CENTERPOINT ENERGY, INC. F/K/A RELIANT ENERGY, INCORPORATED, AND AMERICAN ELECTRIC POWER COMPANY INC. v. PUBLIC UTILITY COMMISSION OF TEXAS (Dissenting)

SUPREME COURT CASES

Laws-info.com » Cases » Texas » Supreme Court » 2004 » CENTERPOINT ENERGY, INC. F/K/A RELIANT ENERGY, INCORPORATED, AND AMERICAN ELECTRIC POWER COMPANY INC. v. PUBLIC UTILITY COMMISSION OF TEXAS (Dissenting)

State: Texas

Court: Supreme Court

Docket No: 03-0396

Case Date: 06/18/2004

Judge: Scott Brister

Plaintiff: CENTERPOINT ENERGY, INC. F/K/A RELIANT ENERGY, INCORPORATED, AND AMERICAN ELECTRIC POWER COMPANY INC

Defendant: PUBLIC UTILITY COMMISSION OF TEXAS (Dissenting)

Preview:CENTERPOINT ENERGY, INC. F/K/A RELIANT
ENERGY, INCORPORATED, AND AMERICAN
ELECTRIC POWER COMPANY INC. v. PUBLIC
UTILITY COMMISSION OF TEXAS (Dissenting)
MAJORITY | DISSENTING
IN THE SUPREME COURT OF TEXAS
No. 03-0396
CenterPoint Energy, Inc. f/k/a Reliant Energy, Incorporated
and American Electric Power Company, Inc., Petitioners
v.
Public Utility Commission of Texas, Respondent
On Petition for Review from the
Court of Appeals for the Third District of Texas
Argued February 18, 2004
Justice Brister, joined by Chief Justice Phillips, Justice Schneider and Justice Smith, dissenting.
As a part of electricity-market deregulation, the Legislature allowed existing utility companies to recover stranded
costs C but no more. The Legislature said nothing about interest. Nevertheless, the Court holds utilities are potentially
entitled to billions[1] of dollars in interest (to be collected from consumers through higher prices) because any other
rule is Ainconsistent@ with the statute.[2] I do not see how an order refusing to grant interest is inconsistent with a
statute that says nothing about interest; thus, I respectfully dissent.
In preparation for the third and final stage of the transition to competition in the electric industry, the Legislature
directed the Public Utility Commission to establish procedures for a Atrue-up proceeding@ to be conducted in
2004.[3] The Commission conducted hearings and drafted a rule.[4] Petitioners CenterPoint Energy and American
Electric Power Company challenged several aspects of the rule in the Third Court of Appeals, which invalidated some
parts of the rule and affirmed others.[5] Only the utilities appeal, and only on one point C the validity of a rule
providing for interest on stranded costs after the 2004 true-up proceedings, but not before.
Stranded costs represent the costs of building and operating an electric power plant that would have been recoverable
under regulation, but are unlikely to be recoverable in a competitive market.[6] The statute provides that a utility Ais
allowed to recover all of its net, verifiable, nonmitigable stranded costs.@[7] If the Commission finds a utility has
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stranded costs at the true-up proceedings in 2004, the utility=s transmission and distribution affiliate (the remaining
regulated entity) may recover them over a period of years through rates assessed to all consumers.[8]
The statute does not say whether interest should run on stranded costs until they are recovered, and if so from when.
The Commission concedes a utility would not recover Aall@ of its stranded costs if interest does not run from the
true-up forward.[9] The utilities, of course, heartily agree.
But the utilities argue the Commission violated the statute by not providing for additional interest from January 1, 2002
(when competition started) until the true-up. For several reasons, I disagree.
First, the deregulation statute never mentions interest. I find it difficult to say the Commission violated the statute by
failing to do something the statute never mentions.
Second, the sole provision of the statute on which the utilities rely is stated in permissive rather than mandatory terms:
An electric utility is allowed to recover all of its net, verifiable, nonmitigable stranded costs incurred in purchasing
power and providing electric generation service.[10]
The focus of this section (entitled ARight to Recover Stranded Costs@) is not on making sure the Commission gives
utilities their due, but on making sure customers do not avoid stranded cost recovery by switching to a new
provider[11] or new on site generation.[12]
Third, the statute allows for recovery only of stranded costs that are Averified@ and Anonmitigable.@ The Legislature
provided that stranded costs were to be mitigated (so far as possible) before the true-up proceedings, and verified
during them.[13] Before 2004, stranded costs could not be verified, and still had to be mitigated. Thus, during 2002
and 2003, they were neither Averified@ nor Anonmitigable.@
Fourth, even if the statute is ambiguous regarding interest, the Commission=s interpretation is entitled to Agreat
weight@ as long as it is reasonable and does not conflict with the statute=s language.[14] As the statute does not
require interest, the Commission=s interpretation is both reasonable and non-conflicting.
There are several reasons the Legislature may have chosen not to make consumers pay interest on the utilities=
stranded costs between 2002 and 2004. In the first place, the statute provided a number of tools for utilities to mitigate
stranded costs beginning in 1999, several years before competition began in 2002.[15] Any interest the utilities might
have lost on stranded costs during 2002 and 2003 must be balanced against their opportunity to earn a return on
stranded costs recovered in 1999, 2000, and 2001 B almost two-and-one-half years before even the utilities claim
stranded costs came into existence. Presumably, a utility=s decision on when and how to mitigate stranded costs was
based on what would bring the best return on its investments; it is hard to see why ratepayers should pay interest as an
additional return on an investment option they chose not to make.
Second, calculations of stranded costs for 2002 and 2004 are both estimates based on formulas mandated by
statute.[16] The Court presumes that an estimate of $5 million in stranded costs in 2004 would Aconfirm@ whether the
earlier estimate was a Agood predictor@ or not. But both estimates were based on current data (gas prices, electricity
prices, stock prices, interest rates, and so on) that could vary on a daily basis. A $5 million estimate of stranded costs
in 2004 does not mean the estimate of stranded costs should have been the same for 2002, any more than rain today
means yesterday=s forecast of a 50% chance of showers was too low. By requiring interest backward from 2004, the
Court overrides the formula the Legislature mandated for calculating rates in 2002 and 2003.[17]
CenterPoint argues interest must be paid on stranded costs from 2002 because they came into existence when
competition began. But the concept of Astranded costs@ is entirely a regulatory accounting construct C it is
impossible to say when such a concept comes into Abeing@ in any existential sense. Of course, if the cost of building
a nuclear power plant cannot be recovered in a competitive market, the loss suffered by investors is certainly real. But
that loss cannot be known until the last kilowatt is sold, and no one suggests waiting until then.
Accordingly, the stranded costs that will be paid to utilities are those created by the statute, and should be paid when
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and to the extent the statute provides. The Legislature recognized that any estimate of stranded costs might vary widely
and continue to do so for many years. Nevertheless, the Legislature provided for a final determination of stranded costs
during the 2004 true-up proceedings. The figures assessed then will be final, even if subsequent decades show they
were too high or too low. As the Legislature designated one date for when stranded costs are determined, the
Commission might reasonably have decided interest should only run from then.
CenterPoint argues that stranded costs should be treated like a jury verdict C though the amount of damages is not
calculated until the jury does so, prejudgment interest nevertheless runs from the original occurrence. In the first place,
we are not at liberty to decide the question before us on equitable principles, as we originally did with respect to
prejudgment interest.[18] We play a more limited role when reviewing a statute and an administrative rule than we do
when developing common-law remedies.
Moreover, with stranded costs, a more apt analogy would be a system in which a jury returns a different verdict every
day for a period of years, each one very different from the verdict the day before, and each one correct. In such a
system, it would be difficult to say what principal amount should be used to calculate interest. There would also be
substantial costs involved in calculating stranded costs so often.
Instead, the Legislature provided for a single definitive determination at the 2004 true-up proceedings, a somewhat
arbitrary date that no party challenges, and that (depending on circumstances yet to occur) may operate to the benefit or
detriment of utilities or consumers. Given the statute=s clear designation of when stranded costs are finally determined,
and its silence regarding interest, the Commission=s rule is both reasonable and consistent with the statute, and thus
entitled to our deference.
In a government of separated powers, it is not our role to decide whether paying interest to utilities during 2002 and
2003 would be wise, or fair, or what we would do in similar circumstances. We can decide only whether the
Commission violated the deregulation statute by providing for interest from the 2004 true-up forward. Because the
statute is silent on the matter, I would hold it did not.
Scott Brister
Justice
OPINION DELIVERED: June 18, 2004
[1] CenterPoint asserts in its petition for review that it alone would lose $1 billion in interest on stranded costs between
2002 and the true-up proceeding in 2004.
[2] ___ S.W.3d ___.
[3] Tex. Util. Code ' 39.262(c).
[4] 16 Tex. Admin. Code ' 25.263.
[5] 101 S.W.3d 129, 149-50.
[6] See Tex. Util. Code ' 39.251(7); In re TXU Elec. Co., 67 S.W.3d 130, 132 (Tex. 2001) (Phillips, C.J., concurring).
[7] Tex. Util. Code ' 39.252(a).
[8] See id. ' 39.262(c).
[9] 16 Tex. Admin. Code '25.263(l)(3).
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[10] Tex. Util. Code ' 39.252(a) (emphasis added).
[11] Id. '39.252(c).
[12] Id. '39.252(b).
[13] See generally id. ' 39.254-.262.
[14] State v. Pub.Util. Comm'n of Tex., 883 S.W.2d 190, 196 (Tex. 1994); see also Osterberg v. Peca, 12 S.W.3d 31,
51 (Tex. 2000) (giving Agreat weight@ to Texas Ethics Commission=s interpretation).
[15] See Tex. Util. Code '' 39.201(i)(1) (allowing securitization of up to 75% of stranded costs), 39.254 (requiring
earnings in excess of the allowed rate of return to be applied to stranded costs), 39.256(a) (allowing redirection of
transmission asset depreciation); see generally ' 39.254 (requiring utilities to use mitigation tools).
[16] See id. '' 39.201(h), 39.262(i). Neither calculation would be an estimate to the extent the underlying stranded costs
(power-generation assets, primarily nuclear power plants) were sold, see id. '39.262(h)(1), but there is no indication in
our record that such plants have changed hands.
[17] See id. 39.201(h). The statute provided for adjustment of rates at the 2004 true-up to provide recovery of stranded
costs, but did not require reimbursement of interest if the 2001 estimates were lower or higher. Id. ' 39.262(g) (AIf the
commission determines that the nonbypassable delivery rates are not sufficient, the commission may extend the
original collection period for the [CTC] charge or, if necessary, increase the charge.@).
[18] See Cavnar v. Quality Control Parking, Inc., 696 S.W.2d 549, 552 (Tex. 1985), superseded by Tex. Fin. Code '
304.102.
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