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                           The Attorney                  General of Texas
                                                August    16,   1979
MARK WHITE
Attorney General


                       Honorable George Cowden                        Opinion No.    MW-45
                       Chairman
                       Public Utility Commission                      Re: Whether a cooperative effort
                         of Texas                                     of various industries    to jointly
                       7800 Shoal Creek Boulevard                     operate    an entity   cogenerating
                       Austin, Texas 78757                            electricity causes the entity to be
                                                                      a public utility.

                       Dear Chairman Cowden:

                             You have requested our opinion concerning the classification         of
                       cogeneration projects under the Public Utility Regulatory Act, article 1446c,
                       V.T.C.S.

                              Your question primarily involves section 3(c) of the Act which provides
                       in pertinent part:

                                      (c) The term ‘public utility’ or ‘utility,’ when used
                                  in this Act, includes any person, corporation, river
                                  authority, cooperative corporation,      or any combin-
                                  ation thereof, other than a municipal corporation, or
                                  their    lessees, trustees,   and receivers,     now or
                                  hereafter owning or operating for compensation in
                                  this state equipment or facilities for:

                                      (1)     producing,       generating,       transmitting,
                                  distributing,      selling,   or    furnishing    electricity
                                  (‘electric utilities’ hereinafter); . . . .

                                      . . . .

                                      (4) . . . The term ‘public utility’ or ‘utility’ shall
                                  not include any person or corporation not otherwise a
                                  public     utility     that furnishes the services      or
                                  commodity         described  in any paragraph     of this
                                  subsection only to itself, its employees, or tenants as
                                  an incident of such employee service or tenancy,
                                  when such service or commodity is not resold to or
                                  used by others.




                                                           p.   134
Honorable George Cowden       -   Page Two       @W-4 5 )



Your question involves the status of certain industrial concerns which can cogenerate
electricity as a by-product of their normal industrial processes. The cogeneration project
is proposed to be conducted by a Texas general partnership composed of four non-
regulated corporations.

       The project will replace existing conventional oil/gas boilers at plants individually
owned by each partner with a single coal or lignite fired cogeneration steam plant. The
plant will burn coal or lignite to convert water to high pressure steam. The high pressure
steam will pass through turbines to produce 180 megawatts of electricity.                The
cogeneration plant will consume approximately sixty megawatts, leaving 120 megawatts
available for export.    The high pressure steam after passing through the turbine will
automatically    drop to a lower pressure steam which will be delivered to the corporate
partner’s plants for use as process steam. The partners will consume the entire output of
the partnership.

       You ask if the partnership or the partners will be a public utility as defined in the
Act. As defined in section 3(c) of the Act, a corporate partnership is the type of entity
which would be a public utility if it owned or operated for compensation facilities
described in section 3(c)(l) as being for the production, generation,           transmission,
distribution, sale or furnishing of electricity.  The partnership is clearly an entity which
will own facilities used for the generation of electricity for compensation, and without an
exemption, would be a public utility under the Act.

        The legislature recognized when it passed the Act that it did not intend to regulate
entities which were furnishing utility service to themselves.         The public interest in
regulating utilities as &fined in the Act is expressed in section 2 of the Act.

               Sec. 2. This Act is enacted to protect the public interest
            inherent in the rates and services. of public utilities.            The
            legislature finds that public utilities are by definition monopolies in
            the areas they serve; that          therefore  the normal forces of
            competition which operate to regulate prices in a free enterprise
            society do not operate; and that therefore utility rates, operations
            and services are regulated by public agencies, with the objective
            that such regulation       shall operate as a substitute      for such
            competition.      The purpose of this Act is to establish a
            comprehensive regulatory system which is adequate to the task of
            regulating public utilities as defined by this Act, to assure rates,
            operations, and services which are just and reasonable to the
            consumers and to the utilities.

The legislature in section 3(c)(4) exempted from regulation an entity which furnished
utility service solely to itself. It is clear from the language of section 3(c)(4) that if each
corporation built its own individual cogeneration        facility, each one would meet the
exception and would not be a public utility under the Act.




                                            P.    135
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Honorable George Cowden         -   Page Three     (NW-451



     We recognize     that Texas has favored the entity rather than the aggregate theory in
the Texas Uniform      Partnership Act, article 6132b, V.T.C.S. See Source and Comments,
Alan R. Bromberg,      following section 1 of article 6132b. Thecomments,      however, also
emphasize that the    entity theory has been used when it accords with business usage.

       The decision as to whether a cogeneration project conducted by a Texas general
partnership would be a public utility is a new regulatory issue. It is not the type of
business decision referred to in the comments to the Texas Uniform Partnership Act which
caused entity treatment of many partnership transactions.      In addition, the Texas Uniform
Partnership Act still accords aggregate treatment to some partnership transactions.        For
example, section 15 of the Texas Uniform Partnership Act makes all partners liable jointly
and severally for all debts and obligations of the partnership. We, therefore, conclude that
the aggregate theory should be followed in determining whether the partnership                is
supplying electricity   to itself within the meaning of section 3(c)(4) when it supplies
electricity  to the plants owned by the partners.      It is our opinion that the legislature
intended to exempt a partnership in which the commodity is consumed entirely by the
partnership and its corporate partners. To hold otherwise would ignore legislative intent
and elevate form over the substance of the transaction.

                                        SUMMARY

              A cogeneration facility owned by a partnership which furnishes
              electricity solely to the corporate partners is not a public utility
              under the Public Utility Regulatory Act.




                                                 MARK     WHITE
                                                 Attorney General of Texas

JOHN W. FAINTER, JR.
First Assistant Attorney General

TED L. HARTLEY
Executive Assistant Attorney General

Prepared by Joyce Beasley
Assistant Attorney General

APPROVED:
OPINION COMMITTEE

C. Robert Heath, Chairman
Joyce Beasley




                                            P.   136
Honorable George Cowden   -   Page Four    (Mw-45)



David B. Brooks
Rick Gilpin
William G Reid




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