                                                                                ACCEPTED
                                                                            01-14-00102-CV
                                                                 FIRST COURT OF APPEALS
                                                                         HOUSTON, TEXAS
                                                                       8/14/2015 3:07:37 PM
                                                                      CHRISTOPHER PRINE
                                                                                     CLERK

                   NO. 01-14-00102-CV

                                                      FILED IN
              IN THE COURT OF APPEALS     1st COURT OF APPEALS
                                              HOUSTON, TEXAS
      FOR THE FIRST JUDICIAL DISTRICT OF TEXAS
                                          8/14/2015 3:07:37 PM
                     AT HOUSTON           CHRISTOPHER A. PRINE
                                                       Clerk
    NAVARRO COUNTY WHOLESALE RATEPAYERS, et al
                              Appellants
                           v.
 TEXAS COMMISSION ON ENVIRONMENTAL QUALITY, et al
                              Appellee

FROM THE 419th JUDICIAL DISTRICT, TRAVIS COUNTY, TEXAS


        APPELLEE, CITY OF CORSICANA, TEXAS’
    REPLY TO APPELLANTS’ MOTION FOR REHEARING



                                            Respectfully submitted,

                                                 J. KAY TROSTLE
                                           State Bar No. 20238300
                                         ktrostle@smithtrostle.com
                                SMITH TROSTLE & HUERTA LLP
                                       4401 Westgate Blvd. Ste 330
                                               Austin, Texas 78745
                                                     (512) 494-9500
                                              (512) 494-9505 - Fax

                                   ATTORNEYS FOR APPELLEE,
                                   CITY OF CORSICANA, TEXAS


                     August 14, 2015
                                         TABLE OF CONTENTS


TABLE OF CONTENTS ...............................................................................................ii

INDEX OF AUTHORITIES ....................................................................................... iii

ARGUMENT ................................................................................................................. 2

         I.       Reversal and Remand is not required by Texas Government Code
                  Section 2001.058(e)................................................................................... 2

         II.      Reversal and Remand is not necessary or appropriate as a result of
                  The Court’s construction of 30 Texas Administrative Code section
                  291.133 ...................................................................................................... 4

         III.     This Court’s opinion should not be modified with respect to its
                  discussion of the Corsicana mayor’s comments ....................................... 8

CONCLUSION AND PRAYER ................................................................................... 9
CERTIFCATE OF COMPLIANCE ............................................................................ 10
CERTIFICATE OF SERVICE .................................................................................... 10




                                                                                                                            ii
                                       INDEX OF AUTHORITIES


Cases
Entergy Gulf States, Inc. v. Public Utility Commission of Texas, 173 S.W.3d 199
 (Tex.App.—Austin 2005, pet. denied)....................................................................2
Four Stars Food Mart, Inc. v. Texas Alcoholic Beverage Comm'n, 923 S.W.2d 266,
 270 (Tex. App.—Fort Worth 1996, no writ) ..........................................................2
Ray v. State Bd. of Pub. Accountancy, 4 S.W.3d 429, 433 (Tex. App.—Austin
 1999, no pet.)...........................................................................................................3
Texas Statutes
TEX. GOV'T CODE § 2001.058(e) ....................................................................... ii, 1, 2
TEX. GOV'T CODE § 2001.145.....................................................................................2
TEX. GOV'T CODE § 2001.145(a). ...............................................................................2
Texas Agency Rules
30 TAC § 291.133 ................................................................................................. ii, 4
30 TAC § 291.133(a)(1)-(4) ......................................................................................3
30 TAC § 291.133(a)(3)(H) .......................................................................... 4, 5, 6, 7




                                                                                                                        iii
TO THE HONORABLE FIRST COURT OF APPEALS

       The Court correctly affirmed the trial court’s judgment, and Appellants’

Motion for Rehearing raises three issues that do not merit re-examination. First,

the Appellants did not include in their motion for rehearing before the Texas

Commission on Environmental Quality a claim under Texas Government Code §

2001.058(e) and accordingly that argument was waived and this Court properly did

not address it in the Opinion. Second, the Court’s Opinion properly analyzes

Appellants’ claim of discrimination, and the arguments raised by Appellants in

seeking rehearing are without merit because they rest on an incorrect construction

of the Commission’s findings of fact and application of the law to the facts.

Rehearing on Appellants’ discrimination argument is therefore not warranted.

Third, Appellants’ request for clarification is inappropriate because the Court’s

Opinion correctly explains the applicable law, and the evidence concerning the

Mayor’s comment was admitted at hearing. The requested clarification concerning

admissibility is therefore not necessary to the resolution of this administrative

appeal and should not be the basis for granting Appellants’ Motion for Rehearing.

The City of Corsicana respectfully urges the Court to deny Appellants’ Motion for

Rehearing.




Appellee Corsicana’s Reply to Motion for Rehearing                        1
                                          ARGUMENT

I.        Reversal and Remand is not required by Texas Government
          Code Section 2001.058(e)
          Appellants’ first argument concerns TEX. GOV’T CODE § 2001.058(e), which

directs a state agency that changes a finding of fact or conclusion of law made by

an Administrative Law Judge, to state in writing the reason and legal basis for the

change. Appellants’ Motion for Rehearing claims that this Court failed to mention

this requirement in reference to the Commission’s Conclusion of Law No. 17, and

therefore must reverse and remand this matter. Appellants waived this argument

by failing to timely raise it before the Commission, and this Court need not address

an argument that has been waived.

          Appellants failed to raise TEX. GOV’T CODE § 2001.058(e) in their motion

for rehearing before TCEQ, or in their petition on appeal to district court, or in

their brief before the district court prior to the hearing on the merits. TEX. GOV’T

CODE § 2001.145 (Administrative Procedure Act) states that "a timely motion for

rehearing is a prerequisite to an appeal in a contested case." 1 In order to preserve

an issue for review, the party must state in the motion for rehearing the particular

issue the party asserts was error and the legal basis upon which the claim rests. 2


1
    TEX. GOV'T CODE ANN. § 2001.145(a).
2
    Entergy Gulf States, Inc. v. Public Utility Commission of Texas, 173 S.W.3d 199 (Tex.App.—Austin
     2005, pet. denied), citing Four Stars Food Mart, Inc. v. Texas Alcoholic Beverage Comm'n, 923
     S.W.2d 266, 270 (Tex. App.—Fort Worth 1996, no writ).


Appellee Corsicana’s Reply to Motion for Rehearing                                         2
Because Appellants did not preserve this issue in their motion for rehearing filed

with TCEQ, they have waived the right to argue this issue on appeal. 3

          Appellants’ Motion for Rehearing relegates to a footnote its argument that

they were not notified that there had been a material change in the conclusion of

law. 4 That argument is without merit first because the TCEQ Order included, as an

Explanation of Changes, the following: “Additionally, at its November 2, 2011

Agenda Meeting, the Commission modified Conclusion of Law No. 17 to remove

the statement that the public-interest review is ‘limited to’ the factors set out in 30

TAC § 291.133(a)(1)-(4).”5 The Explanation of Changes in the Order gave all

parties notice of the change to the Conclusion of Law, and correctly notes the

change was discussed at the November 2, 2011 Agenda Meeting, of which

Appellants now argue they were unaware. Second, in an attempt to excuse their

failure to raise this issue in the Motion for Rehearing before the Commission,

Appellants argue that the Commission’s change to the Conclusion of Law was so

subtle that it obfuscated the materiality of the change. 6 Appellants’ argument is

unsupported by any precedent or legal analysis and cannot be reconciled with the

plain reading of the Explanation of Changes section of the TCEQ Order.


3
    Id., citing Ray v. State Bd. of Pub. Accountancy, 4 S.W.3d 429, 433 (Tex. App.—Austin 1999, no pet.)
4
    Appellants’ Motion for Rehearing at 3, fn. 1.
5
    Appellants’ Brief (May 7, 2014), Appendix 2 (TCEQ Final Order at p. 21).
6
    Appellants’ Motion for Rehearing at 3, fn. 1.


Appellee Corsicana’s Reply to Motion for Rehearing                                              3
          For each of these reasons, Corsicana respectfully urges this Court to deny

the Motion for Rehearing based on Appellants’ first argument.

II.       Reversal and Remand is Not Necessary or Appropriate as a result of
          The Court’s construction of 30 Texas Administrative Code section
          291.133
          Appellants’ second argument in its Motion for Rehearing rests on a

continued misunderstanding of the Commission’s public interest rules, and this

Court’s thorough analysis of same in the Slip Opinion. Simply stated, Appellants’

second argument rests on the erroneous contention that TCEQ failed to consider

and therefore failed to make a finding that Corsicana’s rates charged to the

wholesale customers are discriminatory. This argument ignores both the analysis

of 30 TEX. ADMIN. CODE § 291.133(a)(3)(H) in the Proposal for Decision, 7 which

the Commission’s Order expressly states it considered, 8 and the Findings of Fact

83 through 92 and Conclusions of Law 21 and 22 in the Commission’s Order. 9

The rule addresses abuse of monopoly power, based upon a comparison of the

retail rates charged by the Seller and the Purchaser. The Commission’s Order

includes findings of fact making the appropriate “apples to apples” comparison of

retail rates, and reached the conclusion of law, based upon that comparison, that

the rates do not evidence Corsicana’s abuse of monopoly power.

7
 Appellee City of Corsicana’s Brief (Jun. 6, 2014), Appendix C, Proposal for Decision at 63-69.
8
    Appellants’ Brief (May 7, 2014), Appendix 2 (TCEQ Final Order at p.2).
9
    Id. at 14-15 and 19-20.


Appellee Corsicana’s Reply to Motion for Rehearing                                                4
          The rule at the center of Appellants’ argument is §291.133(a)(3)(H) which

provides that, when determining whether the Wholesale Seller has abused its

monopoly power, the Commission shall weigh all relevant factors, which may

include a comparison of seller’s rates for water service charged to its retail

customers to the retail rates the purchaser charges its retail customers as a result of

the wholesale rate the seller demands from the purchaser. As this Court explained,

“the Commission determines whether the rate unfairly discriminates against

wholesalers by comparing the rate Corsicana charges its own retail customer with

the rate that the Ratepayer charge their retail customers as a result of the wholesale

rate it pays Corsicana.”10 The Appellants’ claim that the disputed rate treats

wholesale and retail customers differently, i.e., in a discriminatory manner, was not

supported by the record, as the Court correctly notes at page 18 of the Slip

Opinion.


          The Appellants’ argument rests on the absence of the word “discrimination”

in the findings of fact, but the findings of fact unequivocally make the comparison

between the rates the provider charges its retail customers and the rates the

wholesale customer charges its retail customers, pursuant to 30 TEX. ADMIN. CODE

§ 291.133(a)(3)(H). Ratepayers’ argument at hearing that this comparison of rates

evidenced discrimination was considered, but was not persuasive.                   The

10
     Slip Opinion at 17.


Appellee Corsicana’s Reply to Motion for Rehearing                             5
Commission expressly considered whether there was a difference or disparity or

discrimination, between the retail rates charged by Corsicana in comparison to

retail rates charged by the Wholesalers to their retail customers as a result of

Corsicana’s rates. The Proposal for Decision devotes seven pages to this issue and

concludes as follows:


          The ALJ concludes that the comparison called for by 30 TAC §
          291.133(a)(3)(H) shows that an average residential retail customer
          pays a Ratepayer $3.45 or less for 1,000 gallons of water due to the
          wholesale rates that Corsicana charges the Ratepayers, while
          Corsicana’s own average retail customer pays Corsicana $5.43 per
          1,000 gallons of water. The ALJ concludes that this comparison does
          not indicate Corsicana’s abuse of monopoly power. 11

          Ratepayers argued to the Commission that it had to consider if there was a

disparate impact of the rate charged to the City’s retail customers in comparison to

the wholesale rate charged to the Ratepayers.                       That argument was rooted in

“discrimination” language in the preamble to the rule, which the ALJ concluded

Ratepayers were misconstruing. Corsicana’s position on the preamble was, taken

in context, that language did not support consideration of the disparate impact of a

rate change on retail versus wholesale customers, and the ALJ, Commission, and

this Court agreed. Appellants are now attempting to reframe their “discrimination”


11
     Appellee City of Corsicana’s Brief (Jun. 6, 2014), Appendix C, Proposal for Decision at 69.


Appellee Corsicana’s Reply to Motion for Rehearing                                                 6
argument by claiming that the Commission erred by not considering discrimination

at all because the Commission’s Findings of Fact which compare the rates charged

to the Seller’s and Purchaser’s retail customers under § 291.133(a)(3)(H), do not

contain the word “discrimination.” As explained above, this subsection of the rule

which suggests a comparison of retail rates is one factor that may be considered as

evidence of abuse of monopoly power, informed the terms used in the Findings of

Fact and Conclusions of Law. Appellants have had their hearing on the claim of

discrimination under § 291.133(a)(3)(H), in which all of the evidence that they

offered was admitted. Contrary to their contention, the evidence proffered by

Ratepayers was considered but that evidence was found neither persuasive nor

relevant under §291.133(a)(3)(H). The Court’s opinion correctly summarizes this

point: “However, the Commission did not conclude that rate discrimination was

irrelevant; instead it decided that comparing the disparate impact of a rate on

wholesale versus retail customers was not a proper consideration for determining

rate discrimination.” 12 Appellants’ argument on this issue mischaracterizes the

facts, as well as the Commission’s correct application of its rule and the law to the

facts, and this Court should deny the Motion for Rehearing on this basis.




12
     Slip Opinion at 19.


Appellee Corsicana’s Reply to Motion for Rehearing                           7
III.      This Court’s opinion should not be modified with respect to its
          discussion of the Corsicana mayor’s comments.
          Ratepayers’ third and final basis for seeking rehearing and then reversal and

remand, concerns the Court’s discussion of a comment attributed to Corsicana’s

mayor, which Appellants’ argue evidenced Corsicana’s intent to discriminate

against wholesale purchasers. 13 The Court discusses why the mayor’s individual

mental process and motive is irrelevant to the legislative act of Corsicana’s city

council in setting the rates which were protested by Ratepayers. 14 Appellants seek

rehearing in order to have the Court “clarify” what “irrelevant” means, suggesting

that this Court should opine on the admissibility of evidence of communications by

a governmental entity.

          However, the evidence concerning the Mayor’s comments was admitted into

evidence by the SOAH ALJ, and therefore there is no need for this Court to offer

the advisory opinion requested by Appellants.                    The evidence concerning the

Mayor’s statement was admitted through the testimony of three of Appellants’

witnesses, 15 over the objection of Corsicana. 16 The Court’s opinion correctly states

13
     Appellants’ Motion for Rehearing at 8.
14
     Slip Opinion at 18 – 19.
15
     AR Vol 5, Item 57, Testimony of Chris Ivey, NCWR Exhibit J, page 7, ln. 14 – 16, page 18, ln 15 –
     page 19, ln 4, and page 20, ln 4 – 5; AR Vol. 5, Item 48, Testimony of James Metcalfe, NCWR
     Exhibit A, page 21, ln. 20 – page 22, ln. 8; and AR Vol. 5, Item 58, Testimony of Jack Stowe, NCWR
     Exhibit Contract, page 7, ln. 7-13.
16
     Corsicana’s objections, AR Vol 3, Item 42 (CD #1), file .pdf40, pages 2-5. The ALJ’s overruling of
      Corsicana’s objections occurred at the March 24, 2011 prehearing conference (AR Vol 11, Item 113,
      CD #3).


Appellee Corsicana’s Reply to Motion for Rehearing                                           8
the law applicable to the evidence concerning the Mayor’s comment, that evidence

was admitted into the record at the hearing, and the Court need not provide

clarification on the admissibility of the evidence because that is not a matter in

dispute.

                                CONCLUSION AND PRAYER
         For the reasons set out in this Reply, Corsicana requests this Court deny

Appellants Motion for Rehearing. 17



                                                 Respectfully Submitted,

                                                 /s/ J. Kay Trostle
                                                 J. Kay Trostle
                                                 State Bar No. 20238300

                                                 SMITH TROSTLE & HUERTA LLP
                                                 4401 Westgate Blvd., Suite 330
                                                 Austin, Texas 78745
                                                 (512) 494-9500 (Telephone)
                                                 (512) 494-9505 (Facsimile)
                                                 ktrostle@smithtrostle.com

                                                 ATTORNEYS FOR APPELLEE,
                                                 CITY OF CORSICANA




17
     As Appellants note in the Conclusion and Prayer of their Motion for Rehearing, jurisdiction over the
     underlying administrative petition was transferred to the Public Utility Commission effective
     September 1, 2014. The Public Utility Commission adopted the Public Interest rules of the TCEQ,
     under which the administrative case was processed, without substantive change.


Appellee Corsicana’s Reply to Motion for Rehearing                                             9
                         CERTIFICATE OF COMPLIANCE

   I certify in accordance with Texas Rule of Appellate Procedure 9(i)(3) that this
document was produced on a computer using Microsoft Word 2007 and contains 2177
words, as determined by the computer software’s word-count function.

                                                 /s/ J. Kay Trostle
                                                 J. Kay Trostle



                           CERTIFICATE OF SERVICE

      I hereby certify that on the 14th of August 2015, the foregoing document was
served on each person listed below by the method shown.

Paul M. Terrill III
The Terrill Firm, P.C.
810 W. 10th St.
Austin, Texas 78701
Attorneys for Ratepayers, Plaintiffs
Via E-service

Cynthia Woelk
Assistant Attorney General
Environmental Protection Division
Office of the Attorney General
P.O. Box 12548
Austin, Texas 78711-2548
Attorneys for Texas Commission on
Environmental Quality, its Commissioners,
Bryan Shaw, Carlos Rubenstein and Toby Baker,
and its Executive Director, Zachary Covar
Via 1st Class Mail and E-mail


                                                       /s/ J. Kay Trostle
                                                       J. Kay Trostle




Appellee Corsicana’s Reply to Motion for Rehearing                          10
