Low Income Consumers, Mary Wilson and Hipolita Lutz v. Public Utility Commission of Texas ( 2020 )

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-18-00364-CV
Low Income Consumers, Mary Wilson and Hipolita Lutz, Appellants
v.
Public Utility Commission of Texas, Appellee
DIRECT APPEAL FROM THE PUBLIC UTILITY COMMISSION OF TEXAS
RULEMAKING PROCEEDING NO. 47343
MEMORANDUM OPINION
Mary Wilson and Hipolita Lutz, who refer to themselves as “Low Income
Consumers,” bring this direct appeal to challenge amendments to Rules 25.478 and 25.480 that
the Public Utility Commission adopted in 2018. See 16 Tex. Admin. Code §§ 25.478 (Pub. Util.
Comm’n, Credit Requirements and Deposits), 25.480 (Pub. Util. Comm’n, Bill Payment and
Adjustments);1 see also Tex. Util. Code § 39.001(e) (addressing judicial review of competitive
rules adopted by Commission); 43 Tex. Reg. 3001 (May 2018). The Commission adopted the
amended rules to address the expiration of the System Benefit Fund (SBF) pursuant to former
section 39.903(m) of the Public Utility Regulatory Act (PURA). See former Tex. Util. Code
§ 39.903(m) (stating that section expired on September 1, 2017).
1 References in this opinion to Title 16 of the Texas Administrative Code are to
Commission rules.
Raising six issues, appellants contend that the Commission did not comply with
rulemaking provisions of the Administrative Procedure Act (APA), see Tex. Gov’t Code
§ 2001.033 (stating requirements for agency order that adopts rule), and they argue that the
Commission misconstrued relevant statutes. The City of Houston intervened and has filed a
brief in support of appellants that raises three issues similarly challenging the Commission’s
compliance with the APA and its construction of relevant statutes. The City also argues that the
Commission exceeded its authority. Because we conclude that the Commission acted within
its authority and complied with the APA, we affirm the Commission’s order adopting the
amended rules.
Background
The SBF was created in 1999 as a trust fund to assist low-income retail electric
customers, and it expired by its own terms on September 1, 2017. See former Tex. Util. Code
§ 39.903(m); see also id. §§ 39.903(l) (defining “low-income electric customer” for purposes of
section), 39.9039 (addressing elimination of SBF balance); 16 Tex. Admin. Code § 25.5(65)
(Definitions) (defining “low-income customer”).2 The SBF was financed by a mandatory
surcharge on electric utility usage. See former Tex. Util. Code § 39.903(b).
Citing the SBF’s expiration as of September 1, 2017, the Commission published
notice of its intent to adopt rules in December 2017 and stated that the purpose of the rulemaking
2 Prior to the adoption of the amended rules in 2018, the Commission’s definition of
“low-income customer” was consistent with the statutory definition in former PURA section
39.903(l). A “low-income customer” was defined as “[a]n electric customer, whose household
income is not more than 125% of the federal poverty guidelines, or who receives food stamps
from the Texas Department of Human Services (TDHS) or medical assistance from a state
agency administering a part of the medical assistance program.” Former 16 Tex. Admin. Code
§ 25.5(65); see former Tex. Util. Code § 39.903(l).
2
was to repeal rules related to the SBF and to remove references to the SBF in other rules. See
42 Tex. Reg. 7495 (Dec. 2017). In response to its notice, the Commission received comments
from Texas Ratepayers Organization to Save Energy (Texas ROSE), Texas Legal Services
Center (TLSC), Texas Coalition for Affordable Power (TCAP), the Office of Public Utility
Counsel (OPUC), Alliance of Retail Marketers (ARM), and Texas Energy Association for
Marketers (TEAM).
In its order adopting the amended rules, the Commission repealed rules relating to
the SBF and amended rules to remove references to the SBF and its corresponding rate reduction
program, including amending former Rules 25.478 and 25.480. See 43 Tex. Reg. 3001, 3073–
74, 3077–79. In the order’s opening paragraph, the Commission generally explained the basis
for the rulemaking:
The repeal of Subchapter Q reflects the cessation of the System Benefit Fund, as
required by House Bill 1101, 84th Legislative Session (Regular Session), and the
proposed amendments update language in order to remove references to the
System Benefit Fund. In addition, Senate Bill 1976, 85th Legislative Session
(Regular Session), provides means by which electric providers and certified
telecommunications utilities can continue to offer assistance to low-income
customers. The repeal of Subchapter Q and amendments in other subchapters to
remove references to the System Benefit Fund effectuate House Bill 1101 and
Senate Bill 1976 with respect to retail electric providers. The repeals,
amendments and new section are adopted under Project Number 47343.
Id. at 3001; see Tex. Util. Code § 14.002 (authorizing Commission to adopt and enforce rules
reasonably required in exercise of its powers and jurisdiction).
Among the rules repealed in the order, the Commission repealed former Rule
25.454, which implemented the rate reduction program for low-income customers utilizing the
trust fund. See former 16 Tex. Admin. Code § 25.454 (Rate Reduction Program); see also
former Tex. Util. Code § 39.903(h) (requiring Commission to adopt rules to determine reduced
3
rates for eligible customers). The “rate reduction program” was defined as “[a] program to
provide reduced electric rates for eligible low-income customers, in accordance with the [PURA]
§ 39.903(h).” See former 16 Tex. Admin. Code § 25.5(101). The program required retail
electric providers (REPs) to provide utility rate discounts to eligible low-income electric
customers and to identify the discount amount with a line item on the customer’s bill that
included the description “LITE-UP Discount.” See id. § 25.454(e)(3)(C). As part of this
program, the REP generally received reimbursement from the SBF to cover the discount amount.
See former Tex. Util. Code § 39.903(i) (addressing reimbursement from SBF). In its order, the
Commission also amended the definition of “low-income customer,” see former 16 Tex. Admin.
Code § 25.5(65),3 and explained that the SBF’s expiration included the expiration of the
mechanism by which the Commission identified low-income customers, see generally 43 Tex.
Reg. 3001–3089.
At the center of the parties’ dispute, former Rule 25.478(e)(3) required REPs to
offer low-income customers who qualified for the rate reduction program in former Rule 25.454
(“qualified low-income customers”) the option of paying credit deposits in two equal payments,
see former 16 Tex. Admin. Code § 25.478(e)(3), and deferred payment plans, see id.
§ 25.480(j)(2)(A), and prohibited REPs from charging these same customers a late fee, see id.
§ 25.480(c). Specifically, former Rule 25.478(e)(3)(c) stated that “a customer or applicant [who]
qualifies for the rate reduction program under § 25.454 of this title” was “eligible to pay any
deposit that exceeds $50 in two equal installments”; former Rule 25.480(j)(2)(A) included
3 The Commission’s amended definition of a “low-income customer” is “[a]n electric
customer who receives Supplemental Nutrition Assistance Program (SNAP) from Texas Health
and Human Services Commission (HHSC) or medical assistance from a state agency
administering a part of the medical assistance program.” 16 Tex. Admin. Code § 25.5(65)
(Definitions).
4
“customers receiving the LITE-UP discount pursuant to § 25.454 of this title” among the
customers who were eligible for a deferred payment plan; and former Rule 25.480(c) included
“customers receiving a low income discount pursuant to [PURA section] 39.903(h)” among the
customers whom the REPs could not charge a late fee.
In its order, the Commission deleted subsection (e)(3) of former Rule 25.478, the
split-deposit provision, in its entirety, and amended subsections (c) and (j)(2)(A) of former Rule
25.480 as follows:
(c) Penalty on delinquent bills for electric service.
A REP may charge a one-time penalty not to exceed 5.0% on a delinquent bill for electric
service. No such penalty shall apply to residential or small commercial customers served by the
provider of last resort (POLR)[, or to customers receiving a low income discount pursuant to the
Public Utility Regulatory Act (PURA) § 39.003(h)].[4] The one-time penalty, not to exceed
5.0%, may not be applied to any balance to which the penalty has already been applied.
…
(j) Deferred payment plans and other alternate payment arrangements.
…
(2) A REP shall make a payment plan available, upon request, to a residential
customer that meets the requirements of subparagraph (A) of this paragraph for a bill that
becomes due in July, August, or September. A REP shall make a payment plan available, upon
request, to a residential customer that meets the requirements of subparagraph (A) of this
paragraph for a bill that becomes due in January or February if in the prior month a TDU notified
the commission pursuant to § 25.483(j) of this title of an extreme weather emergency for the
residential customer’s county in the TDU service area for at least five consecutive days during
the month. A REP is not required to offer a payment plan to a customer pursuant to this
paragraph if the customer is on an existing deferred, level, or average payment plan.
(A) The following residential customers are eligible for a payment plan under this
paragraph:
4 “Provider of last resort” is referred to in the Commission’s rules as “POLR” and is a
REP that the Commission designates to provide a “basic, standard retail service package.” See
16 Tex. Admin. Code § 25.5(90).
5
[(i) customers receiving the LITE-UP discount pursuant to § 25.454 of this title;]
(i)[ii] customers designated as Critical Care Residential Customers or Chronic
Condition Residential Customers under § 25.497 of this title (relating to Critical Load Industrial
Customers, Critical Load Public Safety Customers, Critical Care Residential Customers, and
Chronic Condition Residential Customers); or
(ii)[iii] customers who have expressed an inability to pay unless the customer:
(I) has been disconnected during the preceding 12 months;
(II) has submitted more than two payments during the preceding 12 months that were
found to have insufficient funds available; or
(III) has received service from the REP for less than three months, and the customer
lacks:
(a) sufficient credit; or
(b) a satisfactory history of payment for electric service from a previous REP
or utility.
The deleted language from the former rule is identified by strikethrough.
After the Commission adopted the amended rules, Mary Wilson and Hipolita Lutz
filed this direct appeal to challenge the repeal of subsection (e)(3) of former Rule 25.478 and the
amendments to subsections (c) and (j)(2)(A) of former Rule 25.480. See Tex. Util. Code
§ 39.001(e) (stating that judicial review of validity of competitive rules adopted by Commission
“shall be commenced in the Court of Appeals for the Third Court of Appeals District”). The
City of Houston filed a motion for leave to file plea in intervention in support of appellants,
which this Court granted.
Analysis
Standards of Review
Except as otherwise provided by PURA chapter 39, judicial review of
competitive rules adopted by the Commission is conducted under the APA. Id. §§ 11.007(a),
39.001(e); see Tex. Gov’t Code §§ 2001.21–.41 (addressing rulemaking). Under this standard,
6
we presume that an agency rule is valid, and the party challenging the rule has the burden of
demonstrating its invalidity. See McCarty v. Texas Parks & Wildlife Dep’t, 919 S.W.2d 853,
854 (Tex. App.—Austin 1996, no writ). “To establish a rule’s facial invalidity, the challenger
must show that the rule (1) contravenes specific statutory language, (2) is counter to the statute’s
general objectives, or (3) imposes additional burdens, conditions, or restrictions in excess of or
inconsistent with the relevant statutory provisions.” Ware v. Texas Comm’n on Law
Enforcement Officer Stds. & Educ., No. 03-12-00740-CV, 2013 Tex. App. LEXIS 5983, at *4–5
(Tex. App.—Austin May 16, 2013, no pet.) (mem. op.).
Our review includes whether the Commission “had statutory authority to
promulgate the rule.” City of Alvin v. Public Util. Comm’n of Tex., 143 S.W.3d 872, 878 (Tex.
App.—Austin 2004, no pet.). The Commission only has the authority that is expressly provided
by statute or necessarily implied to carry out the express powers the legislature has given it. See
Public Util. Comm’n of Tex. v. City Pub. Serv. Bd. of San Antonio, 53 S.W.3d 310, 315–16 (Tex.
2001). Further, our review is limited to the Commission’s rulemaking record, which consists of
the proposed rule’s notice; all comments of interested persons; the materials on which the
Commission relied such as studies, reports, and memoranda; and the order adopting the rule.
Tex. Util. Code § 39.001(e).
Appellants’ and the City’s issues also concern matters of statutory construction,
which we review de novo. See Texas Mun. Power Agency v. Public Util. Comm’n of Tex.,
253 S.W.3d 184, 192 (Tex. 2007). Our primary concern in construing a statute is the express
statutory language. See Galbraith Eng'g Consultants, Inc. v. Pochucha, 290 S.W.3d 863, 867
(Tex. 2009). “We thus construe the text according to its plain and common meaning unless a
contrary intention is apparent from the context or unless such a construction leads to absurd
7
results.” Presidio Indep. Sch. Dist. v. Scott, 309 S.W.3d 927, 930 (Tex. 2010) (citing City of
Rockwall v. Hughes, 246 S.W.3d 621, 625–26 (Tex. 2008)). We consider the entire act, not
isolated portions. 20801, Inc. v. Parker, 249 S.W.3d 392, 396 (Tex. 2008); see Railroad
Comm’n v. Texas Citizens for a Safe Future & Clean Water, 336 S.W.3d 619, 628 (Tex. 2011)
(explaining that courts “generally avoid construing individual provisions of statute in isolation
from the statute as a whole”). Further, we “generally uphold an agency’s interpretation of a
statute it is charged by the Legislature with enforcing, ‘so long as the construction is reasonable
and does not contradict the plain language of the statute.’” Texas Citizens, 336 S.W.3d at 625
(quoting First Am. Title Ins. v. Combs, 258 S.W.3d 627, 632 (Tex. 2008)).
Applying these standards, we turn to the issues that appellants and the City raise.
Notice
In appellants’ first issue and as part of the City’s second issue, appellants and the
City challenge the Commission’s published notice as to its proposed rule regarding the
split-deposit provision in former Rule 25.478(e)(3). They argue that the notice “failed to place
low-income consumers on notice that the then-existing protection of a Split Deposit was in
jeopardy of deletion.” In its published notice, the Commission proposed amending subsection
(e)(3) of former Rule 25.478 to require REPs to offer the option of split deposits to all customers,
see 42 Tex. Reg. 7495, 7506,5 but Rule 25.478 as adopted removed subsection (e)(3) in
its entirety.
5 In the notice, the Commission proposed amending former Rule 25.478(e) as follows:
(e) Amount of deposit.
(1)-(2) (No change.)
8
The APA generally provides for public participation in a state agency’s
rulemaking process. See Tex. Gov’t Code §§ 2001.001(2) (stating that public policy of state
through chapter is to “provide for public participation in the rulemaking process”), .021
(addressing petitions for adoption of rules); see also Tex. Util. Code § 39.001(e). One
requirement under the APA is that the state agency provide public notice of its intention to adopt
a rule. See Tex. Gov’t Code §§ 2001.023 (requiring state agency to give at least 30 days’ notice
of intent to adopt rule and to “file notice of the proposed rule with the secretary of state for
publication in the Texas Register”), .024 (providing required content of notice of intent to
adopt rule).
The relevant inquiry for determining whether an agency’s notice satisfies the
APA’s notice requirement is “whether the agency’s notice fairly apprises affected parties of the
pertinent issues to allow them to comment and participate in the rulemaking process in a
meaningful and informed manner.” Texas Workers’ Comp. Comm’n v. Patient Advocates,
136 S.W.3d 643, 650 (Tex. 2004); see State Bd. of Ins. v. Deffebach, 631 S.W.2d 794, 800–01
(Tex. App.—Austin 1982, writ ref’d n.r.e.). Under this inquiry, the adopted rule satisfies the
APA if it “is a logical outgrowth of the proposed rule” such that “the final rule does not
(3) A [If a customer or applicant qualifies for the rate reduction program under § 25.454
of this title (relating to Rate Reduction Program), then such] customer or applicant shall be
eligible to pay any deposit that exceeds $50 in two equal installments. Notice of this option [for
customers eligible for the rate reduction program] shall be included in any written notice to a
customer from whom [requesting] a deposit is requested. [The customer shall have the obligation
of providing sufficient information to the REP to demonstrate that the customer is eligible for the
rate reduction program.] The first installment shall be due no sooner than ten days, and the
second installment no sooner than 40 days, after the issuance of written notification to the
applicant of the deposit requirement.
The language that was deleted from the former rule is identified by strikethrough and the
language that was added is underlined.
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materially alter the issues raised in the proposed rule.” Patient Advocates, 136 S.W.3d at 650.
“This approach supports the rationale of the notice and comment requirement which is ‘the
expectation that the final rules will be somewhat different and improved from the rules originally
proposed by the agency.’” Id. (quoting Trans-Pacific Freight Conf. v. Federal Mar. Comm’n,
650 F.2d 1235, 1249 (D.C. Cir. 1980)).
The Commission’s published notice included the following statements as to the
purpose of its rulemaking:
The Public Utility Commission of Texas (commission) proposes to repeal 16
Texas Administrative Code (TAC) Chapter 25, Subchapter Q (Subchapter Q),
relating to System Benefit Fund, including 16 TAC § 25.451, relating to
Administrative of the System Benefit Account; § 25.453, relating to Targeted
Energy Efficiency Programs; § 25.454, Rate Reduction Program; § 25.455,
One-Time Bill Payment Assistance Program; and § 25.457, relating to
Implementation of the System Benefit Fee by the Municipally Owned Utilities
and Electric Cooperatives; amend 16 TAC § 25.5, relating to Definitions; § 25.41,
relating to Price to Beat Rule; § 25.43, relating to Provider of Last Resort
(POLR); § 25.107, relating to Certification of Retail Electric Providers (REPs);
§ 25.181, relating to Energy Efficiency Goal; § 25.344, relating to Cost
Separation Proceedings; § 25.431, relating to Retail Competition Pilot Project;
§ 25.475, relating to General Retail Electric Provider Requirements and Informal
Disclosures to Residential and Small Commercial Customers; § 25.478, relating
to Credit Requirements and Deposits; § 25.479, relating to Issuance and Format of
Bills; § 25.480, relating to Bill Payment and Adjustments; § 25.491, relating to
Record Retention and Reporting Requirements; § 25.497, relating to Critical Load
Industrial Customers, Critical Load Public Safety Customers, Critical Care
Residential Customers, and Chronic Condition Residential Customers; and
§ 25.498, relating to Prepaid Service; and add new § 25.45, relating to
Low-Income List Administrator. The repeal of Subchapter Q reflects the
cessation of the System Benefit Fund, as required by House Bill 1101,
84th Legislative Session (Regular Session), and the proposed amendments update
language in order to remove references to the System Benefit Fund. The
proposed new 16 TAC § 25.45, relating to the Low-Income List Administrator,
identifies the revised responsibilities associated with the Low-Income List
Administrator. In addition, Senate Bill 1976, 85th Legislative Session (Regular
Session), provides means by which electric providers and certified
telecommunications utilities can continue to offer assistance to low-income
customers. The repeal of Subchapter Q and amendments in other subchapters to
10
remove references to the System Benefit Fund effectuate House Bill 1101 and
Senate Bill 1976 with respect to retail electric providers.
42 Tex. Reg. 7495. The Commission’s notice makes clear that the purpose of the rulemaking
was to repeal rules related to the SBF—including former Rule 25.454, the rate reduction
program—and amend other rules to “update language in order to remove references to the
System Benefit Fund.”
Because the statutory authority for the SBF expired on September 1, 2017, and
the Commission’s notice in December 2017 proposed repealing former Rule 25.454, the rate
reduction program, the qualified low-income customers were on notice that, under the
Commission’s proposed rules, they no longer would be entitled to split their deposits based on
their previous enrollment in the rate reduction program. In this context, with the publication of
the proposed rule to require REPs to offer a split-deposit option to all customers, the qualified
low-income customers were necessarily on notice that they—along with all other customers—
might or might not be entitled to the split-deposit option going forward.6
We conclude that the adopted rule did not materially alter the issues raised in the
proposed rule but was a “logical outgrowth” of the proposed rule. See Patient Advocates,
136 S.W.3d at 650. The notice fairly apprised the qualified low-income customers “of the
pertinent issues to allow them to participate in the rulemaking process in a meaningful and
informed matter”—they were on notice of the need to advocate during the rulemaking process
for an alternative way to identify low-income customers and a corresponding provision that
6 Appellants and the City refer to the “status quo” as the existence of the split-deposit
provision for low-income customers but, once the Commission repealed the rate reduction
program, no customer would be able to meet the requirements of the former provision because a
customer’s eligibility was determined based on his or her qualification to participate in the rate
reduction program. See former 16 Tex. Admin. Code § 25.478(e)(3).
11
required REPs to offer the option of split-deposits to this newly created category of low-income
customers in the event that the Commission decided not to amend the rule as proposed. Id.
Thus, we conclude that the Commission satisfied the APA’s notice requirements as to the split-
deposit provision in former Rule 25.478(e)(3). We overrule appellants’ first issue and the City’s
second issue to the extent that it challenged the Commission’s notice.
Reasoned Justification
In appellants’ second, third, and fourth issues and the City’s second issue,
appellants and the City contend that the Commission’s stated justifications for Rules 25.478(e)
and 25.480(c) and (j)(2)(A)(i) as adopted did not conform with the reasoned-justification
requirement of section 2001.033(a)(1) of the APA. See Tex. Gov’t Code § 2001.033(a)(1). In
their sixth issue, appellants further argue that the Commission provided no explanation for
disagreeing with proposals to expand the provisions to all residential customers. See id.
§ 2001.033(a)(1)(C). In its second issue, the City also challenges the Commission’s responses to
comments that it received during the rulemaking process.
In addition to the notice requirement, an agency must provide an opportunity for
and full consideration of comments and a “reasoned justification” for the rule. See id.
§§ 2001.029 (requiring agency to give interested persons “reasonable opportunity to submit data,
views, or arguments, orally or in writing”), .033; Lambright v. Texas Parks & Wildlife Dep’t,
157 S.W.3d 499, 504–05 (Tex. App.—Austin 2005, no pet.). To satisfy the “reasoned
justification” requirement, the agency must explain in the order adopting the rule the “how and
why” it reached its conclusions. Lambright, 157 S.W.3d at 504. We confine our search for a
“reasoned justification to the four corners of the order finally adopting the rule, and the agency
12
must provide a reasoned justification for the rule as a whole, not clause by clause.” Id. (citing
Reliant Energy, Inc. v. Public Util. Comm’n of Tex., 62 S.W.3d 833, 840 (Tex. App.—Austin
2001, no pet.)). The agency’s reasoned justification must include (1) a summary of interested
persons’ comments; (2) a summary of the rule’s factual basis; and (3) the reasons why the
agency disagreed with a party’s comments. See id. (citing Tex. Gov’t Code § 2001.033). “An
order demonstrating ‘in a relatively clear and logical fashion that the rule is a reasonable means
to a logical objective’ substantially complies with the reasoned justification requirement.” Id.
(quoting Tex. Gov’t Code § 2001.035(c)). “The order must accomplish the legislative objectives
underlying the reasoned justification requirement: to give notice of factual, policy, and legal
bases for the rule as adopted by the agency, in light of all the evidence it gathered.” Id. at 504–
05 (citing Reliant Energy, Inc., 62 S.W.3d at 841).
Our review of a challenge to the reasoned justification requirement is under an
“arbitrary and capricious” standard of review in which we do not presume that facts exist to
support the agency’s order. Id. at 505 (citing Reliant Energy, 62 S.W.3d at 841). Under this
standard, “we examine whether the agency’s explanation of the facts and policy concerns it
relied on in adopting the rule demonstrates that the agency considered all relevant factors and
engaged in reasoned decisionmaking.” Id. “An agency acts arbitrarily if in making a decision it:
(1) omits from its consideration a factor that the legislature intended the agency to consider in the
circumstances; (2) includes in its consideration an irrelevant factor; or (3) reaches a completely
unreasonable result after weighing only relevant factors.” Id.
In the order adopting the rules, the Commission documented interested persons’
arguments during the comment period for and against making the split-deposit, late-fee-waiver,
and deferred-payment-plan provisions in the former rules applicable to all customers going
13
forward,7 and explained its reasons for declining to adopt rules that would have mandated that
REPs offer those provisions to all customers.
As to interested persons’ proposals that the late-fee-waiver and deferred-payment-
plan provisions be made available to all customers, the Commission explained that it declined to
adopt those proposals because “the proposal[s are] beyond the scope of this rulemaking.”
Appellants challenge this explanation, including arguing that the Commission failed to provide
any justification for: (i) “taking from low-income consumers the protection of the Late Penalty
Waiver provided by former Substantive Rule 25.480(c), while retaining it for residential and
small commercial customers served by a [POLR],” see 16 Tex. Admin. Code § 25.480(c); and
(ii) “why it continued to allow critical care customers the protections of Deferred Payment Plans,
but not low-income customers,” see id. § 25.480(j)(2)(A). The stated purpose of the rulemaking,
however, was to repeal rules related to the SBF and to remove references to the SBF in other
rules. After the SBF and its related programs no longer existed, there were no qualified
low-income customers who fell within the category of customers identified under former Rule
7For example, after documenting Texas ROSE’s and TLSC’s proposals to expand the
provisions that were formally reserved for low-income customers to all residential customers, the
Commission stated ARM’s reply as follows:
ARM argued that there is no rational justification for these proposals, other than
to effectively reinstate expired low-income programs and benefits by simply
expanding them to apply to all residential customers. ARM asserted that, if the
commission were to adopt such proposals, it would chart a radical new direction
for the competitive retail market by imposing new regulatory requirements on
REPs that would significantly modify current operations, without any reasonable
justification. ARM asserted that the commission should look to the competitive
market rather than enact new regulatory mandates that expansively
reinstate expired mandates that were formerly applicable only to a subset of
residential customers.
14
25.480(c) and (j)(2)(A). Appellants have not cited, and we have not found, authority that would
require the Commission in its rulemaking to adopt rules that are beyond the scope of its stated
reasons for the rulemaking.
As to the split-deposit provision, although the Commission initially proposed
adopting a rule that would have required REPs to offer the option of splitting deposits to all
customers, the Commission detailed the comments that it received and then explained its reasons
for declining to adopt that provision:
The Commission agrees with ARM that the split deposit provision would be
inconsistent with PURA §17.007(c). While it is unclear the amount of the costs
to the REPs as a result of the commission adopting the proposed rule to split the
deposit for all customers, it is clear that there would be costs that would not be
reimbursed, which would be contrary to the new provision in SB 1976.
Therefore, the commission removes the requirement for REPs to provide a two
month deposit option to all customers.
See Tex. Util. Code § 17.007(c). After September 1, 2017, section 17.007(c) expressly prohibits
the Commission from requiring a REP or certificated telecommunications utility “to offer
customer service, discounts, bill payment assistance, targeted bill messaging, or other benefits
for which the provider or utility is not reimbursed.” Id.
We consider section 17.007(c) in context. See Texas Citizens, 336 S.W.3d at 628;
Scott, 309 S.W.3d at 930. Prior to September 1, 2017, and pursuant to its authority under former
section 17.007, the Commission’s rules provided an automatic process to identify low-income
customers for purposes of determining their eligibility to participate in SBF programs. See
former Tex. Util. Code § 17.007 (“The commission by rule shall provide for an integrated
eligibility process for customer service discounts, including discounts under Sections 39.903 and
55.015.”); former 16 Tex. Admin. Code §§ 25.5(66) (defining “Low Income Discount
15
Administrator” to mean “[a] third party administrator contracted by the commission to
administer aspects of the rate reduction program under [PURA] § 39.903”), 25.451
(Administration of the System Benefit Fund), 25.454 (describing rate reduction program). In
contrast, section 17.007 as amended provides a voluntary identification process for the
Commission and the Health and Human Services Commission to identify low-income customers
to “enable” REPs “to offer customer service, discounts, bill payment assistance, or other methods
of assistance.” See Tex. Util. Code § 17.007(a), (b). The generation of a list of low-income
customers is no longer mandatory—the list is generated only if a REP requests and agrees to
reimburse the Commission for the cost. Id. § 17.007(d); see also 16 Tex. Admin. Code
§ 25.45(c) (Low-Income List Administrator) (explaining low-income customer identification
process), (d) (explaining responsibilities of administrator and participating REPs). Given the
statutory and regulatory changes from an automatic list and mandated programs to a voluntary
approach, the Commission reasonably cited section 17.007(c) among its authority supporting its
amended rule as to the split-deposit provision. See McCarty, 919 S.W.2d at 854 (explaining that
agency rule is reasonable when it is based on “some legitimate position by the agency” and that
“[t]he rule need not be wise, desirable, or even necessary”).
We also observe that the Commission documented the interested persons’
competing positions as to the split-deposit provision. The Commission documented the position
of ARM and TEAM, who opposed amending the rule to require REPs to offer all customers the
option of splitting deposits, as follows:
TEAM argued that the proposed rule is inconsistent with PURA § 17.008(h),
which TEAM asserted recognizes a REP’s authority to require a deposit as a
condition of receiving service, and also with § 25.478(c), which provides that, if
satisfactory credit cannot be demonstrated by a residential applicant, a REP may
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require the applicant to pay a deposit prior to receiving service. Similarly, ARM
asserted the proposed rule is inconsistent with PURA § 17.007(c), which provides
that the commission may not require a REP to offer customer service, discounts,
bill payment assistance, targeted bill messaging, or other benefits for which the
REP is not reimbursed. ARM asserted that the bill’s sponsor acknowledged that
the bill prohibits the commission from requiring a REP to take on unreimbursed
costs created by special rule. ARM argued that the commission should support
competitive solutions over regulatory mandates, citing 15 years of market
maturity after the introduction of customer choice. ARM stated that an emphasis
on competitive outcomes is consistent with the overarching legislative policies
and purposes applicable to the state’s restructured electric industry as enshrined in
PURA § 39.001. ARM argued that the shift from unfunded to voluntary
low-income programs and benefits will increase the incentive for REPs to
differentiate themselves in the market by offering such programs and benefits that
they might not otherwise offer.
See Tex. Util. Code § 17.008(h) (stating that section 17.008, which addresses protections of
residential electric service applicants and customers, “does not limit a retail electric provider’s
authority to require a deposit or advance payment as a condition of service”); 16 Tex.
Admin. Code § 25.478(c)(1) (authorizing REP to require applicant to pay deposit prior to
receiving service).
The Commission also documented ARM’s stated concerns about the financial
exposure to a REP “until the customer has paid the deposit in full” and the costs and risks
associated with mandating that REPs offer all customers the option to split their deposits:
ARM asserted that allowing the provider to collect a security deposit from
customers who present a credit risk in advance of providing several weeks’ worth
of electric service on credit is a well-established business practice in both
regulated and competitive retail markets, as codified in § 25.24, which establishes
deposit requirements applicable to electric utilities in the regulated retail electric
market and § 25.478, which establishes deposit requirements applicable to REPs
in the competitive retail electric market. ARM and TEAM argued that the split
deposit provision for all residential customers is without precedent in the Texas
electric industry, noting that it was not required of the vertically integrated
electric utilities prior to the restructuring of the market, and there is no similar
provision in the commission’s rules or statutes for the investor-owned utilities
outside of ERCOT, electric cooperatives, or municipality owned utilities. ARM
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and TEAM agreed that requiring a split deposit provision would fundamentally
change the regulatory construct under which REPs have designed post-paid
products. ARM stated that it was not aware of any split deposit provision in any
other industry, and urged the commission to reaffirm its prior decisions in Project
Nos. 27084 and 31417 concluding that requiring a REP to offer installment
payments on security deposits to all residential customers would “negate the
protection against non-payment that a deposit provides for a REP.”
...
Utilizing ERCOT switching data and its timeline from flowing power to
disconnection, ARM estimated the total potential cost of extending the split
deposit provision to all residential customers to be in the range of $28.6 million to
$158.8 million based on bad debt exposure alone, not including the costs of IT
project expenditures, personnel training, documentation revising, and other
implementation costs that the REPs would incur. TEAM noted that the provision
would increase the cost of manual processes through increased operational costs,
as the REP would need to process each of the split deposits through one-on-one
contact with the customer, which would add cost and take away resources from
addressing customer needs. TEAM asserted that these costs will not be recovered
from some customers who switch away after disconnection. ARM asserted that,
on the low end, if the REP were to delay initiating service until the rest of the
deposit was received, such costs could be $15.5 million to $90.8 million. ARM
stated that, even assuming a conservative scenario in which REPs tighten credit
and collection processes, increase deposit amounts, expand deposit assessment
rates, or shorten disconnection timelines, the impacts would still be in the range of
$11.4 million to $63.5 million per year.
The Commission further documented ARM’s reliance on the Commission’s stated
reasons in prior rulemaking for rejecting proposals for mandating a split-deposit provision for all
customers. ARM asserted that the Commission’s prior reasoning included that “such a proposal
would negate the protection against non-payment that a deposit provides for a REP” and that
“such a market-wide requirement would place ‘too great a financial risk on REPs and is not
sufficiently tailored to serving low-income customers’ needs, especially when alternatives exist
that are more tailored.” Finally, the Commission detailed other interested persons’
counter-arguments and disagreements with ARM’s estimated cost numbers.
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Based on our review of the Commission’s rulemaking record, we conclude that
the Commission substantially complied with the reasoned-justification requirement as to its
adopted rules. See Tex. Gov’t Code § 2001.035(c); Tex. Util. Code § 39.001(e). Based on the
Commission’s “explanation of the facts and policy concerns it relied on in adopting the rule,” we
conclude that it explained the “how and why” as to its decisions not to adopt the proposed
provisions for all customers, that it adequately responded to comments, and that it engaged in
reasoned decisionmaking. See Lambright, 157 S.W.3d at 504–05. We overrule appellants’
second, third, fourth, and sixth issues and the City’s second issue.
Customer Protections
Appellants’ fifth issue and the City’s first and third issues challenge the
Commission’s interpretations of statutory provisions in PURA chapters 17 and 39 and
former section 39.903. Appellants characterize the split-deposit, deferred-payment-plan, and
late-fee-waiver provisions as customer protections that are distinct from “benefits” that were
subject to reimbursement under former section 39.903 and covered by section 17.007(c). See
Tex. Util. Code §§ 17.001–.206 (addressing customer protections), 39.901 (addressing customer
safeguards); former Tex. Util. Code § 39.903(h), (i). Appellants argue that the Commission
misconstrued H.B. 1101, see 84th Leg., R.S., ch. 706, § 1, that was codified at PURA section
39.903, and S.B. 1976, that was codified at PURA section 17.007, see 85th Leg., R.S., ch. 48, § 1
(eff. Sept. 1, 2017).
Appellants further argue that the Commission failed to reconcile the split-deposit,
deferred-payment-plan, and late-fee-waiver provisions with consumer protection provisions that
the legislature did not amend, specifically PURA sections 17.001(b), 17.004(a)(2) and (b), and
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39.101(b)(2) and (e). See Tex. Util. Code §§ 17.001(b) (providing that chapter’s purposes
include to establish retail customer protection standards), 17.004(a)(2), (b) (addressing customer
protection standards, including as to customer’s choice of service provider, and Commission’s
authority to adopt rules “to carry out this section, including rules for minimum service
standards”), 39.101(b)(2), (e) (addressing “customer safeguards,” including as to customer’s
choice of retail electric provider and Commission’s authority to adopt rules to carry out its
subsections “including rules for minimum service standards for a retail electric provider relating
to customer deposits and the extension of credit”). Appellants argue that these PURA sections
“expressly note the importance of minimum service standards to protect consumers in a
competitive electricity market separate from the benefits previously provided by PURA
§ 39.903” and that the Commission omitted consideration of these standards in this rulemaking
proceeding. Appellants contend that the Commission conflated “customer protections”—
that reflect minimum service standards—with “benefits” and that the split-deposit,
deferred-payment-plan, and late-fee-waiver provisions “represent minimum service standards”
promulgated under sections 17.004 and 39.101 and “not benefits” of the SBF rate
reduction program.
Appellants also rely on PURA’s general provisions that reflect the need for
minimum service standards, given “[s]ignificant changes” in the telecommunications and electric
power industries since PURA was originally adopted, and PURA’s purposes that include
granting the Commission “authority to make and enforce rules necessary to protect customers of
telecommunications and electric services consistent with the public interest.” See id.
§ 11.002(c). “Changes in technology and market structure have increased the need for minimum
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standards of service quality, customer service, and fair business practices to ensure high-quality
service to customers and a healthy marketplace where competition is permitted by law.” Id.
Similarly, in its first and third issues, the City argues that the Commission did not
have authority to alter the provisions at issue—which it asserts were “customer protections” and
not “benefits”—and that the Commission exceeded the authority provided by PURA section
17.007. See City Pub. Serv. Bd. of San Antonio, 53 S.W.3d at 316 (explaining that Commission
“is a creature of the legislature and has no inherent authority” (citation omitted)). The City relies
on dictionary definitions of “benefit” and “protection” and their respective meanings in the
context of PURA to support its position. See Black’s Law Dictionary 178, 1343 (9th ed. 2009)
(defining “benefit” to mean “[a]dvantage, privilege” and “protection” to mean “act of
protecting”); Webster’s Third New International Dictionary 1822 (2002) (defining “protect” to
mean “to cover or shield from that which would injure, destroy, or detrimentally affect”). The
City and appellants also argue that the amended rules are inconsistent with previous orders
adopting rules in which the Commission recognized the necessity of customer protections,
including for low-income customers. See, e.g., 31 Tex. Reg. 2144 (2006) (adopting amendments
to rules relating to low-income customers and discussing split-deposit provision); 29 Tex.
Reg. 4847 (2004) (adopting customer protection rules in Subchapter R); 26 Tex. Reg. 125
(2000) (same).
As support for their positions, appellants and the City focus on the lack of
reimbursement from the SBF for out-of-pocket expenses under the split-deposit,
deferred-payment-plan, and late-fee-waiver provisions, see former Tex. Util. Code § 39.903; the
Commission’s placement of its substantive rules relating to the SBF in former Subchapter Q of
its rules; and its placement of the split-deposit, deferred-payment-plan, and late-fee-waiver
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provisions in Subchapter R, which addresses customer protection rules for retail electric service.
See 16 Tex. Admin. Code § 25.471(a)(3) (General Provisions of Customer Protection Rules)
(“The rules in this subchapter [R] are minimum, mandatory requirements that shall be offered to
or complied with for all customers unless otherwise specified.”), (b) (addressing purposes of
subchapter including to “provide minimum standards for customer protections”).
The Commission, however, was following the legislative directive in former
PURA section 39.903(m) in this rulemaking proceeding when it removed references in the
Commission’s rules to the expired SBF and the corresponding rate reduction program. See
former Tex. Util. Code § 39.903(m); former 16 Tex. Admin. Code § 25.5(101) (defining “rate
reduction program” to mean “program to provide reduced electric rates for eligible low income
customers, in accordance with [PURA] § 39.903(h)”). Following the legislative directive, the
Commission’s rulemaking implemented the repeal of rules relating to the SBF and its
corresponding programs and amended or removed terms whose definitions referenced PURA
section 39.903.
As to appellants’ and the City’s reliance on PURA sections 17.001(b), 17.004(a)
and (b), and 39.101(e) to support their position that the split-deposit, late-fee-waiver, or
deferred-payment-plan provisions are mandated protections, these statutes do not require REPs
to offer these specific options. Section 17.001(b) provides the chapter’s purpose and confers
authority on the Commission “to adopt and enforce rules to protect retail customers from
fraudulent, unfair, misleading, deceptive, or anticompetitive practices.” See Tex. Util. Code
§ 17.001(b). Section 17.004(a) lists a series of entitlements available to all retail customers, but
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it does not reference split deposits, late-fee waivers, or deferred payment plans. Id. § 17.004(a).8
Similarly, section 17.004(b) and section 39.101(e) expressly grant the Commission discretion to
8 The entitlements for buyers of electric retail services that are listed in section
17.004(a) include:
(1) protection from fraudulent, unfair, misleading, deceptive, or anticompetitive
practices, including protection from being billed for services that were not
authorized or provided;
(2) choice of a telecommunications service provider, a retail electric provider, or
an electric utility, where that choice is permitted by law, and to have that choice
honored;
(3) information in English and Spanish and any other language as the commission
deems necessary concerning rates, key terms and conditions, and the basis for any
claim of environmental benefits of certain production facilities;
(4) protection from discrimination on the basis of race, color, sex, nationality,
religion, marital status, income level, or source of income and from unreasonable
discrimination on the basis of geographic location;
(5) impartial and prompt resolution of disputes with a certificated
telecommunications utility, a retail electric provider, or an electric utility and
disputes with a telecommunications service provider related to unauthorized
charges and switching of service;
(6) privacy of customer consumption and credit information;
(7) accuracy of metering and billing;
(8) bills presented in a clear, readable format and easy-to-understand language
that uses defined terms as required by commission rules adopted under Section
17.003;
(9) information in English and Spanish and any other language as the commission
deems necessary concerning low-income assistance programs and deferred
payment plans;
(10) all consumer protections and disclosures established by the Fair Credit
Reporting Act (15 U.S.C. Section 1681 et seq.) and the Truth in Lending Act (15
U.S.C. Section 1601 et seq.); and
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adopt and enforce rules related to customer protections and minimum service standards, but they
do not require the Commission to maintain or expand the split-deposit, late-fee-waiver, or
deferred-payment-plan provisions. See id. §§ 17.004(b), 39.101(e); see also Tex. Gov’t Code
311.016(1) (“’May’ creates discretionary authority or grants permission or a power.”).
Inconsistent with the legislative directives in former section 39.903 and section
17.007, including the statutory change away from a mandated list of low-income customers,
appellants’ and the City’s position would require this Court to conclude that the Commission was
obligated to adopt rules to create a mandatory mechanism for determining a category of
low-income customers to whom REPs would be required to offer the options of split deposits,
deferred-payment plans, and late-fee-waivers going forward. In the context of this rulemaking
proceeding, we cannot reach this conclusion. See McCarty, 919 S.W.2d at 854 (presuming
that rule is valid and placing burden on party who is challenging rule); see also Ware,
2013 Tex. App. LEXIS 5983, at *4–5 (requiring challenger to show that rule contravenes
specific statutory language, is counter to statute’s general objectives, or imposes additional
burdens, conditions, or restrictions in excess of or inconsistent with relevant statutory
provisions). We overrule appellants’ fifth issue and the City’s first and third issues.
(11) after retail competition begins as authorized by the legislature, programs
provided by retail electric providers that offer eligible low-income customers
energy efficiency programs, an affordable rate package, and bill payment
assistance programs designed to reduce uncollectible accounts.
Tex. Util. Code § 17.004(a). The statute references programs for low-income customers in
subsection (11), but it does not dictate the specifics of the programs.
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Conclusion
Having overruled appellants’ and the City’s issues, we affirm the Commission’s
order adopting the amended rules.
__________________________________________
Melissa Goodwin, Justice
Before Justices Goodwin, Baker, and Triana
Concurring and Dissenting Opinion by Justice Triana
Affirmed
Filed: April 30, 2020
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