (section54.204(c)), MOUs could not charge anyentity—regardless of the nature ofservices—a pole-attachment rate thatexceeds the fee the MOU could chargeunder the rules adopted by the FCCpursuant to 47 U.SC. § 224(e). Theuniform rate provision, under subsection(c), requires MOUs to charge a single,uniform pole-attachment rate to allentities, despite the type of service carriedover the poles.169

The FCC adopted a formula, as requiredby 47 U.S.C. § 224(e), to calculate themaximum allowable pole-attachmentrate—“the Telecom Formula.” The170

Telecom Formula is the product of threecalculations: a spacing factor; net poleinvestment; and the carrying charge.

In September 2006, as required by PURAsection 54.204(c), CPS Energy chargedTime Warner a pole attachment fee basedon CPS Energy’s calculation underfederal law. Beginning in 2007, CPSEnergy charged AT&T and Time Warnerthe same pole attachment rate. In 2009,CPS Energy back-billed AT&T foradditional amounts due for September 1,2006 through December 31, 2006, to

comply with the uniform rate provisionsof section 54.204(c).171

For Test Years 2004-2008/Billing Years2005-2009, CPS Energy charged AT&Tand Time Warner different poleattachment rates. AT&T did not payCPS Energy fees over $3.75, but TimeWarner paid a range of amounts from$13.52 in 2004, to $15.63 in 2007, to$3.75 in 2008. After learning of thisbilling disparity, Time Warner filed suitin Bexar County District Court againstCPS Energy. A month after TimeWarner filed suit, CPS Energy filed anenforcement action against both AT&Tand Time Warner with the Commission,and the Bexar County suit was abated.CPS Energy also filed suit against AT&Tin Bexar County and that suit wasalso abated.172

CPS Energy filed a petition with theCommission that sought an orderconfirming that the method CPS Energyused to calculate its pole attachmentrates was reasonable and consistent withthe statute. Additionally, CPS Energyrequested that AT&T and Time Warnerbe ordered to pay all of their outstandingpole attachment fees.173

Id.169

Tex. Util. Code § 54.204.170


744694, at *3.

Id.172

Id.173

31

The Commission determined it hadjurisdiction to decide whether CPSEnergy’s pole attachment rates compliedwith PURA, and that CPS Energy hadstanding to seek a declaratory order as towhether its pole-attachment ratescomplied with PURA section 54.204. Butthe Commission dismissed CPS Energy’sclaims that requested payment of overduepole-attachment fees for lackof jurisdiction.174

After a lengthy hearing, the Commissionissued its final order and determined CPSEnergy had charged more than themaximum-allowable pole-attachment ratefor two years and, had therefore, violatedsection 54.204's nondiscrimination anduniform-rate provisions.

In its Final Order, the Commissionreiterated it did not decide whetherexisting pole-attachment agreements werecontractually valid and enforceable,whether CPS Energy was owed overduepole-attachment fees, or whether anyrates charged by CPS were reasonable.Further, the Commission did notdetermine the rate CPS Energy shouldcharge for pole attachments. 175

The district court affirmed theCommission’s order in part and reversedit in part. The district court concludedthe Commission lacked jurisdiction to

make determinations about thefollowing: 1) the existence of or thestatute’s effect on disputed private pole-attachment agreements; 2) whether therewas a breach of contract; and 3) whetherdiscrimination under PURA necessarilycaused harm. None of the partieschallenged this part of the districtcourt’s order.176

The district court also reversed theCommission’s decision on two TelecomFormula inputs: 1) the Commission’sdecision to use an average of threeattaching entities in its calculation of thepole attachment rate for Billing Years2005-2010, rather than the FCC’srebuttable presumption of five attachingentities; and 2) the Commission’sdecision to adopt a rate of return otherthan the FCC’s 11.25% default rate ofreturn for Billing Year 2005. The districtcourt otherwise affirmed the decision ofthe Commission.177

On appeal, CPS Energy raised fiveissues: 1) the district court’s reversal ofthe Commission’s decision to use anaverage of three attaching entities; 2) thedistrict court’s affirmance of severalCommission conclusions—that theCommission does not have authority toreview and modify CPS Energy’s inputsused to calculate the maximum allowableattachment rate; 3) the FCC’s 2011

Id. at *4.174

Id.175

Id. at *5.176

Id.177

32

amendments to the rules do notautomatically apply to section 54.204(c);4) the Commission exceeded its authorityby imposing a requirement that CPSEnergy not only charge a uniform ratebut also collect a uniform rate; and5) section 54.204(b)’s nondiscriminationprovision does not apply because CPSEnergy’s pole attachment agreements didnot grant consent to use a right of way.178

The Commission challenged the districtcourt’s reversal of its decisions to use anaverage of three attaching entities in itscalculation for Billing Years 2005-2010and adopt a rate of return other thanFCC’s default rate for Billing Year 2005.

AT&T and Time Warner challenged boththe reversal of the Commission’s decisionon the rate of return and the districtcourt’s affirmance of the Commission’sdetermination that PURA does not give itjurisdiction to modify the default rate ofreturn.179


The court of appeals affirmed in part,reversed in part, dismissed for want ofjurisdiction in part, and remanded thecase for further proceedings.

The court first considered whether theCommission has the authority to review

and modify CPS Energy’s inputs used tocalculate the maximum allowable polea t t a c h m e n t r a t e u n d e r t h eTelecom Formula.

Co m m is s io n ’s au th o rity to e n fo rc eSe c tio n 54.204(c ) .

The court upheld the portion of thedistrict court’s judgment affirming theCommission’s conclusion it hadjurisdiction to review and modify CPSEnergy’s inputs to the Telecom formula.

The court explained that whether theCommission exceeded its authority whenit modified CPS Energy’s inputs to theTelecom Formula is, first, aconsideration of whether the Legislatureexpressly gave the Commission thepower to do so. 180

The court determined that theLegislature expressly afforded theCommission broad authority to enforcesubsection (c) of section 54.204. Thatprovision establishes that an MOU “maynot charge any entity ... a poleattachment rate ... that exceed[s] the fee[it] would be permitted to charge underrules adopted by the FCC under 47U.S.C. Section 224(e) if [the MOUs’]rates were regulated under federal law

Id.178

Id. at *6.179


744694, at *8.

33

and the rules of the FCC.” “[W]hen181

the Legislature expressly confers a poweron an agency, it also impliedly intendsthat the agency have whatever powers arereasonably necessary to fulfill itsexpress duties.” 182

The determination of the ceiling for thepole attachment rate is not the same assetting the rate. Any rate charged by anMOU at or below the maximum-allowable rate complies with section54.204(c) as long as that rate is uniformto all attaching entities and is applied in anondiscriminatory manner. 183

The court concluded that determiningand enforcing a rate ceiling is differentthan setting an initial rate. While MOUsdo have the ability to set their own rates,the Commission’s modification of CPSEnergy’s inputs does not exceed thescope of the Commission’s jurisdictionover MOUs.184

The court determined that by giving theCommission the jurisdiction it needed toenforce the section, and requiring the

Commission’s enforcement to bedirected by federal law and FCC rules,the Legislature expressly determined theCommission would act with the sameauthority as the FCC in establishing themaximum allowable rate. Therefore, thecourt concluded, the Commission, likethe FCC, may “estimate such costs,values or amounts it considersreasonable” when it applies the Telecomformula to ensure the “maximum justand reasonable rate” as long as theCommission does so with reference tothe FCC’s rules, regulations, and orderswhen it applies the Telecom Formula.185

Te le c o m Fo rm u la-av e rag e n u m b e r ifattac h in g e n titie s

The court found that the district courterred by reversing the Commission’sdetermination that CPS Energy’s averagenumber of attaching entities for BillingYears 2005-2010 was three.186

Substantial evidence supported theCommission’s underlying finding thatCPS Energy’s actual data and its validstatistical survey showed an average ofthree attaching poles per entity. Theunderlying finding supported thedetermination that CPS Energy’s poleshave an average of three attaching


§ 54.204).

Id. (quoting Pub. Util. Comm’n182

v. City Pub. Ser. Bd., 535 S.W.3d 310, 316(2001)).

Id.183

Id. at *9.184


744694, at *9 (citing 47 C.F.R. §1.1409(c)).

Id. at *16.186

34

entities per pole; and substantial evidencesupported the Commission’s ultimateconclusion that “[t]he inputs set out inthe findings of fact are reasonable for usein the Maximum rate formula for testyears 2004 through 2009.”187

Te le c o m Fo rm u la in p u t: th e d e fau ltrate o f re tu rn

The court affirmed the Commission’sdecision to apply the 11.25% default rateof return for billing years 2006-2010. Butthe court also affirmed the district court’sjudgment reversing the Commission’sfinding. The court determined theCommission acted arbitrarily andcapriciously and abused its discretionwhen it determined the FCC’s default rateof return was the appropriate input forCPS Energy to use in its TelecomFormula for Billing Year 2005.188

Federal law and FCC rules relating topole-attachment rates apply to investorowned utilities, not MOUs. For aninvestor-owned utility, the rate of returnis often, but not always, set as part of theratemaking process conducted by theCommission. FCC rules provide the rateof return used in the Telecom Formula is“[t]he rate of return authorized for the

utility for intrastate service.” The rules189

additionally provide that where there isno state-authorized rate of return, “therate of return set by the Commission forlocal exchange carriers shall be used as adefault rate of return.” In this case,190

the default rate of return set by the FCCwas 11.25%.191

The court determined that based on aplain language reading of the rule andthe FCC’s statements when it adoptedthe default rate, if CPS Energy wereregulated by federal law and FCC rules,the FCC would apply the default rate ofreturn as the input in the TelecomFormula. Further, under the plainlanguage of FCC rules and the FCC’sdecision, the FCC would not create arate of return for CPS Energy wherenone exists. In the absence of a stateauthorized rate, it would use thedefault rate.192

The FCC considered the possibility thatthe default rate could have an inequitableresult, but it determined the use of thedefault rate “is an equitable solution”that serves its “policy of using default

Id.187

Id. at *21.188


744694, at *16.

Id. at *11 (quoting 47 C.F.R.190

§ 1.1404(g)(1)(x)).

Id. at *16.191

Id. at *19.192

35

rates to expedite [ ]” the calculation ofthe Telecom Formula. The court heldthat requiring the Commission to decidewhat would be an appropriate substitutefor the rate of return for each MOUwould be contrary to FCC’s rules andstated policy.193

Ch arg e v . c o lle c t The court reversed the portion of thedistrict court’s order that upheld theCommission’s conclusion. The courtdetermined the Commission exceeded itsstatutory authority when it added arequirement not found in the statute “ tomake a serious effort to collect auniform rate.” 194

The requirement to charge a uniform rateis a method to ensure an MOU does notdiscriminate among attaching entitieswhen it charges pole attachment rates.That requirement is not imposed on eachattaching entity to pay the same amountcharged. Therefore, it was unnecessaryfor the Commission to enforce arequirement for MOUs to make “aserious effort to collect a uniform rate.”195

Application of PURA section 54.204(b)

The court reversed the district court’saffirmance of the Commission’sconclusion that CPS Energy violatedsection 54.204(b) by charging differentrates–except for the time period fromSeptember 1 , 2006 th roughDecember 31, 2006.

Section 54.204 does not require theCommission to follow the FCC’sguidance when applying subsection (b),but even if it did, the FCC states “it willcarefully scrutinize any differences inrates, terms and conditions in anycomplaint action, and the burden will beon the utility to demonstrate that anydifferences are nondiscriminatory.”196

The court found there was a reasonablebasis in the record for the Commission’sconclusion that the difference in termsbetween AT&T and Time Warner wasdiscriminatory. The court affirmed, inpart, the Commission’s conclusion thatCPS Energy violated section 54.204(b)by offering different terms.

The court reversed the Commission’sconclusions equating charge and collect.There was no evidence in the record tosupport a finding that CPS Energyv i o l a t e d s u b s e c t i o n ( b ) ’ snondiscriminatory provision by chargingdifferent rates from 2007 to 2010. Theonly period where CPS charged a non-

Id. 193

CPS Energy, 2017 WL 744694,194

at *23.

Id.195 Id. at *28.196

36

uniform rate was from September 1, 2006though December 31, 2006. 197

2011 FCC am e n d m e n ts

The court held that whether the 2011FCC amendments applied to a futureproceeding should await resolution ofsuch a proceeding. The court found theissue was not ripe, and it did not havejurisdiction to consider CPS Energy’scomplaint. The court dismissed the issuefor lack of jurisdiction and vacated theportion of the district court’s decisionaffirming the Commission’s conclusion.198

Cu ra-Cru z v . Ce n te rPo in t En e rg yHo u s to n Ele c ., L.L.C., No. 14-15-00632-CV, 2017 WL 1251817 (Tex.App.—Houston [14th Dist.] Feb. 16,2017, pet. filed).

The Fourteenth Court of Appeals inHouston considered a negligence actionbrought by property owners againstCenterPoint Houston Electric, LLC(CenterPoint), alleging malfunction in theutility’s transformer. Specifically, thecourt considered whether the trial courtabused its discretion by excluding experttestimony of the landowner and whetherthe trial court committed reversible errorby granting the electric company’s no-evidence motion for summary judgment.

Facts

In 2010, a fire occurred in Houston thatdestroyed a building, business, as well asthe residence of Elidia Cura-Cruz andJorge Garcia (Appellants). CenterPointmaintained a light pole that had atransformer mounted on it locatedbetween the building and residence.After the fire, the Harris County FireMarshal’s Office determined the fire waslikely caused by dry vegetation ignitingfrom a fugitive spark or electrical activitythat was the result of an unspecifiede lectr ica l anomaly f rom thedistribution system. 199

In 2012, Appellants filed a negligenceaction, alleging the fire was caused by amalfunction in the transformer that wasowned, operated, maintained, and underCenterPoint’s exclusive control.Appellants argued the fire and damagesthat resulted were caused byCenterPoint’s failure to properly inspect,maintain, repair, and replace thetransformer and the causes of the firethat are basis of the lawsuit. Appellantsdesignated an expert witness to testifyabout the possible causes of the fire.200

Id.197

Id. at *30.198

Cura-Cruz v. CenterPoint Energy199

Houston Elec., L.L.C., No. 14-15-00632-CV, 2017 WL 1251817, at *1 (Tex.App.—Houston [14th Dist.] Feb. 16,2017, pet. filed).

Id. 200

37

CenterPoint filed a motion to exclude theexpert’s testimony and alleged he was notqualified by education or experience totestify as to the cause of the fire, theworkings of the utility transformer atissue, or the standards of care applicableto the utility company.201

The district court granted CenterPoint’smotion to exclude, and grantedC e n t e r P o i n t ’ s n o e v i d e n c esummary judgment.202


The Fourteen Court of Appeals reversedthe district court’s decision and remandedthe case for further proceedings.

A public utility generally has a duty toexercise ordinary and reasonable care, butthe degree of care is commensurate withthe danger. The “‘commensurate withthe danger’ standard does not impose ahigher duty of care; rather, it more fullydefines what ordinary care is under thefacts presented.” Courts additionally203

examine the language of a utilitycompany’s tariff to determine if

additional duties or limitations of dutiesare imposed. 204

CenterPoint’s tariff stated “CenterPointwill construct, own, operate, andmaintain its Delivery System inaccordance with Good Utility Practicefor the Delivery of Electric Power andEnergy to Retail Customers that arelocated within the Company’s servicet e r r i t o r y a n d s e r v e d b yCompetitive Retailers.” 205

“Good Utility Practice” is defined by thetariff as being, “Any of the practices,methods, and acts engaged in orapproved by a significant portion of theelectric utility industry during therelevant time period, or any of thepractices, methods, and acts that, in theexercise of reasonable judgment in lightof the facts known at the time thedecision was made, could have beenexpected to accomplish the desiredresult at a reasonable cost consistentwith good business practices, reliability,safety, and expedition. Good utilitypractice is not intended to be limited tothe optimum practice, method, or act, tothe exclusion of all others but rather isintended to include acceptable practices,

Id.201

Id. at *2.202

Id. at *3 (citing First Assembly203

of God v. Tex. Util. Elec. Co., 52 S.W.3d482, 481-82 (Tex. App.—Dallas 2001,no pet.)).

Cura-Cruz, 2017 WL204

1251817, at *3.

Id.205

38

methods, and acts generally accepted inthe region.”206

The court disagreed with CenterPoint’sassertion that “Good Utility Practice” wasthe standard of care relevant to thisdispute and that this standard is materiallydifferent from ordinary negligence.Good Utility Practice is included in thepro forma tariff created pursuant toCommission Rule 25.214—and is notfrom Texas statute or case law. ThisCommission Rule was intended toimplement Utilities Code section 39.203,involving transmission and distributionservice after deregulation. The rule wasnot in general meant to be contrary toapplicable law.207

Additionally, in explanatory comments,the Commission expressed interest in thepreservation of the status quo as closelyas possible as it relates to exposure topotential liability for companies likeCenterPoint in their interactions withcustomers such as Appellants. TheCommission has never expressed intentto alter the standard of care that wasestablished by the courts, nor has theLegislature asked it to do so.208

Further, CenterPoint’s Tariff specificallystates that it was not intended to limitCenterPoint’s liability for damages,except as expressly provided in theTariff. The Court explained that a morespecific statutory provision will controlover a more general one.209

The Court found CenterPoint’s Tariffdid not create a new or additionalstandard of care contrary to what alreadyexisted under Texas common law.Further, “Good Utilities Practice” doesnot impose a different standard of care.It more clearly defines what ordinarycare is under the facts. However, even ifthe Tariff had created a new standard ofcare, the Court found that Appellants’expert witness was qualified to testifyregarding that standard.210

The court held that Appellants’ expertwitness demonstrated specializedknowledge derived from specializededucation, practical experience, a studyof technical works, or a combination ofthese things that could assist the court inunderstanding the evidence or indetermining a fact in issue, and,therefore, satisfied Texas Rule ofEvidence 702. 211

Id. (quoting 16 Tex. Admin.206

Code § 25.5(56)).

Id.207

Id.208

Cura-Cruz, 2017 WL209

1251817, at *4.

Id.210

Id. at *7.211

39

As to the second issue, the no-evidencesummary judgment, the court determinedthat Appellants presented more than ascintilla of evidence about CenterPoint’sbreach of the standard of care.Therefore, the Court held the districtcourt erred in granting summaryjudgment in CenterPoint’s favor. 212

City o f San An to n io v . Pu b . Util.Co m m ’n , 506 S.W.3d 630 (Tex.App.—El Paso 2016, no pet.).

The Eighth Court of Appeals in El Pasoconsidered an appeal raised by CityPublic Service Board a/k/a CPS Energy(CPS Energy) of the district court’sjudgment affirming the Public UtilityCommission’s (the Commission) finalorder. The order found liability andassessed an administrative penalty againstCPS Energy for violating the WholesaleMarket Oversight Rule (WMO Rule)issued by the Commission.

Facts

After the Legislature deregulated theproduction and sale of electricity, itcarved out an exception for thetransmission of energy. Given thecomplexity of the transmission grid, theLegislature assigned the task ofoverseeing and regulating this aspect ofthe industry to the Commission. TheCommission has certified independentorganizations to conduct various

operations “on its behalf to ensure the‘reliability and adequacy of the regionalelectrical network’ within a particularpower region.” Consequently, the213

Electric Reliability Council of Texas(ERCOT) manages the flow of electricpower to millions of Texans in itsregion.214

Under the Texas Utilities Code, ERCOTis authorized to adopt rules, called“pro toco l s , ” sub jec t to theCommission’s oversight, to ensure thereliability of the electrical grid within itsregion. CPS Energy is an entity215

subject to ERCOT’s protocols becauseit is a market participant—opting toparticipate in the transmission of energywithin the ERCOT region. 216

If a market participant fails to complywith the ERCOT protocols, it may besubject to Commission investigation, anenforcement action, and administrativepenalties under the WMO Rule. TheWMO Rule, adopted by theCommission, is a global administrativerule that 1) establishes the standards that

Id. at *8.212

City of San Antonio v. Pub. Util.213

Comm’n, 506 S.W.3d 630, 635 (Tex.App.—El Paso 2016, no pet.).

Id.214

Id. at 635-36 (citing Tex. Util.215

Code § 25.503(c)(5) and (6)).

Id. at 636.216

40

the Commission will use in monitoringmarket participants’ activities; 2) sets outthe duties market participants mustfollow; 3) requires market participants tobe knowledgeable about ERCOT’sprocedures; and 4) requires all marketparticipants comply with ERCOT’sprocedures and protocols. 217

Subsection (f) of the WMO Rule providesan “excuse” from compliance withERCOT protocols and instructions ifrelevant conditions exist—namelyequipment failure beyond the reasonablecontrol of the market participant, orwhere compliance would risk safety,reliability, or bodily harm. The WMORule also provides two affirmativedefenses for market participants to avoidliability for engaging in acts prohibited bythe Rule if the participant can establish 1)that its “‘conduct served a legitimatebusiness purpose . . . and that it did notknow, and could not reasonablyanticipate, that its actions would . . .adversely affect the reliability of theregional electric network; or 2) that it‘exercised due diligence to prevent theexcluded act or practice.’”218

In February 2011, the ERCOT regionnotified market participants’ as well as the

Qualified Service Entities, who arecertified to provide reserve energy toERCOT to ensure continuing electricservice, of an anticipated cold weatherevent that could impact electric griddemands. ERCOT made arrangements219

with Qualified Service Entities, includingCPS Energy, to provide ancillary, non-spinning reserve services to balance thegrid during the cold weather event. CPSEnergy agreed to provide 96 megawattsof non-spinning reserve services throughtwo of its combustion turbines.220

On the morning of the cold weatherevent, due to unprecedented demandson the grid, ERCOT providedinstructions to the Qualified ServiceEntities, including CPS Energy, todeploy their non-spinning reserveservices. However, one of CPS Energy’sturbines failed to deploy within the 30-minute timeframe, and was not deployeduntil one and half hours after CPSEnergy received the instruction fromERCOT. As a result of other221

generator failures and CPS Energy’sfailure, ERCOT had to reduce thedemand on the grid, leading to rollingblackouts. 222

Id. (referencing 16 Tex.217

Admin. Code § 25.503).

City of San Antonio, 506218

S.W.3d at 637 (quoting 16 Tex. Admin.Code § 25.503(h)).

Id.219

Id. at 637-38.220

Id. at 638.221

Id.222

41

After an investigation and referral toCommission Staff, the Commissionconducted its own informal investigationand initiated a formal enforcementproceeding against CPS Energy regardingits compliance with ERCOT protocols.

The matter was referred to the StateOffice of Administrative Hearings wherean Administrative Law Judge (ALJ)concluded, after a hearing, that CPSEnergy had violated the ERCOTprotocols when its turbine unit failed todeploy within the required timeframe.223

The ALJ held that CPS Energy was notexcused from compliance based on theexceptions under the WMO Rule becauseof the equipment failure, and CPS Energyhad failed to establish that its non-compliance resulted from any health andsafety concerns. The ALJ questioned224

whether CPS Energy had providedadequate staffing given the nature ofERCOT’s request and the cold weatherevent. Because of the serious nature ofthe violations and failure to provide thereserve services, the ALJ recommendedthe maximum penalty.

The Commission subsequently imposedthe maximum administrative penalty, andfound that CPS Energy had not onlyviolated ERCOT protocols, but alsofailed to meet its burden of proof (by a

preponderance of the evidence) that itshould have been excused fromcompliance. CPS Energy sought225

judicial review, and the Travis Countydistrict court affirmed the Commission’sfinal order. CPS Energy appealed,challenging the Commission’s order.


CPS Energy claimed that theCommission 1) misinterpreted ormisapplied the WMO Rule in a mannerinconsistent with a prior Austin Court ofAppeals’ decision; 2) formulated a newinterpretation of the WMO Rule andapplied it without giving CPS Energy“fair notice;” and 3) applied the WMORule in a manner that was unreasonable,arbitrary, and capricious. CPS Energyalso argued that the Commission’s orderw a s n o t s u p p o r t e d b ysubstantial evidence.

The first issue the court discussed waswhether the Commission’s applicationand interpretation of the WMO Ruleviolated CPS Energy’s due process rightto fair notice. The court disagreed withCPS Energy and found that it was onnotice that its conduct in February couldsubject it to liability. After discussingthe Third Court of Appeals’ decision inTXU Generation, the court held that theCommission interpreted the WMO Rulein a manner consistent with the TXU

Id. at 643.223

Id. at 643-44.224


S.W.3d at 644-45.

42

Generation case and the plain language ofthe rule itself. The TXU Generation case226

dealt with the interpretation of subsection(g) of the WMO Rule, but also discussedsubsection (h), which provides marketparticipants with two affirmative defensesfor a violation of subsection (g). Here,227

CPS Energy was charged with a violationof subsection (f), not subsection (g), asdiscussed in TXU Generation. The courtheld that subsection (f) “clearly and inplain language informs a marketparticipant that it must ‘comply withERCOT procedures and any officialinterpretation of the Protocols issued byERCOT or the Commission.’” 228

The court stated that the real issue in thiscase was whether CPS Energy was onnotice of what type of situation wouldcause it to be excused from its duty underthe ERCOT protocols. The two229

provisions of the WMO Rule that CPSEnergy could have relied on to seekexcuse are 1) the two affirmative defensesin subsection (h), addressed in the TXU

Generation opinion—which may excuse aviolation if the market participant canshow that it used “due diligence” toavoid the violation; and 2) the excuseprovisions in subsection (f), whichprovide for excuses based on equipmentfailure beyond the reasonable control ofthe market participant and the otherexcuses for health, safety, andenvironmental concerns.230

CPS Energy did not focus on theaffirmative defenses in subsection (h),but instead argued for the application ofthe excuses set forth in subsection (f).The court pointed out that the TXUGeneration case focused on affirmativedefenses in subsection (h), and therefore,contrary to CPS Energy’s arguments, theanalysis in the case was distinct fromthat in TXU Generation.

Turning to whether CPS Energy’sequipment failure was “foreseeable,” thecourt held that CPS Energy’s argumentwas too narrow and was contrary to theWMO Rule. The focus was not onwhether a piece of equipment might fail,but rather, “whether the marketparticipant could have ‘reasonablyanticipate[d] that its actions would . . .adversely affect the reliability of theregional electric network[.]’” The231

Id. at 647(referencing TXU226

Generation Co., L.P. v. Pub. Util. Comm’n,165 S.W.3d 821 (Tex. App.—Austin2005, pet. denied).

Id. at 648 (citing TXU227

Generation Co., L.P., 165 S.W.3d at 840)).

Id. at 649 (quoting 16 Tex.228

Admin. Code § 25.503(f)).

Id.229

Id.230


S.W.3d at 650 (quoting 16 Tex. Admin.Code § 25.503 (h)).

43

court concluded that was the realquestion in analyzing CPS Energy’sactions, and under this analysis, theCommission had presented substantialevidence that CPS Energy could have“reasonably anticipated” that its actionsin staffing its plant prior to the coldweather event could have adverselyaffected the grid. The court discussed232

testimony at the administrative hearingthat more staff was required at the plantduring the cold weather event and notedthat there was no dispute among thewitnesses at the administrative hearingthat CPS Energy could have reasonablyanticipated that it would encounterequipment failures because its plant wasnot rated for the projected cold-weathertemperatures. Most importantly, CPS233

Energy promised ERCOT that it wouldprovide the reserve services during thecold weather event. CPS Energy knew234

that if it did not provide the non-spinningreserve services, that the grid could beadversely affected.

In evaluating whether CPS Energyexercised due diligence under the excusein subsection (h), the court held that theCommission was “entitled to considernot only whether CPS Energy tookreasonable steps to prepare its equipmentfor the cold weather event, but also

whether it took reasonable steps toensure that its plant was adequatelystaffed for that event.” The court235

once again pointed out that CPS Energyvoluntarily promised to provide thereserve services to the ERCOT at thespecified time and date, therefore it was“incumbent upon CPS Energy to usedue diligence to ensure that it wouldhave an adequate staff to meet itsobligations, and [ ] avoid an ERCOTprotocol violation.” Even though CPS236

Energy argued that its equipment wasmaintained soundly, the court held thatthe provider must be held accountablefor its lack of staffing. Given that thepresent case involved abnormaloperating conditions, and that CPSEnergy was aware days in advance of theunprecedented weather conditions, thecourt held that CPS Energy did not meetthe standard needed. The Commissionwas within its authority (given to it bythe Legislature in the WMO Rule) whenit made the determination regarding thesufficiency of CPS Energy’s staffing, andthis interpretation of the rule did notimpose a “strict liability” standard onmarket part ic ipants , a s CPSEnergy argued.237

Id. at 650-51.232

Id.233

Id.234

Id. at 651.235

Id.236


S.W.3d at 652-53.

44

The second issue the court considered inthis case was whether the equipmentfailure was beyond CPS Energy’sreasonable control and if this excusedCPS Energy from complying with theERCOT protocol. While the238

Commission has the initial burden ofdemonstrating the market participant’sviolation of the WMO Rule, CPS Energyhas the burden of establishing an excuseunder subsection (f) or any other type ofaffirmative defense under subsection (h)of the Rule. The court held that CPS239

Energy’s duties did not end with takingprecautions and adequately maintainingits equipment—the Commission wasentitled to look at the steps CPS Energytook once the plant began experiencingfreeze issues and startup failures. CPS240

Energy could have taken additional stepsto ensure the timely deployment of itsturbine units, including calling foradditional staff once freeze issues began,or it could have assigned an employee toinspect the malfunctioning units beforethe ERCOT instruction was given. 241

The court pointed out the “continuingnature of CPS Energy’s duties” during thecold weather event, and while CPSEnergy may have been entitled to an

excuse for compliance when theequipment failure initially occurred,subsection (f) states that “the excusedoes not last forever.” The excuse242

only continues for the duration of timethat the equipment failure is beyond thereasonable control of the marketparticipant.

The Commission was allowed to make afactual determination regarding the exacttime that the equipment failure was nolonger beyond CPS’s Energy’sreasonable control and the steps thatCPS Energy was required to take toaddress failure at that point—includinghaving adequate staff on hand, a matterclearly within CPS Energy’s control.243

CPS Energy did not meet its burden ofproof in demonstrating that it staffed itsplant in accordance with industrystandards during the cold weatherevent. The court concluded that the244

record, including witness testimony atthe hearing, raised questions of whetherCPS Energy took all of the steps thatwere within its reasonable control toprevent and address the startup failure.Therefore, the court held that theCommission properly determined thatCPS Energy was not excused from

Id. at 653.238

Id.239

Id. at 655.240

Id.241


S.W.3d. at 656.

Id.243

Id. at 657.244

45

compliance with the ERCOT protocolsunder subsection (f) of the WMO Rule.245

The third issue the court discussed waswhether CPS Energy was excused fromcomplying with the ERCOT protocolsbecause of a health, safety, andenvironmental excuse under the WMORule. CPS Energy contended that if it hadattempted to operate the turbine unitwith the malfunctioning part, that itwould have risked an explosion,destruction of the unit, and healthand safety. 246

However, the Commission expresslyfound that there was no risk because CPSEnergy’s unit contained a built-in safetysystem that would automatically shutdown the unit when a safety risk wasdetected. The court determined that247

there was no evidence in the record toshow that ERCOT or CPS Energy’soperators ever suggested an overriding ofthe safety system was necessary—therewere in fact, no safety concerns at thetime ERCOT gave its deploy instruction.“[O]verriding the safety mechanism wasnot CPS Energy’s only option to avoid anERCOT protocol violation”—it couldhave tested or inspected the unit prior to

the anticipated deployment time.248

Because of insufficient staffing, “CPSEnergy was unable or unwilling to takeany steps to determine the cause of thatfailure until hours later.” 249

The court held that the Commission’sinterpretation of its own rule wasreasonable—the Commission has theability to make a policy determinationregarding a market participant’sobligation to exercise due diligence inERCOT protocol compliance before anexcuse based on health, safety, orenvironmental concerns can be raised.250

CPS Energy could have avoided safetyissues if it had used due diligence bytesting or inspecting prior to the initialstartup. It had a continuing duty toERCOT that did not end with the firstinterruption by the safety unit, and it wasobligated to exercise due diligence inaddressing any problems as quickly aspossible, but did not do so.251

Concluding that these obligations wereclearly within the plain language of theWMO Rule, the court upheld theCommission’s interpretation of itsWMO Rule and rejection of CPS

Id.245

Id.246

Id.247


S.W.3d at 659-60.

Id. at 660.249

Id.250

Id. at 661-62.251

46

Energy’s claim that its noncompliancewas excused because of health, safety, orenvironmental concerns.

The fourth issue concerned whether CPSEnergy was excused from compliancewith ERCOT protocols based on theexemptions in the protocols themselves.The court held that CPS Energy was notentitled to relief under these ERCOTprotocols regarding operating limitsbecause they were not applicable here.252

One of the ERCOT protocols that CPSEnergy sought exemption under relates torestrictions the market participant hasplaced on its own equipment to ensure itssafety and provides a list of limits thatrelate to the unit’s operatingcapabilities. The market participant253

must notify ERCOT of any limitations onthe participant’s system that may affectERCOT Dispatch Instructions. 254

The court, in keeping with theCommission’s conclusion, found thatCPS Energy had not placed any“restrictions” on its equipment that werecontemplated in the ERCOT protocol itcited, and it did not notify theCommission of any “equipment operating

limits” described in the protocols.255

Therefore, the court rejected CPSEnergy’s claim that its noncompliancewas excused under this protocol.

Citing to another protocol, CPS Energystated that its noncompliant actions wereexcused because deploying the unitwithout it being fully functional wouldhave caused undue bodily harm orundue damage to the equipment.256

However, the Commission pointed outthat this protocol “applies only when themarket participant makes a decisionbased on its ‘sole and reasonablejudgement’ that compliance with anERCOT instruction would cause a riskof that nature.” 257

In this case, the court held that CPSEnergy did not make this sort ofjudgment in refusing to comply withERCOT’s deployment instruction—theturbine unit had automatically shut downbecause of an equipment failure. CPS258

Energy did not use “sole and reasonablejudgment” because it continued to trystarting the unit up, “with no apparent

Id. at 662.252


S.W.3d at 662.

Id. at 663.254

Id.255

Id.256

Id. (quoting ERCOT257

Protocol 6.5.7.9(1)).


S.W.3d at 663.

47

concern that it might need to investigateany safety issues before doing so.” 259

The court noted that CPS Energy “failedto notify ERCOT that it was relying onthis provision, which is a requirementunder the protocol. The notice that CPSEnergy cites to giving ERCOT (aconversation between its control roomoperator and the ERCOT operator) didnot qualify under the protocol becauseCPS Energy “had not made such ajudgment” regarding the safety issue.“Instead, the undisputed evidencedemonstrated that CPS Energy . . .continue[d] trying to start the unit, [ ]expressed no concern to the ERCOToperator that doing so might cause anytype of safety or health risk,” and did notaddress the root cause of the startupfailure over an hour later. These facts260

weakened “any contention that CPSEnergy believed, in its reasonablejudgment, that continuing” to start theunit would have created an undue safetyrisk. As a result, CPS Energy was261

entitled to rely on the provision of theERCOT protocol exempting liability forviolating the WMO Rule.

Id.259

Id. at 664-65.260

Id. at 665.261

Documents

CASE LAW UPDATE · CASE LAW UPDATE K ELLIE E. B ILLIN GS-R AY AND S IREE SH A V. C H IRALA Assistant Attorneys General Environmental Protection Division Office of the Attorney General