Power Resource Group, Inc. v. Public Utility Commisison of Texas and Texas-New Mexico Power Company

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-01-00187-CV
Power Resource Group, Inc., Appellant
v.
Public Utility Commission of Texas and Texas-New Mexico Power Company, Appellees
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 345TH JUDICIAL DISTRICT
NO. 99-06000, HONORABLE F. SCOTT MCCOWN, JUDGE PRESIDING
In this appeal, we must determine whether the Public Utility Commission of Texas
erred in interpreting its substantive rule 23.66, governing the obligation of electric utilities to purchase
energy and capacity from qualifying facilities.1 Power Resource Group, Inc., challenges the
Commission’s refusal to find a requirement in the rule imposing upon utilities an obligation to enter
into contracts offered by qualifying facilities incapable of providing energy or capacity within ninety
days of such offer.
In Texas, the primary enforcer of the Public Utility Regulatory Policies Act of 1978
(“PURPA”), a federal statute enacted in part to encourage development of cogeneration facilities as
an alternative source of energy, is the Commission. The Commission is authorized to enact rules
1
“Qualifying facility” (“QF”) means a qualifying small power production facility or a qualifying
cogeneration facility as defined by sections (17)(C) and (18)(B) of the Federal Power Act,16 U.S.C.
§ 796(17)(C), (18)(B) (1994). Tex. Gov’t Code Ann. § 2302.001 (West 2000).
imposing an obligation upon a utility to purchase power from a QF. See Tex. Util. Code Ann.
§ 11.002(c) (West Supp. 2002). As contemplated by PURPA, the Commission enacted rule
23.66(d)(1)(C) to regulate the relationship between utilities and QFs. In implementing and
interpreting its rule, then, the Commission determined that it could best serve the purposes of PURPA
by imposing an obligation upon a utility to purchase energy—but not contract for it—within ninety
days of notification of the availability of such energy from a QF. In so doing, the Commission struck
a balance between insuring a market for QFs by encouraging the development of energy and requiring
utilities to purchase that energy.
The question on appeal, then, is whether the Commission misinterpreted the rule or
it is otherwise invalid. In six points of error, Power Resource contests the district court’s judgment
(i) affirming the Commission’s interpretation of rule 23.66 and (ii) granting appellees’2 motions for
summary judgment. Holding the Commission’s interpretation of rule 23.66 was reasonable and
Power Resource’s claims to be without merit, we affirm the district court’s judgment.
FACTUAL AND PROCEDURAL BACKGROUND
Power Resource and Texas-New Mexico Power (“TNMP”) began contract
negotiations in early 1996 for Power Resource to supply energy and capacity to TNMP from a
proposed cogeneration facility to be built in Lewisville, Texas. In September 1996, while still
negotiating with TNMP, Power Resource filed for and received a self-certification number from the
2
We refer to the Commission and Texas-New Mexico Power Company collectively as appellees
unless we refer to a party in its individual capacity.
2
Federal Energy Regulatory Commission (“FERC”) for the Lewisville project.3 Relying on this
certification, Power Resource demanded that TNMP sign a long-term purchase agreement.
Negotiations between Power Resource and TNMP continued until January 2, 1998, when Power
Resource made its “last firm offer.” Contract negotiations ended when TNMP rejected Power
Resource’s proposal.
Power Resource filed a petition with the Commission requesting the Commission to
force TNMP to contract with Power Resource for the purchase of energy and capacity from its
proposed Lewisville project. When TNMP filed a motion to dismiss, the Commission referred the
matter to the State Office of Administrative Hearings. After an evidentiary hearing, the administrative
law judge denied TNMP’s motion, concluding that rule “23.66(d)(1)(C) does not negate TNMP’s
duty to negotiate and contract with [Power Resource] based on [Power Resource]’s inability to
deliver power within 90 days.” TNMP appealed the ALJ’s ruling to the Commission, which issued
an order reversing that determination, and dismissing Power Resource’s contract and fraud claims
against TNMP. The Commission concluded that TNMP was not obligated under rule 23.66 to
contract with Power Resource to purchase power and capacity from the Lewisville project because
Power Resource could not deliver power or capacity from the Lewisville project within ninety days
after Power Resource’s January 1998 offer. Power Resource then filed suit in district court appealing
the Commission’s final order. Power Resource now appeals the district court’s judgment granting
3
The requirements for self-certification are governed by FERC regulations. See 18 C.F.R.
§ 292.207(a) (2001).
3
appellees’ motions for summary judgment and affirming the Commission’s order dismissing Power
Resource’s claims against TNMP.
DISCUSSION
By its third point of error, Power Resource challenges the Commission’s interpretation
of rule 23.66 as ultra vires and invalid. Power Resource agrees that this appeal primarily concerns
when, with respect to an unbuilt QF in Texas, a utility incurs a legally enforceable obligation to
purchase energy. That determination turns on the correct interpretation of the language in rule
23.66(d)(1)(C),4 requiring each electric utility to “purchase energy and capacity from a qualifying
facility . . . within 90 days of being notified by the qualifying facility that such energy is or will be
available . . . .” 16 Tex. Admin. Code § 23.66(d)(1)(C) (1999). Power Resource contends that,
merely by obtaining QF status and tendering a self-imposed commitment to provide energy, a
cogeneration facility creates a legally enforceable obligation by which it can unilaterally compel a
utility to contract for the QF’s future energy production. The Commission responds that the rule
contemplates both that the QF (i) notify the utility of its intent to invoke its statutory right to demand
the utility purchase its energy and (ii) have the capacity to make energy available to the utility within
ninety days of such notification.
4
The parties agree that the relevant rule governing this appeal is rule 23.66(d)(1)(C), as
amended in April 1985. See 10 Tex. Reg. 1414, 1415 (1985). The parties also stipulate that the
April 1985 version of the rule never appeared in the Texas Administrative Code. Although we rely
on the rule as it appears in the Texas Register, we cite to the Texas Administrative Code. Subsequent
to this action, rule 23.66 was repealed and replaced in 1999 with rule 25.242. See 23 Tex. Reg.
11521 (1998), adopted 24 Tex. Reg. 3846 (1999) (codified at 16 Tex. Admin. Code § 25.242).
4
Although not binding, the interpretation of a regulation by the administrative agency
charged with its enforcement is entitled to great weight. See State v. Public Util. Comm’n, 883
S.W.2d 190, 196 (Tex. 1994) (citing Dodd v. Meno, 870 S.W.2d 4, 7 (Tex. 1994), and Tarrant
Appraisal Dist. v. Moore, 845 S.W.2d 820, 823 (Tex. 1993)). We necessarily look to the
administrative construction of the rule in question and determine “whether the administrative
interpretation ‘is plainly erroneous or inconsistent with the regulation.’” Public Util. Comm’n v. Gulf
States Utils. Comm’n, 809 S.W.2d 201, 207 (Tex. 1991) (citing United States v. Larionoff, 431 U.S.
864, 872 (1977) (quoting Bowles v. Seminole Rock Co., 325 U.S. 410, 414 (1945))). Thus, absent
evidence that the Commission is disregarding the plain language of its rules, we look to its expertise
in calibrating the various technical aspects of this complex statutory scheme and in integrating the
various policy considerations of a transitioning industry. The agency responsible for regulating an
industry must be afforded sufficient flexibility to determine and carry out its mandate. See Cities for
Fair Util. Rates v. Public Util. Comm’n, 924 S.W.2d 933, 942 (Tex. 1996). We will reverse the
Commission when it fails to follow the clear, unambiguous language of its own regulations, that is,
when its actions are arbitrary and capricious. Id. (citing Lewis v. Jacksonville Bldg. & Loan Ass’n,
540 S.W.2d 307, 310 (Tex. 1976), and Ex parte Roloff, 510 S.W.2d 913, 915 (Tex. 1974)).
Subsection (1)(C) specifies the circumstances under which an electric utility is required
to purchase energy and capacity. See 16 Tex. Admin. Code § 23.66(d)(1)(C). The rule states,
Each electric utility shall purchase energy and capacity from a qualifying facility with
a design capacity of 100 Kw or more within 90 days of being notified by the
qualifying facility that such energy and capacity are or will be available, provided that
the electric utility has sufficient interconnection facilities available. If an agreement
to purchase energy and capacity is not reached within 90 days after the qualifying
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facility provides such notification, the agreement, if and when achieved, shall bear a
retroactive effective date for the purchase of energy (and capacity) delivered to the
electric utility correspondent with the 90th day following such notice. . . . If an
agreement to purchase energy and capacity is not reached upon completion of
construction of the interconnection facilities or 90 days after notification by the
qualifying facility that such energy and capacity are or will be available, the
agreement, if and when achieved, shall bear a retroactive effective date for the
purchase of energy and capacity delivered to the electric utility correspondent with
the time of interconnection or the 90th day, whichever is later. Nothing in this
subsection shall be construed in such a manner so as to preclude a qualifying facility
from notifying and contracting for energy and/or capacity with a utility prior to 90
days before delivery of such energy and/or capacity.
Id. (emphasis added). According to the Commission, the requirement in the rule to purchase is not
the same as a requirement to contract. The Commission asserts that its interpretation is consistent
with the plain language of the rule and that an alternative reading would render the rule’s ninety-day
notification provision meaningless.
Power Resource contends that, under a correct interpretation of the rule, a utility must
contract to purchase energy and capacity within ninety days after receiving the QF’s self-imposed
commitment to deliver such power, regardless of whether the QF is capable of delivering the power
within that period. This is so, according to Power Resource, because: (i) FERC regulations require
utilities to “offer to purchase available electric energy from cogeneration and small power production
facilities which obtain qualifying status under” PURPA; (ii) rule 23.66 requires utilities to purchase
energy or capacity from a QF within ninety days of being notified by the QF that such energy or
capacity is or will be available; and (iii) any agreement reached after the expiration of ninety days will
bear an effective date of the ninetieth day following notice, by implication, a utility is required to
contract with a QF within ninety days of receiving such notice. Although the standard of review
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requires us to determine whether the Commission’s interpretation is reasonable, not whether Power
Resource’s interpretation is more plausible, we address Power Resource’s contentions because we
agree with its position that “[o]nly one of the[ parties’] interpretations of Rule 23.66(d)(1)(C) is
consistent with both the language of the Rule itself and FERC’s regulations.”
Power Resource first contends that, because facility construction and operation are
not prerequisites to obtaining QF status, neither are they impediments to enforcing PURPA
obligations. An unbuilt QF may very well be entitled to certain protections afforded by PURPA.
However, nothing in PURPA requires a utility to contract with a QF merely because it obtains QF
status. Congress did not intend the incentives of PURPA to create a risk-free environment.
Under federal law, a utility’s obligation to purchase arises only for “energy and
capacity which is made available from a qualifying facility.” 18 C.F.R. § 292.303(a) (2001)
(emphasis added). Regulation 393.304, entitled “Purchases ‘as available’ or pursuant to a legally
enforceable obligation,” provides:
Each qualifying facility shall have the option either:
(1) To provide energy as the qualifying facility determines such energy to be
available for such purchases, in which case the rates for such purchases shall be
based on the purchasing utility’s avoided costs calculated at the time of delivery;
or
(2) To provide energy or capacity pursuant to a legally enforceable obligation for
the delivery of energy or capacity over a specified term . . . .
Id. § 292.304(d) (emphasis added). Power Resource argues that, pursuant to FERC regulations, “the
term ‘legally enforceable obligation’ unquestionably represents a ‘vehicle’ by which a utility can be
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required to purchase QF power.” Power Resource further claims that merely obtaining QF status and
tendering a self-imposed commitment to supply power creates such a legally enforceable obligation.
FERC has expressly delegated to the states the authority to determine when a legally
enforceable obligation to purchase power arises: “It is up to the States, not [FERC], to determine the
specific parameters of individual QF power purchase agreements, including the date at which a legally
enforceable obligation is incurred under State law.” Metropolitan Edison Co., 72 FERC 61,105,
61,050 (July 6, 1995). Accepting Power Resource’s interpretation would lead to the anomalous
result of allowing an unbuilt QF to prevent utilities from contracting with a completed QF simply by
self-certifying and being the first to offer power for sale. If this were the case, there would be less
incentive to timely complete the QF’s construction. Each provision of a statute must be read within
the context of the entire statutory scheme. See Bridgestone/Firestone, Inc. v. Glyn-Jones, 878
S.W.2d 132, 133 (Tex. 1994); Barr v. Bernhard, 562 S.W.2d 844, 849 (Tex. 1978) (“One provision
will not be given a meaning out of harmony or inconsistent with other provisions, although it might
be susceptible to such a construction if standing alone.”).
PURPA was designed to insure a market for readily available power, not to
prematurely commit utilities to long-term power contracts. Although a utility can be compelled to
purchase energy from a QF upon the creation of a legally enforceable obligation, such obligation is
not created, as Power Resource contends, pursuant to FERC regulations. Pursuant to FERC
regulation 292.203, to qualify as a QF, a cogeneration facility must meet all applicable operating and
efficiency standards specified in regulation 292.205 (a) and (b), and meet the ownership criteria
specified in regulation 292.206. 18 C.F.R. § 292.203(b)(1), (2). In contrast, the self-certification
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procedure only requires the applying facility to file its application with the Commission, and
concurrently serve on each electric utility to which it expects to provide power, and the state
regulatory authority of each state where the facility and each affected utility is located, a notice of
self-certification. See id. § 292.207(a)(ii). A legally enforceable obligation does not arise simply
because a company receives a self-certification number for an unbuilt facility, and then demands that
a utility contract to accept its power in the future. Accordingly, we reject Power Resource’s first
contention.
Power Resource next argues that, because rule 23.66 requires utilities to purchase
energy and capacity no later than ninety days after being notified that such energy and capacity is or
will be available, under state law, that means “the utility must contract to purchase QF power within
90 days of receiving a self-imposed commitment from the QF that the QF will deliver and capacity
to the utility at some future date.” (Emphasis added.) Power Resource further contends that the
retroactive effective date provision supports its reading. See 16 Tex. Admin. Code § 23.66(d)(1)(C).
That provision states:
If an agreement to purchase energy and capacity is not reached within 90 days after
the qualifying facility provides . . . notification [that it is a qualifying facility], the
agreement, if and when achieved, shall bear a retroactive effective date for the
purchase of energy (and capacity) delivered to the electric utility correspondent with
the 90th day following such notice.
Id.
This language does not support Power Resource’s proposed interpretation. When
construing statutes, the plain meaning of words is to be given effect whenever practicable. See Tex.
Gov’t Code Ann. § 311.021(2) (West 1998); Quantum Chem. Corp. v. Toennies, 47 S.W.3d 473,
9
479 (Tex. 2001) (“A basic rule of statutory construction is that we enforce the plain meaning of an
unambiguous statute.”). The rule’s first sentence specifies when “each electric utility shall purchase
energy and capacity,” the last sentence specifies that “contracting for energy and/or capacity” may
occur at any time, including prior to ninety days. To read the rule as Power Resource suggests would
give “purchase” the same meaning as “contract.” We must presume that every word in a statute is
used for a purpose and give effect to each sentence, clause and word if reasonable and possible.
Texas Workers’ Comp. Ins. Fund v. Del Indus., Inc., 35 S.W.3d 591, 593 (Tex. 2000) (quoting
Perkins v. State, 367 S.W.2d 140, 146 (Tex. 1963)). Power Resource’s interpretation runs afoul of
this principle. Additionally, Power Resource’s argument concerning the retroactive effective date
provision is without merit because the language relating to an agreement “if and when achieved,”
contemplates a possible, not a mandatory obligation. Power Resource fails to demonstrate that the
Commission’s interpretation of its own rule is unreasonable. We hold the Commission’s
interpretation of rule 23.66 follows the rule’s plain language and that the Commission did not err in
rejecting Power Resource’s proposed interpretation of the rule.
Finally, Power Resource asserts that, if the Commission’s interpretation is correct, rule
23.66 is preempted by federal law because it impedes the development of QFs. Because no federal
regulation imposes a ninety-day requirement, it contends that the Commission’s interpretation of rule
23.66 both conflicts with federal law and subverts it “by imposing additional, oppressive conditions
upon” QFs. Under the Supremacy Clause of the United States Constitution, a state law or regulation
is preempted and “without effect” only if it conflicts with federal law. U.S. Const. art. VI, cl. 2.
10
In support of its preemption argument, Power Resource cites FERC regulation
292.304. Regulation 292.304 provides in pertinent part:
Each qualifying facility shall have the option []:
(2) To provide energy or capacity pursuant to a legally enforceable obligation for the
delivery of energy or capacity over a specified term, in which case the rates for
such purchases shall, at the option of the qualifying facility exercised prior to the
beginning of the specified term . . . .
18 C.F.R. § 292.304(d)(2). Power Resource contends that, under the Commission’s interpretation
of rule 23.66(d)(1)(C), a qualifying facility could not incur a legally enforceable obligation under this
provision without the capacity to deliver energy within ninety days of notifying a utility of its QF
status. This argument erroneously assumes that a legally enforceable obligation arises only when a
utility is compelled to contract with a QF. The last sentence in rule 23.66(d)(1)(C) contemplates that
QFs and utilities may enter into bilateral agreements for the purchase of energy prior to the QF’s
ability to supply power. Thus, contrary to Power Resource’s assertion, a legally enforceable
obligation could arise between a QF and utility if, at any time, even prior to the ninetieth day before
the QF could supply power, the parties entered into a bilateral contract. For these reasons, we hold
the Commission’s interpretation is not inconsistent with, and therefore not preempted by, federal law.
Because we hold that rule 23.66 is not preempted by federal law and the Commission
was within its authority to determine that a legally enforceable obligation does not exist unless the
qualifying facility is capable of providing energy within ninety days of notifying the utility of its
qualifying facility status, we overrule Power Resource’s third point of error. Because of our
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disposition of this point of error, we need not address Power Resource’s points of error one, two,
four, and five.5 See Tex. R. App. P. 47.1.
By its sixth point of error, Power Resource contends the district court erred in
granting TNMP’s motion for summary judgment on Power Resource’s contract 6 and fraud claims.
Power Resource contends that TNMP committed fraud because it represented that it would contract
with Power Resource for energy when, in fact, TNMP had no intention of entering into such a
contract with Power Resource. An actionable fraud claim requires proof that (1) a material
misrepresentation was made, (2) the speaker knew it was false when made or made it recklessly
without any knowledge of its truth, (3) the representation was made with the intent that it should be
acted upon by the party, and (4) the party acted in reliance upon the representation to its damage.
See Formosa Plastics Corp. v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998).
A future promise to act constitutes fraud only when made with the intention, design and purpose of
deceiving—a promise made with no intention of performing the act. Id. To prevail, a plaintiff must
establish that the promise was false at the time it was made. Schindler v. Austwell Farmers Coop.,
841 S.W.2d 853, 854 (Tex. 1992); Spoljaric v. Percival Tours, Inc., 708 S.W.2d 432, 434 (Tex.
1986); Stanfield v. O'Boyle, 462 S.W.2d 270, 272 (Tex. 1971). Although a party’s intent is
determined at the time the party made the representation, it may be inferred from the party’s acts
subsequent to the representation. See Spoljaric, 708 S.W.2d at 434. However, failure to perform,
5
Although Power Resource lists ten points of error, they brief only six. The remaining four
points appear to be subsumed within other points of error.
6
Because Power Resource and TNMP never entered into a contract and any “breach” turns
upon the disposition of the administrative appeal, we conclude that there is no legally enforceable
obligation for TNMP to have breached.
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standing alone, is not evidence of the promisor’s intent not to perform when the promise was made,
although that fact is a circumstance to be considered, with others, to establish intent. Id.; see also
Schindler, 841 S.W.2d at 854.
The standard for reviewing a motion for summary judgment is well established: (1)
the movant for summary judgment has the burden of showing that no genuine issue of material fact
exists and that the movant is entitled to judgment as a matter of law; (2) in deciding whether there
is a disputed material fact issue precluding summary judgment, evidence favorable to the non-movant
will be taken as true; and (3) every reasonable inference must be indulged in favor of the non-movant
and any doubts resolved in its favor. Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex.
1985). When a defendant seeks to obtain summary judgment based on a plaintiff’s inability to prove
its case, the defendant must conclusively disprove at least one element of each of the plaintiff’s causes
of action. See Lear Siegler, Inc. v. Perez, 819 S.W.2d 470, 471 (Tex. 1991).
In its motion for summary judgment, TNMP asserted that there was no actionable
misrepresentation and no reasonable reliance on any representations made by TNMP as a matter of
law. In support of its summary judgment motion, TNMP offered the affidavit of its president and
chief executive officer, Kevern Joyce, explaining TNMP’s reasons for negotiating, but not
contracting, with Power Resource. Although Power Resource contends that the affidavit by Mark
Wilson, Power Resource’s president, supports its fraud claims, none of Joyce’s statements are
controverted by Power Resource. Instead, Wilson’s statements are conclusory and nonspecific. See
Life Ins. Co. of Va. v. Gar-Dal, Inc., 570 S.W.2d 378, 381-82 (Tex. 1978). Further, Power
Resource fails to offer a single specific misrepresentation made by TNMP. That TNMP ultimately
13
decided not to contract with Power Resource is alone insufficient to establish that TNMP never
intended to contract with Power Resource. Spoljaric, 708 S.W.2d at 434. Because Power Resource
offers nothing to controvert TNMP’s summary judgment proof, we hold TNMP affirmatively negated
at least one essential element of Power Resource’s fraud claim. We overrule point of error six.
CONCLUSION
We hold the Commission’s interpretation of rule 23.66(d) is reasonable and not
preempted by federal law and that the Commission did not act arbitrarily or capriciously in refusing
to compel TNMP to contract with Power Resource. Having overruled Power Resource’s points of
error, we affirm the district court’s judgment granting appellees’ motions for summary judgment and
affirming the Commission’s order dismissing Power Resource’s claims for fraud against TNMP.
Jan P. Patterson, Justice
Before Justices Kidd, Yeakel and Patterson
Affirmed
Filed: January 10, 2002
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