aep-texas-commercial-industrial-retail-limited-partnership-v-public ( 2014 )

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-13-00358-CV
AEP Texas Commercial & Industrial Retail Limited Partnership, Appellant
v.
Public Utility Commission of Texas; Alliance for Retail Markets;
Texas Energy Association for Marketers; CPL Retail Energy, LP; WTU Retail Energy, LP;
and Direct Energy Business, LLC, Appellees
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 353RD JUDICIAL DISTRICT
NO. D-1-GN-12-003944, HONORABLE STEPHEN YELENOSKY, JUDGE PRESIDING
OPINION
The principal issue presented in this appeal is whether the Public Utility Commission
(PUC or Commission) reasonably construed chapter 39 of the Utilities Code and its own rules
in determining that the proposed sharing of a common “name, trademark, brand, or logo” by an
electric transmission and distribution utility and its competitive retail affiliate would amount to
prohibited preferential “joint promotion” or “joint advertising” by those entities.1 On this record,
we conclude that it did. We also reject constitutional free-speech challenges to that prohibition,
so construed.
1
Compare Tex. Util. Code § 39.147(d)(6) and 16 Tex. Admin. Code § 25.272(h)(2)
(Relationships with Affiliates) with Tex. Util. Code § 39.157(d)(5)(B) and 16 Tex. Admin. Code
§ 25.272(h)(1). All citations to Title 16 of the Texas Administrative Code are to rules promulgated
by the PUC.
BACKGROUND
Statutory and regulatory context
This appeal arises against the backdrop of Texas’s implementation of customer choice
in its electric industry (a/k/a retail “deregulation”), so it is helpful to begin by recalling some of
the history surrounding that sea change in market structure and regulatory policy. Before the advent
of customer choice, electricity was produced, delivered, and sold to most Texas consumers by one
of a handful of vertically integrated utilities that was each permitted to operate as the exclusive
provider within a particular certificated area.2 This market structure reflected the perception that the
electricity generation and sale should be considered a natural monopoly in light of the enormous
capital investment required to build the transmission and distribution system (i.e., the “wires” or
“grid”) necessary to transport the product,3 not to mention the tremendous inefficiencies that would
result if new market entrants duplicated those facilities.4 It followed, in the views of policymakers,
2
See State v. Public Util. Comm’n, 344 S.W.3d 349, 352–55 (Tex. 2011) (summarizing
history of retail electric deregulation in Texas); In re TXU Elec. Co., 67 S.W.3d 130, 132–33
(Tex. 2001) (same); City of Corpus Christi v. Public Util. Comm’n, 51 S.W.3d 231, 235–36
(Tex. 2001) (same); Cities of Corpus Christi v. Public Util. Comm’n, 188 S.W.3d 681, 684–85
(Tex. App.—Austin 2005, pet. denied) (same); see also Senate Interim Committee on Electric Utility
Restructuring, Report to the 76th Legislature, Tex. S.B. 7, 76th Leg., R.S. (1999) at 21 (hereinafter
“Senate Interim Report”) (“Most utilities in Texas have supplied power by acting as the sole agent
for their customers, including generating, transmitting and distributing the power, and finally acting
as customer service provider after the power is delivered.”).
3
Electric “transmission” refers to the transport of electricity over wires at high voltage,
often over great distances, while “distribution” refers to the transport of electricity received
from the transmission network, at lower voltage, to individual users. See 16 Tex. Admin. Code
§ 25.5(31)–(33) (Definitions) (distribution); Public Util. Comm’n v. City Pub. Serv. Bd. of
San Antonio, 53 S.W.3d 310, 312 (Tex. 2001) (transmission); Public Util. Comm’n v. Cities of
Harlingen, 311 S.W.3d 610, 614 (Tex. App.—Austin 2010, no pet.) (transmission).
4
See State v. Texas Mun. Power Agency, 565 S.W.2d 258, 273 (Tex. Civ. App.—Houston
[1st Dist.] 1978, writ dism’d); Senate Interim Report at 27.
2
that electric utilities should be made subject to comprehensive regulation of prices and services as
a substitute for market competition, and this regime was imposed first by individual municipalities
and then on a statewide basis by the PUC pursuant to the 1975 Public Utility Regulatory Act
(PURA).5
But by the 1990s, the Texas Legislature had become persuaded that the public interest
would be better served by allowing competitive market forces to determine electricity prices
and services to a much greater extent than previously allowed or thought feasible. In 1995, the
Legislature amended PURA to create a competitive wholesale power market in which non-utility
generators and marketers could sell electricity for purchase by regulated utilities.6 A key component
of this new regime was a requirement that the electric utilities provide the new market entrants non-
discriminatory access to the utilities’ transmission networks for a fee.7 And, during its 1999 regular
session, the Legislature went further with S.B. 7—codified chiefly in chapter 39 of the Utilities
Code—which opened much of the Texas retail electric market to competition and left transmission
and distribution as the sole industry component that could be operated as regulated monopolies
5
See Public Utility Regulatory Act, 64th Leg., R.S., ch. 721, §§ 1–92, 1975 Tex. Gen. Laws
2527 (amended 1995, 1997, 1999); City of Allen v. Public Util. Comm’n, 161 S.W.3d 195, 207–08
(Tex. App.—Austin 2005, no pet.); Senate Interim Report at 27.
6
See Public Utility Regulatory Act of 1995, 74th Leg., R.S., ch. 765, §§ 1.01–2.33,
1995 Tex. Gen. Laws 3972 (amended 1997, 1999); Senate Interim Report at 22–23.
7
See Public Utility Regulatory Act of 1995, § 2.08, 1995 Tex. Gen. Laws at 4000;
Senate Interim Report at 22–23; Texas Mun. Power Agency v. Public Util. Comm’n, 253 S.W.3d
184, 201–02 (Tex. 2007); see also Senate Comm. on State Affairs, Bill Analysis, Tex. S.B. 373,
74th Leg., R.S., at 18 (1995); House Research Org., Electric Utility Restructuring in Texas: A Status
Report 2 (2001) (available at http://www.hro.house.state.tx.us/pdf/focus/electric.pdf) (hereinafter
“HRO Report”).
3
in those areas.8 Under the new regime, simply described, competing electric retailers are able to
purchase power in the wholesale market and resell it to consumers, with prices and service offerings
determined by market dynamics, as with other consumer products, and are entitled to use the
monopoly utilities’ transmission and distribution networks to deliver the product in exchange for the
retailer’s payment of a still-regulated rate.9 Retail consumers, in turn, are no longer relegated to
purchasing their electricity from whichever monopoly happens to serve their geographic area, but are
empowered to choose among alternative providers.10 Affording consumers this freedom to choose
and the resultant competition for their business, the theory goes, tends to reduce prices, improve the
quality and range of services offered, and otherwise advance consumer welfare and the public
interest to a greater extent than achieved under the former comprehensive regulatory regime.11
The Legislature prescribed that customer choice under this new regime would begin
on January 1, 2002, and would apply in the certificated service areas of all utilities operating
8
See Act of May 27, 1999, 76th Leg., R.S., ch. 405, § 1–67, 1999 Tex. Gen. Laws 2543,
2543–2625 (“[T]his chapter is enacted to protect the public interest during the transition to and in
the establishment of a fully competitive electric power industry.”).
9
See Cities of Corpus Christi, 188 S.W.3d at 684–85; HRO Report at 1–2.
10
See Cities of Corpus Christi, 188 S.W.3d at 684; HRO Report at 1.
11
See City of Corpus Christi, 51 S.W.3d at 237; see also Tex. Util. Code § 39.001(a) (“The
legislature finds that the production and sale of electricity is not a monopoly warranting regulation
of rates, operations, and services and that the public interest in competitive electric markets requires
that, except for transmission and distribution services and for the recovery of stranded costs, electric
services and their prices should be determined by customer choices and the normal forces
of competition.”), (b) (“The legislature finds that it is in the public interest to: (1) implement on
January 1, 2002, a competitive retail electric market that allows each retail customer to choose the
customer’s provider of electricity and that encourages full and fair competition among all providers
of electricity; . . . .”).
4
within the Electric Reliability Council of Texas (ERCOT)12 that are owned by private investors.13
To that end, the Legislature mandated a fundamental restructuring of the electric industry in those
areas. By January 1, 2002, each incumbent electric utility subject to customer choice was required
to separate (a/k/a “unbundle”) their formerly integrated business activities into the following distinct
units: (1) a power generation company, which would own and operate the formerly integrated
utility’s generation assets; (2) a “retail electric provider” (REP), which would succeed to the retail
component of the utility’s business, including its customers, and compete to retain them once
customer choice began; and (3) one or more electric transmission and distribution utilities
(TDUs), which would own the former utility’s wires and deliver power over them for others as a
rate-regulated monopoly, but were restricted from owning generation assets or buying or selling
electricity themselves.14 Importantly for this case, however, the Legislature did not require a
complete legal separation between these units, but permitted a utility to unbundle by creating
separate affiliated companies that are owned by a common holding company.15
In addition to requiring this restructuring of the electric market in the regions being
opened to competition, the Legislature imposed further measures calculated to curtail the market
dominance that otherwise might be carried over by the unbundled units of the formerly integrated
utilities so as to allow competition to take root. To encourage new entrants into the nascent retail
12
See Tex. Util. Code § 31.002(5) (defining ERCOT).
13
See id. §§ 39.002, 39.102(a). Additionally, municipally-owned utilities and electric
cooperatives were allowed to participate in customer choice voluntarily. See id. § 39.002.
14
See id. §§ 31.002(1), 39.051, 39.102(b), 39.105, 39.157(b); HRO Report at 4.
15
See Tex. Util. Code § 39.051(c); see also id. § 11.003(2) (defining “affiliate”);
HRO Report at 4.
5
market, the Legislature required an REP affiliated with a TDU to charge an above-market “price
to beat” to its residential and small commercial customers within the TDU’s service area until
the earlier of 36 months after customer choice began (January 1, 2005) or the REP lost at least
40 percent of its market share in the customer class to competing REPs.16 It likewise imposed limits
on the percentage of generation capacity that any one power-generation company could own in
a given region after the start of retail competition.17 Additionally, the Legislature authorized the
Commission, during both the transition to competition and thereafter, to “monitor market power
associated with the generation, transmission, distribution, and sale of electricity in this state” and
take actions to curtail “market power abuses.”18 Such “abuses,” the Legislature elaborated, consist
of “practices by persons possessing market power that are unreasonably discriminatory or tend to
unreasonably restrict, impair, or reduce the level of competition, including practices that tie
unregulated products or services to regulated products or services[,] unreasonably discriminate in
the provision of regulated services[,] . . . predatory pricing, withholding of production, precluding
entry, and collusion.”19 On the other hand, the Legislature emphasized, “[t]he possession of a high
market share in a market open to competition may not, of itself, be deemed to be an abuse of
market power.”20
16
See Tex. Util. Code § 39.202; Office of Pub. Util. Counsel v. Public Util. Comm’n,
104 S.W.3d 225, 229 (Tex. App.—Austin 2003, no pet.).
17
See Tex. Util. Code §§ 39.154–.156, .157(c).
18
Id. § 39.157(a).
19
Id.
20
Id.
6
A related concern of the Legislature was the potential for “market power abuses”
that were potentially invited by its decision to allow the formerly integrated utilities to unbundle into
affiliated business units,21 a relationship that tended to provide incentives for leveraging the assets
and monopoly position of the TDUs to aid the affiliates operating in competitive markets. In
addition to requiring the above-described functional separation between a TDU and any affiliated
REP or power generation company,22 the Legislature directed the Commission, in subsection (d) of
PURA Section 39.157, to “adopt rules and enforcement procedures to govern transactions or
activities between a [TDU] and its competitive affiliates to avoid potential market power abuses
and cross-subsidizations between regulated and competitive activities both during the transition
to and after the introduction of competition.”23 These rules and procedures—termed the “Code of
Conduct”—were to include seventeen categories of safeguards and prohibitions that were
enumerated within subsection (d) of Section 39.157.24 To summarize, the seventeen enumerated
categories require structural separation and arm’s-length dealing between TDUs and their
competitive affiliates; prohibit discrimination or favoritism in the TDU’s provision of its products
and services to aid competitive affiliates, harm the affiliates’ rivals, or both; and greatly curtail the
ability of TDUs to share facilities, personnel, information, or other assets with, or to make
expenditures to benefit, their competitive affiliates.25 A Code of Conduct violation that “materially
21
See id. § 39.051(c).
22
See id. §§ 39.105, .157(b).
23
Id. § 39.157(d).
24
See id.
25
See id. § 39.157(a), (d).
7
impairs the ability of a person to compete in a competitive market,” the Legislature further provided,
would be “deemed to be an abuse of market power.”26 To comply with these statutory directives,
the Commission promulgated Rule 25.272, titled “Code of Conduct for Electric Utilities and
Their Affiliates.”27
Although imposing these limitations on TDUs and their affiliates within chapter 39,
the Legislature has emphasized that its overarching goal is not to control outcomes in the deregulated
retail electric market, but to foster and protect competition in that market, and thereby advance the
public interest it perceives in “establish[ing] . . . a fully competitive electric power industry.”28
Consistent with that goal, the Legislature has specifically forbidden regulatory authorities in areas
open to customer choice from “mak[ing] rules or issu[ing] orders regulating competitive electric
services, prices, or competitors or restricting or conditioning competition except as authorized in
[PURA] [or] discriminat[ing] against any participant or type of participant during the transition to a
competitive market and in the competitive market.”29 Similarly, regulatory authorities in areas open
to customer choice “shall authorize or order competitive rather than regulatory methods to achieve
the goals of [Chapter 39] to the greatest extent feasible and shall adopt rules and issue orders that
are both practical and limited so as to impose the least impact on competition.”30
26
Id. § 39.157(a).
27
See 16 Tex. Admin. Code § 25.272.
28
Tex. Util. Code § 39.001(a).
29
Id. § 39.001(c).
30
Id. § 39.001(d).
8
The present dispute
The immediate focus of the present dispute is a rule adopted by the Commission
to regulate the entry of REPs into the competitive retail electric market. Notwithstanding its
“deregulation” of this market, the Legislature imposed some barriers to entry by requiring an
entity desiring to do business as an REP to first obtain certification from the Commission.31 The
Legislature likewise specified prerequisites for certification that included demonstrating sufficient
financial, technical, and managerial wherewithal to provide reliable electric service to consumers,32
as well as compliance with “all applicable customer protection provisions, disclosure requirements,
and marketing guidelines established by the [Commission] and [PURA].”33 The latter requirements
served to incorporate the Code of Conduct and its restrictions on dealings between REPs and
affiliated TDUs into the threshold requirements with which prospective REPs had to comply in order
even to enter the market.
In a rule implementing the statutory REP certification requirement—PUC
Rule 25.10734 —the Commission has prescribed, in subsection (e)(1), that REPs may provide services
only under a business name or names that the Commission must approve as part of the certification
process.35 To gain approval under Rule 25.107(e)(1), a business name “shall not be deceptive,
31
See id. § 39.352.
32
See id. § 39.352(b).
33
Id. § 39.353(c).
34
See 16 Tex. Admin. Code § 25.107 (Certification, Licensing and Registration).
35
See id. § 25.107(e)(1).
9
misleading, vague,” or “otherwise contrary” to the Code of Conduct.36 “If the [C]ommission
determines that any requested name does not meet [these] requirements . . . it shall notify the
applicant that the requested name shall not be used by the REP,” and “[a]n application shall be
dismissed if an applicant does not provide at least one suitable name.”37
Since 2001, the appellant here, AEP Texas Commercial & Industrial Retail Limited
Partnership (AEP REP), has been certified by the Commission to provide—under names that
include, of relevance here, the assumed name of “AEP Retail Electric”—retail electric service to
customers having loads of one megawatt or greater, i.e., industrial and large commercial customers
only.38 This limitation on the identity of customers AEP REP can serve, the parties agree, is
characteristic of what the Commission’s REP certification rule terms its “Option 2” certification
classification, which stands in contrast to the Commission’s “Option 1” certification classification
that would instead permit an REP to provide retail electric service to customers within a particular
geographic region.39 But, in 2011, AEP REP filed an application with the Commission requesting
that its Option 2 certification be amended to instead become an Option 1 certification that would
permit it to serve, without limitation, electric consumers anywhere in Texas where retail competition
36
Id. § 25.107(e)(1)(B).
37
Id. § 25.107(e)(1)(C).
38
Which corresponds to the entity’s legal name “AEP Texas Commercial & Industrial Retail
Limited Partnership.”
39
See Tex. Util Code § 39.352(a), (d); 16 Tex. Admin. Code § 25.107(d)(1)–(2).
10
exists. The primary significance of this change would be that AEP REP would be authorized to
sell retail electric services to Texas residential and small commercial customers for the first time.40
As part of its application, AEP REP also sought approval to use, as an Option 1 REP,
the same “AEP Retail Electric” assumed name that the Commission had previously authorized for
use under the company’s more limited Option 2 certification.41 As its name suggests, AEP REP is
a subsidiary of American Electric Power Company, Inc. (AEP), an investor-owned holding
company that has subsidiaries operating in the electric industry in Texas and several other states.
In its application, AEP REP explained that use of the assumed name “AEP Retail Electric” was
“an important part” of a “multi-market, multi-state marketing” strategy of the AEP corporate
family that was aimed at “promot[ing] brand name recognition” in the retail electric markets of
Texas and other states that AEP subsidiaries or affiliates had entered or planned to enter. Similarly,
AEP REP acknowledged that members of the AEP corporate family commonly utilize uniform
branding that emphasizes the “AEP” abbreviation and a distinctive logo consisting of a red
parallelogram with a white “AEP” inside, and that it intended to use the same sort of branding,
alongside the “AEP Retail Electric” name, if its application was approved. Consequently, although
40
Appellees also urge that there was no evidence AEP REP had ever sold retail electric
service even to the large customers authorized by its Option 2 certification, and further claim that
AEP REP is not currently active in Texas.
41
AEP REP’s Option 2 certification had also permitted it to use the assumed name
“AEP Plus,” as well as its actual “certificated name,” its legal name of AEP Texas Commercial &
Industrial Retail Limited Partnership. While AEP REP initially sought approval to carry over all
three names in the Option 1 certification it sought, only its request to use “AEP Retail Electric”
remains at issue on appeal.
11
Rule 25.107(e)(1) empowers the Commission to approve or disapprove “business names” and does
not refer explicitly to logos or symbols,42 the parties have seemed to agree that, for all practical
purposes, AEP REP’s application effectively sought approval not only of the “AEP Retail Electric”
moniker itself, but also the company’s anticipated accompanying use of the “AEP” abbreviation and
red parallelogram logo.
AEP REP’s application was opposed by the Commission’s staff and, either
individually or through associations, by approximately twenty REPs that already held Option 1
certifications and served residential and small commercial customers in regions of Texas that have
been opened to retail competition (the Intervenors).43 Collectively, the opponents’ chief objection
was that AEP REP’s proposed use of the “AEP Retail Electric” assumed name and accompanying
AEP branding when operating in the competitive Texas retail “mass market” would be “deceptive,”
“misleading,” “vague,” or “otherwise contrary” to the Code of Conduct, and thus in violation of
Rule 25.107(e)(1), in the context of ongoing activities by two other AEP subsidiaries in areas of the
Texas electric market that had been opened to retail competition.
In 1997, AEP (the holding company) had acquired, through merger, Texas
subsidiaries that included Central Power & Light (also known as CP&L), an integrated electric utility
whose certificated service area encompassed portions of South Texas, and West Texas Utilities
(WTU), which, as the name suggests, was an integrated electric utility whose service area
42
See 16 Tex. Admin. Code § 25.107(e)(1).
43
The named Intervenors are REPs CPL Retail Energy, LP; WTU Retail Energy, LP; and
Direct Energy Business, LLC; and two associations, the Alliance for Retail Markets (ARM) and the
Texas Energy Association for Marketers (TEAM). ARM and TEAM are incorporated associations
whose members are REPs certificated by the PUC to provide retail electric service in regions of
Texas within ERCOT.
12
encompassed territory in West Texas. Both utilities’ certificated service areas were among those that
the Legislature subsequently opened to customer choice in S.B. 7. In accordance with chapter 39
of the Utilities Code, in advance of the January 1, 2002 start date of customer choice, the Central
Power & Light subsidiary was restructured into a TDU that carried on the same name and an
affiliated REP known as “Mutual Energy CPL,” an Option 1 REP certified to serve retail customers
(including residential and small commercial customers) within the CP&L service area. Similarly, the
required restructuring of the West Texas Utilities subsidiary yielded a “West Texas Utilities” TDU
and an affiliated REP known as “Mutual Energy WTU,” an Option 1 REP that served customers
within the WTU service area.
In late 2002, AEP sold the two affiliated REPs to a third party, and these entities or
their successors have since continued to operate as Option 1 REPs in their respective native service
areas, unaffiliated with AEP, under business names that incorporate some version of the “CP&L”
and “WTU” monikers. The current iterations of these REPs are known as CPL Retail Energy, LP;
and WTU Retail Energy, LP. Both entities intervened in opposition to AEP REP’s application.
Meanwhile, the TDUs serving the former CP&L and WTU service areas have
remained under AEP ownership. Around the time AEP sold the two affiliated REPs in late 2002,
it renamed the “Central Power & Light” TDU to “AEP Texas Central Company” (AEP TCC)
and the “West Texas Utilities” TDU to “AEP Texas North Company” (AEP TNC). Thereafter,
it is undisputed that AEP TCC and AEP TNC have done business under the shared or
“umbrella” moniker of “AEP Texas,” accompanied by the distinctive “AEP” branding with red
parallelogram logo.
13
Against this historical backdrop, to summarize the objections of the Commission staff
and the Intervenors, they insisted that allowing AEP REP to sell electricity in the Texas “mass
market” as “AEP Retail Electric,” with the same “AEP” identifier and logo as the “AEP Texas”
TDUs, would—especially within the “AEP Texas” TDUs’ two service areas—be “deceptive,”
“misleading,” and “vague,” and thus in violation of Rule 25.107(e)(1), in the sense that retail and
small commercial customers would perceive incorrectly that “AEP Retail Electric” and “AEP Texas”
were one and the same or that customers of “AEP Retail Electric” otherwise stood to benefit from
that company’s affiliation with the TDU.44 Similarly, they urged that if AEP REP were permitted
to exploit this asserted “customer confusion” by operating under the “AEP Retail Electric” name
and shared AEP branding, it would amount to the sort of cross-subsidization from “AEP Texas”
assets to benefit its affiliated REP that violates the Code of Conduct. Among other Code of Conduct
prohibitions that would be implicated, the opponents insisted, was a ban on preferential
“joint advertising or promotional activities” found in PURA Section 39.157(d)(6) and PUC
Rule 25.272(h)(2). PURA Section 39.157(d)(6) requires that the Code of Conduct ensure “a [TDU]
does not conduct joint advertising or promotional activities with a competitive affiliate in a manner
that favors the competitive affiliate.”45 Rule 25.272(h)(2), in turn, provides in pertinent part that a
“utility shall not engage in joint marketing, advertising, or promotional activities of its products or
44
For example, perceiving that the affiliation would enable them to obtain more reliable
service from AEP REP or more responsive restoration of service following outages.
45
Tex. Util. Code § 39.157(d)(6).
14
services with those of a competitive affiliate in a manner that favors the affiliate,” and provides
several illustrative examples of such conduct.46
AEP REP countered chiefly that any concerns about its intended sharing of names
or branding with the “AEP Texas” TDUs were resolved in its favor by a different provision within
the Code of Conduct. AEP REP emphasized PURA Section 39.157(d)(5)(B), which requires that
the Code of Conduct adopted under that section shall ensure that a utility does not—
allow a competitive affiliate, before September 1, 2005, to use the utility’s corporate
name, trademark, brand, or logo unless the competitive affiliate includes on
employee business cards and in its advertisements of specific services to existing or
potential residential or small commercial customers locating within the utility’s
certificated service area a disclaimer that states, “(Name of competitive affiliate) is
not the same company as (name of utility) and is not regulated by the Public Utility
Commission of Texas, and you do not have to buy (name of competitive affiliate)’s
products to continue to receive quality regulated services from (name of utility).”47
AEP REP similarly invoked the provision of the Code of Conduct rules through which the
Commission implemented this requirement, PUC Rule 25.272(h)(1), which is materially identical
to the underlying statutory directive.48 In the view of AEP REP, PURA Section 39.157(d)(5)(B) and
46
16 Tex. Admin. Code § 25.272(h)(2).
47
Tex. Util. Code § 39.157(d)(5)(B).
48
Rule 25.272(h)(1) provides:
Before September 1, 2005, a utility shall not allow the use of its corporate name,
trademark, brand, or logo by a competitive affiliate, on employee business cards or
in any written or auditory advertisements of specific services to existing or potential
residential or small commercial customers located within the utility’s certificated
service area, whether through radio or television, Internet-based, or other electronic
format accessible to the public, unless the competitive affiliate includes a
disclaimer with its use of the utility’s corporate name, trademark, brand, or logo.
Such disclaimer of the corporate name, trademark, brand, or logo in the material
15
Rule 25.272(h)(1) amounted to an acknowledgment that it was allowed, as a “competitive affiliate”
of the “AEP Texas” TDUs,49 to share with them a common “corporate name, trademark, brand,
or logo,” and that the sole limitation on its right to do so was a disclaimer requirement that had
expired in 2005.50
The Commission referred the proceeding to the State Office of Administrative
Hearings (SOAH) and requested briefing on “threshold legal and policy issues” concerning the
extent to which PURA Section 39.157(d)(5)(B) and Rule 25.272(h)(1), the disclaimer provisions
on which AEP REP had relied, affected the application of Rule 25.107(e)(1)(B)’s requirements,
emphasized by AEP REP’s opponents, that an REP’s business name not be “deceptive,”
“misleading,” “vague,” or “otherwise contrary” to the Code of Conduct if the REP is to be
certified to provide retail electric services under that name. The Commission subsequently issued
a preliminary order concluding that:
distributed must be written in a bold and conspicuous manner or clearly audible, as
appropriate for the communication medium, and shall state the following: “[Name
of competitive affiliate] is not the same company as [name of utility] and is not
regulated by the Public Utility Commission of Texas, and you do not have to buy
[name of competitive affiliate]’s products to continue to receive quality regulated
services from [name of utility].”
16 Tex. Admin. Code § 25.272(h)(1).
49
Thus, AEP REP has acknowledged that while it is not one of the original retail units that
were successors to the former integrated utilities known as Central Power & Light and West Texas
Utilities, it is nonetheless “affiliated” with, and is an “affiliated REP” and “competitive affiliate” of,
the “AEP Texas” TDUs. See Tex. Util. Code §§ 11.003(2) (defining “affiliate”), 31.002(2) (defining
“affiliated retail electric provider”), 39.157(i)(1) (defining “competitive affiliate). Consequently, it
concedes that its dealings with the “AEP Texas” TDUs are subject to the Code of Conduct.
50
AEP REP also argued that the business name “AEP Retail Electric” was not “deceptive,”
“misleading,” or “vague,” but instead was a clear and accurate description of the nature of its
intended business (retail electric services) and the existence of its lawful affiliation with AEP.
16
• “PURA § 39.157(d)(5) [in context, a reference to PURA Section 39.157(d)(5)(B), the
statutory disclaimer requirement] does not apply to this docket because this statute only
allows a competitive affiliate to use the same corporate name, trademark, brand, or logo as
that of its affiliate TDU prior to September 1, 2005.”
• “[N]either PURA § 39.157(d)(5)[(B)] nor P.U.C. Subst. R. 25.272 [in context,
presumably a reference to Rule 25.272(h)(1), the rule provision implementing PURA
Section 39.157(d)(5)(B)] preclude the Commission from determining pursuant to P.U.C.
Subst. R. 25.107(e)(1)(B) whether a retail electric provider’s name is deceptive, misleading,
vague, or otherwise contrary to [the Code of Conduct].”
• PURA does not address the shared use of business names after 2005.
Instead, the Commission further reasoned, its application of Rule 25.107(e)(1)’s requirements to
AEP REP’s application turned principally on “fact issues,” and it identified several for SOAH to
address. Among these were:
• “Would AEP REP’s use of . . . the d/b/a[] AEP Retail Energy . . . be deceptive, misleading,
vague, or otherwise contrary to [the Code of Conduct] if AEP REP provides electric service
to residential customers and small and medium non-residential customers for the entire
state?”
• “Will AEP [REP]’s proposed use of . . . the d/b/a[] AEP Retail Energy . . . constitute a
violation [of] the PURA § 39.157(d)(6) requirement that a utility not conduct joint
advertising or promotion activities with a competitive affiliate in a manner that favors the
competitive affiliate[?]”
• “Has the applicant shown that it meets all other requirements of PUC Subst. R. 25.107 other
than PUC Subst. R. 25.107(e)?”
• “Should AEP REP’s application to amend its REP Certificate . . . be approved?”
Thereafter, a contested-case hearing was held before a SOAH Administrative
Law Judge (ALJ). The evidence centered on two basic sets of factual issues. First, the opponents
emphasized evidence to the effect that retail consumers in the service areas of the “AEP Texas”
17
TDUs already had extensive familiarity with the AEP name and branding from a decade of
use on the “AEP Texas” TDUs’ assets (e.g., vehicles, employee uniforms, electric meters on
consumers’ properties, and an online presence that included a website and Facebook page), not to
mention advertisements and publicly recognized community and charitable contributions. In fact,
the evidence included an AEP REP-conducted survey of residential customers in the “AEP Texas”
service areas indicating that 73 percent of respondents were already familiar with both the name
“AEP Texas” and the name “AEP Retail Energy,” even though the latter had yet to operate as a
mass-market REP. This extent of familiarity ranked “AEP Texas” and “AEP Retail Energy” in a tie
for third among a list of fourteen existing REP and TDU companies about which the survey inquired,
finishing behind only Reliant and TXU Energy—Texas’s two largest REPs—and about twenty
points higher than the next highest in familiarity, WTU Retail Energy and CPL Retail Energy, the
service areas’ original incumbent REPs.
Second, the opponents emphasized evidence that retail customers in the “AEP Texas”
service areas tended to overlook the different roles of TDUs and REPs in the electric market, both
generally and with regard to the “AEP Texas”/”AEP Retail Energy” distinction in particular. For
example, the AEP REP customer survey indicated that over one-third of respondents perceived
incorrectly that the company from which they bought electricity (i.e., the REP) also
owned, maintained, and repaired the wires that delivered the electricity. Similarly, 32 percent of
respondents mistakenly believed that “AEP Retail Energy” provided electric transmission
and distribution services. The parties differed as to the inferences that could be drawn from this
information. The opponents asserted that the use of a shared name would exacerbate customer
confusion in the AEP Texas service areas with regard to which entity performs what functions and
18
with regard to an expectation of benefits that neither AEP REP nor the AEP Texas TDUs are allowed
to provide under PUC rules. Conversely, AEP REP maintained that a shared name would not
benefit AEP REP or impair a customer’s ability to make an informed choice, citing data suggesting
that the same confusion or false expectations would be associated with any other name it might
have selected.
Following the hearing, the ALJ issued a proposal for decision that AEP REP had
met all requirements for Option 1 certification, including demonstrating, as Rule 25.107(e)(1)(B)
required, that the proposed “AEP Retail Energy” assumed name was not “deceptive,” “misleading,”
“vague,” or otherwise in violation of the Code of Conduct. Accordingly, the ALJ recommended
that the Commission grant the application. However, the Commission, over a dissent from
its Chair, issued a final order denying AEP REP’s application. The order incorporated, as
Conclusions of Law 2A, 2B, and 2C, the Commission’s prior threshold determinations that PURA
Section 39.157(d)(5)(B) and Rule 25.272(h)(1) did not apply to or otherwise impact its determination
under Rule 26.107(e)(1)(B) of whether AEP REP’s proposed use of a shared name, logo, or branding
with the “AEP Texas” TDUs would be “deceptive,” “misleading,” “vague,” or “otherwise contrary”
to the Code of Conduct. As for that inquiry, the Commission held that the proposed use would
be “otherwise contrary” to the Code of Conduct. Specifically, it determined, in its Conclusion
of Law 10:
The sharing of the AEP acronym and AEP’s red parallelogram logo[51] by both
AEP Retail Energy and its affiliated TDUs as described in this case violates the
51
An illustration of which was attached as an exhibit to the final order.
19
prohibition in PURA § 39.157(d)(6) [and] P.U.C. Subst. R. 25.272(h)(2) of joint
advertising and promotional activities that favors a competitive affiliate.
This was the Commission’s sole ground for denying AEP REP’s application—it did not make
findings or conclusions regarding any other component of the Code of Conduct or of Rule 25.107.
In support of its ultimate determination in Conclusion of Law 10 that AEP REP’s
“sharing of the AEP acronym and AEP’s red parallelogram logo as described in this case” violates
the ban on preferential “joint advertising and promotional activities,” the Commission found the
following underlying facts:
18. Even though AEP Retail Energy has never marketed to residential customers
in Texas, the consumer survey conducted by AEP [REP] in this proceeding
shows that AEP Retail Energy ranked third highest in familiarity among 14
of the other existing retail and wires companies listed in the survey and 73%
of respondents in the AEP territories claimed some level of familiarity with
the business name AEP Retail Energy, identical to the percentage of survey
respondents that had any familiarity with the name AEP Texas.
19. The consumer survey conducted by AEP [REP] in this proceeding shows that
32% of those who live in the AEP Texas TDU service area believed that the
entity named AEP Retail Energy provides transmission and distribution
services.
20. The consumer survey conducted by AEP [REP] in this proceeding shows that
over one third of Texas consumers believe that the company that they buy
electricity from also owns, maintains, and repairs the wires that deliver the
electricity to their home.
21. AEP’s red parallelogram corporate logo is omnipresent in communities
served by AEP Texas TDUs.
22. AEP Retail Energy and AEP’s Texas TDUs will share not only the AEP
acronym, but also AEP’s distinctive red parallelogram logo when advertising
and promoting either AEP Retail Energy or AEP’s Texas TDUs.
20
23. AEP’s red parallelogram corporate logo is used on all websites for all AEP
companies.
24. Neither AEP [REP]’s application to amend its REP certificate nor its
consumer survey conducted in this proceeding addressed AEP [REP]’s
marketing strategy to use AEP’s red parallelogram corporate logo in
conjunction with the business name AEP Retail Energy.
25. The same website entry page as that used for AEP Ohio Retail Energy would
be used for AEP Retail Energy if AEP [REP] were allowed to use AEP Retail
Energy as its business name.
The Commission further reasoned, in what were styled as Findings of Fact 26 and 27:
26. While a regulated utility and a competitive affiliate are not categorically
prohibited by PURA and Commission rules from sharing the same or similar
names, the marketing efforts of competitive affiliates with shared branding
have a greater potential for causing confusion among customers.
27. AEP Retail Energy and the AEP Texas TDUs[’] sharing of identical AEP
branding is joint promotion that will cause confusion among customers and
result in favoring AEP Retail Energy over non-affiliated REPs.
After unsuccessfully seeking rehearing before the agency, AEP REP sued for judicial
review of the Commission’s final order in the district court.52 The individual REPs and associations
that had opposed AEP REP’s application in the agency proceedings again intervened in support
of the Commission’s order. The district court rendered judgment affirming the Commission’s
order in full.
This appeal ensued.
52
See Tex. Util. Code § 15.001 (granting right to judicial review); see also Tex. Gov’t Code
§ 2001.171 (granting right to judicial review of agency final decision in contested case).
21
ANALYSIS
AEP REP challenges the validity of the Commission’s final order in three issues. In
its first two issues, AEP REP argues that the Commission’s decision—and, in particular, its
decisive determination in Finding of Fact 27 that “AEP Retail Energy and the AEP Texas TDUs[’]
sharing of identical AEP branding” would be preferential joint promotion that violates PURA
Section 39.157(d)(6) and Rule 25.272(h)(2)—rests upon a construction of PURA and Commission
rule provisions that is unreasonable and contrary to the unambiguous texts of those provisions. In
its third issue, AEP REP adds that Section 39.157(d)(6) and Rule 25.272(h)(2), so construed
and applied, violate its free-speech rights under the constitutions of Texas and of the United States.
Standard of review
We review the Commission’s final order under the “substantial evidence” standard
that is codified in the Administrative Procedure Act (APA).53 This standard requires that we reverse
or remand a case for further proceedings “if substantial rights of the appellant have been prejudiced
because the administrative findings, inferences, conclusions, or decisions” are:
(A) in violation of a constitutional or statutory provision;
(B) in excess of the agency’s statutory authority;
(C) made through unlawful procedure;
(D) affected by other error of law;
(E) not reasonably supported by substantial evidence considering the reliable and
probative evidence in the record as a whole; or
(F) arbitrary or capricious or characterized by abuse of discretion or clearly
unwarranted exercise of discretion.54
53
See Tex. Gov’t Code § 2001.174; Tex. Util. Code § 15.001 (“Any party to a proceeding
before the commission is entitled to judicial review under the substantial evidence rule.”).
54
Tex. Gov’t Code § 2001.174(2).
22
Essentially, this is a rational-basis test to determine, as a matter of law, whether an agency’s
order finds reasonable support in the record.55 “The test is not whether the agency made the correct
conclusion in our view, but whether some reasonable basis exists in the record for the agency’s
action.”56 We apply this analysis without deference to the district court’s judgment.57 We presume
that the agency’s findings, inferences, conclusions, and decisions are supported by substantial
evidence, and the burden is on the contestant to demonstrate otherwise.58
Substantial-evidence analysis entails two component inquiries: (1) whether the
agency made findings of underlying facts that logically support the ultimate facts and legal
conclusions establishing the legal authority for the agency’s decision or action and, in turn,
(2) whether the findings of underlying fact are reasonably supported by evidence.59 The second
inquiry, which has been termed the “crux” of substantial-evidence review,60 is highly deferential
to the agency’s determination: “substantial evidence” in this sense “does not mean a large or
considerable amount of evidence”—in fact, the evidence may even preponderate against the agency’s
finding—but requires only “such relevant evidence as a reasonable mind might accept as adequate
55
See Texas Health Facilities Comm’n v. Charter Med.-Dallas, Inc., 665 S.W.2d 446,
452–53 (Tex. 1984).
56
Slay v. Texas Comm’n on Envtl. Quality, 351 S.W.3d 532, 549 (Tex. App.—Austin 2011,
pet. denied).
57
See Texas Dep’t of Pub. Safety v. Alford, 209 S.W.3d 101, 103 (Tex. 2006) (per curiam).
58
See Slay, 351 S.W.3d at 549.
59
See Vista Med. Ctr. Hosp. v. Texas Mut. Ins. Co., 416 S.W.3d 11, 26–27
(Tex. App.—Austin 2013, no pet.) (citing Charter Med.-Dallas, 665 S.W.2d at 453).
60
See Granek v. Texas State Bd. of Med. Exam’rs, 172 S.W.3d 761, 778 (Tex. App.—Austin
2005, no pet.) (citing John E. Powers, Agency Adjudications 163 (1990)).
23
to support a [finding] of fact.”61 Likewise, we “may not substitute [our] judgment for the judgment
of the state agency on the weight of the evidence on questions committed to agency discretion.”62
In contrast, the first inquiry, concerning the extent to which the underlying facts found by the agency
logically support its ultimate decision or action, may entail embedded questions of law that we
review de novo.63
Like advocates for affirming administrative orders often do, appellees (the
Commission and the Intervenors) emphasize the factual or evidentiary component of substantial-
evidence analysis and argue that the Commission’s findings of underlying fact concerning,
for example, the notoriety of AEP branding among consumers and the prevalence of “customer
confusion” are easily supported by “substantial evidence” of those facts. But the principal focus
of AEP REP’s appellate issues is not whether there is “substantial evidence” to support the
Commission’s findings of underlying fact—in fact, AEP REP does not even challenge most of
these findings—but the other component of “substantial-evidence” analysis, whether the findings
of underlying fact logically support the Commission’s ultimate decision to deny AEP REP’s
application on the ground that AEP REP’s anticipated “sharing of identical AEP branding” with the
“AEP Texas” TDUs constitutes “joint promotion . . . favoring AEP Retail over non-affiliated REPs”
under PURA Section 39.157(d)(6) and Rule 25.272(h)(2). The answer to that question turns initially
61
Slay, 351 S.W.3d at 549.
62
Tex. Gov’t Code § 2001.174(1).
63
See Montgomery Indep. Sch. Dist. v. Davis, 34 S.W.3d 559, 565 (Tex. 2000) (citing
Charter Med.-Dallas, 665 S.W.3d at 453); City of El Paso v. Public Util. Comm’n, 344 S.W.3d 609,
619 (Tex. App.—Austin 2011, no pet.); Buddy Gregg Motor Homes, Inc. v. Motor Vehicle Bd.,
156 S.W.3d 91, 99 (Tex. App.—Austin 2004, pet. denied).
24
on questions of law—specifically, the construction and validity of PURA Sections 39.157(d)(6)
and 39.157(d)(5) and the corresponding Rules 25.272(h)(2) and 25.272(h)(1). We review such
issues de novo, even when they arise in the context of “substantial-evidence” review of
administrative orders.64
We construe administrative rules and statutes the same way, as rules have the force
and effect of statutes.65 Our primary objective in statutory construction (and, therefore, also in
construction of rules) is to ascertain and give effect to the drafters’ intent.66 We determine that intent
from the plain meaning of the words chosen when it is possible to do so, using any definitions
provided.67 We consider the statutes or rules as a whole rather than their isolated provisions.68 We
presume that the enactment’s language was chosen with care, with each word included (or omitted)
purposefully.69 Undefined terms are typically given their ordinary meaning, but if a different or more
precise definition is apparent from a term’s use in context, we apply that meaning.70 If the text of
the enactment is unambiguous, we adopt the interpretation supported by its plain language unless
64
See Railroad Comm’n v. Texas Citizens for a Safe Future & Clean Water, 336 S.W.3d
619, 624 (Tex. 2011).
65
See TGS–NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 438 (Tex. 2011) (citing
Rodriguez v. Service Lloyds Ins. Co., 997 S.W.2d 248, 254 (Tex. 1999)).
66
See id. at 439 (citing Tex. Gov’t Code § 312.005 and Texas Dep’t of Protective &
Regulatory Servs. v. Mega Child Care, Inc., 145 S.W.3d 170, 176 (Tex. 2004)).
67
See id. (citing Tex. Gov’t Code § 312.011(b)).
68
See id. (citing Texas Dep’t of Transp. v. City of Sunset Valley, 146 S.W.3d 637, 642
(Tex. 2004)).
69
See id. (citing In re M.N., 262 S.W.3d 799, 802 (Tex. 2008)).
70
See id. (citing In re Hall, 286 S.W.3d 925, 928–29 (Tex. 2009) (orig. proceeding)).
25
such an interpretation would lead to absurd results that the drafters could not possibly have
intended.71 However, if the text is ambiguous—i.e., there is more than one reasonable interpretation
of it—we may be required to defer to an authoritative construction by the agency charged with the
provision’s enforcement that is reasonable and not inconsistent with the text of the provision.72 Such
deference is particularly appropriate where the statutes and rules at issue concern a matter within the
specialized or technical expertise of the agency.73
As AEP REP seems to acknowledge, this is plainly a case in which we would be
required to defer to the Commission’s construction of any of the statutes or rule provisions at issue
that we determine to be ambiguous. This case centers on competing constructions of the Code of
Conduct rule and its underlying statutory authorization, and the Legislature has charged the
Commission with administering that regime to the end of preventing “market power abuses and
cross-subsidizations between regulated and competitive activities both during the transition to and
after the introduction of competition,”74 to the ultimate end of fostering and preserving the “fully
71
See id. (citing Mega Child Care, 145 S.W.3d at 177); see also Texas Coast Utils. Coal.
v. Railroad Comm’n, 423 S.W.3d 355, 356 n.16 (Tex. 2014) (noting that principles of deference to
agency construction not implicated where statute at issue is unambiguous).
72
See Texas Citizens, 336 S.W.3d at 628–30; see also TGS–NOPEC, 340 S.W.3d at 439 (“If
there is vagueness, ambiguity, or room for policy determinations in a statute or regulation, . . . we
normally defer to the agency’s interpretation unless it is plainly erroneous or inconsistent with the
language of the statute, regulation, or rule.”).
73
See Zimmer US, Inc. v. Combs, 368 S.W.3d 579, 586 (Tex. App.—Austin 2012, no pet.)
(deferring to Comptroller’s reasonable interpretation of ambiguous tax statute); cf. Rylander
v. Fisher Controls Int’l, Inc., 45 S.W.3d 291, 302 (Tex. App.—Austin 2001, no pet.) (declining to
defer to agency interpretation on issue outside agency expertise) (citing 2B Norman J. Singer,
Statutes & Statutory Construction § 49:04, at 23–24 (6th ed. 2000)).
74
Tex. Util. Code § 39.157(d).
26
competitive electric power industry” that is the goal of chapter 39.75 At the same time, however, the
Legislature has also made clear that the point of these measures is to preserve competition, not
merely to supplant competition with back-door re-regulation of market outcomes.76 The precise line
between the two will invariably pass through “gray areas” where its location must be ascertained
through resort to specialized and technical expertise concerning the dynamics of the retail electric
market and consumer behavior within it. Such inquiries lie within the delegated core competencies
of the Commission and tend to be beyond the expertise of the judiciary.
In light of these principles, AEP REP in practical effect has the burden of
demonstrating that the Commission’s construction of the statutes and rules at issue is contrary to the
unambiguous language of the provisions or is otherwise not among the reasonable constructions to
which the provisions are susceptible.77 This is so because we would give effect to the Commission’s
reasonable construction whether it be the sole reasonable construction (i.e., the provision
unambiguously means what the Commission concluded it means) or because it is a reasonable
75
See id. § 39.001(a).
76
See id. § 39.001(c), (d).
77
See Texas Citizens, 336 S.W.3d at 624 (noting that court “will 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.’” (quoting First
Am. Title Ins. Co. v. Combs, 258 S.W.3d 627, 632 (Tex. 2008) (quoting Tarrant Appraisal Dist.
v. Moore, 845 S.W.2d 820, 823 (Tex. 1993))); Fiess v. State Farm Lloyds, 202 S.W.3d 744, 747–48
(Tex. 2006) (noting that courts give some deference to agency’s formal and reasonable interpretation
of an ambiguous statute, but “alternative unreasonable constructions do not make a policy
ambiguous”).
27
construction of an ambiguous provision to which we should defer.78 Only if AEP REP fails to meet
this burden do we reach its constitutional complaint.79
Preferential joint promotion?
Internal limitations
Within its second issue, AEP REP argues that the Commission construed and
applied the prohibition against preferential joint advertising or promotional activities—i.e., PURA
Section 39.157(d)(6) and Rule 25.272(h)(2)—in a manner that is unreasonable and
contradicts the unambiguous texts of those provisions, even if they are viewed in isolation. AEP
REP emphasizes the following textual features of Section 39.157(d)(6): “The rules adopted under
this section shall ensure that . . . a utility does not conduct joint advertising or promotional activities
with a competitive affiliate in a manner that favors the competitive affiliate.”80 The Legislature’s
specification of “joint” activity “with a competitive affiliate,” in AEP REP’s view, reflects intent “to
prohibit only those advertising and promotional activities undertaken or produced together by both
a utility and its competitive affiliates.” “At a minimum,” AEP REP reasons, this language “implies
some concerted effort beyond the mere sharing of a brand name.”
To similar effect, AEP REP emphasizes that Rule 25.272(h)(2), the Code of
Conduct rule implementing PURA Section 39.157(d)(6), provides that “[a] utility shall not
78
See Texas Citizens, 336 S.W.3d at 628 (explaining that “we need not consider whether the
Commission’s [reasonable] construction is the only—or the best—interpretation in order to warrant
our deference”).
79
See In re B.L.D., 113 S.W.3d 340, 349 (Tex. 2003) (“As a rule, we only decide
constitutional questions when we cannot resolve issues on nonconstitutional grounds.”).
80
Tex. Util. Code § 39.157(d)(6) (emphases added).
28
engage in joint marketing, advertising, or promotional activities of its products or services
with those of a competitive affiliate in a manner that favors the affiliate.”81 AEP REP observes that
Rule 25.272(h)(2) “[b]y its terms . . . prohibits joint marketing, advertising or promotion only if it
concerns the ‘products and services’ of both the utility and the competitive affiliate.” “[A] brand
name or logo,” AEP REP reasons, “does not relate to any particular product or service,” and “the
mere sharing of a brand and logo by a utility and its competitive affiliate cannot constitute a violation
of the Commission’s joint advertising rule.” AEP REP likewise emphasizes Rule 25.272(h)(2)(B)’s
non-exclusive illustrative list of impermissible “joint marketing, advertising, or promotional
activities”:
(B) A utility shall not engage in joint marketing, advertising, or promotional
activities of its products or services with those of a competitive affiliate in a
manner that favors the affiliate. Such joint marketing, advertising, or
promotional activities include, but are not limited to, the following activities:
(i) acting or appearing to act on behalf of a competitive affiliate in any
communications and contacts with any existing or potential
customers;
(ii) joint sales calls;
(iii) joint proposals, either as requests for proposals or responses to
requests for proposals;
(iv) joint promotional communications or correspondence, except that a
utility may allow a competitive affiliate access to customer bill
advertising inserts according to the terms of a commission-approved
tariff so long as access to such inserts is made available on the same
terms and conditions to non-affiliates offering similar services as the
competitive affiliate that uses bill inserts;
(v) joint presentations at trade shows, conferences, or other marketing
events within the State of Texas; and
81
16 Tex. Admin. Code § 25.272(h)(2) (emphases added).
29
(vi) providing links from a utility’s Internet web site to a competitive
affiliate’s Internet web site.82
These examples, in AEP REP’s view, further confirm that the prohibition against preferential “joint
marketing, advertising, or promotional activities” requires “some affirmative act beyond the mere
sharing of a brand name or logo.”
Furthermore, even if its “mere” shared branding could constitute “joint advertising”
or “joint promotion” with the “AEP Texas” TDUs, AEP REP insists there has been no competent
showing that these activities would “favor” it relative to its competitors, as both PURA
Section 39.157(d)(6) and Rule 25.272(h)(2) require.83 This is so, AEP REP reasons, because the
assessment of whether joint advertising or promotional activity “favors” the competitive
affiliate requires “case-by-case” evaluation of the nature and effect of some specific, identifiable
communication or act by TDUs and competitive affiliates. The Commission’s contrary construction,
AEP REP further suggests, is tantamount to a pre-determination that “the mere presence of the
shared AEP brand and logo transforms any communication—regardless of medium, content, or
context—of either the AEP TDUs or AEP into ‘joint advertising or promotional activities’ that favor
the AEP REP.” “Only after analyzing the full context of a particular communication,” AEP REP
insists, “can such a conclusion be drawn.”
82
Id.
83
See Tex. Util. Code § 39.157(d)(6) (“ . . . conducts joint advertising or promotional
activities with a competitive affiliate in a manner that favors the competitive affiliate”) (emphasis
added); 16 Tex. Admin. Code § 25.272(h)(2)(B) (“. . . engage in joint marketing, advertising, or
promotional activities of its products or services with those of a competitive affiliate in a manner
that favors the affiliate) (emphasis added).
30
Appellees respond that to the extent AEP REP would require proof of some specific
joint advertisement or promotional activity that it either has planned with the “AEP Texas” TDUs
or perhaps has even executed already, it overlooks that the Commission is not applying the
prohibition against preferential “joint advertising or promotional activities,” per se, to AEP REP’s
actual conduct, but instead is applying the prohibition as it is incorporated into Rule 25.107(e)(1),
the limitations on permissible business names within the Commission’s REP certification
requirements.84 Under Rule 25.107(e)(1), as appellees note, the Commission must deny an
REP application to the extent the applicant requests to use business names that are “deceptive,
misleading, vague,” or “otherwise contrary” to the Code of Conduct.85 That inquiry, appellees
observe, necessarily focuses prospectively or even somewhat hypothetically on whether a proposed
business name will deceive, mislead, confuse, or be “otherwise contrary” to the Code of Conduct,
and cannot look to any actual communication or conduct by a yet-to-be-certified REP that has not
started operating in the market under that certification. Thus, with regard to the Code of Conduct’s
ban on preferential joint promotion, appellees suggest, the Commission reasonably focused
on whether AEP REP’s proposed use of the AEP abbreviation and logo in common with the
“AEP Texas” TDUs will result in violations of the ban, as opposed to requiring proof that entities
have already formulated or issued some specific advertisement or promotion that does.
But more fundamentally, appellees urge that this case is about far more than
“mere” shared branding, and they accuse AEP REP of overlooking or incorrectly portraying the
Commission’s findings of underlying fact and the evidence on which they were based. For one
84
See 16 Tex. Admin. Code § 25.107.
85
See id. § 25.107(e)(1).
31
thing, appellees emphasize, the Commission found that AEP REP had planned “to use AEP’s
red parallelogram corporate logo in conjunction with the business name AEP Retail Energy” as part
of a “marketing strategy.” Appellees similarly note the Commission’s findings that the same AEP
abbreviation and distinctive red parallelogram logo that AEP REP would wield while pursuing its
“marketing strategy” is also shared in common with the “AEP Texas” TDUs; would be used
“when advertising and promoting either AEP Retail Electric or AEP’s Texas TDUs”; and is already
“omnipresent in communities served by AEP Texas TDUs.” The existence of this “marketing
strategy,” appellees reason, confirms the certainty that AEP REP would, if the Commission approved
its Option 1 application, utilize the AEP name and distinctive red parallelogram logo—the identical
name and logo that the “AEP Texas” TDUs have made “omnipresent” and would continue to
wield—in specific advertisements and promotional activities aimed at the Texas retail electric
“mass market.”
What would make such communications “joint” advertisements and promotional
activities “favoring” AEP REP within the meaning of PURA and its rules, appellees further explain,
is the way retail consumers would likely understand and perceive the communications. Appellees
cite the Commission’s findings that the “marketing efforts of competitive affiliates with shared
branding [with TDUs] have a greater potential for causing confusion among customers”—i.e.,
consumer misunderstanding as to which entity is the subject of an advertisement or promotion and
the relationship between the two—and that “AEP Retail Energy and the AEP Texas TDUs[’] sharing
of identical AEP branding . . . will cause confusion among customers.” In this regard, appellees
emphasize the Commission’s finding of underlying fact that “AEP Retail Electric,” despite having
never been used in marketing to customers, already ranked among the highest in familiarity
32
among customers and was familiar to 73 percent of customers in the “AEP Texas” service areas, the
same percentage that were familiar with the “AEP Texas” name; that 32 percent of the customers
in the “AEP Texas” service areas believed that “AEP Retail Energy” provides transmission and
distribution services; and that over one third of Texas consumers believed that “the company that
they buy electricity from also owns, maintains, and repairs the wires that deliver the electricity to
their home.” In this context, appellees further reason, the concurrent use of the AEP abbreviation and
distinctive red parallelogram logo “when advertising and promoting either AEP Retail Energy or
AEP’s Texas TDUs” would both constitute “joint promotion” (inasmuch as consumers will tend to
perceive that any “AEP Texas” promotion or advertising refers to AEP REP, and vice versa) and
would “favor[] AEP Retail Energy over non-affiliated REPs” (inasmuch as the “confusion” would
enable AEP REP’s “marketing strategy” to leverage “AEP Texas” promotional and advertising
activity, brand identity, and goodwill, and/or benefit from consumer misunderstanding regarding its
relationship to the “AEP Texas” TDUs).
We agree with appellees that the Commission was reasonable in construing
Rule 25.107(e)(1) to contemplate prospective evaluation of whether allowing an REP to use a
particular business name would likely or potentially lead to Code of Conduct violations, as opposed
to requiring proof that the REP has engaged or plans to engage in some specific communication that
would violate the Code. Likewise, we concur with appellees’ observations that the Commission
made unchallenged findings to the effect that AEP REP, if certified under that business name, would
actually be targeting retail consumers with specific advertisements and promotional activities
utilizing the common, already-“omnipresent” “AEP” name and logo it would share with the
“AEP Texas” TDUs. And as for whether those anticipated advertisements or promotions would run
33
afoul of the prohibition against preferential joint promotion, we reject AEP REP’s view that PURA
Section 39.157(d)(6) and Rule 25.272(h)(2), as incorporated into Rule 25.107(e)(1)(B), are not
reasonably susceptible to the construction the Commission has given them.
The parties’ competing contentions boil down to a dispute over the extent to
which the provisions should be viewed from the perspective of the TDU and competitive affiliates
versus that of the retail customers to whom the advertisements or promotions will be directed. While
AEP REP insists that “joint” activities “with” or “favoring” a competitive affiliate or its products
contemplate direct or overt attempts by a TDU to aid a competitive affiliate through its
advertisements or promotions, the Commission maintains that the listener’s perception and
understanding must also be considered. The gravamen of the Commission’s underlying fact findings
is that the anticipated use of the shared AEP name, logo, and branding by AEP REP and the “AEP
Texas” TDUs would, in the eyes of retail consumers, promote all of these entities and their products
collectively and effectively leverage each entity’s advertising, brand identity, and goodwill to the
benefit of the others. It is in this sense that the Commission concluded that the contemplated shared
branding would be “jointly” between and “with” AEP REP and the “AEP Texas” TDUs and “favor”
AEP REP and its products in the manner contemplated by Section 39.157(d)(6) or Rule 25.272(h)(2).
All other things being equal, we cannot conclude the Commission’s approach is unreasonable or
inconsistent with the texts of Section 39.157(d)(6) or Rule 25.272(h)(2), especially in light of the
overarching purposes of the Code of Conduct. A central legislative concern underlying the Code of
Conduct’s requirements and limitations, as we have previously explained, is preventing “cross-
subsidizations between regulated and competitive activities”—i.e., the leveraging of a TDU’s assets
34
and monopoly position to aid an affiliate operating in a competitive market.86 Having found that the
“AEP” name and branding would have the practical effect of promoting both the “AEP Texas”
TDUs and AEP REP and leveraging each other’s notoriety and goodwill to benefit the other, the
Commission was not unreasonable in concluding that its use by AEP REP would effect the sort of
subsidy from the “AEP Texas” entities to AEP REP that the Code of Conduct seeks to prohibit.87
In sum, if, as AEP REP argues, the Commission’s construction of PURA
Section 39.157(d)(6) and Rule 25.272(h)(2) is unreasonable or inconsistent with their unambiguous
texts, it is not because of the language found solely within the “four corners” of those provisions.
In that regard, AEP REP urges that the provisions’ broader statutory context refutes, rather than
supports, the Commission’s view of the prohibition against preferential joint advertising or
promotional activities. In support, it chiefly emphasizes PURA Section 39.157(d)(5)(B) and the
related Rule 25.272(h)(1). Section 39.157(d)(5)(B), as previously noted, requires the Commission
to promulgate Code of Conduct rules ensuring that a TDU does not “allow a competitive affiliate,
before September 1, 2005, to use the utility’s corporate name, trademark, brand, or logo unless the
competitive affiliate includes on employee business cards and in its advertisements of specific
services to existing or potential residential or small commercial customers locating within the
86
Id. § 39.157(d).
87
Contrary to the dissent’s view, the Commission’s findings regarding customer confusion
do not interject “a factor not present anywhere in Section 39.157(d)(6) or Rule 25.272(h)(2)(B).”
Slip op. at 8. As the Commission reasoned, the findings of customer confusion go to the perceived
potential impact of the shared branding and, in turn, whether it would run afoul of the prohibition
against joint advertising or promotional activities, as incorporated into Rule 25.107(e)(1)(B).
35
utility’s certificated service area a disclaimer” described in the provision.88 Rule 25.272(h)(1), in
turn, implements this requirement using materially identical language.89
In AEP REP’s view, both Section 39.157(d)(5)(B) and Rule 25.272(h)(1)
recognize that the very conduct the Commission determined to be prohibited preferential
joint promotion—“[t]he sharing of the AEP acronym and AEP’s red parallelogram logo by both
AEP Retail Energy and its affiliated TDUs as described in this case”—is permissible in the first
instance, and limited only by a requirement, now since expired, that any such shared branding used
before September 1, 2005, be accompanied by a disclaimer. And it follows, AEP REP reasons, that
this same sharing of AEP branding cannot constitute prohibited preferential “joint promotion” under
Section 39.157(d)(6) and Rule 25.272(h)(2) as the Commission determined, because that is the
domain of Section 39.157(d)(5)(B) and Rule 25.272(h)(1). Similarly, if the prohibition extended so
broadly, AEP REP adds, it would render the disclaimer requirement a nullity from its inception, and
statutes are not to be construed that way if reasonably possible to do otherwise.90 We turn to these
arguments now.
88
Tex. Util. Code § 39.157(d)(5)(B).
89
See 16 Tex. Admin. Code § 25.272(h)(1).
90
See Tex. Gov’t Code § 311.021 (Code Construction Act provision creating presumption
that “the entire statute is intended to be effective”); City of San Antonio v. City of Boerne,
111 S.W.3d 22, 29 (Tex. 2003) (declining to read statute in way that would render some parts
superfluous).
36
Conclusions of law 2A and 2C
As a threshold matter regarding the effect of Section 39.157(d)(5)(B) and
Rule 25.272(h)(1), AEP REP challenges, in its first issue, the Commission’s determinations, carried
over as Conclusions of Law 2A and 2C in its final order, that “PURA § 39.157(d)(5)[(B)] does
not apply to this docket because this statute only allows a competitive affiliate to use the same
corporate name, trademark, brand, or logo as that of its affiliate TDU prior to September 1, 2005,”
and that “PURA does not address the shared use of business names after 2005.” Contrary to
these conclusions, AEP REP urges, only the disclaimer requirement imposed by PURA
Section 39.157(d)(5)(B) ceased to operate on September 1, 2005—the remainder of the provision,
and its implication regarding the permissibility of shared names and branding vis-a-vis the prohibited
preferential joint advertising or promotional activities, continues in effect today.
To the extent the Commission’s Conclusions of Law 2A or 2C assert that
Section 39.157(d)(5)(B) expired in its entirety in 2005 or that the provision otherwise has no
potential relevance to the scope or application of the preferential-joint-promotion prohibition
under Section 39.157(d)(6) and Rule 25.272(h)(2), we agree with AEP REP that this construction
is belied by PURA’s unambiguous text. Contrary to what Conclusions of Law 2A and 2C seem to
suggest, Section 39.157(d)(5)(B) is not a time-limited authorization for TDUs and competitive
affiliates to share the TDU’s “corporate name, trademark, brand or logo” only until September 1,
2005. Rather, it is only a limitation on the sharing of names and branding, and then only to the
extent of requiring that a competitive affiliate not be allowed, “before September 1, 2005,” to “use
the [TDU’s] corporate name, trademark, brand, or logo” without the specified disclaimer.91
91
See Tex. Util. Code § 39.157(d)(5)(B).
37
These features of Section 39.157(d)(5)(B) have at least three important implications. First, whatever
authority or freedom TDUs and competitive affiliates possess to share names, logos, or branding
in the first instance must derive from law external to Section 39.157(d)(5)(B) itself. Second,
Section 39.157(d)(5)(B) does not purport to alter or limit that underlying right or freedom except
to the extent of imposing the disclaimer requirement. Third, the disclaimer requirement is made
applicable only until September 1, 2005. That is the sole significance of Section 39.157(d)(5)(B)’s
reference to that date—the rest of the provision remains “on the books” and effective today to the
same extent it was when PURA Chapter 39 took effect in 1999 and when customer choice began
in 2002. The Legislature knows how to craft an entire statute or provision so as to expire on a
particular date,92 and it plainly did not do this with regard to Section 39.157(d)(5)(B) except with
respect to the disclaimer requirement. We must presume this choice was deliberate.93
The chief relevance of Section 39.157(d)(5)(B) at this juncture, as AEP REP
maintains, is that it must inform construction of the prohibition against preferential joint-
promotional activities that the Commission concluded AEP REP’s shared branding would violate.
Section 39.157(d)(5)(B) and the statutory source of the preferential joint-promotion prohibition,
PURA Section 39.157(d)(6), are both components of subsection (d) of PURA Section 39.157, the
list of seventeen paragraphs through which the Legislature prescribed the safeguards and prohibitions
92
See, e.g., Tex. Gov’t Code § 531.0995(e) (“This section expires September 1, 2015.”);
Tex. Health & Safety Code § 325.006 (“This section expires April 1, 2014.”).
93
See TGS–NOPEC, 340 S.W.3d at 439 (“We presume that the Legislature chooses a
statute’s language with care, including each word chosen for a purpose, while purposefully omitting
words not chosen.”).
38
that the Commission was to include in its Code of Conduct rule.94 We are to construe such statutes
as a whole and interpret them to give effect to every part.95 Consequently, the Legislature’s inclusion
of Section 39.157(d)(5)(B) in subsection (d) potentially informs the intended meaning and scope
of the preferential “joint advertising or promotional activities” it intended to proscribe under
Section 39.157(d)(6). In particular, as AEP REP correctly urges, we must presume the Legislature
did not intend Section 39.157(d)(6) to prohibit the entire universe of shared “use [of] the utility’s
corporate name, trademark, brand, or logo” that Section 39.157(d)(5)(B) presumes can occur, as
otherwise Section 39.157(d)(5)(B) would be rendered a nullity, and we are not to construe the
statutes that way if it is reasonably possible to do otherwise.96 And the same would be true regarding
the relationship between Rule 25.272(h)(1) and Rule 25.272(h)(2), the rule provisions through which
the Commission implemented Section 39.157(d)(5)(B) and Section 39.157(d)(6).
In sum, the Commission was not free simply to ignore PURA
Section 39.157(d)(5)(B), the counterpart Rule 25.272(h)(1), and their potential implications when
construing and applying the preferential joint-promotion prohibition under Section 39.157(d)(6) and
Rule 25.272(h)(2), let alone do so based on an erroneous view that Section 39.157(d)(5)(B) in its
entirety had expired in 2005. To the extent Conclusions of Law 2A and 2C reflect such reasoning,
they are contrary to PURA’s unambiguous text, and we sustain AEP REP’s first issue.
94
See Tex. Util. Code § 39.157(d). In fact, subsection 39.157(d)(5)(B) and subsection (d)(6)
appear in adjacent paragraphs. See id. § 39.157(d)(5)(B), (d)(6).
95
See Texas Citizens, 336 S.W.3d at 628 (citing City of San Antonio, 111 S.W.3d at 25).
96
See Tex. Gov’t Code § 311.021; City of San Antonio, 111 S.W.3d at 29.
39
AEP REP urges that this error, in itself, requires that we reverse the Commission’s
order. But the APA instructs us to reverse the Commission’s final order only if AEP REP’s
“substantial rights” were “prejudiced” by this error of law, and this requirement incorporates a harm
analysis.97 Similarly, as a general rule, we must affirm the Commission’s order if the factual bases
on which it relied support its decision under a different, valid legal theory.98 Appellees suggest that
we can affirm the Commission’s final order based on an alternative theory regarding the interplay
of Section 39.157(d)(5)(B) and Rule 25.252(h)(1) and the prohibition against preferential joint
promotion. To summarize this theory:
(1) Section 39.157(d)(5)(B) and Rule 25.252(h)(1) do not affirmatively authorize TDUs and
competitive affiliates to share names, logos, or branding, but instead purport only to impose
a temporary safeguard—the disclaimer requirement—on such sharing (as we have previously
observed).
(2) Whether the sharing of names, logos, or branding by a TDU and competitive affiliate is
permissible in the first instance is governed by law external to Section 39.157(d)(5)(B) and
Rule 25.252(h)(1) (as we have also observed).
(3) That external law determining the permissibility of sharing names, logos, or branding in the
first instance includes Rule 25.107(e)(1)’s requirements that an REP’s “business name” not
be “otherwise contrary” to the Code of Conduct—including not violating the prohibition
against preferential joint advertising or promotion.
(4) Consequently, the sharing of names, logos, or branding by a TDU and competitive affiliate
may potentially run afoul of the prohibition against preferential joint advertising or
97
See Tex. Gov’t Code § 2001.174(2); Nobles v. Employees Ret. Sys. of Tex., 53 S.W.3d
483, 489–90 (Tex. App.—Austin 2001, no pet.) (reviewing agency decision for reversible error and
noting that, under section 2001.174, a showing of injury to the claimant is necessary before reversal
is the appropriate remedy).
98
See Vista, 416 S.W.3d at 25 (noting longstanding principle that “a reviewing court
generally must affirm an administrative order ‘if it is correct on any theory of law applicable to the
case,’ regardless of whether the agency purported to rely on that legal theory or even relied on an
erroneous one”) (citing Gulf Land Co. v. Atlantic Ref. Co., 131 S.W.2d 73, 77 (Tex. 1939)).
40
promotion, or any other Code of Conduct limitations for that matter. The existence of the
disclaimer requirement of Section 39.157(d)(5)(B) and Rule 25.252(h)(1), at most, reflects
merely that the external prohibitions and limitations cannot categorically bar all sharing of
names, logos, or branding contemplated by Section 39.157(d)(5)(B) and Rule 25.252(h)(1),
as such a construction would make the provisions nullities. In short, whether sharing of
names, logos, or branding violates an external prohibition or limitation depends on the
particular circumstances presented—and those circumstances were found to exist here.
We agree that this legal theory, which is reflected in the Commission’s Findings of Fact 2699 and
27100 and Conclusions of Law 2B101 and 10,102 would, if legally valid and supported by substantial
evidence, provide logical support for the Commission’s order independently from Conclusions of
Law 2A and 2C.103 Accordingly, we proceed to address further arguments advanced by AEP REP
that challenge this theory, which are presented in the remainder of its second issue.
99
“While a regulated utility and a competitive affiliate are not categorically prohibited by
PURA and Commission rules from sharing the same or similar names, . . . .”
100
“AEP Retail Energy and the AEP Texas TDUs[’] sharing of identical AEP branding is
joint promotion that will cause confusion among customers and result in favoring AEP Retail Energy
over non-affiliated REPs.”
101
“Neither PURA § 39.157(d)(5)[(B)] nor P.U.C. Subst. R. 25.272[(h)(1)] preclude the
Commission from determining pursuant to P.U.C. Subst. R. 25.107(e)(1)(B) whether a retail electric
provider’s name is deceptive, misleading, vague, or otherwise contrary to [the Code of Conduct].”
While consistent with Conclusions of Law 2A and 2C, Conclusion of Law 2B is not necessarily
limited to their erroneous rationales as to why Section 39.157(d)(5)(B) and Rule 25.272(h)(1) do not
“preclude” the Commission from applying the requirements of Rule 25.107(e)(1)(B).
102
“The sharing of the AEP acronym and AEP’s red parallelogram logo by both AEP Retail
Energy and its affiliated TDUs as described in this case violates the prohibition in PURA
§ 39.157(d)(6) [and] P.U.C. Subst. R. 25.272(h)(2) of joint advertising and promotional activities
that favors a competitive affiliate.” (Emphasis added).
103
See Tex. Gov’t Code § 2001.174(2); Nobles, 53 S.W.3d at 489–90 (harm analysis);
see also Montgomery, 34 S.W.3d at 566 (noting that “label attached, ‘finding of fact’ or ‘conclusion
of law,’ is not determinative”).
41
Structure of PURA § 39.157(d)
AEP REP argues that the overall structure of subsection (d) of PURA
Section 39.157—again, the subsection in which both Section 39.157(d)(5)(B) and
Section 39.157(d)(6) appear—refutes the Commission’s notion that the shared use of a
common “corporate name, trademark, brand, or logo” by a TDU and competitive affiliate
contemplated by PURA Section 39.157(d)(5)(B) and Rule 25.272(h)(1) could also potentially
fall within the ambit of preferential “joint advertising or promotional activities” that are prohibited
under Section 39.157(d)(6) and Rule 25.272(h)(2) in some circumstances. AEP REP reasons that
subsection (d) as a whole is structured into seventeen paragraphs that each “address specific and
distinct transactions and activities these rules must regulate” and that (d)(5)(B) and (d)(6) are placed
in separate paragraphs. In AEP REP’s view, this structure reflects legislative intent to distinguish,
and to make mutually exclusive of one another, the sharing of a name, brand, or logo addressed
by (d)(5)(B) and the preferential “joint advertising or promotional activities” prohibited by (d)(6).
AEP REP adds that the two paragraphs do not explicitly mention each other, or the subject matter
of the other, and infers that the Legislature would have included such language if it had intended
the two provisions to overlap.104 In response, appellees contend that nothing in subsection (d)
104
AEP REP similarly argues that Section 39.157(d)(5)(B) must control over
Section 39.157(d)(6) because the former is “more specifically” addressed to shared branding, while
the latter speaks more “generally” to preferential joint advertising or promotional activities.” See
Texas Lottery Comm’n v. First State Bank of DeQueen, 325 S.W.3d 628, 639 (Tex. 2010) (noting
that, where statute is ambiguous, more “specific” statute controls over “general” one); see also
Tex. Gov’t Code § 311.026(b) (Code Construction Act provision requiring that, where there is
irreconcilable conflict, specific statutory provision prevails as an exception over a conflicting
general one). As appellees point out, this specific-versus-general construction principle operates
only in the context of an irreconcilable conflict between two statutory provisions. See Tex. Gov’t
Code § 311.026(b); DeQueen, 325 S.W.3d at 639. And, appellees add, any such conflict between
Section 39.157(d)(5)(B) and Section 39.157(d)(6) can be avoided by construing the two provisions
42
compels the conclusion that the shared branding contemplated in PURA Section 39.157(d)(5)(B)
must be mutually exclusive of the “joint advertising or promotional activities” prohibited under
Section 39.157(d)(6).
AEP REP’s arguments regarding subsection (d)’s overall structure are ultimately
unpersuasive. Although AEP REP is correct in observing that each of the seventeen paragraphs
within subsection (d) differ in regard to the activity or practice that is its primary focus or emphasis,
their overall structure falls short of demonstrating legislative intent that the subject matter of
each paragraph be entirely distinct or mutually exclusive of the subject matter addressed in
other paragraphs. This is readily apparent from a review of the seventeen paragraphs within
subsection (d):
The rules adopted under this section shall ensure that:
(1) a utility makes any products and services, other than corporate support
services, that it provides to a competitive affiliate available,
contemporaneously and in the same manner, to the competitive affiliate’s
competitors and applies its tariffs, prices, terms, conditions, and discounts for
those products and services in the same manner to all similarly situated
entities;
(2) a utility does not:
(A) give a competitive affiliate or a competitive affiliate’s customers any
preferential advantage, access, or treatment regarding services other
than corporate support services; or
(B) act in a manner that is discriminatory or anticompetitive with respect
to a nonaffiliated competitor of a competitive affiliate;
in the manner they advocate—to operate independently, such that shared branding is neither
categorically prohibited nor categorically permissible under Section 39.157(d)(6). In short,
AEP REP’s reliance on the specific-versus-general concept does not singularly refute appellees’
construction of Sections 39.157(d)(5)(B) and Section 39.157(d)(6), but merely begs the question.
43
(3) a utility providing electric transmission or distribution services:
(A) provides those services on nondiscriminatory terms and conditions;
(B) does not establish as a condition for the provision of those services
the purchase of other goods or services from the utility or the
competitive affiliate; and
(C) does not provide competitive affiliates preferential access to the
utility’s transmission and distribution systems or to information about
those systems;
(4) a utility does not release any proprietary customer information to a
competitive affiliate or any other entity, other than an independent
organization as defined by Section 39.151 or a provider of corporate support
services for the purposes of providing the services, without obtaining prior
verifiable authorization, as determined from the commission, from the
customer;
(5) a utility does not:
(A) communicate with a current or potential customer about products or
services offered by a competitive affiliate in a manner that favors a
competitive affiliate; or
(B) allow a competitive affiliate, before September 1, 2005, to use the
utility’s corporate name, trademark, brand, or logo unless the
competitive affiliate includes on employee business cards and in its
advertisements of specific services to existing or potential residential
or small commercial customers locating within the utility’s
certificated service area a disclaimer that states, “(Name of
competitive affiliate) is not the same company as (name of utility) and
is not regulated by the Public Utility Commission of Texas, and you
do not have to buy (name of competitive affiliate)’s products to
continue to receive quality regulated services from (name of utility).”;
(6) a utility does not conduct joint advertising or promotional activities with a
competitive affiliate in a manner that favors the competitive affiliate;
(7) a utility is a separate, independent entity from any competitive affiliates and,
except as provided by Subdivisions (8) and (9), does not share employees,
facilities, information, or other resources, other than permissible corporate
support services, with those competitive affiliates unless the utility can prove
to the commission that the sharing will not compromise the public interest;
44
(8) a utility’s office space is physically separated from the office space of the
utility’s competitive affiliates by being located in separate buildings or, if
within the same building, by a method such as having the offices on separate
floors or with separate access, unless otherwise approved by the commission;
(9) a utility and a competitive affiliate:
(A) may, to the extent the utility implements adequate safeguards
precluding employees of a competitive affiliate from gaining access
to information in a manner inconsistent with Subsection (g) or (i),
share common officers and directors, property, equipment, offices to
the extent consistent with Subdivision (8), credit, investment, or
financing arrangements to the extent consistent with Subdivision (17),
computer systems, information systems, and corporate support
services; and
(B) are not required to enter into prior written contracts or competitive
solicitations for non-tariffed transactions between the utility and the
competitive affiliate, except that the commission by rule may require
the utility and the competitive affiliate to enter into prior written
contracts or competitive solicitations for certain classes of
transactions, other than corporate support services, that have a per
unit value of more than $75,000 or that total more than $1 million;
(10) a utility does not temporarily assign, for less than one year, employees
engaged in transmission or distribution system operations to a competitive
affiliate unless the employee does not have knowledge of information that is
intended to be protected under this section;
(11) a utility does not subsidize the business activities of an affiliate with revenues
from a regulated service;
(12) a utility and its affiliates fully allocate costs for any shared services, corporate
support services, and other items described by Subdivisions (8) and (9);
(13) a utility and its affiliates keep separate books of accounts and records and the
commission may review records relating to a transaction between a utility and
an affiliate;
45
(14) assets transferred or services provided between a utility and an affiliate, other
than transfers that facilitate unbundling under Section 39.051 or asset
valuation under Section 39.262, are priced at a level that is fair and
reasonable to the customers of the utility and reflects the market value of
theassets or services or the utility’s fully allocated cost to provide those assets
or services;
(15) regulated services that a utility provides on a routine or recurring basis are
included in a tariff that is subject to commission approval;
(16) each transaction between a utility and a competitive affiliate is conducted at
arm’s length; and
(17) a utility does not allow an affiliate to obtain credit under an arrangement that
would include a specific pledge of assets in the rate base of the utility or a
pledge of cash reasonably necessary for utility operations.105
Areas of at least partial potential subject-matter overlap would appear to include, among others,
the prohibitions against “discrimination” enumerated in (d)(1), (2), and (3); paragraph (d)(6)’s
prohibition against preferential “joint advertising or promotional activities” and (d)(5)(A)’s
prohibition against TDUs “communicat[ing] with a current or potential customer about products or
services offered by a competitive affiliate in a manner that favors a competitive affiliate”; and
(d)(11)’s prohibition against “subsidiz[ing] the business activities of an affiliate with revenues from
a regulated service,” which would appear to overlap with or be a core concern underlying numerous
other paragraphs.
Considering the existence of such subject-matter overlap among its component
paragraphs, the structure of subsection (d) as a whole belies legislative design that each individual
paragraph address only some practice or concern that is entirely separate and distinct from that
105
Tex. Util. Code § 39.157(d).
46
addressed in the other paragraphs.106 This structure also reveals—and it is perhaps axiomatic—that
the mere fact that a particular practice is permitted (or at least not prohibited) by one paragraph does
not preclude it from running afoul of one or more other paragraphs. Consequently, this statutory
structure does not compel AEP REP’s conclusion that any sharing of branding that is addressed by
PURA Section 39.157(d)(5)(B) cannot potentially also fall within the ambit of preferential joint
advertising or promotional activities prohibited under Section 39.157(d)(6). Instead, the structure
is consistent with the Commission’s view that shared branding is independently subject to—and can
potentially run afoul of—the prohibition against preferential joint advertising or promotional
activities or other Code of Conduct provisions external to Section 39.157(d)(5)(B).
Underlying findings
Finally, AEP REP argues that the Commission’s underlying findings demonstrate
that the agency effectively reads Section 39.157(d)(5)(B) out of PURA, a construction that is
thereby unreasonable and inconsistent with the statutory text. As AEP REP observes, the analytical
linchpin of the Commission’s order is its findings regarding the extent of “confusion” among
retail customers concerning the respective identities and roles of AEP REP and the “AEP Texas”
TDUs and the relationship between those entities. The problem with the Commission’s reasoning,
AEP urges, is that this same sort of customer confusion would have existed before the inception
of competition in 2002 and would have been anticipated by the Legislature when it crafted
106
See In re Estate of Nash, 220 S.W.3d 914, 917–18 (Tex. 2007) (“While we recognize that
we should avoid, when possible, treating statutory language as surplusage, . . . there are times when
redundancies are precisely what the Legislature intended.”); In re City of Georgetown, 53 S.W.3d
328, 336 (Tex. 2001) (orig. proceeding) (noting that statutory redundancies may mean that “the
Legislature repeated itself out of an abundance of caution, for emphasis, or both”).
47
PURA chapter 39. And such “confusion among customers,” AEP REP posits, would have
been far worse prior to and at the inception of competition compared to today. Whereas
today—following a decade of competition—consumers may purchase electric products and services
from approximately thirty REPs vying for business in the “AEP Texas” service areas, the situation
confronted by the Legislature in S.B. 7, AEP REP observes, was a retail electric market that would
be opening to competition for the first time and in which consumers had typically known only the
name and branding of the single monopoly provider that had served their area, in some instances for
decades. Under the transitional scheme the Legislature prescribed, AEP REP adds, the names and
branding of the exclusively dominant integrated utility could live on as those of the incumbent TDU.
If the sort of “confusion among customers” the Commission found here can make the
otherwise-permissible sharing of names and branding by a TDU and competitive affiliate into illegal
“joint promotion” or “joint advertising,” AEP REP reasons, one cannot fathom any sharing of
branding occurring at the inception of competition that would not have run afoul of the same
prohibition. Consequently, AEP REP insists, the Commission’s construction and application of
the joint-promotion prohibition contradicts PURA’s unambiguous text because it would render
Section 39.157(d)(5)(B) a nullity from its inception. Instead, AEP REP argues, the prohibition
against preferential “joint promotion” or “joint advertising” must apply to something more than
mere shared branding. Nor can it be enough that TDUs and competitive affiliates might derive
some competitive benefit from each other’s use of shared branding, AEP REP further suggests,
because a fundamental purpose of using any “corporate name, trademark, brand, or logo,” as
Section 39.157(d)(5)(B) contemplates TDUs and competitive affiliates would jointly do, is to build
48
and leverage brand identity and goodwill,107 and the Legislature can be presumed to have understood
this basic reality of intellectual property law and of the marketplace when crafting that provision.108
AEP REP adds that Section 39.157(d)(5)(B)’s disclaimer requirement represents a
specific, limited remedy that the Legislature prescribed for the sort of customer confusion the
Commission found. Consequently, AEP REP reasons, we should presume the Legislature did not
intend some different, inconsistent remedy, let alone to empower the Commission to devise one.109
Although AEP REP’s arguments have some initial intuitive appeal, closer
examination reveals a critical flaw in their underlying premises, as appellees point out. Namely,
when enacting PURA chapter 39, the Legislature would have anticipated that any use of shared
branding at the inception of competition would have been accompanied by a panoply of transitional
measures it imposed within the chapter that would reduce or limit the extent of competitive
advantage that an incumbent REP could derive from the strategy. These would have included
not only the price to beat,110 but measures aimed specifically at ameliorating any underlying
107
See S.C. Johnson & Son v. Johnson, 116 F.2d 427, 429 (2d Cir. 1940) (discussing
purposes of trademark law, including regarding expansion into other areas) (Learned Hand, J.);
J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 3.2 (4th ed. 1996)
(describing purposes of trademarks and noting that, among other things, trademarks can serve to
designate the source from which all goods bearing the mark come or are controlled by a single
source, to show that products are of equal quality, and to promote and assist in sales).
108
See Tex. Gov’t Code § 311.023 (Code Construction Act provision allowing court to
consider circumstances under which statute enacted); Shook v. Walden, 304 S.W.3d 910, 917
(Tex. App.—Austin 2010, no pet.) (citing Acker v. Texas Water Comm’n, 790 S.W.2d 299, 301
(Tex. 1990)).
109
See City of Rockwall v. Hughes, 246 S.W.3d 621, 629 (Tex. 2008) (relying on statutory-
construction principles to hold that where plain language of statute provides one remedy, that is only
remedy available); Cities of Corpus Christi, 188 S.W.3d at 702.
110
See Tex. Util. Code § 39.202; Office of Pub. Util. Counsel, 104 S.W.3d at 229.
49
customer confusion, such as educational programs to inform retail consumers about the structure
of the revamped electric market and the respective roles of market participants111—and
Section 39.157(d)(5)(B)’s disclaimer requirement itself. These observations, in turn, have at least
two important implications that cut against AEP REP’s reasoning. First, they tend to undermine
AEP REP’s assumption that the Legislature could have anticipated only a degree or extent of
customer confusion (and potentially resultant anti-competitive impact from shared branding) present
at the inception of competition that is greater than that which the Legislature would have expected
today. Second, and more importantly, they inform our perception of the Legislature’s intent and
understanding concerning the relationship between Section 39.157(d)(5)(B) and the prohibition
against preferential joint advertising or promotional activities. Specifically, while it may be true that
the prohibition cannot be construed to extend to all shared branding that is accompanied by the
disclaimer and other ameliorative measures in effect during competition’s early years, lest it render
Section 39.157(d)(5)(B) a nullity, this would not necessarily be true of applying the prohibition to
shared branding after that time.
AEP REP urges that such a construction of PURA and the corresponding rules
would be unreasonable, insisting that the Legislature could not possibly have intended the Code of
Conduct to be more restrictive toward shared branding today than in competition’s early years.
Appellees answer that whether shared branding amounts to prohibited preferential joint advertising
or promotion, both at the inception of competition and today, turns on the specific factual
111
See Tex. Util. Code § 39.302 (requiring PUC to implement an education program to
inform customers “about changes in the provision of electric service resulting from the opening of
the retail electric market and the customer choice pilot program under this chapter”).
50
circumstances, and the presence or absence of the disclaimer itself or other ameliorative measures
may be considered. They further emphasize that the Legislature imposed the Code of Conduct, and
charged the Commission with its enforcement, expressly to prevent “market power abuses and cross-
subsidization between regulated and competitive activities both during the transition to and after the
introduction of competition,”112 reflecting its anticipation that the need for such oversight would
continue past the initial transition period. We cannot conclude that appellees’ view of the statutory
scheme is unreasonable or inconsistent with PURA or the Code of Conduct rule.113 We overrule
AEP REP’s second issue.
Constitutional issues
In its third issue, AEP REP argues that the Commission’s construction of PURA
and the Code of Conduct rule violates (or would violate114 ) its freedom of speech under article V,
section 8, of the Texas Constitution115 and the First Amendment to the United States Constitution.116
112
Tex. Util. Code § 39.157(d) (emphasis added).
113
AEP REP also suggests that the Commission’s order is contrary to prior decisions,
arguing that “on multiple occasions prior to the expiration of the disclaimer requirement,
the Commission authorized a REP and its affiliated TDU to share a brand.” As appellees point
out, the records of those proceedings are not before us here and, even if they were, our review here
is still limited to assessing the reasonableness of the Commission’s actions in the specific
circumstances of this case. See Reliant Energy, Inc. v. Public Util. Comm’n, 153 S.W.3d 174,
199–200 (Tex. App.—Austin 2004, pet. denied).
114
See FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 873 (Tex. 2000) (“If
possible, we interpret a statute in a manner that renders it constitutional.”); see also Tex. Gov’t Code
§ 311.021(1) (presumption that the Legislature intended statute to comply with constitutional
requirements).
115
Every person shall be at liberty to speak, write or publish his opinions
on any subject, being responsible for the abuse of that privilege; and
no law shall ever be passed curtailing the liberty of speech or of the
51
It places primary reliance on the Texas provision, as construed by the Texas Supreme Court in
the 1992 Davenport v. Garcia decision.117 In Davenport, a unanimous court struck down a judicial
“gag order” for violating constitutional free-speech rights, but the case’s chief significance is that a
five-member majority eschewed reliance on First Amendment jurisprudence in favor of fashioning,
and relying exclusively upon, a separate and independent analysis under the Texas free-speech
provision.118 In addition to embracing a perceived jurisprudential “trend” at the time “toward . . .
‘state constitutionalism’ and ‘new federalism,’”119 the majority inferred from certain textual
distinctions120 and “Texas’s strong and longstanding commitment to free speech”121 that article I,
press. In prosecutions for the publication of papers, investigating the
conduct of officers, or men in public capacity, or when the matter
published is proper for public information, the truth thereof may be
given in evidence. And in all indictments for libels, the jury shall
have the right to determine the law and the facts, under the direction
of the court, as in other cases.
Tex. Const. art. I, § 8.
116
See U.S. Const. amend. I (“Congress shall make no law respecting an establishment of
religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press;
or the right of the people peaceably to assemble, and to petition the Government for a redress of
grievances.”); see also Masterson v. Diocese of Nw. Tex., 422 S.W.3d 594, 600 (Tex. 2013) (citing
Cantwell v. Connecticut, 310 U.S. 296, 303 (1940), for proposition that the “First Amendment is
applicable to the states through the Fourteenth Amendment”).
117
834 S.W.2d 4 (Tex. 1992).
118
See id. at 7–23 (Doggett, J., joined by Gonzalez, Mauzy, Hightower, & Gammage, JJ.);
cf. id. at 25–44 (Hecht, J., joined by Cook & Cornyn, JJ., concurring) (advocating reliance on “more
fully developed First Amendment law” instead).
119
Id. at 12.
120
See id. at 9 (suggesting that first sentence of Texas provision—“Every person shall be at
liberty to speak, write and publish . . . “—is an “affirmative grant of free speech” that is “more
52
section 8 of the Texas Constitution is “broader” and “provides greater rights of free expression than
its federal equivalent.”122 From these premises, the majority derived a “presumption . . . that pre-
speech sanctions or ‘prior restraints’ are unconstitutional”123 and can withstand scrutiny only if there
are “specific findings supported by evidence” of “(1) an imminent and irreparable harm to the judicial
process [that] will deprive litigants of a just resolution of their dispute,” and (2) that the restraint is
the “least restrictive means” to prevent that harm.124
AEP REP characterizes the Commission’s denial of its application for “Option 1”
certification under the “AEP Retail Electric” name and branding as a “prior restraint” that is governed
by the Davenport analysis and fails scrutiny under it. Appellees respond that the Commission’s
order instead implicates AEP REP’s conduct or, at most, its “commercial speech,” and is thus
appropriately scrutinized under the analysis prescribed by the United State Supreme Court in its
Central Hudson decision.125 Under the Central Hudson line of cases, the Supreme Court has held that
the First Amendment implications of regulation of “commercial speech”—“expression related solely
broadly worded than the [F]irst [A]mendment” (quoting O’Quinn v. State Bar of Tex., 763 S.W.2d
397, 402 (Tex. 1988)).
121
See id. at 7–10 (citing, among other indicia, the Mexican government’s jailing of
Stephen F. Austin “for his outspokenness in personally carrying . . . remonstrances to Mexico City”).
122
Id. at 9–10.
123
Id. at 9.
124
Id.
125
See Central Hudson Gas & Elec. Corp. v. Public Serv. Comm’n of N.Y., 447 U.S. 557
(1980).
53
to the economic interests of the speaker and its audience”126—should be evaluated under the following
four-part test:
At the outset, we must determine whether the expression is protected by the
First Amendment. For commercial speech to come within that provision, it at least
must concern lawful activity and not be misleading. Next, we ask whether the
asserted governmental interest is substantial. If both inquiries yield positive answers,
we must determine whether the regulation directly advances the governmental interest
asserted, and whether it is not more extensive than is necessary to serve that interest.127
The Supreme Court has reasoned that commercial speech warrants this less exacting
First Amendment scrutiny compared to other types of speech because, among other distinctions,
commercial speech is driven by business profits and is carefully calculated, and is thus less likely to
be inhibited by proper regulation.128 These characteristics of commercial speech, the court has further
reasoned, “may also make inapplicable the prohibition against prior restraints.”129
Although insisting that the Davenport analysis applies here, AEP REP does not dispute
that its use of the “AEP Retail Electric” name and branding would constitute “commercial speech”
as defined by Central Hudson. And while the Central Hudson framework is grounded in the
First Amendment, this Court has previously held that it, not the Davenport analysis, also governs
126
Id. at 561.
127
Id. at 566.
128
Friedman v. Rogers, 440 U.S. 1, 10 (1979).
129
Id. (citing Virginia State Bd. of Pharmacy v. Virginia Citizens Consumer Council, Inc.,
425 U.S. 748, 771 n.24 (1976) (Stewart, J., concurring)).
54
challenges under the Texas Constitution to regulations implicating communications that constitute
“commercial speech” under Central Hudson.130 We see no reason to depart from these precedents
here. In the decades since it decided Davenport, the Texas Supreme Court has, to say the least,
greatly refined its notion that the Texas free-speech provision is “broader” or more protective of
speech than its federal counterpart. While continuing to apply a version of a least-restrictive-means
analysis to injunctive restraints of speech, the court has reasoned that this approach is not only
required by Article I, Section 8, but by the First Amendment as well.131 More importantly here, the
supreme court has emphasized that even if the Texas provision might be “broader” in some aspects
of speech protections than the First Amendment, it does not necessarily follow that it is “broader” in
all others,132 and in some aspects it may actually be less protective of speech than its federal
130
See Amalgamated Acme Affiliates, Inc. v. Minton, 33 S.W.3d 387, 393–95
(Tex. App.—Austin 2000, no pet.); accord Anderson Courier Servs. v. State, 104 S.W.3d 121, 124
n.3 (Tex. App.—Austin 2003, pet. denied).
131
See Operation Rescue-Nat’l v. Planned Parenthood of Houston & Se. Tex., Inc.,
975 S.W.2d 546, 557–60 (Tex. 1998).
132
See Bentley v. Bunton, 94 S.W.3d 561, 577–78 (Tex. 2003) (distinguishing aspects
implicated by speech restrictions addressed in Davenport from aspects applicable to defamation
liability); see also Ex parte Tucci, 859 S.W.2d 1, 16 (Tex. 1993) (Phillips, C.J., concurring)
(“[C]omparative breadth is not a one-dimensional concept. In the free expression context, for
example, a constitutional provision may be ‘broad’ or ‘narrow’ on at least six axes, including: 1) the
types of expression deemed protected, 2) the range of potential infringers against which the provision
is operable, 3) the range of potential persons and entities who may invoke the protection, 4) the type
of permissible restrictions and sanctions on free expression, 5) the degree of importance necessary
for a competing interest or right to restrict free expression, and 6) how narrowly the infringement
on free expression must be tailored to accommodate that competing interest or right. Thus, to
pronounce one free expression clause as broader than another is, standing alone, of little help.”).
55
counterpart.133 Consequently, whether “Article I, Section 8 [is] more protective of speech . . . than
the First Amendment” in a particular application or context “must be because of the text, history,
or purpose of the provision, not just simply because.”134 Absent such a demonstrated basis for
construing the Texas provision differently, the supreme court has further reasoned, “we limit our
analysis to the First Amendment and simply assume that its concerns are congruent with those of
[A]rticle I, [S]ection 8.”135 AEP REP has demonstrated no reason why we should do otherwise in
regard to the commercial speech at issue here. Accordingly, we will analyze its challenges under the
Central Hudson framework.
AEP REP contends that the Commission’s order fails to pass muster even under the
less restrictive Central Hudson analysis. We disagree. The threshold requirement in the Central
Hudson test is that the speech not be “unlawful” or “misleading.”136 As the Central Hudson Court
explained, “there can be no constitutional objection to the suppression of commercial messages
that do not accurately inform the public about lawful activity. The government may ban forms of
communication more likely to deceive the public than to inform it . . . .”137 Thus, “the government
133
See Bentley, 94 S.W.3d at 578 (suggesting that “[i]f anything, in the context of
defamation, the First Amendment affords more protection.” (quoting Turner v. KTRK Television,
Inc., 38 S.W.3d 103, 116–17 (Tex. 2000)).
134
Operation Rescue-Nat’l, 975 S.W.2d at 559 (emphasis in original); accord Bentley,
94 S.W.3d at 577–78.
135
Bentley, 94 S.W.3d at 579.
136
Central Hudson, 447 U.S. at 563–64.
137
Id. at 563.
56
may freely regulate commercial speech that . . . is misleading.”138 One rationale for this is that there
is no value to consumers or society for misleading or deceptive commercial speech.139
The essence of the Commission’s underlying fact findings is that AEP REP’s use
of the name “AEP Retail Electric” and related branding would be misleading in the context of
Texas’s competitive retail electric market. The Commission found that “AEP Retail Energy and the
AEP Texas TDUs[’] sharing of identical AEP branding is joint promotion that will cause confusion
among customers and result in favoring AEP Retail Energy over non-affiliated REPs.” (Emphasis
added.) Specifically, there was evidence that allowing AEP REP to sell electricity in the Texas retail
market as “AEP Retail Electric,” with the same “AEP” identifier and logo as the “AEP Texas” TDUs
would tend to cause retail and small commercial customers to perceive incorrectly that “AEP Retail
Electric” and “AEP Texas” were one and the same or that customers of “AEP Retail Electric”
otherwise stood to benefit from that company’s affiliation with the TDU—e.g., perceiving that the
affiliation would enable the customer to obtain more reliable service or more responsive restoration
of service following an outage.140 Accordingly, it is not entitled to First Amendment protection.141
138
Florida Bar v. Went For It, Inc., 515 U.S. 618, 623–24 (1995).
139
Rubin v. Coors Brewing Co., 514 U.S. 476, 496 (1995) (Stevens J., concurring) (“[F]alse
or misleading speech in the commercial realm also lacks the value that sometimes inheres in false
or misleading political speech.”).
140
See id. (noting consequences of misleading commercial speech, including that consumers
may purchase products that do not work as advertised); see also Friedman, 440 U.S. at 15 (in
upholding Texas’s statutory prohibition against use of trade names by optometrists, noting that use
of trade names “gave a misleading impression of competitive ownership and management” and
“conveyed the impression of standardized” services).
141
Central Hudson, 447 U.S. at 566.
57
AEP REP decries this rationale as the sort of “paternalist approach” to consumer
protection that the Supreme Court has repeatedly rejected in commercial-speech cases.142 For
example, in Thompson, the Supreme Court held unconstitutional a ban on advertising and promoting
certain compounded drugs, which the government had insisted was necessary to prevent consumers
who did not need the drugs from convincing the doctors to prescribe them anyway, rejecting
“the notion that the Government has an interest in preventing the dissemination of truthful
commercial information in order to prevent members of the public from making bad decisions
with the information.”143 Similarly, in Virginia State Board of Pharmacy, the Supreme Court held
unconstitutional a ban on the advertisement of prescription drug prices, which the government
contended was necessary to protect the pharmacist-customer relationship and the customers’
respect for the pharmaceutical profession. In determining that the ban was unconstitutional, the
Supreme Court reasoned that concerns about the possible effect on consumers from truthful
information about lawful activity was not a legitimate justification for suppressing prescription-drug
price information.144 But unlike these cases where the governmental body was trying to suppress
truthful information about a lawful activity to protect the consumers from making “bad choices,” here
142
See Thompson v. Western States Med. Ctr., 535 U.S. 357, 374 (2002) (rejecting “notion
that the Government has an interest in preventing dissemination of truthful commercial information
in order to prevent members of the public from making bad decisions with the information”);
44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 502–03 (1996) (holding unconstitutional a ban
on advertising and describing such bans as being based on “the offensive assumption that the public
will respond ‘irrationally’ to the truth”); Virginia State Bd. of Pharm., 425 U.S. at 770 (describing
advertising ban at issue as “highly paternalistic approach” to protecting consumers).
143
Thompson, 535 U.S. at 374.
144
Virginia State Bd. of Pharm., 425 U.S. at 770.
58
the Commission is restricting shared branding between monopolistic TDUs and their affiliates in an
effort to level or protect the playing field—the competitive retail electric industry—and foster
competition that would, in turn, benefit the consumers. Stated another way, the PUC’s shared-
branding regulation is not concerned with influencing consumers’ decisions in a competitive market,
but rather with ensuring that their decisions are not influenced in a manner that undermines
competition itself. And based on a similar rationale, the Supreme Court held in Friedman v. Rogers
that Texas’s ban on use of trade names by optometrists did not violate the First Amendment:
We emphasize, in so holding, that the restriction on the use of trade names has only
the most incidental effect on the content of the commercial speech of Texas
optometrists. As noted above, a trade name conveys information only because of the
associations that grow up over time between the name and a certain level of price and
quality of service. Moreover, the information associated with a trade name is largely
factual, concerning the kind and price of the services offered for sale. Since the
Act does not prohibit or limit the type of informational advertising held to be
protected in Virginia Pharmacy . . . , the factual information associated with trade
names may be communicated freely and explicitly to the public. An optometrist may
advertise the type of service he offers, the prices he charges, and whether he practices
as a partner, associate, or employee with other optometrists. Rather than stifling
commercial speech, [the prohibition] ensures that information regarding optometrical
services will be communicated more fully and accurately to consumers than it had
been in the past when optometrists were allowed to convey the information through
unstated and ambiguous associations with a trade name. In sum, Texas has done no
more than require that commercial information about optometrical services “appear
in such a form . . . as [is] necessary to prevent its being deceptive.”145
We overrule AEP REP’s third issue.
145
Friedman, 440 U.S. at 15 (citing Virginia State Bd. of Pharm., 425 U.S. at 772 n.24).
59
CONCLUSION
We affirm the district court’s judgment affirming the Commission’s
final order.
___________________________________________
Bob Pemberton, Justice
Before Chief Justice Jones, Justices Pemberton and Field;
Dissenting Opinion by Justice Field
Affirmed
Filed: July 17, 2014
60