
IN THE SUPREME COURT OF TEXAS
 
════════════
No. 
08-0727
════════════
 
Texas Industrial Energy 
Consumers, Petitioner,
 
v.
 
CenterPoint Energy Houston Electric, 
LLC,
and Public Utility Commission 
of Texas, Respondents
 
════════════════════════════════════════════════════
On Petition for Review from 
the
Court of Appeals for the Third 
District of Texas
════════════════════════════════════════════════════
 
 
Argued October 6, 2009
 
 
            
Justice Willett delivered 
the opinion of the Court.
 
            
This appeal concerns a Public Utility Commission order setting a 
“competition transition charge” under Chapter 39 of the Utilities Code. The 
order followed a true-up proceeding initiated by CenterPoint Energy Houston Electric, LLC to recover from 
ratepayers its investments “stranded” by Texas’s transition to a less regulated, 
more competitive retail electricity market. Groups representing electricity 
consumers challenged the order, contesting CenterPoint’s (1) recovery of interest,1 and (2) recovery of costs of a valuation 
panel. The court of appeals affirmed the PUC’s order in favor of CenterPoint. We affirm the court of appeals’ 
judgment.
I. 
Background
A. Overview of 
Relevant Provisions of Chapter 39
            
The Legislature in 1999 overhauled the Public Utility Regulatory Act 
(PURA or Act) to create a “fully competitive electric power industry” in 
Texas.2 As part of this restructuring, utilities 
were required, not later than January 1, 2002, to split into three distinct 
units: (1) a power-generation company, (2) a retail electric provider, and (3) a 
transmission and distribution utility.3 After that date, known as the date of 
consumer choice, retail consumers could choose among competing retail 
providers.4
As for the transmission and 
distribution utility, its rates continue to be regulated by the PUC.5 This unit also continues to provide 
metering services6 and to charge retail electric providers 
for “nonbypassable delivery charges” under rates 
approved by the Commission.7 The transmission and distribution utility 
may also, at the retail provider’s request, bill retail customers directly.8
1. Stranded 
Costs
            
The Legislature recognized that utilities had made investments in 
power-generation assets that produced a reasonable return under the existing 
regulated environment “but might well become uneconomic and thus unrecoverable 
in a competitive, deregulated electric power market.”9 The Act thus allows utilities to recover 
these “stranded costs,” which consist generally of “the portion of the book 
value of a utility’s generation assets that is projected to be unrecovered 
through rates that are based on market prices.”10
            
The Act deregulated the market in phases. Retail rates were frozen from 
September 1, 1999 until January 1, 2002.11
            
PURA Section 39.201 directed transmission and distribution utilities to 
file, on or before April 1, 2000, proposed tariffs that included nonbypassable delivery charges to retail electric 
providers.12 It also directed the PUC to approve 
rates as of January 1, 2002.13 The nonbypassable delivery charges included a “competition 
transition charge” (CTC) based on an estimate of stranded costs projected to 
exist at the end of the freeze period on December 31, 2001.14 The CTC is “nonbypassable” in “that with limited exceptions, all retail 
electric customers in an existing utility’s service area will pay charges to 
allow that utility to recover stranded costs regardless 
of whether those customers purchase their electricity from that utility, switch 
to one of its competitors, or generate their own electricity.”15 In estimating stranded costs, utilities 
were required to use the “ECOM” model,16 an estimation model earlier used in a 
1998 PUC report to the Texas Senate.17 Section 39.201 allowed a utility to 
recover estimated stranded costs at any time after the start of the freeze 
period on September 1, 1999, by issuing bonds and using a “transition charge” 
(TC) to service the bonds, a process known as “securitization” or 
“securitization financing,”18 or by imposing a CTC.19 But no such charges were imposed because 
the PUC concluded that under the ECOM model no utility would incur stranded 
costs.20
            
Under Section 39.262, utilities were required, after January 10, 2004, to 
file with the PUC a reconciliation of stranded costs and the previous estimate 
of stranded costs that had been used in determining rates under Section 
39.201.21 By this time, 
the utility had been unbundled into a transmission and distribution utility, a 
generating company, and a retail electric provider. Section 39.262 further 
directed the PUC to conduct a “true-up proceeding” and enter a final order 
adjusting the CTC to reflect the ultimate valuation of stranded costs.22 “If, based on the proceeding, the 
competition transition charge is not sufficient, the commission may extend the 
collection period for the charge or, if necessary, increase the charge.”23 The adjusted 
CTC is applied to the nonbypassable delivery rates of 
the transmission and distribution utility.24
            
For purposes of finalizing the measure of stranded costs, a 
power-generation company must quantify its stranded costs using “one or more” of 
four valuation methods specified in the Act: (1) the sale of assets method, (2) 
the stock valuation method, (3) the partial stock valuation (PSV) method, and 
(4) the exchange of assets method.25 If the PSV method is used, the PUC may 
convene “a valuation panel of three independent financial experts to determine 
whether the percentage of common stock sold is fairly representative of the 
total common stock equity or whether a control premium exists for the retained 
interest.”26
2. Non-Stranded 
Cost Adjustments at the True-Up Proceeding
            
In addition to adjustments for stranded costs, the PUC is directed at the 
true-up proceeding to make other adjustments to the nonbypassable delivery charges of the transmission and 
distribution utility. These adjustments are made to what are sometimes labeled 
non-stranded costs, and can result in an increase or decrease in the amount of 
or collection period of the CTC.27
            
From January 1, 2002, until January 1, 2007, affiliated retail electric 
providers were required to charge rates six percent below average rates that 
were in effect on January 1, 1999, subject to certain adjustments including a 
fuel factor.28 This price is 
known as the “price to beat.” After January 1, 2002, each affiliated 
power-generation company is required to file a final fuel reconciliation that 
calculates a final fuel balance as of December 31, 2001.29
            
To foster competition, each utility or its unbundled power-generation 
company was required, at least 60 days before January 1, 2002, to conduct a 
“capacity auction” that sold entitlements to at least 15 percent of the 
utility’s generation capacity.30 The obligation continued until the 
earlier of 60 months after the date customer choice is introduced or the date 
the PUC determined “that 40 percent or more of the electric power consumed by 
residential and small commercial customers within the affiliated transmission 
and distribution utility’s certificated service area before the onset of 
customer choice is provided by nonaffiliated retail electric providers.”31
            
Under Section 39.262(d), the Act directs the affiliated power-generation 
company at the true-up proceeding to reconcile and either bill or credit the 
transmission and distribution utility for the net sum of (1) the former 
integrated utility’s final fuel balance,32 and (2) the capacity auction true-up 
balance, which consists of the difference between the price of power realized at 
the capacity auctions and the power-cost projections used in the ECOM 
model.33
            
Section 39.262(e) directs the affiliated retail electric provider at the 
true-up proceeding to credit the affiliated transmission and distribution 
utility for “any positive difference between the price to beat established under 
Section 39.202, reduced by the nonbypassable delivery 
charge established under Section 39.201, and the prevailing market price of 
electricity during the same time period.”34 This credit is 
known as the “retail clawback.”
            
Section 39.262(f) directs the PUC at the true-up proceeding to modify the 
transmission and distribution utility’s nonbypassable 
rates to reflect adjustment to the amount of “regulatory assets,” a special 
category of assets35 we have described as “essentially 
bookkeeping entries.”36
B. Proceedings 
Below
            
Pursuant to Chapter 39, Reliant Energy, Inc., an integrated electric 
utility, separated into three entities:
 
•                     
CenterPoint Energy Houston 
Electric, LLC — the transmission and distribution utility,
 
•                     
Reliant Energy Retail Services, LLC — the retail electric 
provider, and
 
•                     
Texas Genco, LP — the 
power-generation company.
 
            
These entities filed an application with the PUC to determine stranded 
costs and other true-up balances pursuant to Section 39.262. In this proceeding 
(the true-up proceeding), the PUC determined that CenterPoint was entitled to recover approximately $2.3 
billion in stranded costs and other non-stranded costs. CenterPoint then initiated parallel proceedings to recover 
these costs either through securitization or a CTC.
            
The PUC approves securitization financing with a financing order.37 CenterPoint 
filed an application for a financing order, and in that proceeding the PUC 
issued an order in 2005 allowing CenterPoint to 
securitize most of the previously determined costs, including stranded costs, 
carrying costs on the stranded costs, and certain regulatory assets, but held 
that certain non-stranded costs were not “qualified costs”38 that could be securitized.
            
In the separate CTC proceeding under review in today’s case, CenterPoint sought a CTC that would cover the costs it was 
not allowed to securitize. In July 2005, the PUC issued an order (the Order) 
determining that CenterPoint could recover 
approximately $570 million in non-stranded costs through a CTC, to be imposed 
over a 14-year period.39 This amount consisted of a positive 
capacity auction true-up amount, net of a negative final fuel adjustment, a 
downward adjustment for the retail clawback, and an 
additional downward adjustment to reflect the retention of deferred federal 
income taxes. The final CTC amount included accrued interest on the true-up 
balance. The Order further allows CenterPoint to 
receive interest on the unrecovered CTC balance over the 14-year recovery 
period. One commissioner dissented from the part of the Order allowing CenterPoint to recover interest on the true-up balance under 
PUC Rule 25.263(l)(3), discussed below.
            
The PUC also allowed CenterPoint to recover 
certain rate-case expenses, including a roughly $5.2 million fee charged by J.P. 
Morgan Securities Inc. and its law firm. This fee pertained to services by three 
J.P. Morgan bankers as the valuation panel convened by the PUC under Section 
39.262(h)(3), after Texas Genco elected to rely on the PSV method to value its 
generating assets.
            
Two consumers groups, Texas Industrial Energy Consumers (TIEC) and Gulf 
Coast Coalition of Cities (GCCC), intervened in the CTC proceeding. Both 
challenged CenterPoint’s recovery of interest, and 
TIEC additionally challenged CenterPoint’s recovery of 
the valuation-panel fee. They appealed the Order to state district 
court.40 The trial court agreed with the consumer 
groups that CenterPoint could not recover interest on 
the CTC balance from ratepayers because this Court had invalidated the PUC rule 
allowing such recovery in CenterPoint 
Energy, Inc. v. Public Utility Commission.41 The trial court further held that CenterPoint could not recover the valuation-panel 
fee.
            
The court of appeals reversed the trial court’s judgment and rendered 
judgment affirming the PUC’s Order.42
II. 
Discussion
A. Interest on 
the CTC True-Up Balance
            
The PUC allowed CenterPoint to recover interest 
on the CTC balance under its Rule 25.263(l)(3), 
which at the time provided:
 
The TDU [transportation and distribution utility] shall 
be allowed to recover, or shall be liable for, carrying costs on the true-up 
balance. Carrying costs shall be calculated using the utility’s cost of capital 
established in the utility’s UCOS [unbundled cost-of-service] proceeding, and 
shall be calculated for the period of time from the date of the true-up order 
until fully recovered.
 
            
The consumer groups argue that interest on the true-up balance is not 
allowed because we invalidated Rule 25.263(l)(3) 
in its entirety in CenterPoint Energy. 
The PUC and CenterPoint argue that we only invalidated 
the timing portion of the Rule — the date that interest begins to accrue. 
We agree with the PUC and CenterPoint. Any fair 
reading of our CenterPoint Energy 
decision makes clear we were focused on the date, not the rate.
            
We stated in CenterPoint Energy 
that “Rule 25.263(l)(3) is invalid,”43 and we reasonably read that statement in 
context.44 We explained:
 
No one disputes that the Legislature intended electric 
utilities to recover carrying costs on stranded costs to compensate for the 
financing costs incurred during the stranded cost recovery period. Nor does 
anyone dispute that prior to deregulation, carrying costs on investments in 
generation plants were included in rates. The only issue before us is the date 
from which carrying costs may be recovered once deregulation commenced: January 
1, 2002, which was the first day of deregulation, or two or more years later, at 
the end of final true-up proceedings.45
 
We did not hold utilities cannot 
recover interest on their stranded costs or other costs. Indeed, we held that 
the rule was too parsimonious because it did not provide for the recovery of 
interest for the period between January 1, 2002, the date consumer choice 
commenced, and the date of the final true-up order. The basis of our holding was 
that failure to allow the recovery of interest during this period would fail to 
compensate the utilities fully for their stranded costs that existed on December 
31, 2001, the last day of the freeze period.46 “A two- or three-year gap in recovery of 
carrying costs would not permit generation companies full recovery of their 
stranded costs as the Legislature intended.”47 We further noted that in allowing 
securitization to reduce stranded costs, the Act specifically states that the 
purpose of securitization is to enable utilities to use this financing technique 
“to recover regulatory assets and stranded costs, because this type of debt will 
lower the carrying costs of the assets.”48
            
We invalidated Rule 25.263(l)(3) only 
insofar as it picked the wrong start date for the accrual of carrying 
costs:
 
We conclude that the Commission’s construction of 
chapter 39 was incorrect regarding the date as of which stranded costs 
are to be determined. . . . Because the Commission’s rule is based on an 
incorrect construction of the Act in this regard, it is infirm.49
 
We did not hold broadly that the PUC 
could not allow utilities to recover interest on the CTC balance.
            
The consumer groups argue that even if the Court only invalidated the 
timing element of Rule 25.263(l)(3) — the date 
interest begins to accrue — that portion of the Rule is not severable, and the 
whole Rule is therefore invalid. The consumer groups provide no persuasive 
reason why the PUC cannot follow the Court’s directive regarding the accrual 
date but otherwise enforce its Rule by allowing the recovery of interest. The 
Rule is part of Chapter 25 of Title 16 of the Texas Administrative Code, 
covering substantive rules of the PUC applicable to electric service providers. 
Rule 25.3(a) of the same Chapter states that “[i]f any 
provision of this chapter is held invalid, such invalidity shall not affect 
other provisions or applications of this chapter which can be given effect 
without the invalid provision or application, and to this end, the provisions of 
this chapter are declared to be severable.” The PUC thus followed its own 
severability rule and enforced Rule 25.263(l)(3), but with an accrual date consistent with CenterPoint Energy. We see no error in this 
approach, which complied with our decision while also enforcing the remainder of 
the PUC’s rule allowing the recovery of interest.
            
By analogy to statutory construction, severability is a question of 
legislative intent.50 Here, the body 
enacting the regulation in issue has expressly stated by general rule that it 
intends invalid provisions to be severable. Absent an expression of intent 
regarding severability, the valid remaining portions of a statute remain 
enforceable if the invalidity of one portion “does not affect other provisions 
or applications of the [rule] that can be given effect without the invalid 
provision or application.”51 Here, the PUC was able to otherwise 
enforce its rule by modifying only the date that interest begins to accrue. It 
specifically concluded in the Order that PURA’s function is not impaired by 
CenterPoint Energy’s invalidation of a 
portion of Rule 25.263(l)(3) and that the 
remainder of the Rule should be given effect.52 We agree with the PUC that there is no 
ground to invalidate the entire rule because of the one defect we found in CenterPoint Energy. In fact, invalidating the 
whole rule and barring any recovery of interest whatsoever would contradict 
our view in CenterPoint Energy “that 
the Legislature intended electric utilities to recover carrying costs on 
stranded costs to compensate for the financial costs incurred during the 
stranded cost recovery period,” consistent with the prior ratemaking principle 
that “carrying costs on investments in generation plants were included in 
rates.”53
            
GCCC separately argues that regardless of the validity of Rule 
25.263(l)(3), the 11.075 percent interest rate chosen by the PUC was 
arbitrary and capricious, and not supported by substantial evidence, because 
there was no evidence in the record that it reflected CenterPoint’s current weighted-average cost of capital 
(WACC).54 For several reasons, we are unpersuaded.
            
First, given our conclusion that Rule 25.263(l)(3) remains valid with the corrected start date mandated by 
CenterPoint Energy, we agree with the 
court of appeals that, as a general proposition, an agency cannot be said to 
“err or act arbitrarily or capriciously by complying with the mandate of its own 
rule,”55 assuming that the rule is based on a 
valid delegation of legislative authority and is a reasonable exercise of that 
authority. Indeed, we have stated that if an agency “does not follow the clear, 
unambiguous language of its own regulation, we reverse its action as arbitrary 
and capricious.”56
            
Second, GCCC does not persuade us that the PUC can as a practical matter 
constantly re-determine a utility’s cost of capital or is required by law to do 
so. The PUC selected the 11.075 percent rate in the true-up proceeding where a 
final order issued in December 2004 and in the financing order proceeding where 
a final order issued in March 2005. This rate was based on the weighted-average 
cost of capital established in the utility’s 2001 unbundled cost-of-service 
(UCOS) proceeding, adjusted for federal income taxes,57 and GCCC offers no proof or argument 
that the earlier proceedings in which CenterPoint’s 
cost of capital was determined were flawed. Further, as all parties agree, the 
PUC in 2006 prospectively reset the interest rate on the CTC to reflect changed 
economic conditions. The rate was lowered to 8.06 
percent.58
            
Finally, the PUC points to expert testimony in the administrative record 
offered by CenterPoint that the 11.075 percent 
interest rate was appropriate given the risk associated with the recovery of 
CTCs, the fact that the rate was a pre-tax rate that had to be grossed up to 
ensure the recovery of income taxes on the CTC, the use of the same rate in 
other proceedings, and other factors. The consumer groups do not challenge the 
credentials of the expert, whose testimony was offered by CenterPoint to rebut the argument that the previously 
determined rate had become outdated and that one of several other rates proposed 
by intervenors and PUC staff should be used. While 
there was some conflicting testimony on the appropriate interest rate, under the 
applicable substantial evidence standard of review,59 we ask only whether some 
reasonable basis exists in the record for the agency’s action.60 That standard was met here.61
            
In sum, the PUC did not act in an arbitrary or capricious manner in (1) 
following its own rule, (2) relying on a previously determined cost of capital 
in proceedings whose fairness is not challenged here, (3) ultimately choosing an 
interest rate for which a reasonable basis exists in the record, and (4) 
substantially lowering the interest rate when circumstances 
warranted.
B. 
Control Premium Valuation-Panel Fee
            
The PUC convened the valuation panel under Section 39.262(h)(3) to help determine the market value of transferred 
generation assets under the PSV method. The PUC retained J.P. Morgan to serve as 
the valuation panel and approved its $5.2 million fee. J.P. Morgan insisted that 
CenterPoint guarantee payment of the fee on behalf of 
Texas Genco. Texas Genco and 
CenterPoint (then Texas Genco’s corporate parent) ultimately signed a contract 
agreeing to be jointly obliged for the fee, and CenterPoint ultimately paid it. As part of the fee 
negotiations, CenterPoint sought agreement that PUC 
staff would support recovery by CenterPoint of the 
valuation-panel fee. PUC staff agreed not to contest such 
recovery.
            
The PUC allowed CenterPoint to recover this fee 
from ratepayers through the CTC. It found the fee reasonable, and also noted in 
the Order that “[t]he true-up applicants were required to incur this expense by 
the Commission, and the expense was necessary for the resolution of the 
case.”
            
TIEC argues the valuation-panel fee must be borne by Texas Genco, the company receiving the transferred generation 
assets, and the PUC exceeded its authority in allowing CenterPoint to recoup the fee through its retail customers. 
TIEC argues that this sentence from Section 39.262(h)(3) prohibits cost-shifting and requires Texas Genco to incur the fee alone: “The costs and expenses of the 
panel, as approved by the commission, shall be paid by each transferee 
corporation.” The PUC and CenterPoint respond that 
Section 39.262(h)(3) only specifies that the transferee (as opposed to the PUC 
or someone else) is initially responsible for paying the valuation-panel 
fee, but the statute does not limit how the transferee satisfies that obligation 
or prohibit the PUC from allowing CenterPoint to 
recover the fee through its rates. They contend that since CenterPoint guaranteed the fee and ultimately paid it, it 
can recoup it under Section 36.061(b)(2), applicable 
generally to ratemaking proceedings. Under this provision, the PUC may allow 
recovery of “reasonable costs of participating in a proceeding under this title 
not to exceed the amount approved by the regulatory authority.”62
            
So does “shall be paid by the transferee corporation” in Section 
39.262(h)(3) mean Texas Genco 
must exclusively underwrite the fee, or does it merely require Texas Genco to cover the fee in the first instance, while letting 
other law (including Section 36.061(b)(2)) determine how that obligation is 
ultimately funded or perhaps recouped through rates like other rate-case 
expenses?
            
The court of appeals’ careful analysis persuades us that CenterPoint and the PUC, whose reasonable construction of 
PURA merits “serious consideration,”63 have the better 
argument:
 
[B]y 
providing that the transferee corporations “shall pay” valuation panel expenses, 
the legislature did not intend to preclude those expenses ultimately being 
recovered through rates under PURA 36.061(b)(2). [Section 39.262(h)(3)], in 
other words, reflects not a mandate that such expenses be borne exclusively by 
transferee corporations, as TIEC suggests, but merely an expectation that the 
expenses would be “paid” by transferee corporations in the same manner that 
parties to rate proceedings routinely pay legal expenses, consultant fees, and 
myriad other “costs of participating in a proceeding” that are potentially 
eligible for later recovery under PURA section 36.061(b)(2).64
 
            
It is true, as TIEC contends, that state-agency powers are limited, and 
agencies may not “on a theory of necessary implication from a specific power, 
function, or duty expressly delegated, erect and exercise what really amounts to a new and additional power or 
one that contradicts the statute, no matter that the new power is viewed as 
expedient for administrative purposes.”65 But that admonition is inapposite 
here.
            
PURA nowhere discusses the interplay between Sections 36.061(b)(2) and 39.262(h)(3), much less suggests any conflict 
between them. Contrast that to other examples within PURA where the Legislature 
acknowledged potential conflicts and clarified which provision would 
control.66 PURA’s drafters knew how to resolve 
perceived inconsistences, and absent any indication 
that lawmakers desired one PURA provision to prevail over another, we must 
presume they wanted both sections here to be fully effective.
            
TIEC argues principally that Section 39.262(h)(3) must control because its specific focus on valuation 
panels gives it a precision that Section 36.061(b)(2)’s ordinary cost-recovery 
regime lacks. But the specific-controls-over-general maxim “applies only when 
overlapping statutes cannot be reconciled.”67 Here, we can construe the two provisions 
in a way that harmonizes rather than conflicts.68 Section 39.262(h)(3) does not restrict, 
or even address, how the transferee corporation fulfills its panel-fee 
obligation. It nowhere prohibits, even implicitly, a transferor corporation from 
covering a transferee’s upfront obligation to pay the valuation-panel fee and 
later seeking recovery as a “reasonable cost[] of 
participating in a proceeding” under Section 36.061(b)(2).
            
In short, the provisions do not collide because they govern different 
subjects — initial payment of the valuation-panel fee (Section 39.262(h)), and 
separately, the PUC’s authority to permit the recoupment of certain rate-case 
expenses (Section 36.061(b)(2)). True, one provision 
has a narrower focus, but they are easily harmonized, as the PUC did here. 
TIEC’s construction would create a conflict where none need exist. We agree with 
the court of appeals’ analysis.
III. 
Conclusion
            
We 
affirm the court of appeals’ judgment.
 
 
                                                                                    
_______________________________________
                                                                                                
Don R. Willett
                                                                                                
Justice
 
OPINION 
DELIVERED: 
October 22, 2010     






1
We use 
“interest” and “carrying costs” interchangeably and intend no distinction 
between them.

2
Tex.
Util. Code § 
39.001(a). See 
also City of Corpus Christi v. Pub. Util. Comm’n, 51 S.W.3d 231, 237 
(Tex. 2001).

3
Tex.
Util. Code § 
39.051(b).

4
Id. § 
39.102(a).

5
See 
id. §§ 
39.201–.205; In re TXU Elec. Co, 67 S.W.3d 130, 132 (Tex. 2001) 
(Phillips, C.J., concurring) (“Because the generating companies and retail 
electric providers must use the existing power lines to move electricity from 
the plant to the retail customer’s home or business, the transmission and 
delivery companies will remain regulated monopolies.”).

6
Tex.
Util. Code § 
39.107(a).

7
Id. § 
39.107(d).

8
Id. § 
39.107(e).

9
CenterPoint 
Energy, Inc. v. 
Pub. Util. Comm’n, 143 S.W.3d 81, 82 (Tex. 
2004).

10
City of 
Corpus Christi, 51 
S.W.3d at 237–38; see also Tex. 
Util. Code §§ 39.001(b)(2), .251(7), 
.252(a).

11
Tex.
Util. Code § 
39.052.

12
Id. § 
39.201(a)–(b).

13
Id. § 
39.201(d).

14
Id. § 
39.201(b), (d), (g).

15
City of 
Corpus Christi, 51 
S.W.3d at 238 (citing Tex. Util. Code § 
39.252).

16
Tex.
Util. Code § 
39.201(h).

17
See 
id. § 
39.262(i). “ECOM” stands for excess costs over market, see id. § 39.254, and is another term 
for stranded costs.

18
See 
Tex 
Util. Code §§ 
39.201(i), .301.

19
Id. § 
39.201(i).

20
CenterPoint 
Energy, 143 
S.W.3d at 91.

21
Tex.
Util. Code § 
39.262(c).

22
Id. §§ 
39.201(l), .262(c).

23
Id. § 
39.201(l).

24
Id. §§ 
39.201(l), .262(c). 
Alternatively, stranded costs may be securitized, as discussed 
below.

25
Id. § 
39.262(h)(1)–(4). These methods apply except for the 
valuation of stranded costs for certain nuclear assets. See id. § 39.262(h)–(i).

26
Id. § 
39.262(h)(3).

27
See 
id. § 39.262(g).

28
Id. § 
39.202(a).

29
Id. § 
39.202(c).

30
Id. § 
39.153(a).

31
Id. § 
39.153(b).

32
Id. §§ 
39.202(c), .262(d)(1).

33
Id. § 
39.262(d)(2).

34
Id. § 
39.262(e). This 
credit is subject to a cap. Id.

35
The Act 
defines regulatory assets as “the generation-related portion of the Texas 
jurisdictional portion of the amount reported by the electric utility in its 
1998 annual report on Securities and Exchange Commission Form 10-K as regulatory 
assets and liabilities, offset by the applicable portion of generation-related 
investment tax credits permitted under the Internal Revenue Code of 1986.” Id. § 39.302(5).

36
CenterPoint 
Energy, 143 
S.W.3d at 85.

37
Tex.
Util. Code § 
39.303.

38
See 
id. § 
39.302(4). Various sections of Chapter 39 were amended in 2007 to expand the 
categories of costs that can be securitized. Act of May 28, 2007, 80th Leg., 
R.S., ch. 1186, 2007 Tex. Gen. Laws 4049. The CTC at 
issue in this case was eventually securitized, after the PUC order and the 
interest-rate period at issue in this appeal.

39
Application 
of CenterPoint Energy Houston Electric, LLC for a 
Competition Transition Charge, PUC 
Docket No. 30706 (July 14, 2005) (Order), available at 
http://interchange.puc.state.tx.us.

40
See Tex. Util. Code § 
15.001.

41
143 
S.W.3d 81 (Tex. 2004).

42
263 
S.W.3d 448, 468.

43
143 
S.W.3d at 84, 99.

44
See 
Dresser Indus., Inc. v. Lee, 880 
S.W.2d 750, 753 (Tex. 1993) (“The Court’s language must be read in the context 
of the issues decided.”).

45
CenterPoint 
Energy, 143 
S.W.3d at 83. See also id. at 86 (“The only issue is whether the Act 
contemplates roughly a two-year gap in recovery of carrying costs between the 
date regulation ceased (January 1, 2002) and the date of a final true-up order 
(2004 or perhaps beyond).”).

46
Id. at 84 (citing Tex. Util. Code §§ 39.252(a), 
.201(g)).
 

47
Id.

48
Tex. 
Util. Code § 
39.301, quoted in CenterPoint Energy, 
143 S.W.3d at 89.

49
CenterPoint 
Energy, 143 
S.W.3d at 87 (emphasis added).

50
See Tex. Gov’t Code §§ 311.032(a)–(b), 
312.013(b).

51
Id. §§ 
311.032(c), 312.013(a).

52
The Order 
states that the interest-rate portion of Rule 25.263(l)(3) is severable 
from the invalidated accrual start date in the Rule because “[t]here is no 
logical connection between the accrual of interest at a utility’s UCOS WACC 
[weighted-average cost of capital] and the time period specified by the rule.” 
In Conclusion of Law 12 to the Order, the PUC concludes: “The function of PURA 
is not impaired by [CenterPoint 
Energy’s] invalidation of the portion of [Rule] 25.263(l)(3) that 
required interest on a utility’s true-up balance to accrue starting on the date 
of the Commission order in the utility’s true-up case.” Conclusion of Law 13 
further reasons: “Because [Rule] 25.263(l)(3) 
requires that interest accrue starting on a date not fixed by the rule or PURA, 
and because such interest would accrue for a period of time that was unknown at 
the time of adoption of the rule, there is no connection between the 
interest-accrual start date and the portion of the rule requiring accrual at a 
utility’s UCOS WACC.”

53
CenterPoint 
Energy, 143 
S.W.3d at 83.

54
We 
understand TIEC to argue that the interest rate chosen by the PUC is improper 
only if Rule 25.263(l)(3) is invalidated in its 
entirety. It argues in its brief on the merits that “[b]ecause the rule was invalidated in its entirety, the use of 
an 11.075% interest rate is arbitrary and capricious,” and that “[b]ecause this Court invalidated the Rule in CenterPoint Energy, the Commission had no 
authority to rely on the Rule by applying the interest rate adopted in the UCOS 
proceeding.”

55
263 
S.W.3d at 458.

56
Rodriguez 
v. Serv. Lloyds Ins. Co., 997 
S.W.2d 248, 255 (Tex. 1999).

57
As the 
Order explains, the 11.075 percent rate is “stated on a pre-tax basis. By 
accruing interest at a pretax rate, CenterPoint will 
recover the interest due at its actual UCOS WACC, after the effect of 
taxes.”

58
As the 
court of appeals explained, “[i]n July 2006, the 
Commission amended rule 25.263(l)(3) to both conform to CenterPoint Energy, Inc., and alter the rate 
methodology.” 263 S.W.3d at 457 n.10 (citing 31 Tex. Reg. 5603 (2006)). And as 
TIEC explains in its brief on the merits, the revised rule “replaced the 
interest rate from the utility’s WACC as established in the UCOS proceeding with 
a new method for calculating interest, which relies on updated information 
regarding the utility’s marginal cost of long term debt and results in a 
significantly lower interest rate. . . . In response to the new rule, CenterPoint made a compliance filing seeking to adjust the 
interest rate to reflect its current financial status and the risk associated 
with recovering the CTC balance from ratepayers. CenterPoint agreed to reduce its interest rate, on a going 
forward basis, from 11.075% to 8.06% based on this new rule.” CenterPoint further explains that it agreed to the lower 
interest rate as part of the settlement of a then-pending rate case. CenterPoint thus contends that since the consumer groups did 
not appeal the 11.075 percent interest rate selected in the true-up proceeding, 
they can only complain in today’s case about the use of the 11.075 percent 
interest rate for the period from December 17, 2004, the date of the final order 
in the true-up proceeding, until August 1, 2006, the date CenterPoint began using the 8.06 percent interest rate. 
CenterPoint also points out that some time after 
August 1, 2006, the CTC balance was securitized. Once the CTC balance was 
received through a bond offering, the interest rate on the CTC balance earlier 
assigned by the PUC became irrelevant.

59
Tex.
Util. Code § 
15.001.

60
See Mireles v. Tex. Dep’t of Pub. Safety, 9 
S.W.3d 128, 131 (Tex. 1999) (“A court applying the substantial evidence standard 
of review may not substitute its judgment for that of the agency. The issue for 
the reviewing court is not whether the agency’s decision was correct, but only 
whether the record demonstrates some reasonable basis for the agency’s action. 
Courts must affirm administrative findings in contested cases if there is more 
than a scintilla of evidence to support them.”) (citations omitted).

61
Under 
substantial evidence review, “an administrative decision may be sustained even 
if the evidence preponderates against it.” Id.

62
Tex. 
Util. Code § 
36.061(b)(2).

63
First Am. 
Title Ins. Co. v. Combs, 258 
S.W.3d 627, 632 (Tex. 2008).

64
263 
S.W.3d at 462.

65
Pub. Util. 
Comm’n v. GTE-Southwest, Inc., 901 
S.W.2d 401, 407 (Tex. 1995) (quoting Sexton v. Mount Olivet Cemetery Ass’n, 720 S.W.2d 129, 137–38 (Tex. App.—Austin 1986, 
writ ref’d n.r.e.)). See 
also Pub. Util. Comm’n v. City 
Pub. Serv. Bd., 53 
S.W.3d 310, 316 (Tex. 2001).

66
See Tex. Util. Code §§ 36.007(d), 36.204, 36.351(a), 39.158(d), 
39.263(d). In addition, the fact that Section 39.262(h)(3) 
is the later-enacted provision — and is silent regarding any interplay with 
Section 36.061(b)(2) — gives additional support for the view that the 
Legislature intended no impact on PURA’s preexisting cost-recovery 
provision.

67
Lexington 
Ins. Co. v. Strayhorn, 209 
S.W.3d 83, 86 (Tex. 2006).

68
See 
Tex. 
Gov’t Code § 
311.026(a) (“If a general provision conflicts with a special or local provision, 
the provisions shall be construed, if possible, so that effect is given to 
both.”); see also Argonaut Ins. Co. v. Baker, 87 S.W.3d 526, 531 (Tex. 
2002).