Navarro County Wholesale Ratepayers M.E.N. Water Supply Corporation Angus Water Supply Corporation Chatfield Water Supply Corporation Corbet Water Supply Corporation City of Blooming Grove City of Frost City of Kerens And Community Water Company v. Zachary Covar, Executive Director of the Texas Commission on Environmental Quality The Texas Commission on Environmental Quality, Its Commissioners, Bryan Shaw, Carlos Rubenstein and Toby Baker, and City of Corsicana ( 2015 )

ACCEPTED
01-14-00102-CV
FIRST COURT OF APPEALS
HOUSTON, TEXAS
8/14/2015 3:07:37 PM
CHRISTOPHER PRINE
CLERK
NO. 01-14-00102-CV
FILED IN
IN THE COURT OF APPEALS 1st COURT OF APPEALS
HOUSTON, TEXAS
FOR THE FIRST JUDICIAL DISTRICT OF TEXAS
8/14/2015 3:07:37 PM
AT HOUSTON CHRISTOPHER A. PRINE
Clerk
NAVARRO COUNTY WHOLESALE RATEPAYERS, et al
Appellants
v.
TEXAS COMMISSION ON ENVIRONMENTAL QUALITY, et al
Appellee
FROM THE 419th JUDICIAL DISTRICT, TRAVIS COUNTY, TEXAS
APPELLEE, CITY OF CORSICANA, TEXAS’
REPLY TO APPELLANTS’ MOTION FOR REHEARING
Respectfully submitted,
J. KAY TROSTLE
State Bar No. 20238300
ktrostle@smithtrostle.com
SMITH TROSTLE & HUERTA LLP
4401 Westgate Blvd. Ste 330
Austin, Texas 78745
(512) 494-9500
(512) 494-9505 - Fax
ATTORNEYS FOR APPELLEE,
CITY OF CORSICANA, TEXAS
August 14, 2015
TABLE OF CONTENTS
TABLE OF CONTENTS ...............................................................................................ii
INDEX OF AUTHORITIES ....................................................................................... iii
ARGUMENT ................................................................................................................. 2
I. Reversal and Remand is not required by Texas Government Code
Section 2001.058(e)................................................................................... 2
II. Reversal and Remand is not necessary or appropriate as a result of
The Court’s construction of 30 Texas Administrative Code section
291.133 ...................................................................................................... 4
III. This Court’s opinion should not be modified with respect to its
discussion of the Corsicana mayor’s comments ....................................... 8
CONCLUSION AND PRAYER ................................................................................... 9
CERTIFCATE OF COMPLIANCE ............................................................................ 10
CERTIFICATE OF SERVICE .................................................................................... 10
ii
INDEX OF AUTHORITIES
Cases
Entergy Gulf States, Inc. v. Public Utility Commission of Texas, 173 S.W.3d 199
(Tex.App.—Austin 2005, pet. denied)....................................................................2
Four Stars Food Mart, Inc. v. Texas Alcoholic Beverage Comm'n, 923 S.W.2d 266,
270 (Tex. App.—Fort Worth 1996, no writ) ..........................................................2
Ray v. State Bd. of Pub. Accountancy, 4 S.W.3d 429, 433 (Tex. App.—Austin
1999, no pet.)...........................................................................................................3
Texas Statutes
TEX. GOV'T CODE § 2001.058(e) ....................................................................... ii, 1, 2
TEX. GOV'T CODE § 2001.145.....................................................................................2
TEX. GOV'T CODE § 2001.145(a). ...............................................................................2
Texas Agency Rules
30 TAC § 291.133 ................................................................................................. ii, 4
30 TAC § 291.133(a)(1)-(4) ......................................................................................3
30 TAC § 291.133(a)(3)(H) .......................................................................... 4, 5, 6, 7
iii
TO THE HONORABLE FIRST COURT OF APPEALS
The Court correctly affirmed the trial court’s judgment, and Appellants’
Motion for Rehearing raises three issues that do not merit re-examination. First,
the Appellants did not include in their motion for rehearing before the Texas
Commission on Environmental Quality a claim under Texas Government Code §
2001.058(e) and accordingly that argument was waived and this Court properly did
not address it in the Opinion. Second, the Court’s Opinion properly analyzes
Appellants’ claim of discrimination, and the arguments raised by Appellants in
seeking rehearing are without merit because they rest on an incorrect construction
of the Commission’s findings of fact and application of the law to the facts.
Rehearing on Appellants’ discrimination argument is therefore not warranted.
Third, Appellants’ request for clarification is inappropriate because the Court’s
Opinion correctly explains the applicable law, and the evidence concerning the
Mayor’s comment was admitted at hearing. The requested clarification concerning
admissibility is therefore not necessary to the resolution of this administrative
appeal and should not be the basis for granting Appellants’ Motion for Rehearing.
The City of Corsicana respectfully urges the Court to deny Appellants’ Motion for
Rehearing.
Appellee Corsicana’s Reply to Motion for Rehearing 1
ARGUMENT
I. Reversal and Remand is not required by Texas Government
Code Section 2001.058(e)
Appellants’ first argument concerns TEX. GOV’T CODE § 2001.058(e), which
directs a state agency that changes a finding of fact or conclusion of law made by
an Administrative Law Judge, to state in writing the reason and legal basis for the
change. Appellants’ Motion for Rehearing claims that this Court failed to mention
this requirement in reference to the Commission’s Conclusion of Law No. 17, and
therefore must reverse and remand this matter. Appellants waived this argument
by failing to timely raise it before the Commission, and this Court need not address
an argument that has been waived.
Appellants failed to raise TEX. GOV’T CODE § 2001.058(e) in their motion
for rehearing before TCEQ, or in their petition on appeal to district court, or in
their brief before the district court prior to the hearing on the merits. TEX. GOV’T
CODE § 2001.145 (Administrative Procedure Act) states that "a timely motion for
rehearing is a prerequisite to an appeal in a contested case." 1 In order to preserve
an issue for review, the party must state in the motion for rehearing the particular
issue the party asserts was error and the legal basis upon which the claim rests. 2
1
TEX. GOV'T CODE ANN. § 2001.145(a).
2
Entergy Gulf States, Inc. v. Public Utility Commission of Texas, 173 S.W.3d 199 (Tex.App.—Austin
2005, pet. denied), citing Four Stars Food Mart, Inc. v. Texas Alcoholic Beverage Comm'n, 923
S.W.2d 266, 270 (Tex. App.—Fort Worth 1996, no writ).
Appellee Corsicana’s Reply to Motion for Rehearing 2
Because Appellants did not preserve this issue in their motion for rehearing filed
with TCEQ, they have waived the right to argue this issue on appeal. 3
Appellants’ Motion for Rehearing relegates to a footnote its argument that
they were not notified that there had been a material change in the conclusion of
law. 4 That argument is without merit first because the TCEQ Order included, as an
Explanation of Changes, the following: “Additionally, at its November 2, 2011
Agenda Meeting, the Commission modified Conclusion of Law No. 17 to remove
the statement that the public-interest review is ‘limited to’ the factors set out in 30
TAC § 291.133(a)(1)-(4).”5 The Explanation of Changes in the Order gave all
parties notice of the change to the Conclusion of Law, and correctly notes the
change was discussed at the November 2, 2011 Agenda Meeting, of which
Appellants now argue they were unaware. Second, in an attempt to excuse their
failure to raise this issue in the Motion for Rehearing before the Commission,
Appellants argue that the Commission’s change to the Conclusion of Law was so
subtle that it obfuscated the materiality of the change. 6 Appellants’ argument is
unsupported by any precedent or legal analysis and cannot be reconciled with the
plain reading of the Explanation of Changes section of the TCEQ Order.
3
Id., citing Ray v. State Bd. of Pub. Accountancy, 4 S.W.3d 429, 433 (Tex. App.—Austin 1999, no pet.)
4
Appellants’ Motion for Rehearing at 3, fn. 1.
5
Appellants’ Brief (May 7, 2014), Appendix 2 (TCEQ Final Order at p. 21).
6
Appellants’ Motion for Rehearing at 3, fn. 1.
Appellee Corsicana’s Reply to Motion for Rehearing 3
For each of these reasons, Corsicana respectfully urges this Court to deny
the Motion for Rehearing based on Appellants’ first argument.
II. Reversal and Remand is Not Necessary or Appropriate as a result of
The Court’s construction of 30 Texas Administrative Code section
291.133
Appellants’ second argument in its Motion for Rehearing rests on a
continued misunderstanding of the Commission’s public interest rules, and this
Court’s thorough analysis of same in the Slip Opinion. Simply stated, Appellants’
second argument rests on the erroneous contention that TCEQ failed to consider
and therefore failed to make a finding that Corsicana’s rates charged to the
wholesale customers are discriminatory. This argument ignores both the analysis
of 30 TEX. ADMIN. CODE § 291.133(a)(3)(H) in the Proposal for Decision, 7 which
the Commission’s Order expressly states it considered, 8 and the Findings of Fact
83 through 92 and Conclusions of Law 21 and 22 in the Commission’s Order. 9
The rule addresses abuse of monopoly power, based upon a comparison of the
retail rates charged by the Seller and the Purchaser. The Commission’s Order
includes findings of fact making the appropriate “apples to apples” comparison of
retail rates, and reached the conclusion of law, based upon that comparison, that
the rates do not evidence Corsicana’s abuse of monopoly power.
7
Appellee City of Corsicana’s Brief (Jun. 6, 2014), Appendix C, Proposal for Decision at 63-69.
8
Appellants’ Brief (May 7, 2014), Appendix 2 (TCEQ Final Order at p.2).
9
Id. at 14-15 and 19-20.
Appellee Corsicana’s Reply to Motion for Rehearing 4
The rule at the center of Appellants’ argument is §291.133(a)(3)(H) which
provides that, when determining whether the Wholesale Seller has abused its
monopoly power, the Commission shall weigh all relevant factors, which may
include a comparison of seller’s rates for water service charged to its retail
customers to the retail rates the purchaser charges its retail customers as a result of
the wholesale rate the seller demands from the purchaser. As this Court explained,
“the Commission determines whether the rate unfairly discriminates against
wholesalers by comparing the rate Corsicana charges its own retail customer with
the rate that the Ratepayer charge their retail customers as a result of the wholesale
rate it pays Corsicana.”10 The Appellants’ claim that the disputed rate treats
wholesale and retail customers differently, i.e., in a discriminatory manner, was not
supported by the record, as the Court correctly notes at page 18 of the Slip
Opinion.
The Appellants’ argument rests on the absence of the word “discrimination”
in the findings of fact, but the findings of fact unequivocally make the comparison
between the rates the provider charges its retail customers and the rates the
wholesale customer charges its retail customers, pursuant to 30 TEX. ADMIN. CODE
§ 291.133(a)(3)(H). Ratepayers’ argument at hearing that this comparison of rates
evidenced discrimination was considered, but was not persuasive. The
10
Slip Opinion at 17.
Appellee Corsicana’s Reply to Motion for Rehearing 5
Commission expressly considered whether there was a difference or disparity or
discrimination, between the retail rates charged by Corsicana in comparison to
retail rates charged by the Wholesalers to their retail customers as a result of
Corsicana’s rates. The Proposal for Decision devotes seven pages to this issue and
concludes as follows:
The ALJ concludes that the comparison called for by 30 TAC §
291.133(a)(3)(H) shows that an average residential retail customer
pays a Ratepayer $3.45 or less for 1,000 gallons of water due to the
wholesale rates that Corsicana charges the Ratepayers, while
Corsicana’s own average retail customer pays Corsicana $5.43 per
1,000 gallons of water. The ALJ concludes that this comparison does
not indicate Corsicana’s abuse of monopoly power. 11
Ratepayers argued to the Commission that it had to consider if there was a
disparate impact of the rate charged to the City’s retail customers in comparison to
the wholesale rate charged to the Ratepayers. That argument was rooted in
“discrimination” language in the preamble to the rule, which the ALJ concluded
Ratepayers were misconstruing. Corsicana’s position on the preamble was, taken
in context, that language did not support consideration of the disparate impact of a
rate change on retail versus wholesale customers, and the ALJ, Commission, and
this Court agreed. Appellants are now attempting to reframe their “discrimination”
11
Appellee City of Corsicana’s Brief (Jun. 6, 2014), Appendix C, Proposal for Decision at 69.
Appellee Corsicana’s Reply to Motion for Rehearing 6
argument by claiming that the Commission erred by not considering discrimination
at all because the Commission’s Findings of Fact which compare the rates charged
to the Seller’s and Purchaser’s retail customers under § 291.133(a)(3)(H), do not
contain the word “discrimination.” As explained above, this subsection of the rule
which suggests a comparison of retail rates is one factor that may be considered as
evidence of abuse of monopoly power, informed the terms used in the Findings of
Fact and Conclusions of Law. Appellants have had their hearing on the claim of
discrimination under § 291.133(a)(3)(H), in which all of the evidence that they
offered was admitted. Contrary to their contention, the evidence proffered by
Ratepayers was considered but that evidence was found neither persuasive nor
relevant under §291.133(a)(3)(H). The Court’s opinion correctly summarizes this
point: “However, the Commission did not conclude that rate discrimination was
irrelevant; instead it decided that comparing the disparate impact of a rate on
wholesale versus retail customers was not a proper consideration for determining
rate discrimination.” 12 Appellants’ argument on this issue mischaracterizes the
facts, as well as the Commission’s correct application of its rule and the law to the
facts, and this Court should deny the Motion for Rehearing on this basis.
12
Slip Opinion at 19.
Appellee Corsicana’s Reply to Motion for Rehearing 7
III. This Court’s opinion should not be modified with respect to its
discussion of the Corsicana mayor’s comments.
Ratepayers’ third and final basis for seeking rehearing and then reversal and
remand, concerns the Court’s discussion of a comment attributed to Corsicana’s
mayor, which Appellants’ argue evidenced Corsicana’s intent to discriminate
against wholesale purchasers. 13 The Court discusses why the mayor’s individual
mental process and motive is irrelevant to the legislative act of Corsicana’s city
council in setting the rates which were protested by Ratepayers. 14 Appellants seek
rehearing in order to have the Court “clarify” what “irrelevant” means, suggesting
that this Court should opine on the admissibility of evidence of communications by
a governmental entity.
However, the evidence concerning the Mayor’s comments was admitted into
evidence by the SOAH ALJ, and therefore there is no need for this Court to offer
the advisory opinion requested by Appellants. The evidence concerning the
Mayor’s statement was admitted through the testimony of three of Appellants’
witnesses, 15 over the objection of Corsicana. 16 The Court’s opinion correctly states
13
Appellants’ Motion for Rehearing at 8.
14
Slip Opinion at 18 – 19.
15
AR Vol 5, Item 57, Testimony of Chris Ivey, NCWR Exhibit J, page 7, ln. 14 – 16, page 18, ln 15 –
page 19, ln 4, and page 20, ln 4 – 5; AR Vol. 5, Item 48, Testimony of James Metcalfe, NCWR
Exhibit A, page 21, ln. 20 – page 22, ln. 8; and AR Vol. 5, Item 58, Testimony of Jack Stowe, NCWR
Exhibit Contract, page 7, ln. 7-13.
16
Corsicana’s objections, AR Vol 3, Item 42 (CD #1), file .pdf40, pages 2-5. The ALJ’s overruling of
Corsicana’s objections occurred at the March 24, 2011 prehearing conference (AR Vol 11, Item 113,
CD #3).
Appellee Corsicana’s Reply to Motion for Rehearing 8
the law applicable to the evidence concerning the Mayor’s comment, that evidence
was admitted into the record at the hearing, and the Court need not provide
clarification on the admissibility of the evidence because that is not a matter in
dispute.
CONCLUSION AND PRAYER
For the reasons set out in this Reply, Corsicana requests this Court deny
Appellants Motion for Rehearing. 17
Respectfully Submitted,
/s/ J. Kay Trostle
J. Kay Trostle
State Bar No. 20238300
SMITH TROSTLE & HUERTA LLP
4401 Westgate Blvd., Suite 330
Austin, Texas 78745
(512) 494-9500 (Telephone)
(512) 494-9505 (Facsimile)
ktrostle@smithtrostle.com
ATTORNEYS FOR APPELLEE,
CITY OF CORSICANA
17
As Appellants note in the Conclusion and Prayer of their Motion for Rehearing, jurisdiction over the
underlying administrative petition was transferred to the Public Utility Commission effective
September 1, 2014. The Public Utility Commission adopted the Public Interest rules of the TCEQ,
under which the administrative case was processed, without substantive change.
Appellee Corsicana’s Reply to Motion for Rehearing 9
CERTIFICATE OF COMPLIANCE
I certify in accordance with Texas Rule of Appellate Procedure 9(i)(3) that this
document was produced on a computer using Microsoft Word 2007 and contains 2177
words, as determined by the computer software’s word-count function.
/s/ J. Kay Trostle
J. Kay Trostle
CERTIFICATE OF SERVICE
I hereby certify that on the 14th of August 2015, the foregoing document was
served on each person listed below by the method shown.
Paul M. Terrill III
The Terrill Firm, P.C.
810 W. 10th St.
Austin, Texas 78701
Attorneys for Ratepayers, Plaintiffs
Via E-service
Cynthia Woelk
Assistant Attorney General
Environmental Protection Division
Office of the Attorney General
P.O. Box 12548
Austin, Texas 78711-2548
Attorneys for Texas Commission on
Environmental Quality, its Commissioners,
Bryan Shaw, Carlos Rubenstein and Toby Baker,
and its Executive Director, Zachary Covar
Via 1st Class Mail and E-mail
/s/ J. Kay Trostle
J. Kay Trostle
Appellee Corsicana’s Reply to Motion for Rehearing 10