Lamb County Electric Cooperative, Inc. v. Public Utility Commission of Texas ( 2008 )

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-04-00593-CV
Lamb County Electric Cooperative, Inc., Appellant
v.
Public Utility Commission of Texas, Appellee
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 98TH JUDICIAL DISTRICT
NO. GN302903, HONORABLE DARLENE BYRNE, JUDGE PRESIDING
OPINION
Lamb County Electric Cooperative (the “Cooperative”) asserted to the Public Utility
Commission (the “Commission”) that Southwestern Public Service Company (“Southwestern”) had
exceeded the scope of its certificates of convenience and necessity and was improperly providing
electricity to customers inside the Cooperative’s service area. The Commission referred the matter
to the State Office of Administrative Hearings for a contested-case hearing before an administrative
law judge. The judge concluded that the service Southwestern was providing was consistent with
its certificates. The Commission adopted the judge’s proposal in its final order. The Cooperative
appealed the order of the Commission, and the district court affirmed the Commission’s order. The
Cooperative appeals the district court’s judgment, and we will affirm the judgment of the
district court.
BACKGROUND
This appeal has a complex and lengthy procedural history originating in the 1970s.
To facilitate the discussion of the issues raised in this appeal, we will provide a brief summary of
the procedural history of this case and of various changes that occurred in the energy market in
the 1970s.
Prior to 1975, utilities were allowed to choose the areas and customers that they
wanted to provide service to, which meant that more than one utility might be providing service to
the same general area.1 However, the manner in which a utility’s customers were selected was
significantly altered as a result of the passage of the Public Utility Regulatory Act and the formation
of the Commission in 1975. See Act of June 2, 1975, 64th Leg., R.S., ch. 721, 1975 Tex. Gen.
Laws 2327, 2327-52 (current version at Tex. Util. Code Ann. §§ 11.001-64.158 (West 2007 &
Supp. 2008). The Act created a new regulatory scheme for public utilities, under which the
Commission began licensing utilities to serve power to a particular area. See Lamb County Elec.
Coop. v. Public Util. Comm’n of Tex., No. 03-00-00113-CV, 2001 Tex. App. LEXIS 173, at *2
(Tex. App.—Austin Jan. 11, 2001, no pet.) (not designated for publication). In other words,
generally speaking, a single utility was given the authority to provide all of the electricity to
customers located inside a specific geographical region. This region was called a service area.
To become a designated provider, utilities were required to apply for and obtain a
certificate of convenience and necessity from the Commission. Id.; see also Tex. Util. Code
1
As a preliminary matter, we note that some of the information presented in this background
section comes from undisputed portions of the parties’ briefs. See Tex. R. App. P. 38.1(f)
(explaining that courts “will accept as true” facts stated in briefs unless facts are contradicted).
2
Ann. § 37.051 (West 2007) (requiring utility to obtain permit before directly or indirectly providing
service to public).2 That meant that electricity providers that desired to continue providing service
to an area they had been serving had to apply to the Commission for a certificate.
To make approving the applications and establishing the service areas more efficient,
the Commission consolidated the cases so that applications for neighboring service areas were
considered in the same docket. Because a utility might request a service area that was too large to
consider in one docket, it was possible that a utility might be a party to more than one docket.
During the dockets, the boundaries for the neighboring service areas were established, and the
boundaries were often reflected in certification maps submitted by utilities. Once the service areas
were established, utilities were prohibited from interfering with the operations of another utility by
providing service within that utility’s service area. See Tex. Util. Code Ann. § 37.156 (West 2007)
(listing actions Commission may take if utility interferes with operations of another utility).
As discussed previously, prior to the passage of the Act, it was not uncommon for
more than one utility to provide service to the same general area. Because the Commission was
effectively dividing the State into distinct service areas, it was possible that the boundaries
established by the Commission might effectively prohibit a utility from continuing to provide service
2
This appeal was not affected by the recent deregulation of the Texas utility market because
the legislature excluded, temporarily, this region and others from the transition to competition. See
Tex. Util. Code Ann. §§ 39.401-.463 (West 2007) (excluding certain utilities from the transition to
competition and providing that those utilities will continue to be “regulated under traditional cost
of service regulation”); id. § 41.052 (West 2007) (prohibiting utility not participating in customer
choice from charging unregulated prices); see also CenterPoint Energy Houston Elec., LLC v. Gulf
Coast Coalition of Cities, 252 S.W.3d 1, 7-12 (Tex. App.—Austin Apr. 17, 2008, pet. filed) (op. on
reh’g) (describing transition from regulated to deregulated market).
3
to some of its previous customers if the Commission placed those customers inside another utility’s
service area. This would effectively strand a utility’s power lines within the service area of another
utility and deprive the stranded utility of any economic benefit from having installed the power lines.
To ameliorate this potentially inequitable result, the legislature and the Commission
established several remedies. For example, the legislature enacted section 37.155 of the utilities
code, which allowed utilities to enter into agreements specifying the areas and customers to be
served by each utility. Id. § 37.155 (West 2007); see also Public Utils. Bd. v. Cent. Power & Light
Co., 587 S.W.2d 782, 784 (Tex. Civ. App.—Corpus Christi 1979, writ ref’d n.r.e.) (describing how
after passage of Act, Commission required utilities to enter into negotiations regarding their service
areas under regulation). Further, section 37.155 provided that those types of agreements are “valid
and enforceable” and “shall be incorporated into the appropriate areas of certification” as long as the
Commission approves the agreements. Tex. Util. Code Ann. § 37.155. In other words, rather than
limiting their service areas to distinct regions, the utilities were allowed to negotiate their own
arrangements regarding the areas and customers that each utility could serve. If the utilities were
able to reach agreements and if the Commission approved the agreements, the agreements
established the service areas for the utilities.
The Commission also provided an additional remedy when it promulgated the
corridor rule. See Commission Rule 052.02.05.056(b)(6)(B) (1976) (current version at 16 Tex.
Admin. Code § 25.101(e)(1)-(3) (2008)). The corridor rule specifically applied to situations in
which the boundaries created in the certification dockets stranded a utility’s pre-existing distribution
line inside another utility’s newly designated service area. Essentially, the rule allowed a utility to
4
continue providing limited service through the stranded line. Id. Under the rule, a utility was given
a certification for a 400-foot wide corridor (200 feet on either side of the line) within which the
stranded utility was allowed to provide service to customers inside another utility’s service area. Id.
The authorization given under the rule essentially constituted a type of dual certification allowing
a particular service area to be served by more than one utility. The rule automatically applied to all
certification dockets unless the Commission provided otherwise.3
Prior to the passage of the Act, it was common for investor-owned utilities to only
provide service to the more population-dense portions of a county, while electric cooperatives, which
3
The original corridor rule provided as follows:
(b) Certificates for Existing Service Area
For purposes of granting Certificates of Convenience and Necessity for those
facilities and areas which a utility was providing service on September 1, 1975, or
was actively engaged in the construction, installation, extension, improvement of, or
addition to, any facility actually used or to be used in providing public utility service
on September 1, 1975, unless found by the Commission to be otherwise, the
following rules shall prevail for certification purposes:
...
(6)(B) The facilities and service area boundary for the following types of utilities
providing distribution or collection service to any area, or actively engaged in the
construction, installation, extension, improvement of, or addition to such facilities
or the utilities system as of September 1, 1975, shall be limited, unless otherwise
found by the commission, to the facilities and the area which lie within 200 feet of
any point along a distribution line, which is specifically deemed to include service
drop lines, for electrical utilities. (Emphasis added).
Commission Rule 052.02.05.056(b)(6)(B) (1976); see 16 Tex. Admin. Code § 25.101(e)(1)-(3)
(2008); see also Public Utils. Bd. v. Cent. Power & Light Co., 587 S.W.2d 782, 785 (Tex. Civ.
App.—Corpus Christi 1979, writ ref’d n.r.e.) (discussing corridor rule).
5
were owned by the customers that they served, provided electricity to the areas of a county, generally
the rural regions, that were less economically appealing to the investor-owned utilities.
The dichotomy in service slowly eroded over time, and investor-owned utilities
began providing service to more rural regions. One type of rural area that began obtaining service
from investor-owned utilities was oil fields. This change resulted, in part, because oil field
operations began using electricity rather than relying on natural gas.
Starting in the 1960s, Southwestern, which is an investor-owned utility, began
building electric distribution lines that could deliver electricity to oil fields. Shortly thereafter,
Southwestern began providing service to oil field operations in counties throughout Texas, including
counties that were also served by the Cooperative.
To mitigate some of the expense of constructing all of the distribution lines and to
lessen the risk of investing in distribution lines for customers that might not want to use its services
in the future, Southwestern installed some of the wiring but also allowed the oil field operators to
build their own lines that could connect to Southwestern’s grid. The point at which Southwestern’s
customers attached to its grid was called a delivery point. After the electricity passed the delivery
point, it traveled along the oil field operator’s lines to where the electricity was needed.
After Southwestern had installed some of these distribution lines, the Act was passed.
As required by the Act, Southwestern and the Cooperative applied for certificates to continue
providing service to their customers. At that time, both Southwestern and the Cooperative were
providing electricity to parts of many counties in Texas, including three counties relevant to this
appeal: Cochran, Hockley, and Lamb counties.
6
All of the Cooperative’s service areas were established in two dockets before the
Commission. See Tex. Pub. Util. Comm’n, Application of Bailey County Electric Coop et al.
Concerning Certification in Bailey et al., Docket No. ECH-64 (“Docket 8”) (June 29, 1976) (Order);
Tex. Pub. Util. Comm’n, Application of Bailey County Electric Coop et al. Concerning the Counties
of Cochran et al., Docket No. 42 (“Docket 42”) (Oct. 8, 1976) (Order). Although the Cooperative’s
service areas were determined in those two dockets, the dockets also established service areas for
other utilities, including Southwestern. Among other counties, docket 8 addressed service areas for
Lamb County, and docket 42 addressed service areas for Cochran and Hockley Counties.
At the conclusion of the dockets, Southwestern and the Cooperative obtained
certificates of convenience and necessity. See Lamb County Elec. Coop., 2001 Tex. App. LEXIS
173, at *2. The final order in docket 8 stated that prior to the issuance of the order, the Cooperative,
Southwestern, and other utilities “reached an agreement and entered a stipulation as to the areas to
be served by them” and that the certificates issued were in accordance with those agreements. See
Tex. Util. Code Ann. § 37.155. Prior to the certification proceeding, Southwestern had been
providing service to Amoco Production, Inc., through a delivery point located within Southwestern’s
service area in Hale County. As described previously, the customer had connected to the delivery
point via lines it had constructed. The customer’s lines originated in Hale County but terminated
in Lamb County. Consequently, Southwestern had been providing electricity to structures located
inside what is now the Cooperative’s service area.
4
Some time after the initiation of the docket, the docket number was changed from ECH-6
to 8.
7
As with docket 8, the final order in docket 42 established service areas for the
Cooperative, Southwestern, and other utilities. Prior to certification, Southwestern was providing
service to several customers that are now located within the Cooperative’s service area.
Lamb County Elec. Coop., 2001 Tex. App. LEXIS 173, at *3. In fact, several of Southwestern’s
previously installed distribution lines crossed the common border established during docket 42. Id.
The final order also incorporated the report and recommendations of the hearing
examiner that originally considered the issues in the docket. See id. at *2-3. In the report, the
examiner stated that the utilities had entered into agreements regarding the ability of the utilities to
provide service to customers within the service area of other utilities. Further, the report stated that
as part of the agreements, the utilities agreed to waive any right to provide service to customers
through the corridor rule. Additionally, concerning the right to provide service in another utility’s
service area, the report explained that “[t]he agreement[s] would allow the parties to keep existing
customers but would prohibit taking a new customer outside of certificated areas” and were
“restricted to service of existing customers.”
Although the Commission’s final order incorporated the examiner’s report, the order
specifically repeated a conclusion found in the examiner’s report that helped define the utilities’
respective service areas. This conclusion (“conclusion 7”) provides as follows:
If any distribution lines of Southwestern . . . are located outside [its] service area
boundaries . . ., pursuant to agreement by the parties,5 such utilities are granted a
5
The scope of the agreements entered into by the parties during the two dockets is an issue
in this case.
8
Certificate of Convenience and Necessity for the facility6 itself only insofar as such
facility is utilized to serve customers presently being served. Such utilities are not
granted a Certificate of Convenience and Necessity for a 400-foot corridor as
provided by the Commission Rule.
See Tex. Util. Code Ann. § 37.155. No party appealed this determination by the Commission.
Several years after the Commission issued its final orders in dockets 8 and 42, the
Cooperative learned that some of the customers in its service area that were obtaining power from
Southwestern had added additional power lines to their existing power-line networks in order to
provide power to new oil wells and equipment.7 Lamb County Elec. Coop., 2001 Tex. App. LEXIS
173, at *4. Because Southwestern was still delivering electricity to those customers through delivery
points, the addition of the new lines and new equipment meant that the operators were obtaining
more electricity from Southwestern than they had at the time the Commission issued its orders in
dockets 8 and 42 and that the electricity from Southwestern was being sent to a larger area.8
6
We note that in the record in this case and in the various statutes and rules governing this
case, the word “facility” is used in very different contexts. For example, the phrase “consuming
facility” is used to refer to an oil well or other similar structure that uses electricity. However, one
of the Cooperative’s witnesses testified that the word “facility” in conclusion 7 refers to a stranded
distribution line.
7
In particular, Amoco Production Co. and Texaco, Inc., built new lines carrying power to
wells that were added to their oil fields after Southwestern obtained its certificates. Tex. Pub. Util.
Comm’n, Petition of Lamb County Elec. Coop., Inc., for Cease and Desist Orders Against
Southwestern Pub. Serv. Co. within Hockley and Cochran Counties, Docket No. 2991 (Dec. 6, 1980)
(Examiner’s Report).
8
Although some of the customers that Southwestern was providing power to had added new
electric wires to their various interests, none of the customers’ geographic interests had increased
in size. In other words, although the customers were supplying power to areas that did not have
service before, those areas were located within the preexisting geographical boundaries of the
customers’ interests.
9
After learning about the increase in service, the Cooperative filed a complaint with
the Commission and asked the Commission to issue a cease-and-desist order instructing
Southwestern to stop providing electricity to“consuming facilities” located inside the Cooperative’s
service area. Id. at *4; Tex. Pub. Util. Comm’n, Petition of Lamb County Elec. Coop., Inc., for
Cease and Desist Orders Against Southwestern Pub. Serv. Co. within Hockley and Cochran
Counties, Docket No. 2991 (“Docket 2991”) (Dec. 6, 1980) (Examiner’s Report). The Commission
addressed the merits of the contested case in docket 2991.
At the end of docket 2991, the Commission concluded that Southwestern was
authorized to provide service, including service over the new lines, to those customers that it had
been providing service to when it obtained its certificate. Docket 2991 (Jan. 8, 1981) (Final Order)
(adopting recommendation and report of hearing examiner); Docket 2991 (Dec. 6, 1980)
(Examiner’s report); see Lamb County Elec. Coop., 2001 Tex. App. LEXIS 173, at *5. Essentially,
the Commission reasoned that the additional service was proper because it was in the public interest
to allow Southwestern to provide electricity to its customers that will be used to power both new
and old consuming facilities. In particular, the Commission determined that customer-owned power
lines are necessary for the development of oil fields and that “the public interest dictated that
[Southwestern] be allowed to continue service over [the] newly constructed lines.” Lamb County
Elec. Coop., 2001 Tex. App. LEXIS 173, at *5. Consequently, the Commission did not issue a
cease-and-desist order.
In 1995, the Cooperative filed another complaint with the Commission, which also
contended that Southwestern was supplying power in a manner that exceeded the scope of its
10
certificates and again asked the Commission to issue a cease-and-desist order. In its complaint,
the Cooperative asserted that Southwestern had expanded its service to new customers located inside
the Cooperative’s service area and had impermissibly utilized customer-owned lines to provide
service to customers located inside the Cooperative’s service area. Tex. Pub. Util. Comm’n,
Petition of Lamb County Elec. Coop., Inc., for a Cease and Desist Order against Southwestern Pub.
Serv. Co., Docket No. 14454 (“Docket 14454”) (July 24, 1995) (Petition). Specifically, the
Cooperative wanted the Commission to prevent Southwestern from providing service to hundreds
of consuming facilities located within the Cooperative’s service area. The Commission addressed
the merits of the contested case in docket 14454.
During docket 14454, several oil-field operators who were buying electricity
from Southwestern, including Texaco Exploration & Production, Inc. (“Texaco”) and Apache
Corporation, intervened. When considering the merits of the claims raised, the Commission stated
that the order in docket 42 was “decidedly ambiguous” on the issue of whether Southwestern was
restricted to providing electricity to consuming facilities that it was providing service to prior
to certification or whether Southwestern may enlarge its service to new consuming facilities
provided that the new facilities belonged to its preexisting customers.9 Lamb County Elec. Coop.,
9
The Commission temporarily abated docket 14454 to allow Southwestern to apply for dual
certification to the disputed area. Docket 14454 (Apr. 1, 1996) (Order on Certified Issues); see
Tex. Pub. Util. Comm’n, Application of Southwestern Pub. Serv. Co. to Amend Certificated Service
Area to Provide for Dual Certification in Hockley and Cochran Counties, Texas, Docket No. 16738
(“Docket 16738”) (Dec. 9, 1996) (Order Separating Docket). Essentially, the Commission reasoned
that this would be the most practical way to resolve the dispute. Docket 14454 (Apr. 1, 1996) (Order
on Certified Issues). Ultimately, the Commission granted dual certification, Docket 16738
(Apr. 29, 1998) (Order), but for reasons not relevant to this appeal, Southwestern subsequently
moved to dismiss the dual-certification docket and withdrew its dual-certification application,
11
2001 Tex. App. LEXIS 173, at *7; see, e.g., Docket 14454 (Apr. 1, 1996) (Order on Certified Issues)
(describing order in docket 42 as ambiguous).
In response to a motion by Southwestern, the Commission summarily disposed of
the case in favor of Southwestern and denied the Cooperative’s request for a cease-and-desist order.
See Docket 14454 (Jan. 21, 1999) (Order); see also 16 Tex. Admin. Code § 22.182 (2008)
(explaining circumstances in which summary disposition is appropriate). The Cooperative appealed
the Commission’s determination, and the district court affirmed the Commission’s order. However,
this Court reversed the Commission’s order and concluded that, by dismissing the case summarily,
the Commission prevented the Cooperative from having an evidentiary hearing regarding the
meaning of the Commission’s order in docket 42 and whether the order allowed for the type of
expansion that the Cooperative took issue with. Lamb County Elec. Coop., 2001 Tex. App. LEXIS
173, at *15-16. In particular, this Court reasoned that because the pre-existing agreement between
Southwestern and the Cooperative was incorporated into the Commission’s docket 42 order and
because the Commission stated that the meaning of its order in docket 42 was ambiguous, the
Commission should have allowed the Cooperative to present evidence regarding the understanding
of the parties.10 Id. at *16.
Docket 16738 (Feb. 16, 1999) (Order Granting Motion to Withdraw and Dismiss). Around the same
time, the Commission reinstated docket 14454. See Docket 14454 (Jan. 22, 1999) (Supplemental
Preliminary Order).
10
This Court also concluded that the case should be remanded for an additional reason. As
discussed previously, in docket 2991, the Commission concluded that Southwestern had the right
to continue providing service to certain customers located inside the Cooperative’s service area. In
light of that order, this Court remanded the case to allow the Commission to consider evidence
regarding whether the Cooperative’s claims in docket 14454 were barred by the doctrine of
res judicata due to the Commission’s prior determination. Lamb County Elec. Coop. v. Public Util.
12
After this Court remanded the case to the Commission, the Commission assigned the
case a new docket number, docket 24229, and referred the case to the State Office of Administrative
Hearings for an evidentiary hearing. See Tex. Pub. Util. Comm’n, Remand of Docket No. 14454
(Petition of Lamb County Elec. Coop., Inc. for a Cease and Desist Order Against Southwestern
Public Service Co.), Docket No. 24229 (“Docket 24229”) (Sept. 28, 2001) (Preliminary Order).
During the proceeding, the administrative law judge sought to answer whether Southwestern had
violated the terms of its certificates issued in dockets 8 and 42.
Southwestern, the Cooperative, Apache Corporation, and Texaco all participated
in the evidentiary hearing. After the hearing concluded, the administrative law judge issued a
proposal for decision. Docket 24229 (Mar. 6, 2003) (Proposal for Decision). When reaching his
determination, the administrative law judge considered evidence relevant to ascertaining the meaning
of the orders in the two dockets and the intent of the parties when they entered agreements regarding
services that may be provided. After reviewing the evidence, the judge concluded that Southwestern
had been authorized to continue providing service to its customers that were located in the
Cooperative’s service area and also been authorized to provide service to meet those customers’
future needs. In other words, the judge reasoned that Southwestern’s certificates allowed it to
Comm’n of Tex., No. 03-00-00113-CV, 2001 Tex. App. LEXIS 173, at *24 (Tex. App.—Austin
Jan. 11, 2001, no pet.) (not designated for publication); see Barr v. Resolution Trust Corp.,
837 S.W.2d 627, 628 (Tex. 1992) (explaining that doctrine of res judicata prohibits relitigation of
claims that have already been fully adjudicated). On remand, the Commission ultimately concluded
that the doctrine did not apply to this case because the circumstances had changed from the time that
the Cooperative made its initial determinations in docket 2991. Docket 24229 (May 23, 2003)
(Order). That determination has not been appealed. Consequently, we make no additional
determination regarding the doctrine in this appeal.
13
provide “service to new oil field loads of existing customers from the service delivery points it had
at the time of the original certification.” Further, the administrative law judge concluded that the
evidence indicated that the utilities intended for Southwestern to provide service to “new consuming
facilities” located inside Lamb, Cochran, and Hockley counties “over customer-owned lines from
the points of service certificated to [Southwestern] in 1976.” Finally, in light of the preceding, the
judge recommended denying the Cooperative’s request for a cease-and-desist order. Specifically,
the judge surmised that because Southwestern’s certificate “encompassed the service currently in
dispute,” “a cease and desist order [was] inappropriate.”
The Commission adopted the administrative law judge’s proposal and also issued its
own findings and conclusions. Docket 24229 (May 23, 2003) (Order). Specifically, the Commission
found that in dockets 8 and 42, it was the intention of the parties that Southwestern “would continue
to provide service to its oil field customers . . . and the customers would continue to use customer-
owned lines to energize existing and future wells and related petrochemical facilities within their
leases and units, including the portions of the leases and units that extended into [the Cooperative’s]
geographic service area.” Id.; see Tex. Nat. Res. Code Ann. § 101.011 (West 2001) (explaining that
oil “unit” may be developed when people with interests in oil or gas fields agree to pool their
interests for purpose of recovering or conserving oil and gas). Similarly, the Commission concluded
that in dockets 8 and 42, Southwestern was “granted a [certificate] to serve the existing and future
needs of its oil company customers via customer-owned lines in the portions of their oil field leases
and units that extended into geographic areas of neighboring utilities, including [the Cooperative].”
14
After the Commission issued its final order, the Cooperative sought judicial review
of the order. See Tex. Util. Code Ann. § 15.001 (West 2007) (stating that party to proceeding
before Commission is entitled to judicial review); Tex. Gov’t Code Ann. § 2001.171 (West 2000)
(explaining that after exhausting administrative remedies, party aggrieved by final agency decision is
entitled to judicial review of decision). Southwestern, Texaco, and Apache Corporation intervened
in support of the Commission’s order. The district court affirmed the Commission’s order in its
entirety, and the Cooperative filed this appeal.
STANDARD OF REVIEW
Several of the Cooperative’s issues concern the propriety of the Commission’s
order, findings, and conclusions. When reviewing these types of determinations, we employ the
substantial-evidence standard to ascertain whether the Commission’s actions are adequately
supported by the evidence presented. Tex. Util. Code Ann. § 15.001 (stating that judicial review of
agency action is under substantial-evidence standard); Tex. Gov’t Code Ann. § 2001.174
(West 2000) (allowing court to reverse agency determination if it is not supported by substantial
evidence). Under this standard, we are prohibited from substituting our judgment for the
Commission’s “as to the weight of the evidence on questions committed to agency discretion,”
Cities of Abilene, San Angelo, & Vernon v. Public Util. Comm’n, 146 S.W.3d 742, 748
(Tex. App.—Austin 2004, no pet.) (citing Tex. Gov’t Code Ann. § 2001.174), because the
Commission “is the sole judge of the weight to be accorded the testimony of each witness,” Central
Power & Light v. Public Util. Comm’n, 36 S.W.3d 547, 561 (Tex. App.—Austin 2000, pet. denied),
and because the Commission “may accept or reject in whole or in part the testimony of the various
15
witnesses who testify,” City of Corpus Christi v. Public Util. Comm’n, 188 S.W.3d 681, 695
(Tex. App.—Austin 2005, pet. denied). In making this determination, we are not asked to verify
whether “the agency reached the correct conclusion, but whether some reasonable basis exists in the
record for the agency’s action.” Id. In fact, the evidence may actually preponderate against the
Commission’s finding and be upheld as long as there is enough evidence to suggest that the
Commission’s “determination was within the bounds of reasonableness.” Id. We will sustain the
agency’s order if the evidence is such that reasonable minds could have reached the conclusion
that the agency must have reached in order to justify its action. Texas Health Facilities Comm’n
v. Charter Medical-Dallas, Inc., 665 S.W.2d 446, 453 (Tex. 1984).
DISCUSSION
As a preliminary matter, we note the unique procedural posture of this case and note
the issues that we are not confronted with today. In this case, we are not called upon to determine,
de novo, whether the utilities in this case actually entered into agreements regarding service that
may be provided by each utility. In dockets 8 and 42, the Commission explicitly determined that
the parties had entered into those types of agreements, and no party contested those determinations.
Further, we are not charged with the task of determining, on our own, what the terms of
the agreements were. Rather, we are primarily faced with the task of determining whether the
Commission’s interpretation of the orders and certificates issued in dockets 8 and 42, as found in the
various findings and conclusions in docket 24229, is supported by substantial evidence.11 See Public
11
In making these statements, we are mindful that the administrative law judge postulated
in a footnote in his proposal that if he had to choose, he would conclude that “no enforceable
contract was reached between” Southwestern and the Cooperative. See Docket 24229 (Mar. 6, 2003)
(Proposal for Decision). The findings by the Commission state its determination that the parties did
16
Util. Comm’n v. Houston Lighting & Power Co., 645 S.W.2d 645, 647 (Tex. App.—Austin 1986,
ref’d n.r.e.) (explaining that Commission has authority to interpret its prior orders).
The Cooperative raises seven issues on appeal. In its first issue, the Cooperative
contends that the Commission’s sixth conclusion in docket 24229, which states that Southwestern
was granted a certificate to serve the future needs of its customers that are located inside the
Cooperative’s service area, is erroneous and inconsistent with relevant governing law. In its second
issue, the Cooperative argues that several of the Commission’s findings and conclusions forming the
basis for its ultimate determination are not supported by substantial evidence. In its third issue, the
Cooperative contends that the Commission’s order in docket 24229 is inconsistent with prior
Commission precedent. In its fourth issue, the Cooperative asserts that the Commission erred by
failing to conclude that Southwestern’s right to provide service in the Cooperative’s service area
had expired as a matter of law. In its fifth issue, the Cooperative contends that the Commission
enter into agreements and that those agreements were approved by the Commission in dockets 8 and
42. Id. (May 23, 2003) (Order).
We are also mindful of the holding in Public Utils. Bd. v. Central Power & Light Co.,
587 S.W.2d 782. In that case, the Commission held a hearing regarding the scope of an agreement
entered into between three utilities. Id. at 785. However, prior to resolution by the Commission, two
of the utilities sought a temporary injunction from a district court and presented the same arguments
made before the Commission. Id. The appellate court determined that the district court had
jurisdiction over the relief sought, which required the court to construe the agreement entered into
by the utilities and that had been approved by the Commission. Id. at 787-88.
Although the appellate court in Public Utils. Bd. held that the district court had the authority
to construe, on its own, the terms of the agreement, the situation presented in that case differs
significantly from this case. In Public Utils. Bd., no findings of fact or conclusions of law had been
issued by the Commission prior to the district court’s involvement, and the case concerned a
temporary injunction, not an appeal from a final administrative order.
17
erred by failing to issue a cease-and-desist order. In its sixth issue, the Cooperative argues that
the Commission erred by failing to properly consider the burden of proof when making its ultimate
determination. Finally, in its last issue, the Cooperative insists that the Commission erred by failing
to impose some form of sanction on Southwestern for failing to produce evidence that the
Commission had requested. For ease of reading, we will address the Cooperative’s second issue first
and then address the remaining issues in the order that they were presented by the Cooperative in its
briefs. Also, because the issues are related, we will address the Cooperative’s sixth and seventh
issues together.
The Commission’s Findings and Conclusions Are Supported by Substantial Evidence
In its second issue, the Cooperative argues that the Commission erred by determining
that Southwestern and the Cooperative entered into agreements allowing Southwestern to increase
the level of service that it provided to customers located inside the Cooperative’s service area.12 In
particular, the Cooperative asserts that several of the Commission’s findings in docket 24229 that
serve as the basis for that ultimate conclusion are not supported by substantial evidence. We will
12
In its brief, the Cooperative states its second issue as follows: “The Trial Court erred in
that reasonable minds could not differ on the fact that there was no agreement between
[Southwestern] and [the Cooperative] which would allow the use of customer-owned lines to cross
certification boundaries.” One of the appellees interprets this statement as meaning that no
agreements were reached in dockets 8 and 42 and notes that that argument constitutes “a reversal of
the position” that the Cooperative had previously taken, which seemed to acknowledge the existence
of the agreements between the parties. For reasons we previously discussed and in light of the fact
that the focus of the remainder of the Cooperative’s discussion under this issue disputes the ability
of Southwestern to provide service to additional locations inside the Cooperative’s service area, we
construe the issue as attacking the scope of the agreements and not the existence of the agreements
themselves.
18
address the specific findings and the conclusion below, but generally the Cooperative argues that the
Commission’s determinations are not supported by any evidence in the record and that all of the
evidence pertaining to the agreements actually cuts against those determinations.13
To resolve this issue, we will group related determinations and address them together.
Findings 16 and 17
In findings 16 and 17, the Commission discussed the geographic boundaries of the
oil field leases and units that Southwestern had been providing service to. The Commission found
that those boundaries had not increased in size since the original certification proceeding but did find
that the number of consuming facilities in those areas requiring electricity had increased. In
particular, the Commission found as follows:
16. The geographic areas encompassing the portions of all the units and leases
served by [Southwestern] that extend into [the Cooperative’s] service area have not
changed since 1976, except that one has decreased in size.
13
The Cooperative also raises another argument concerning the Commission’s findings and
conclusions in docket 24229. Specifically, the Cooperative asserts that by adopting the findings and
conclusions, the Commission violated “the substantial evidentiary standard which is to be accorded
to original Docket 8 and 42.”
In making this argument, the Cooperative ignores the procedural posture of this case. Had
any party appealed the Commission’s determinations from dockets 8 and 42, those determinations
would have been reviewed for substantial evidence. However, those dockets were not appealed.
Rather, in docket 24229, the Commission was required to interpret the determinations made in those
dockets addressing the agreements in order to determine whether the Cooperative was providing
service that exceeded the authority granted to it by its certificates. The interpretations made in
docket 24229 are what has been appealed, and we are, therefore, limited to a consideration of
whether those interpretations are supported by substantial evidence.
19
17. Though the geographic area of the portions of the leases or units served by
[Southwestern] that extend into [the Cooperative’s] service area have not been
enlarged since 1976, the number of wells and related petrochemical facilities
populating these properties has increased during this period, as would be reasonably
expected of oil field operations.
These findings are consistent with the testimony of various witnesses. One of
Southwestern’s witnesses, Mitch Elmore, testified that none of the customers that were receiving
power from Southwestern had increased the size of their fields or units located inside the
Cooperative’s service area. In fact, Elmore testified that only one oil field had changed in size and
that it had decreased rather than increased in size. However, Elmore did testify that the number of
wells and other consuming facilities needing electricity within the various leases and units, including
those located inside the Cooperative’s service areas, had increased since the time that the certificates
were granted. Moreover, one of Texaco’s witnesses, Stanley Davis, testified it was common
knowledge in the oil industry at the time of certification that “the development of a large lease
involved changes over time, including drilling new wells and plugging old wells.”
Findings 18, 19, 26, and 27
In findings 18, 19, and 26, the Commission made determinations regarding the
practice of delivering electricity to oil field operators at delivery points and allowing the operators
to carry the electricity over their own power lines. Moreover, in finding 27, the Commission
determined that in dockets 8 and 42, the Cooperative did not contest the propriety of Southwestern
providing service to its customers in the manner described above. Specifically, the Commission
found, in relevant part, as follows:
20
18. It is well-established petroleum industry practice for oil companies to install their
own customer-owned electric distribution systems in the oil field units and leases that
they are developing.
19. It is well-established petroleum industry practice for oil companies to have their
customer-owned electric distribution systems energized and served by a single power
supplier at a primary delivery point.
...
26. The records in Docket Nos. [8] and 42 reflect [Southwestern’s] long standing
and continuing practice of serving oil field operators at a primary delivery point, from
which the operators connect their own lines to serve specific wells and related oil
production facilities.
27. The continuation of [Southwestern’s] long-standing manner of serving its
customers who were the operators of the oil field units and leases was uncontroverted
and acquiesced to by [the Cooperative] in the original certification proceedings.
These findings are supported by substantial evidence. During docket 24229,
Sam Hunter, a witness for Southwestern who participated in the negotiations between the parties in
dockets 8 and 42, testified that “oil field electric service has always been unique in that rather than
the utility’s lines, the oil operators’ lines go to the specific oil field producing facilities.” (Emphasis
added). Evidence was also introduced showing that Southwestern’s experience with providing
electricity to oil fields was consistent with the pattern described above. Specifically, Hunter stated
that Southwestern began providing service to the counties in dispute in the 1940s and that in the
1950s and 1960s, Southwestern engaged in the expensive undertaking of erecting electric
distribution lines to provide service to the areas in question. Further, Hunter testified that because
the undertaking was so expensive and because there was no assurance that the oil market in Texas
would continue being profitable or that the oil field customers would continue to use and
purchase electricity, Southwestern ran its power lines along the perimeter of the oil fields and
21
allowed the customers to attach to the lines. Evidence of this practice was also presented to the
Commission when Southwestern applied to amend its applications in dockets 8 and 42. In particular,
Southwestern presented testimony and evidence that the oil field operators it was providing service
to inside the Cooperative’s service area built their own distribution lines throughout their leases and
that Southwestern delivered its electricity to “one point of service.”
Moreover, in attacking the evidentiary basis for these findings, the Cooperative does
not argue that it objected to the prospect of Southwestern continuing to provide service to customers
via preexisting delivery points and allowing those customers to transfer power over their own
distribution lines. Similarly, in making its claims on appeal, the Cooperative does not deny that
Southwestern had been providing service to oil field operators in this manner for some time, nor does
the Cooperative deny that after certification, some of these operators were located within the
Cooperative’s service area. Finally, we also note that the Cooperative did not begin disputing the
propriety of Southwestern providing service to customers inside the Cooperative’s service area until
years after the Commission had issued its final orders in dockets 8 and 42.
Findings 22, 24, and 25
In findings 22 and 25 and part of finding 24, the Commission found that in dockets 8
and 42, Southwestern was given the authority to continue providing service to customers that were
located outside of its service area and that Southwestern and the Cooperative entered into agreements
in those dockets allowing Southwestern to continue providing service to customers that were located
inside the Cooperative’s service area. Specifically, the Commission found, in relevant part, as
follows:
22
22. In Docket No. [8], Southwestern was certificated to continue to serve oil field
loads in [the Cooperative’s] service area through customer-owned lines.
...
24. In Docket No. 42, the parties agreed [that Southwestern’s certificate] would
include the right to continue to serve customers that it was presently serving outside
of its geographic service area boundary.
25. In meetings among the parties to Docket Nos. [8] and 42 there was general
agreement between [Southwestern] and the negotiating representative for the
cooperatives, including [the Cooperative], that [Southwestern] would continue to
provide oil field service from primary delivery points via oil field operator customer-
owned lines including the portions of the operating units or leases that extended into
a neighboring utilit[y’]s service area.
These findings are consistent with the terms of the orders issued in dockets 8 and 42
and with testimony that was presented to the Commission.
Docket 8
Prior to certification, Southwestern had been delivering electricity to Amoco
through a delivery point in Hale County, and Amoco had built lines that carried the electricity to
consuming facilities located in Lamb County. During docket 8, Hunter testified that Southwestern
was providing service to areas outside of its boundaries found on the certification maps and that
by filing its application Southwestern was specifically seeking authority to continue providing
service to customers that it was serving immediately prior to certification. After hearing testimony
and considering the evidence presented, the Commission issued its order in docket 8 stating that
Southwestern and the Cooperative had entered into an agreement regarding the service that they
could provide. That agreement was incorporated into the final order in docket 8 and, therefore, its
23
accompanying certificate. Specifically, the order stated that the parties to the docket were entitled
to certificates for “areas which they have agreed” to serve.
Additionally, during docket 2991, Delbert Smith, the general manager of the
Cooperative, testified regarding the agreement between the parties in docket 8 and stated that the
agreement allowed for Southwestern to continue providing electricity to its oil field customers and
that the Cooperative did not have any objection to Southwestern continuing to provide service to its
prior customers and allowing the customers to distribute the electricity to consuming facilities
located inside the Cooperative’s service area. In particular, Smith testified as follows:
Q: So then you are not objecting to the service by Southwestern to Amoco at the
primary metering point in Hale County if Amoco takes that power through its
customer-owned lines and uses it for the load that existed as of the certification date?
A: Okay. Serving any load that existed prior to certification.
Q: You have no objection to that?
A: We have no objection to that.14
Q: So, and then likewise with Texaco, you have no objection to the service, the
delivery of power by Southwestern to Texaco for Texaco’s use at Well 1 and 2?
A: No, that’s what the agreement was. We have no problem with that.15
14
We note that this testimony is inconsistent with the Commission’s ultimate determination
that Southwestern’s certificates allow it to increase the level of service that it provides to its
customers that are located inside the Cooperative’s service area in order to meet its customers’ future
needs. Although this testimony does not directly support that determination, for reasons that will
be more thoroughly explored later in the opinion, we conclude that the Commission’s determination
regarding future needs is supported by other evidence.
15
Smith provided similar testimony in docket 16738, the dual-certification docket that was
eventually dismissed. In that docket, Smith stated that Southwestern had “the right to continue to
serve any well that was in—that was electrified” before the need for certification.
24
Smith’s testimony was also echoed by another of the Cooperative’s witnesses,
Donald Stubbs, who was a field engineer for the Cooperative. In docket 24229, Stubbs stated
that the utilities in docket 8 made arrangements allowing consuming facilities to continue receiving
service from the utility that it was obtaining service from at the time of certification. Furthermore,
in docket 24229, Hunter testified that the Commission granted certificates that allowed utilities to
continue providing service to preexisting customers when it issued its order in docket 8. This
statement is also consistent with the testimony of David Hudson, another of Southwestern’s
witnesses, who testified that the parties to docket 8 agreed to allow Southwestern to continue serving
its preexisting customers whose leases or units were now, at least, partially located inside the
boundaries of another utility’s service area.
Finally, in docket 24229, when describing testimony that he had provided in docket 8,
Hunter commented that there was no “indication of any dispute concerning [Southwestern’s]
continuation of electric service to oil field customers at existing points of delivery who use customer-
owned lines” and then transfer the power to various parts of their oil field leases or units. Similarly,
in the proposal for decision in docket 24229, the administrative law judge noted that in docket 8
“there was no indication of any dispute concerning [Southwestern’s] continuation of electric service
to oil field customers at existing points of delivery who use customer-owned lines to serve the
portions of their leases or units that extend outside [Southwestern’s] geographic service areas.”
Docket 24229 (Mar. 6, 2003) (Proposal for Decision).
25
Docket 42
In Southwestern’s application in docket 42, it sought permission to continue
providing service to “existing customers presently served.” Similarly, during docket 42, Hunter
testified that Southwestern was seeking permission to continue serving the customers that it
had provided power to for years. Furthermore, in docket 42, when cross-examining one of
Southwestern’s witnesses, the Cooperative acknowledged that after certification, Southwestern
would be providing service to customers inside the Cooperative’s service areas that use their own
distribution lines.
After considering the evidence and testimony presented, the Commission issued an
order in docket 42 stating that the parties had entered into agreements regarding the service that each
may provide and that Southwestern was specifically given a certificate to continue providing service
to its “customers presently being served” that are now located within the Cooperative’s service area.
Docket 42 (Oct. 8, 1976) (Order).
Furthermore, during docket 24229, Southwestern asked the Cooperative to produce
a copy of the original application that it filed in docket 42. Although the Cooperative was unable
to produce a copy of the application that it originally signed, the Cooperative did produce an
unsigned copy, which acknowledged the right of other utilities, including Southwestern, to continue
providing service to “premises” that they had been serving prior to certification and defined
“premises” as including the delivery points that utilities use to provide service to oil field operators.
Specifically, the application defined premises as follows:
26
when an electric utility furnished service to a person at one point from which such
person distributes electric service over its lines to oil, gas, or water well installations,
‘premises’ shall be the pole or facility at which point title to the electricity passes to
such other person, regardless of the point or points at which such service is metered.
Moreover, during that docket, Hunter testified that the phrase “customers presently
being served” found in the final order in docket 42 referred to the operators of oil leases and units
that had been obtaining their power from Southwestern and that had been distributing the electricity
obtained to consuming facilities located inside their leases and units over power lines that the
operators had installed. Additionally, Hunter testified that the order was intended to authorize
Southwestern to continue providing service to those oil leases and units and that there was “not a
single voice in opposition to the continuation of [Southwestern’s] electric service to the oil field
operators at existing primary delivery points.”16 Also, Hunter stated that “there was a general
agreement” between Southwestern and all of the cooperatives to the various proceedings, including
the Cooperative, “that [Southwestern] would continue to provide” service to oil fields “from primary
delivery points via the oil field operator customer-owned lines” “in the same manner that it had been
doing for a long time.” Additionally, Hunter testified that during the meetings with the various
cooperatives involved, Southwestern explained that if the cooperatives did not agree to allow
Southwestern to provide service to its oil-field customers, Southwestern would not agree to limit its
certification and instead would seek a certificate to provide service to the entire area.
16
Hunter also testified that it was customary in the oil industry for the operator of a
particular oil field to change, and the Cooperative seemed to acknowledge the continuing nature of
the right to provide service to those areas when Smith stated during his testimony that ownership
changes would not impact Southwestern’s authority to provide service to those areas.
27
The findings are also consistent with the testimony of Hudson and Smith in
docket 24229. Although he disputed the scope of the agreement, Smith acknowledged in docket
24229 that the parties entered into an agreement in docket 42. Further, Hudson testified that during
docket 42, Southwestern was under the assumption that it would be allowed to continue to serve oil
field operations inside the Cooperative’s service area provided that Southwestern was providing
service to the same leases and units that it was serving prior to certification. Moreover, Hudson
stated that the parties to docket 8 agreed to allow Southwestern to continue serving its preexisting
customers even if they were located inside the boundaries of another utility’s service area.
Findings 24, 28, and 30 and Conclusion 6
In the remaining portion of finding 24, the Commission determined that the utilities
had waived their right to rely upon the corridor rule and found that there would have been no reason
for the utilities to agree to waive that right unless they had been given the power in a collateral
agreement to serve the growing needs of its customers that were located inside another utility’s
service area. In particular, the Commission found, in relevant part, as follows:
24. In Docket No. 42, the parties agreed to waive the Commission’s corridor rule.
. . . There is no apparent reason [Southwestern] would have agreed to forgo its
corridor rights unless it could continue to serve the growing needs of its oil field
customers that it was presently serving outside of its geographic service area
boundary. There is no apparent reason [Southwestern] would have agreed to forgo
its corridor rights unless it could continue to serve the growing needs of its oil field
customers from its existing points of delivery.
In finding 28, the Commission repeated its determination that the parties intended that
Southwestern be allowed to provide service to oil field operators, including those inside the
Cooperative’s service area, through delivery points; however, the finding also included an additional
28
determination stating that the parties intended that Southwestern be given the ability to provide
service to cover the needs of future wells and other consuming facilities inside the operator’s leases
or units. Specifically, the Commission found as follows:
28. In docket Nos. [8] and 42, the parties intended that [Southwestern] would
continue to provide service to its oil field operators at a primary delivery point and
the customers would continue to use customer-owned lines to energize existing and
future wells and related petrochemical facilities within their leases and units,
including the portions of the leases and units that extended into [the Cooperative’s]
geographic service area.17
Finally, in findings 30 and in conclusion 6, the Commission determined that the
parties to dockets 8 and 42 intended that Southwestern would be allowed to provide service to cover
the operators’ future18 electricity needs, including the ability to provide electricity to new consuming
17
In this issue, the Cooperative also urges that finding 29 is not supported by substantial
evidence. When this Court remanded docket 14454 to the Commission, this Court instructed that
in addition to remanding for consideration of the intent of the parties, the intention of the
Commission should also be considered in the analysis of the scope of the previous certificates. Lamb
County Elec. Coop., 2001 Tex. App. LEXIS 173, at *18. In light of this instruction, the Commission
issued finding 29, which is nearly identical to finding 28, except that it substitutes “the Commission”
for “the parties” and states that it was the Commission’s intention that Southwestern be allowed to
provide the service described in finding 28. Given that we ultimately conclude that finding 28 is
supported by substantial evidence and that the Commission specifically incorporated the agreements
between the Cooperative and Southwestern into its final orders, we also conclude that finding 29 is
supported by substantial evidence.
18
In challenging the determination that Southwestern was allowed to provide service to meet
the future needs of its customers that were located inside the Cooperative’s territory, the Cooperative
refers to a proposed amendment to the certification application filed by Southwestern and to a
hearing on the proposed amendment. The request was withdrawn before the issuance of the final
order in docket 42. In the proposed amendment, Southwestern stated that it delivered electricity to
oil field operators at one or more points and noted that in the past, oil field operators would ask
Southwestern to move the location of the delivery points if a different location was more efficient
and economical. Accordingly, Southwestern asked for the ability to modify the delivery points if
necessary.
29
facilities located inside the operators’ oil field leases or units. Specifically, the Commission found
and concluded as follows:
The Cooperative argues that this request demonstrates that there was no agreement allowing
Southwestern to expand the service that it provided to the areas in dispute. Essentially, the
Cooperative contends that it would be unnecessary to make this request if Southwestern already had
the ability to provide increased service to the region.
In the proposal for decision in docket 24229, which was adopted by the Commission, the
administrative law judge determined that the application was focused on the “extension of service
from new service points” and that by filing the amendment, Southwestern was attempting to clarify
“that it could provide service to new consuming facilities from new delivery points—rather than
solely from existing delivery points.” Docket 24229 (Mar. 6, 2003) (Proposal for Decision). In
other words, the judge concluded that the amendment was a request for an “additional right” that was
not expressly “included in the prior application” and not “an indication that the earlier application
did not include service to new facilities from existing delivery points.”
The interpretation of the proposed amendment as requesting an additional right distinct from
the ability to provide increased service to existing customers is supported by substantial evidence.
The terms of Southwestern’s original application sought the ability to continue providing service to
customers that would soon be located inside the service areas of other utilities. Further, the
application specifically stated that Southwestern would apply for permission to install “additional
‘points of service’” when a customer requests an additional delivery point, but the application made
no mention of needing to apply for permission to provide electricity to its customers through existing
delivery points in amounts that exceeded the amount provided at the time of certification. In relation
to the possibility of installing new delivery points, the proposed amendment asked for “the right to
service the oil and gas fields . . . whether such service is rendered through the existing point of
delivery or a different point of delivery requested by the operator of the oil and gas lease in
question.” When interpreting the effect of the proposed amendment on the rights originally
requested in Southwestern’s application, the hearings examiner in docket 42 concluded that the
amendment was a request to “include a claim for certification of future points of delivery to existing
petro-chemical customers, regardless of certified service areas.” In other words, the examiner
surmised that by requesting the ability to install new delivery points, Southwestern was trying to
avoid the necessity of obtaining the Commission’s permission before beginning installation. No
party disputed that determination. Finally, the interpretation is consistent with testimony given by
one of Southwestern’s witnesses. Hunter testified that the purpose of the amendment “was to obtain
approval to provide the oil field operators additional points of delivery without the need to make a
new filing for a certificate.” (Emphasis added).
30
30. In Docket Nos. [8] and 42, [Southwestern] was granted a CCN to continue to
serve the portions of the oil field leases and units operated by [Southwestern’s] oil
company customers that extended into [the Cooperative’s] geographic service area,
including the future needs of the oil company customers coincident with normal oil
field development.
...
6. In Docket Nos. [8] and 42, [Southwestern] was granted a [certificate of
convenience and necessity] to serve the existing and future needs of its oil company
customers via customer-owned lines in the portions of their oil field leases and units19
that extended into geographic service areas of neighboring utilities, including [the
Cooperative].
(Emphases added).
These findings are supported by substantial evidence. The order in docket 42
specifically stated that Southwestern was “not granted a Certificate of Convenience and Necessity
for a 400-foot corridor.” Similarly, in docket 42, Newton, the general manager for South Plains,
19
In its reply brief, the Cooperative takes issue with the inclusion of the language “oil field
leases and units” in conclusion six and with the Commission’s construction of dockets 8 and 42 as
granting Southwestern a certificate to continue providing service to “customers.” In particular, the
Cooperative asserts that neither of the orders in dockets 8 or 42 granted the Cooperative the right to
provide service to leases or units and further contends that the final orders in the dockets, particularly
conclusion 7 from docket 42, certified “distribution lines,” not customers, that Southwestern was
allowed to continue to use.
However, we previously concluded that substantial evidence supports the Commission’s
determination that Southwestern was certified to provide service to its customers in existence at the
time of certification, including the operators of oil field leases and units whose electricity needs
extended into portions of the Cooperative’s service area. Moreover, in this subissue, we also
conclude that substantial evidence supports the Commission’s determination that Southwestern was
given the authority to serve the future needs of those operators. In light of these determinations, we
cannot conclude that the Commission’s construction of its prior orders or its inclusion of the phrase
“oil field leases and units” in its determinations was inadequately supported by the evidence
presented.
31
testified that all of the parties to docket 42 agreed to waive the corridor rule because the parties
created their own agreements regarding the service that the utilities could provide. Smith echoed
that testimony by stating, during docket 42, that the parties had entered into their own agreements
that replaced the corridor rule.
In docket 24229, when testifying regarding the corridor rule, Hunter stated that the
parties agreed to waive the corridor rule that would otherwise have authorized a utility to continue
using a power line that had become stranded inside another utility’s service area. In other words,
Southwestern agreed to give up the ability to serve customers located inside the corridor and to serve
new customers that move into the corridor. Moreover, Hunter testified that from a financial
standpoint and in light of the expense of installing distribution lines, it would make no sense for
Southwestern to waive the corridor rule and forgo expanding its service within that corridor unless
Southwestern had otherwise retained the right to continue providing service through the power lines.
Further, Hunter testified that although Southwestern “agreed to waive corridor rights,” it did so with
the intention of continuing “to provide service to the oil field operators at the single primary delivery
points on those distribution lines.”
Moreover, in docket 42, Hunter testified that Southwestern was seeking permission
to continue to serve the customers to which it had historically provided service and to serve the
customers’ future needs. That testimony is supported by the statement prepared by Newton in
docket 42 that, in part, explained the service agreement between Southwestern and South Plains.
In the statement, Newton requested that Southwestern be given a certificate to serve “additional oil
field type loads (petrochemical) as can be served without extension of its facilities from its location
32
as it presently exists.” In docket 24229, Hunter also explained that during the earlier dockets there
was no “opposition to the oil operators’ use of the [Southwestern] supplied electric service to fulfill
the operators changing needs coincident with normal oil field production.”
Hudson provided similar testimony during docket 24229. He stated that in dockets 8
and 42, Southwestern was given the authority to provide service to future consuming facilities added
in the normal course of development to the leases and units of Southwestern’s customers located
inside the Cooperative’s service area. Moreover, Hunter testified that the consuming facilities in
dispute were added in the normal course of development. Furthermore, he stated that although
Southwestern’s service would be limited to the distribution lines and points of delivery it had
previously installed, the agreement between the utilities allowed customers to continue their practice
of using and installing their own distribution lines to meet their current and future needs.
Davis’s testimony in docket 24229 also supports the determination that Southwestern
was given the authority to serve its customers’ future needs. As mentioned previously, Davis
testified that it was common for oil operators to add new consuming facilities when they developed
an oil field. Further, he stated that after Southwestern began installing distribution points, Texaco
“made development plans based on the assumption that it would use electric power distributed over
customer owned lines” when it continued to develop its properties.20 Moreover, Davis stated that
20
During docket 24229, the Cooperative did refer to and present evidence indicating that
Southwestern was not allowed to provide electricity to serve the needs of oil field operators that were
in excess of what Southwestern was providing at the time of certification. For example, Smith
testified that the certificates did not allow Southwestern to provide power to new consuming
facilities that were installed in the oil fields because those facilities were located within the
Cooperative’s singly-certificated area. Similarly, Smith testified that the agreement between the
parties in docket 42 was “intended to be restricted to a stranded distribution line’s use to provide
33
the normal development of an oil lease involved making significant changes to the lease, including
creating new wells, and that Texaco believed that it would be allowed to obtain all of its power needs
from Southwestern. Finally, Davis testified that Texaco did not generally develop properties with
split-distribution systems and that requiring Texaco to split where it obtained its electricity from at
the time of certification would not have benefitted Texaco financially and would have been
inconsistent with oil industry practice at that time.
For these reasons, we conclude that all of the disputed findings and conclusion
are supported by substantial evidence and, accordingly, overrule the Cooperative’s second issue
on appeal.21
continued then-level of service to the consuming facilities controlled by then-specific customers,
then being served.” Moreover, Stubbs testified that Southwestern’s authorization to serve customers
within the Cooperative’s service area would diminish over time. In particular, he stated that the
certifications allowing for service in another utility’s territory were kept to a minimum and given
with the belief that most of the certifications would expire due to inactivity. Finally, Stubbs testified
that when the parties began establishing their service area boundaries, the parties did not consider
the future development of any oil field lease or unit; instead, he argued that the parties looked solely
to the distribution lines that were in place and the consuming facilities that were already in existence.
Although this type of evidence does not support the Commission’s determination, as detailed
previously, evidence in direct opposition to this testimony was also presented to the Commission.
In resolving the conflicting testimony, the Commission was free to accept or reject the testimony of
the various witnesses when making a determination regarding what if any weight to give to the
testimony of the various witnesses. See City of Corpus Christi v. Public Util. Comm’n, 188 S.W.3d
681, 695 (Tex. App.—Austin 2005, pet. denied). Moreover, when resolving the conflicting evidence
in favor of Southwestern, the administrative law judge also stated that Hunter was the only witness
who testified during docket 24229 that actively participated in the negotiations between the parties
in dockets 8 and 42. Docket 24229 (Mar. 6, 2003) (Proposal for Decision).
21
In its second issue, the Cooperative also contends that finding 31 is not supported by
substantial evidence. Finding 31 states that “[w]ith one exception, [the Cooperative] has failed to
establish that [Southwestern] is providing service to any customer inconsistent with the terms of
[Southwestern’s] CCN.” All of the reasons given supporting the other disputed findings also compel
us to conclude that finding 31 is supported by substantial evidence. Moreover, we note that,
34
Conclusion 6 is Consistent with Relevant Law
In its second issue, the Cooperative asserted that conclusion 6, in addition to other
Commission determinations, was not supported by substantial evidence. In its first issue, the
Cooperative also disputes the propriety of conclusion 6.
First, the Cooperative contends that the authority granted under conclusion 6 went
beyond the certifications that the Cooperative received in dockets 8 and 42. As support for this
assertion, the Cooperative refers to the certification maps utilized in the two dockets that show the
service areas of various utilities, including the Cooperative and Southwestern, at the time the utilities
originally obtained their certificates. The Cooperative notes that the maps do not make any explicit
reference to the ability of Southwestern to serve the existing or future needs of the customers located
inside the Cooperative’s service area.
Previously, we concluded that the various findings that form the basis for
conclusion 6 as well as conclusion 6 itself are supported by substantial evidence. In light of that
determination, we cannot conclude that conclusion 6 exceeds the limits of the certifications granted
in dockets 8 and 42.
Second, the Cooperative complains that by allowing Southwestern to serve the “future
needs” of the customers at issue, the Commission has violated the dictates of the utilities code.
Specifically, the Cooperative asserts that the utilities code requires certification for a particular
regarding the one exception, the finding also states that Southwestern “acknowledged th[e] error and
has agreed to discontinue service when [the Cooperative] informs it that [the Cooperative] is ready
to provide service to this customer. Accordingly, no relief is required to address the isolated
issue here.”
35
area, not for particular customers. As support for this proposition, the Cooperative cites to
subsection 37.051(b) of the utilities code, which provides as follows:
Except as otherwise provided by this chapter, a retail electric utility may not furnish
or make available retail electric utility service to an area in which retail electric utility
service is being lawfully furnished by another retail electric utility unless the utility
first obtains a certificate that includes the area in which the consuming facility is
located.
Tex. Util. Code Ann. § 37.051(b) (emphasis added). Further, the Cooperative argues that because
the Commission’s interpretation of the certificates issued in dockets 8 and 42 provides no express
limitation on the future needs that Southwestern can serve or on the locations to which service
may be provided, the Commission effectively issued an “open-ended” certificate authorizing
Southwestern to provide service in the Cooperative’s service area that were constrained solely by
the needs and desires of Southwestern’s customers. Stated differently, the Cooperative asserts that
the Commission’s conclusion would allow Southwestern to further invade the Cooperative’s service
area and reach into areas not expressly “specified within [Southwestern’s] certification
boundaries.”22
22
When making its various assertions, the Cooperative, on more than one occasion, refers
to a prior docket as support for the proposition that by providing electric service to a region outside
of its service area through customer-owned lines, Southwestern contravened prior Commission
precedent. See Tex. Pub. Util. Comm’n, Complaint of Nueces Elec. Coop., Docket No. 4572
(July 2, 1984) (Order). In that prior docket, the Commission concluded that “a public utility may
not provide service through customer-owned lines to a consuming facility located outside the public
utility’s certificated area until the utility has received authority to serve the area.” Id. In light of that
statement, the Cooperative insists that Southwestern’s service to customers located inside the
Cooperative’s service area is improper.
36
In further support of its assertion that the Commission’s actions contravene the
dictates of subsection 37.051(b), the Cooperative refers to Citizens Coop Gin v. General Tel. Co.,
728 S.W.2d 903 (Tex. App.—Austin 1987, no writ), which involved a predecessor to
subsection 37.051(b). In that case, Citizens Coop Gin (the “Gin”) attempted to obtain new telephone
service from South Plains Telephone Cooperative (“Telephone Coop”) rather than obtain the service
from its existing carrier, General Telephone Company (“General Telephone”). Id. at 904. To obtain
the service, the Gin installed telephone distribution lines in Telephone Coop’s service area
that would connect the Gin to the Coop’s distribution network. Id. After learning about this,
General Telephone asked the Commission to issue a cease-and-desist order on the ground that
Telephone Coop “was providing service beyond its certificated area.” Id. at 905. The Commission
denied the request. Id. On appeal, this Court concluded that the Commission erred by allowing
Telephone Coop to provide service to the Gin because the statute in effect at that time, like
subsection 37.051(b), required that a utility seeking to provide service to an area that has been
certificated to another utility must first obtain its own certificate stating “the area in which the
consuming facility is located.” Id. at 906 (emphasis added).
The Cooperative’s reliance on this prior docket is misplaced. In that docket, a utility sought
to provide service to an area that it had not received a certificate to serve and began distributing
electricity to that area before seeking permission from the Commission. In this case, Southwestern
was providing service to the customers in dispute prior to the need for certification and was given
certificates authorizing it to serve its preexisting customers. Moreover, the Commission determined,
based on substantial evidence, that the authorization encompassed the right to serve the future needs
of its preexisting customers. Cf. City of Coahoma v. Public Util. Comm’n, 626 S.W.2d 488, 490-92
(Tex. 1981) (concluding that City of Coahoma was entitled to continue providing service to
customers that it was serving prior to passage of Act but were now located in another utility’s
water district).
37
In light of this last statement, the Cooperative argues that this Court has mandated
that if a utility seeks to provide service in another utility’s service area, the utility must first obtain
a certificate that specifically describes the geographic locations of the customers that the utility is
seeking to serve. Further, the Cooperative contends that because the Commission never issued a
certificate providing that type of geographic specificity, conclusion 6 is inconsistent with the
reasoning of the Citizens Coop Gin case.
For several reasons, the Cooperative’s reliance on subsection 37.051(b) is misplaced.
First, subsection 37.051(b) applies to circumstances that are not present in this case.
Subsection 37.051(b) applies, by its terms, to situations in which a utility is attempting to provide
service to an area that it has not been given a certificate to serve and that has already been
certificated to another utility. Tex. Util. Code Ann. § 37.051(b). However, those circumstances are
not present here. In the present case, prior to the passage of the Act, Southwestern had been
providing service to customers located inside what is now the Cooperative’s service area. Moreover,
the Commission found that prior to certification and in accordance with the utilities code,
Southwestern and the Cooperative entered into agreements regarding the service each could provide.
See id. § 37.155.23 The Commission approved those agreements, and they were incorporated into
the certificates issued in dockets 8 and 42. In other words, Southwestern was given certificates to
provide service to customers in accordance with the terms of the agreements that Southwestern and
23
We note that the terms of section 37.155 allows utilities to enter into agreements regarding
the areas that they will serve and regarding the customers that they will serve. Tex. Util. Code Ann.
37.155 (West 2007) (explaining that agreements may designate “areas and customers to be served
by the utilities”).
38
the Cooperative entered into. Further, substantial evidence supports the Commission’s interpretation
of the agreements and certificates as allowing Southwestern to serve the current and future needs of
its preexisting customers now located inside the Cooperative’s service area.
Morever, even assuming that subsection 37.051(b) were applicable to the current
circumstances, the provision also specifically allows for exceptions to its requirements if they
are authorized by anther provision of the utilities code. Id. § 37.051(b) (explaining that provision
applies “[e]xcept as otherwise provided by this chapter”). One such exception is found in
section 37.155, which, as discussed previously, allows utilities to enter into agreements regarding
the service that they will provide. Id. § 37.155.
In light of the preceding, we also conclude that the Cooperative’s reliance on the
Citizens Coop Gin case is misplaced. In that case, unlike the current case, Telephone Coop was not
given a certificate authorizing it to provide service to customers in another utility’s service area.
Moreover, when stating that a utility was required to obtain a certificate detailing the location of a
proposed consuming facility before providing service to the facility, this Court did not, as alleged
by the Cooperative, impose any additional geographic requirement for certification and was merely
repeating the mandates of the predecessor to subsection 37.051.
We also disagree with the Cooperative’s assertion that the Commission authorized
Southwestern to provide essentially unlimited service in the Cooperative’s service area. In issuing
the various certificates, the Commission complied with the provision of the utilities code allowing
utilities to enter into agreements regarding their service areas. Further, although the final orders in
dockets 8 and 42 do not themselves provide the specific limitations on the service that Southwestern
39
could provide inside the Cooperative’s service area, the Commission found in docket 24229
that the parties’ intention when entering the agreements was to allow Southwestern to provide
service to its preexisting customers so that those customers could energize consuming facilities
located “within their leases and units.” Docket 24229 (May 23, 2003) (Order). In other words, the
Commission found that the agreements were limited by the customers that could be served and by
the specific geographic regions that could be served: service was limited to customers in existence
prior to certification and to those customers’ leases and units, which had been established by the time
of certification.24 Moreover, the Commission also found that the agreements allowed Southwestern
to provide service through delivery points that had been used to provide power to those customers
in the past. Those delivery points were also geographically fixed.
For these reasons, we overrule the Cooperative’s first issue on appeal.
The Commission’s Order is Not Inconsistent with its Prior Precedent
In its third issue, the Cooperative contends that the Commission’s order is
inconsistent with prior Commission precedent. Specifically, the Cooperative argues that in the past,
the Commission has looked to certification maps to ascertain the scope of a certificate but avers that
in this case, the Commission improperly considered other evidence. Essentially, the Cooperative
asserts that the Commission should have limited its consideration to the certification maps because
they “are the primary evidence to determine certification agreements.” Further, the Cooperative
24
It is worth noting that during docket 24229, Hunter testified that the certificates would not
authorize Southwestern to provide service to areas beyond “the geographic areas of the units or
leases that existed in the 1975-1976 time frame.”
40
argues that by considering additional information in this case, the Commission has violated its prior
precedent and failed to adequately explain its decision to diverge from that precedent. See Flores
v. Employees Ret. Sys., 74 S.W.3d 532, 539-40 (Tex. App.—Austin 2002, pet. denied) (explaining
that agencies are “not bound to follow its decisions . . . in the same way that a court is bound by
precedent” but that courts frequently require agency to explain inconsistent agency determinations
or explain why agency departed from its previous policy). Finally, the Cooperative insists that
the certification maps in this case unambiguously demonstrate that Southwestern was not granted
a certificate to serve the “future needs” of various oil field operators. For these reasons, the
Cooperative argues that the Commission’s order is “arbitrary, capricious, and an illegal and
unwarranted exercise of policy discretion.”
In making these assertions, the Cooperative relies on an unrelated prior Commission
docket, docket 24815. See Tex. Pub. Util. Comm’n, Complaint of Fayette Elec. Coop., Inc., Against
the City of Schulenburg, Tex., Docket No. 24815 (“Docket 24815”) (Nov. 15, 2002) (Final Order).
In that docket, the Commission was asked to determine whether the City of Schulenburg was
encroaching on another utility’s service area. To resolve the dispute, the location of the boundary
between the two utilities had to be considered, and the Commission analyzed the relevant
certification map to ascertain the boundary between the City of Schulenburg and the other utility.25
25
In its first issue, the Cooperative also raises arguments concerning the certification maps.
In particular, when challenging the basis of the Commission’s determination that Southwestern had
been given the authority to provide future service to its customers located inside the Cooperative’s
territory, the Cooperative argues that the determination cannot be supported by substantial evidence
because the maps used during dockets 8 and 42 make no mention of allowing Southwestern to
provide service to those customers. Further, the Cooperative states that the “best” and “only”
evidence of the agreement between the utilities are the certification maps used in dockets 8 and 42
41
For the reasons that follow, we disagree with the Cooperative’s assertions and its
reliance on docket 24815. First, the type of information obtained from the map in docket 24815 is
fundamentally different than the type of information at issue in this case. In docket 24815, the
Commission had to ascertain the location of the boundary between the City of Schulenburg and
another utility. In making this determination, the Commission reasoned that it was more appropriate
to use a map prepared during a prior certification proceeding than a handwritten description. In the
current case, however, the geographical boundaries between Southwestern and the Cooperative are
not in dispute26; rather, the issue in this case is the extent to which Southwestern was given the
authority to provide service to customers inside the Cooperative’s service area. The fact that
resolution of the issue in docket 24815 was accomplished by examining the certification map would
and the final orders in those dockets and further insists that none of those items support the
Commission’s determinations. The Cooperative also notes that Southwestern played a significant
role in preparing the maps and, therefore, contends that the maps should be construed against
Southwestern.
The Cooperative’s argument disregards the other evidence presented, including the
determinations made in dockets 8 and 42 and the testimony and evidence presented in those dockets
as well as in docket 24229, that support the Commission’s determinations. Moreover, the fact that
Southwestern prepared the maps would not seem to foreclose the possibility that the maps were not
meant to include all of the terms of the agreements between the parties. The Cooperative refers to
no case law or Commission policy requiring parties entering into agreements under section 37.155
of the utilities code to provide all the details of the agreement on a certification map. See Tex. Util.
Code Ann. § 37.155. Furthermore, a review of the maps reveals that not all of the terms of the
agreements were incorporated into the maps. Specifically, the maps make no mention of
Southwestern agreeing to waive the benefits of the corridor rule.
26
During docket 24229, the Cooperative’s engineering services manager admitted that there
was no dispute regarding the boundary between the two utilities and stated that he believed that the
dispute was instead “about the intent of the line on the map” and about the scope of rights that were
given during the certification proceedings. Moreover, the maps were prepared with the involvement
of personnel from the Cooperative and from Southwestern, and the personnel from both utilities
verified that the boundary lines were drawn accurately.
42
not seem to foreclose utilization of other evidence for non-boundary disputes, particularly in the
circumstances here in which the relevant certificates were issued decades prior to the current dispute
and in which the final orders in the earlier dockets approved and incorporated agreements that the
utilities had entered into but do not specify all of the details of the agreements.
Additionally, in docket 24815, the Commission concluded that its previous order
“unambiguously established the boundary by means of a map.”27 In this case, the Commission made
no conclusion stating that the certification maps “unambiguously” established the extent to which
the utilities in dockets 8 and 42 could provide service in another utility’s service area. Further, when
making its determination in docket 24815, the Commission did not ignore all other additional
information; in fact, the Commission considered the testimony from the previous certification
hearing when making its determination regarding the boundary. In its findings, the Commission
stated that the testimony demonstrated that the complaining utility approved the map and the
boundaries written on the map.
Second, the Cooperative’s argument ignores the procedural history of this case. In
Lamb County Elec. Coop., the Cooperative appealed the Commission’s order in docket 14454
that originally interpreted the extent to which Southwestern could provide increased service to
the customers located inside the Cooperative’s service area. 2001 Tex. App. LEXIS 173. The
Cooperative complained that it was denied the opportunity to introduce evidence regarding
27
It is worth noting that although the Commission made no specific ambiguity finding in the
final order in docket 24229, the Commission previously characterized the rights regarding the ability
to provide service to customers inside the Cooperative’s service area previously granted to
Southwestern as ambiguous. See Lamb County Elec. Coop., 2001 Tex. App. LEXIS 173 at *16.
43
the circumstances of the earlier certification proceedings and regarding the agreements reached by
the parties. In particular, the Cooperative wanted to introduce copies of the transcripts from the
certification proceedings and testimony from witnesses who helped formulate the agreements
referenced in the certification dockets. Id. at *10, *15. In light of the Cooperative’s complaints, this
Court remanded the case with instructions that the Commission conduct an evidentiary hearing,
and an evidentiary hearing was held. Id. at *15. The Cooperative cannot now maintain a claim that
the Commission should not have considered the very evidence the Cooperative fought so vigorously
to introduce.
For these reasons, including the fact that the maps did not contain all of the
agreements between the parties, we cannot conclude that the Commission’s decision to consider
evidence beyond the maps and orders from dockets 8 and 42 was inconsistent with its prior
precedent.
Southwestern’s Authorization Did Not Expire as a Matter of Law
In its fourth issue on appeal, the Cooperative argues that the Commission erred when
it issued its order because it failed to conclude that Southwestern’s right to continue providing
service to customers located in another utility’s service area expired as a matter of law.28 In making
this assertion, the Cooperative contends that the right to continue providing service was a limited and
28
In this issue, the Cooperative only addresses docket 42 and again states that Southwestern
was not given the authority to continue providing service to customers in Lamb County because
Southwestern had no stranded lines in Lamb County. However, we previously concluded that
substantial evidence supported the Commission’s determination that Southwestern was given the
right to continue providing service to its current customers in both dockets.
44
a conditional right that automatically expired when Southwestern violated the terms of the agreement
by providing service that exceeded the amount of service provided at the time of certification and
by providing service to new consuming facilities. As proof of the limited and conditional nature of
the right, the Cooperative refers to the portion of conclusion 7 from the order in docket 42 that stated
that Southwestern was given the right to continue providing service to facilities “only insofar as such
facility is utilized to serve customers presently being served.”
For the reasons that follow, we cannot agree with the Cooperative. First, as
previously discussed, Southwestern and the Cooperative entered into various agreements prior to
certification, and those agreements were incorporated into the parties’ certificates of convenience
and necessity. In other words, Southwestern was specifically certificated to provide electricity in
accordance with the terms of those agreements.
Second, we have previously determined that substantial evidence supports
the determination that the agreements allowed Southwestern to provide the service in dispute, i.e.,
service to meet the future needs of its customers located inside the Cooperative’s territory.
Third, even assuming that Southwestern had impermissibly exceeded the scope of its
certificate, we fail to see how that action would lead to an automatic expiration of the portion of the
certificate authorizing Southwestern to provide service to customers inside the Cooperative’s service
area. The Commission made no specific determination stating that Southwestern’s certificate would
expire automatically if Southwestern provided service in a manner that exceeded the scope of its
certificate. Moreover, the utilities code provides specific prohibitions against the discontinuation
of service. Specifically, it states that a utility must “provide continuous and adequate service” to
45
“every consumer” that the utility was given a certificate to serve, Tex. Util. Code Ann. § 37.151
(West 2007), and must not “discontinue, reduce, or impair service to any part of the holder’s
certificated service area” unless explicit conditions not applicable to this case are met, id. § 37.152(a)
(West 2007). Furthermore, although one provision of the utilities code does allow for the revocation
of a certificate, it only allows revocation when the Commission finds that the utility never started
providing service or stopped providing service to part or all of its certificated area. Id. § 37.059(a)
(West 2007). The Cooperative has not alleged that Southwestern has stopped providing service to
its customers; in fact, it has alleged just the opposite. Additionally, that provision does not describe
any circumstances in which a certificate will automatically expire; instead, it requires that the
Commission provide the utility with “notice and [a] hearing” before it may revoke a utility’s
certificate. Id.29
In light of the preceding, we cannot conclude that the Commission erred by failing
to conclude that Southwestern’s certifications had expired as a matter of law and, accordingly,
overrule the Cooperative’s fourth issue.30
29
The testimony of Southwestern’s witness, Hunter, also supports this determination.
Specifically, he testified that “[c]ertification rights granted by the Commission are enduring, they
do not decline over time.”
30
In this issue, the Cooperative also argues that the Commission’s interpretation of
conclusion 7 erroneously granted Southwestern the “open-ended” right to “virtually unlimited
expansion of customer base into [the] Cooperative[’s] territory.” In light of our previous discussion
in issue one describing the limitations imposed on Southwestern’s ability to provide service in the
Cooperative’s service area, we must conclude that the Commission did not provide an open-ended
right of extension.
46
The Commission Did Not Abuse its Discretion by Failing to Issue a Cease and Desist Order
In its fifth issue, the Cooperative argues that the Commission erred by failing to issue
a cease-and-desist order prohibiting Southwestern from continuing to provide service to the
customers in dispute in this case and by refusing to order a transition process under which the
customers in dispute would become the Cooperative’s customers. Moreover, the Cooperative asserts
that as a result of the Commission’s failure to act, Southwestern has been allowed to violate
certification laws on a daily basis. Further, the Cooperative contends that Southwestern’s violations
have harmed the Cooperative and its customers who otherwise would have become owners and
members of the Cooperative.
In light of our determination that the Commission’s order is supported by substantial
evidence, including the portion stating that Southwestern was given the authority to serve the
existing and future needs of its customers that were located inside the Cooperative’s territory, we
cannot conclude that the Commission erred by failing to issue a cease-and-desist order or by failing
to order a transition process. Accordingly, we overrule this issue on appeal.
The Commission Did Not Disregard the Burden of Proof or Err by Failing to Issue Sanctions
The Cooperative’s sixth and seventh issues originate from the issuance of a
preliminary order by the Commission in docket 24229. See Docket 24229 (Sept. 28, 2001)
(Preliminary Order). In general, the order stated that in docket 24229 the Commission must
determine whether Southwestern had exceeded the scope of its certificates. However, in the order,
the Commission also identified six types of information that it believed would be helpful in resolving
the dispute between Southwestern and the Cooperative. The first five types of information related
47
to the customers that Southwestern was providing service to and the extent of that service at various
times, including when Southwestern was given its certificates, when the Commission issued its order
in docket 2991, when the Cooperative filed its petition in docket 14454, and when the Commission
issued the preliminary order in docket 24229. In particular, the Commission asked for information
concerning the “[i]dentification of the customers served by [Southwestern],” “[t]he geographic area
of the portions of the oil field units in question that extended into [the Cooperative’s] service area,”
“[t]he load being served with [Southwestern] supplied power within the portions of the oil field units
in question that extended into [the Cooperative’s] service area,” “[t]he location of the [Southwestern]
distribution lines and points of delivery that extended into [the Cooperative’s] service area,” and
“[t]he location of the customer-owned distribution lines and points of delivery that extended into [the
Cooperative’s] service area but were served with [Southwestern]-supplied power.” In addition, the
order also stated that resolution of the conflict between the parties should involve consideration of
information regarding “[a]ny upgrades, including installation dates, affecting [Southwestern’s]
distribution lines and points of delivery that extended into [the Cooperative’s] service area” that were
made after Southwestern was awarded its certificates.
During docket 24229, Southwestern admitted that it could not provide all of
the information listed above. In particular, Southwestern could not specify what amount of
electricity was delivered to the customers inside the Cooperative’s service area.31 Stated differently,
31
Southwestern was also unable to provide information regarding how many petrochemical
consuming facilities were still powered by natural gas at the time of certification, but one oil field
customer presented evidence that by the time of certification, most oil field operators had converted
to electricity.
48
Southwestern was unable to segregate the amount of electricity that was sent to each individual oil
well or consuming facility. Southwestern also stated that its inability to provide that information was
due, in part, to the fact that it had gone through two “customer accounting system changes since
1976, and only the minimum required data was maintained” after the final switch. Although it could
not provide the load data requested, Southwestern did provide, for the time periods requested,
information regarding customers Southwestern was serving, the locations of oil field units and
leases, the location of distribution lines and delivery points, and upgrades.
Southwestern’s failure to provide all of the information requested and Southwestern’s
decision to engage in accounting system changes while the dispute between the parties was ongoing
frame the Cooperative’s sixth and seventh issues on appeal. In its sixth issue, the Cooperative raises
essentially two sets of arguments. In the first set, the Cooperative contends that when Southwestern
was given the authority to provide service to customers located inside the Cooperative’s service area,
Southwestern was merely given an exception to the traditional requirements of certification law.
Specifically, the Cooperative argues that Southwestern was given an exception to the requirement
of obtaining a certificate to serve an entire geographical area. Further, the Cooperative insists that
because Southwestern was merely given an exception, Southwestern had the burden of proving, in
response to the Cooperative’s allegations, “that every element of its service qualifies under”
the terms of the exception.32 Additionally, the Cooperative contends that to fully comply with its
32
When making this argument, the Cooperative refers to several federal cases stating that
a grandfather clause must be strictly construed against the person seeking to invoke it. See, e.g.,
United States v. An Article of Drug (Bentex Ulcerine), 469 F.2d 875, 878 (5th Cir. 1972) (describing
grandfather clause in Food and Drug Act exempting certain drugs from new “effectiveness”
requirements), cert. denied, 412 U.S. 938 (1973); United States v. Allan Drug Corp., 357 F.2d 713,
49
burden, Southwestern was required to provide all of the information requested in the Commission’s
preliminary order, including the information related to the level of service provided to customers
over the years, in order to show that it had not violated the terms of the exception. Finally, the
718 (10th Cir. 1966) (same), cert. denied, 385 U.S. 899 (1966); United States v. 1,048,000 Capsules
(Afrodex), 347 F. Supp. 768, 770 (S.D. Tex. 1972) (same), aff’d, 494 F.2d 1158 (5th Cir. 1974);
Honeywell Inc. v. United States, 228 Ct. Cl. 591 (1981) (explaining that provision of Armed Services
Procurement Regulation allowed contractor to continue charging rental costs under terms of long-
term leases that were entered into prior to effective date of regulation). In making its argument, the
Cooperative also refers to a federal case concerning an exemption to a tax statute in which the court
noted that a person claiming to fall within “an exception to a statute has the burden of clearly
bringing himself within it and must prove every fact essential to the invocation of the exemption,”
see Herren v. United States, 317 F. Supp. 1198, 1203 (S.D. Tex. 1970), aff’d, 443 F.2d 1363
(5th Cir. 1971), and to a case stating that an individual seeking to invoke the protection of an
affirmative defense against liability must affirmatively prove the elements of that defense, see
Williams v. State, 514 S.W.2d 772, 775, 777 (Tex. Civ. App.—Beaumont 1974, writ ref’d n.r.e.)
(explaining that statutory provision suspended application of remainder of statute when governor
declares “a county to be a drought disaster area” but also noting that individual seeking protection
of that provision must prove that all elements were satisfied).
However, the Cooperative’s reliance on these cases is misplaced. Although various parties
in this case have characterized Southwestern’s right to provide service to customers located within
the Cooperative’s service area as a “grandfather right,” the right is dissimilar from the type of
grandfather right discussed in the cases the Cooperative cites to, which concern a “[p]rovision in a
new law or regulation exempting those already in or a part of the existing system which is being
regulated.” See Black’s Law Dictionary 482 (6th abridged ed. 1991); see, e.g., Save Our Springs
Alliance v. City of Austin, 149 S.W.3d 674, 679 n.1 (Tex. App.—Austin 2004, no pet.) (explaining
that statutory provision was grandfather clause because it exempted plats from local land-use
regulations enacted after original application for development of that plat was filed). In this case,
there is no statute or regulation that exempted Southwestern from newly created regulatory
requirements; to the contrary, Southwestern was given certificates to provide service to various
customers and areas after complying with the new statutory and regulatory requirements, including
the statutory provision allowing utilities to enter into agreements regarding the service that
they could provide. See Tex. Util. Code Ann. § 37.155. Further, no allegation was made that
Southwestern did not satisfy all the new statutory and regulatory requirements prior to obtaining its
certificates. Moreover, no tax statute has been alleged to have been violated, and Southwestern is
not seeking to invoke the protection of an affirmative defense.
50
Cooperative argues that by ultimately approving of the service that Southwestern was providing, the
Commission erred by failing to require Southwestern to meet its burden.
For the reasons that follow, we disagree with the Cooperative’s first set of arguments.
The Cooperative’s arguments ignore the fact that Southwestern, like the Cooperative, was given its
own certificates in dockets 8 and 42. In other words, the Commission determined that Southwestern
complied with all of the various certification requirements and issued Southwestern its own
certificates authorizing it to serve various customers and areas. In addition, the orders issued in
dockets 8 and 42 specifically stated that the certificates awarded were “non-exclusive,” cf. 16 Tex.
Admin. Code § 25.101(b)(1) (2008) (explaining that for certificates for new service areas, “[a]ny
certificate granted . . . shall not be construed to vest exclusive service . . . in and to the area
certificated”), and as previously discussed, stated that the utilities had entered into agreements
regarding the service each utility could provide. Regardless of whether Southwestern bore the
burden of providing the information in question,33 substantial evidence was presented supporting the
Commission’s determination that the scope of the agreements entered into and, therefore, the
certificates issued in the prior dockets encompassed providing service to meet the current and future
needs of Southwestern’s customers that were located inside the Cooperative’s territory.
33
Although it is not necessary to decide which party had the burden of proof to resolve these
issues, we do note that by initiating the administrative proceedings at issue in this case, the
Cooperative was essentially disputing the service provided by another utility. As a result, it would
seem logical to assume that the Cooperative bore the burden of proving that Southwestern was
providing service in violation of the requirements of the utilities code. Cf. Tex. Util. Code Ann.
§ 37.051(b) (West 2007) (explaining that utility may not provide electric service to area being
lawfully served by another utility unless utility first obtains a certificate that includes area in dispute).
51
Despite the fact that Southwestern was unable to produce all of the information
requested, for the reasons above, we cannot conclude that the Commission failed to adequately
consider the burden of proof when making its ultimate determination.
In its seventh issue and in its second set of arguments in its sixth issue, the
Cooperative essentially asserts that the Commission erred by failing to impose some kind of sanction
on Southwestern for failing to produce all the information requested in the previous order and that
the district court erred by affirming the Commission’s decision to not impose sanctions.34 First, the
Cooperative contends that because some of the information was lost after the initiation of
docket 14454, the Commission should have inferred that the information was unfavorable to
Southwestern’s case and, therefore, favorable to the Cooperative’s case.35 Cf. McMillin v. State
Farm Lloyds, 180 S.W.3d 183, 198 (Tex. App.—Austin 2005, pet. denied) (explaining that
34
As discussed in footnote 10, this Court remanded docket 14454 to the Commission
with the instruction that the Commission consider the res judicata arguments made by the parties.
Lamb County Elec. Coop., 2001 Tex. App. LEXIS 173, at *24. In particular, the Commission was
to consider the Cooperative’s assertion that the doctrine did not apply in this case because there had
been a material change in circumstances from the time that the Cooperative first complained about
the service that Southwestern was providing in docket 2991. In his proposal in docket 24229,
the administrative law judge characterized the six types of information requested as being
“primarily” relevant to the res judicata issue. Docket 24229 (Mar. 6, 2003) (Proposal for Decision).
Specifically, the administrative law judge concluded that “if the Commission concurs with the ALJ
regarding the scope of [Southwestern]’s original certification rights, the entire issue of changed
circumstances—and the alleged unavailability of data to fully address them—is moot.” Although
the information requested does seem to be more relevant to the res judicata issue and although that
issue is not before this Court in this appeal, in the interests of justice, we will address the information
in relation to the issue of whether Southwestern was exceeding the scope of its certificates.
35
As support for this assertion, the Cooperative refers to several federal cases explaining that
courts may make negative inferences against a party who destroyed evidence if the party was aware
of potential claims against it and of the potential relevance of the evidence. See, e.g., Caparotta
v. Entergy Corp., 168 F.3d 754, 756 (5th Cir. 1999); Blinzler v. Marriott Int’l, Inc., 81 F.3d 1148,
1158 (1st Cir. 1996).
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“spoliation instruction tells the jury that, if a party has control over a piece of evidence and fails to
retain or produce it, the jury should presume that the evidence would have been unfavorable to the
party who controlled the evidence”). Because the Commission did not specifically make the
suggested inference, the Cooperative asserts that the Commission committed reversible error.
Alternatively, the Cooperative contends that even if the Commission did not err by
failing to make the inference previously described, the Commission erred by failing to order another
type of sanction for failing to produce all the information requested in the preliminary order.36 See
Trevino v. Ortega, 969 S.W.2d 950, 951, 953 (Tex. 1998) (explaining that courts may impose
sanctions for “spoilation of evidence”). For example, the Cooperative suggests that the Commission
could have determined that Southwestern failed to meet its burden of proof regarding its certification
rights. Further, the Cooperative contends that the Commission’s failure to sanction Southwestern
prejudiced the Cooperative.
As support for its arguments, the Cooperative cites to the rule of civil procedure
allowing for the imposition of sanctions for discovery abuses. See Tex. R. Civ. P. 215.3. As a
preliminary matter, we note that it is not entirely clear that the rules of civil procedure apply to
Commission proceedings. See AEP Tex. Cent. Co. v. Public Util. Comm’n, 258 S.W.3d 272, 298-99
(Tex. App.—Austin 2008, pet. filed) (Patterson, J., concurring and dissenting) (op. on reh’g). In
36
In support of his argument, the Cooperative cites to several federal cases stating that courts
may impose appropriate remedies when evidence spoilation occurs. See, e.g., Vodusek v. Bayliner
Marine Corp., 71 F.3d 148, 156 (4th Cir. 1995); Schmid v. Milwaukee Elec. Tool Corp., 13 F.3d 76,
78-79 (3d Cir. 1994).
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fact, the Commission has its own rule regarding the types of sanctions that may be imposed for
discovery abuses. See 16 Tex. Admin. Code § 22.161 (2008).
Regardless of which body of law governs the ability of the Commission to impose
sanctions, the Commission has discretion when deciding whether to impose sanctions. See Tex. R.
Civ. P. 215.3 (explaining that courts “may” impose appropriate sanctions for engaging in discovery
abuse); 16 Tex. Admin. Code § 22.161(b), (d) (stating that administrative law judges and
Commission “may” impose sanctions); see also Tex. Gov’t Code Ann. § 311.016 (West 2005)
(explaining that word “may” “creates discretionary authority or grants permission or a power”); cf.
McMillin, 180 S.W.3d at 199 (recognizing that appellate courts review decision to impose discovery
sanctions under abuse of discretion standard because “trial judges are in the best position to evaluate
the often complex facts and equities of discovery disputes and determine whether discovery abuse
has in fact occurred, the relative culpability and harm of such conduct, and the credibility of a party’s
attempts to explain delays and unresponsiveness”).
For the reasons that follow, we conclude that the Commission did not abuse its
discretion. See Bowden v. Phillips Petroleum Co., 247 S.W.3d 690, 696 (Tex. 2008) (explaining that
only actions that are arbitrary, unreasonable, or without reference to any guiding principles constitute
abuses of discretion). As discussed previously, during both dockets 8 and 42, Southwestern and the
Cooperative entered into agreements concerning what customers and areas each would serve, see
Tex. Util. Code Ann. § 37.155, and the Commission determined that those agreements allowed
Southwestern to serve the existing and future needs of its preexisting customers that were located
inside the Cooperative’s service area. Further, that determination was supported by substantial
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evidence. For these reasons, information regarding the change in the amount of electricity being
delivered to the area in dispute and information demonstrating the number of consuming facilities
being served prior to certification were unnecessary to resolve the controversy of whether
Southwestern was exceeding the scope of its certificates.
Morever, even assuming that the prior determination does not resolve the issue, we
would still be unable to conclude that the Commission abused its discretion by failing to impose a
sanction on Southwestern. The Commission’s rules state that the Commission may impose a
sanction that is “appropriate and justified.” 16 Tex. Admin. Code § 22.161(c). Similarly, the rules
of civil procedure allow for the imposition of sanctions that are “appropriate.” Tex. R. Civ. P. 215.3;
see also PR Invs. v. State, 251 S.W.3d 472, 480 (Tex. 2008) (explaining that discovery sanction
“should be no more severe than necessary to satisfy its legitimate purposes”). Moreover, case
law specifies that sanctions should be imposed on a party only when the party had a “duty to
preserve evidence” and “negligently or intentionally” destroyed the evidence and when the
destruction of the evidence “prejudiced” the other party’s “ability to present its case or defense.”
McMillin, 180 S.W.3d at 198; see Adobe Land Corp. v. Griffin, L.L.C., 236 S.W.3d 351, 357
(Tex. App.—Fort Worth 2007, no pet.).
As discussed previously, the information that was not provided was historical data
regarding the amount of electricity that was delivered. When testifying about the information,
Southwestern’s witness, Mitch Elmore, admitted that not all of the information was available and
stated that Southwestern “had gone through two major customer accounting changes since 1976, and
only the minimum required data was maintained after the conversion in 1999.” As a result,
55
Southwestern could not provide customer history data “back to the original date of service in the
accounting system.”
However, although Southwestern could not produce the information that was lost,
Southwestern did provide an estimate of the lost information. In particular, it provided an estimate
of the past and present load in the Cooperative’s service area by comparing the number of wells that
were present in the Cooperative’s area prior to certification and the number of wells that were in the
area at the time of the contested-case proceeding. In light of this, the administrative law judge
concluded that Southwestern “reasonably reconstructed the pertinent information lost in the
accounting change over.” Docket 24229 (Mar. 6, 2003) (Proposal for Decision).
Moreover, when describing the information that was lost, the administrative law judge
reasoned that the information that Southwestern lost would not have shown what amount of
electricity had been provided to customers inside the Cooperative’s service area. Id. Specifically,
the administrative law judge stated that the information was unavailable because Southwestern
provided “service at a primary meter point” and provided “a bill for the entire field—not broken
down by individual wells or by which wells were located in [the Cooperative’s] service area and
which were not.”
This determination is supported by Elmore’s testimony in docket 24229. Elmore
stated that because many of the disputed areas only received service through a single delivery point
and because many of the disputed areas straddled the boundaries between Southwestern’s and the
Cooperative’s service area, “it is not possible to identify” the portion of the electricity that ultimately
powered consuming facilities located inside the Cooperative’s service area. Further, Elmore testified
56
that Southwestern often only sent one bill to a customer for all of the electricity that was sent to that
customer and that, accordingly, the bills it sent made no distinction between consuming facilities
located inside Southwestern’s service area and those located inside the Cooperative’s service area.
Moreover, as described earlier, Hunter testified that it was common industry practice for a utility to
provide service to an oil operator by delivering the electricity to a delivery point and allowing the
customer to distribute the power to its facilities through its own lines.
Given that the information requested by the Commission was not necessary to the
Commission’s ultimate resolution of this case, that the administrative law judge concluded that the
lost information would not have provided the type of information that the Commission originally
requested, that the evidence demonstrating that Southwestern did not routinely track the information
originally requested, and that Southwestern attempted to provide a substitute for the lost information,
we cannot conclude that the Commission abused its discretion by failing to conclude that neither a
negative inference nor another sanction was appropriate or justified in this case. See Trevino,
969 S.W.2d at 953 (noting that “there is no one remedy that is appropriate for every incidence of”
discovery abuse and that “court must respond appropriately based upon the particular facts of each
individual case”).
For these reasons, we overrule the Cooperative’s sixth and seventh issues on appeal.
CONCLUSION
Having overruled all of the Cooperative’s issues on appeal, we affirm the judgment
of the district court.
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_____________________________________________
David Puryear, Justice
Before Chief Justice Law, Justices Patterson and Puryear;
Concurring Opinion by Justice Patterson
Affirmed
Filed: November 7, 2008
58