                                      The Attorney                  General of Texas
                                                            April    19,    1984
     JIM MATTOX
     Attorney General



     Supreme Court Building         Honorable Mack Wallace                                  Opinion    No.   JM-147
     P. 0. BOX 12548
     Austin. TX. 79711. 2549
                                    Chairman
     512,4752501                    Railroad  Commission of         Texas                   Re:     Construction      of   section
     Telex 910/874-13S7             P. 0. Drawer 12967                                      5.02(b)     of    article       1446e.
     Telecopier  5121475-0206       Austin,  Texas    78711                                 V.T.C.S.,     the Public       Utility
                                                                                            Regulatory     Act
     714 Jackson, Suite 700
     Dallas, TX. 75202.4506         Dear Mr. Wallace:
     2141742-8944
                                           You have      asked    whether      section    5.02(b)     of    article      1446e,
                                    V.T.C.S.,     the Gas Utility     Regulatory     Act [hereinafter      GKJRAI. precludes
     4824 Alberta Ave., Suite 100
     El Paso. TX. 79905.2793
                                    the Railroad      Commission     from investigating         the reasonableness          of
     9151533.3494                   change in rates       between pipelines         in instances     in which the change
                                    will directly     or indirectly     affect    a city gate rate.        We conclude       that
                                    you are not        so precluded.        We conclude       that    the    commission        may
     1001 Texas. Suite 700          investigatehe        reasonableness     of the rate charged in 3             pipeline-to-
f-     wslo”, TX. 77002-3111
                                    pipeline    transaction     in 2     instance      in which the gas so transferred
     a 1312255886
                                    will   ultimately    be sold at a city gate for resale              to a gas distribu-
                                    tion utility.
     606 Broadway, Suite 312
     Lubbock, TX. 794013479                Section    5.02   of     GDRA was enacted   by Acts    1983,            Sixty-eighth
     8061747-5238
                                    Legislature,      chapter       263, section   20,  p.  1203,    to            provide     the
                                    following:
     4302 N. Tenth. Suite B
     McAllen, TX. 78501~16R5                          Sec. 5.02.       JUST AND REASONABLERATES (a)                It
     5121882.4547
                                                 shall     be the duty of the regulatory            authority      to
                                                 ensure that every rate made, demanded, or received
     200 Main Plaza, Suite 400                   by any gas utility,           or by any two or more gas
     San Antonio. TX. 79205.2797                 utilities     jointly,     is just and reasonable.            Rates
     512/225-4191                                may not be unreasonably         preferential,      prejudicial,
                                                 or     discriminatory,        but    must     be     sufficient,
                                                 equitable,      and consistent      in application        to each
     An Equal OpportunItyI
     Affirmative Action Employw                  class     of consumers.      For ratemaking       purposes,      the
                                                 railroad       commission      may    treat      two    or     more
                                                 municipalities       served by a gas utility         as a single
                                                 class      if the railroad      commission     considers       that
                                                 treatment     to be appropriate.

                                                      (b)   Rates charged or offered      to be charged      by
                                                 a gas      utility   for pipeline-to-pipeline          trans-
                                                 actions     and to transportation,         industrial,     and




                                                                       p.    632
Honorable      Mack Wallace     - Page 2          (JM-147)




               other similar       large volume contract          customers,  but
               excluding       city       gate   sales-for-resale         to   gas
               distribution       util,ities,    are considered        to be just
               and reasonable         and otherwise       to comply with this
               section,     and shall        be approved     by the regulatory
               authority,     if:

                  (1)  neither    the gas utility   nor the customer
               had an unfair   advantage  during the negotiations;

                   (2)    the rates    are substantial~ly   the same as
               rates between the gas utility         and two or more of
               those     customers     under   the    same   or  similar
               conditions    of service;   ‘r

                   (3) competition  does or did exist      either    with
               another gas utility,    another  supplier    of natural
               gas, or with a supplier    of an alternative      form of
               energy.

                   (c)    If a complaint      is filed    with the railroad
               commission by a transmission          pipeline   purchaser    of
               w       sold      or    transported       under    any     such
               pipeline-to-pipeline        or transportation      rate,   then
               the provisions       of Subsection     (b) shall   not apply.
               (Emphasis added).

       Section   5.02 of GUPA was originally            contained      in section      38 of
section      1446c,   V.T.C.S.,         the    Public     lJtili,ty      Regulatory      Act
[herei~naf ter PURA].      Section     5.02 of GURA is virtual1.y            identical    to
the now repealed      section     38(b)     of PURA. Section          38(b)   of PURA was
amended by Acts 1981, Sixty-seventh             Legislature,       chapter   751, section
1, p. 2749.

       Prior     to   the   passage    of   the   1981   amendment,      section     38 read   8s
follows:

                   Sec.    38.    It     shall     be    the     duty     of      the
               regulatory      authority      to insure      that    every     rate
               made, demanded, or received            by any public      utility,
               or by any two or more public               utilities      jointly,
               shall be just and reasonable.              Rates shall not be
               unreasonably         preferential,          prejudicial,            or
               discriminatory,          but       shall      be      sufficient,
               equitable,     and consistent        in application         to each
               class    of consumers.       For ratemaking        purposes,       the
               commission or railroad          commission may treat two or
               more municipalities         served by a public         utility      as
               a single    class wherever the commission or railroad




                                            p.    633
    Honorable    Mack Wallace       - Page 3         (JM-147)




                  commission deems such treatment      to be aoorooriate.
                 Rates charged      by a gas utility     to an'industrial
                  customer   for supplying     gas under a contract       and
                  other similar     large volume contract    customers    are
                 just    and reasonable    and shall  be approved    by the
                  regulatory    authority   if the regulatory     authority
                  finds that:

                      (1)    neither    the gas utility    nor the industrial
                  customer      had    an unfair      advantage   during    the
                  contract    negotiations;    or

                      (2)    the      rates       in    the      contract      are
                  substantially        the    same as rates        contained    in
                  contracts     between the gas utility         and two or more
                  other    industrial      customers   contracting       under the
                  same or similar       conditions   of service;      or

                       (3)  competition    exists  either  with another gas
                  utility,   another    supplier  of natural   gas, or with
                  a supplier   of an alternative      form of energy.

    The above      underscored   language    was amended and,    in  its amended
P   version,   became subsection     (b).   A subsection (c) was also added.  We
    should   first    note   the effect   of   the 1981 amendment and the 1983
    enactment.

           The above underscored          language     of pre-1981       section    38 created       a
    presumption       that   rates    charged     by a gas utility            to an industrial
    customer      and to other       similar     large    volume contract          customers      for
    supplying     gas under contract        were deemed to be just and reasonable                 and
    had to be approved           by the appropriate         regulatory       authority     if that
    authority      found the existence        of only one of three             specified      facts.
    The class      of consumers affected        by thispresumption            was comparatively
    small.     It affected       only industrial       customers      or other     similar     large
    volume contract         customers.       With respect        to all     other     natural     gas
    consumers,       the appropriate       regulatory      agency,      in this     instance      the
    Railroad      Commission,      was still     required     to "insure        that every       rate
    made,   demanded, or received           by any public        utility     . . . be just        and
    reasonable      . . .     [and     that     they1      shall       not    be     unreasonably
    preferential,       prejudicial,     or discriminatory,        but shall be sufficient,
    equitable,      and consistent      in application      to each class of consumers."

           As a result     of the 1981 amendment and the 1983 enactment,                   the
    class of consumers directly        and indirectly    affected      by the presumption
    is greatly     expanded.      Now the presumption        reaches     all  pipeline-to-
    pipeline     transactions      and   transportation        large     volume     contract
    customers,     as well     as industrial      and other       similar    large    volume
    contract   customers,     while purportedly    expressly     excluding    transactions
P




                                                p.    634
Honorable     Mack Wallace        - Page 4         (JM-147)




involving      city gate sales to gas distribution      utilities                    for   resale     to
individual      residential  and commercial  consumers.

       An example will         illustrate        the dilemma in which the 1981 amend-
ment and the 1983 enactment places                     the commission.          By virtue      of the
recently-amended         presumption,         rates     charged     by a gas utility           in 9
pipeline-to-pipeline            transaction,          excluding       a city       gate    sale-for-
resale      to a gas distribution               utility,      are deemed to be just                  and
reasonable      and the commission              must approve         them if       the commission
finds the existence          of only one of three specified                 facts.      At the same
time,    the commission          is rexred            to regulate       city    gate     sales    and,
again,     to "insure      that every rate made, demanded, or received                         by any
gas utility       . . . is just          and reasonable         . . . . [They]          may not be
unreasonably       preferential,        prejudicial,        or discriminatory,          but must be
sufficient,      equitable,       and consistent          in application        to each class of
consumers. "        V.T.C.S.       art.      1446e.      %5.02(a).       Accordingly        you ask
whether       the     commission          is     precluded         from      investigating           the
reasonableness        of a rate         charged      between pipelines           in instances         in
which the change in rate will                   directly      or indirectly         affect     a city
gate rate.

        It    is     suggested        that     the section          5.02(b)      presumption      should
properly       be interpreted              as limiting        the authority          of the railroad
commission         in any pipeline-to-pipeline                 or other large volume contract               -
customer       transaction,         other than one involving                a city     gate sale-for-
resale      to a gas distributing                utility,      to an investigation            as to the
finding         of     any      one       of    three       specified        facts.        Under     this
interpretation,           if the commission              finds    the existence         of any one of
three specified            facts     in such a transaction,               it shall      deem that the
rate so charged             is just       and reasonable         and shall       approve     such rate.
The      authority           of     the       commission         to     ful_ly      investigate       the
reasonableness           of a rate charged              in a pipeline-to-pipeline               or large
volume contract            customer        transaction       is limited        to only one kind of
large      volume      transfer        --    the pipeline-to-pipeline                or large     volume
contract       sale of gas at the city gate for resale                        to a gas distribution
utility.

        On the other         hand,     it   is suggested         that    the section        5.02(b)
presumption        should      properly      be     interpreted       to    reach     &        those
pipeline-to-pipeline            or other      large     volume contract         customer     trans-
actions     in which s          city    gate sale-for-resale          to a gas distribution
utility     will    occur     later     in the chain of transactions.                  Under this
interpretation,          the     commission       is    authorized       to    investigate        the
reasonableness         of any rate charged in a city gate sale,                   as well as the
rate charged        for such gas in any large volume transfer                       prior    to the
gas reaching         the city       gate.     This second       interpretation         is the one
which comports          both with the act as a whole and with the evident
intent    of the legislature            when it amended section            38 of PUPA in 1981
and subsequently          codified       the amendment as section             5.02(b)     of GURA.




                                                 p.   635
Honorable   Mack Wallace       - Page 5          (JM-147)




An examination        of    other     relevant         provisions      of   GURA support      our
conclusion.

      Section 1.02  of   GURA sets    forth    the                  legislative      policy   and
purpose of the Gas Utility  Regulatory    Act:

                 Sec. 1.02.         This Act is enacted          to protect      the
            public     interest      inherent     in the rates and services
            of gas utilities.             The legislature        finds    that gas
            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 the regulation           shall    operate     as a
            substitute        for competition.           The purpose       of this
            Act is to establish                a comprehensive         regulatory
            system that is adequate              to the task of regulating
            gas utilities           as defined        by this      Act,     and to
            assure      rates,     operations,       and services       which are
            just    and reasonable          to the consumers          and to the
            utilities.         (Emphasis added).

See also   Tex. Const.   art. I, section   26 (forbidding     monopolies                       in
Texas).    Section  5.01   of GURA sets    forth   the   authority    of                      the
commission to ensure that the purposes   of the act are achieved:

            Subject       to     the    provisions       of     this    Act,      the
            railroad       commission       is    hereby      vested    with a
            authority        and power of          the State        of Texas        to
            ensure     compliance        with     the    obligations        of    gas
            utilities        in this       Act.       For this       purpose      the
            regulatory         authority       is    empowered       to   fix     and
            regulate      rates     of gas utilities,           including      rules
            and regulations          for determining        the classification
            of customers        and services        and for determining           the
            applicability         of rates.        A rule or order           of the
            regulatory        authority      may not conflict            with     the
            rulings    of any federal          regulatory      body.

And, as we already          noted,  section 5.02(a)  of GURA reposes a duty in
the commission    "to      ensure that every rate made. demanded, or received
by any gas utility         company is just and reasonable."

       Finally,   it is clear    from transcripts       of legislative     committee
hearings    on this amendment that the members of the legislature             did not
intend    to circumscribe    the authority   of the commission         in regulating
city gate rates.       The author of the bill    testified    that




                                           p.    636
Honorable    Flack Wallace      - Page 6           (JM-147)




              [t]his     bill   does not affect   the city  gate sales.
              As a matter       of fact,  it states   in the substitute
              specifically       that it doesn't.

       We further      note that the author of what is now section            5.20(b)
submitted    to us a letter      in connection    with this opinion   request.     The
writer   specifically       declared   what he intended       to be the effect        of
section   5.02(b)     on the commission's      authority  over city gate rates:

             [Section      5.02(b)]       simply restates          the traditional
             exclusion       for sales       of gas between a transmission
             pipeline       and a distribution                 company.         It    has
             always been deemed necessary                  for the protection          of
             consumers        for    this    transaction        to be subject          to
             thorough      scrutiny       by a regulatory          body.       [Section
             5.02(b)]         leaves       this      consumer       protection         in
             place..         . .      As already         stated,      [the     Railroad
             Conmission]        practice       and state laws over the years
             have dictated           that     this     sort    of event        must be
             subject       to      comprehensive          review      in     order     to
             protect      the public          interest.        It was never           the
             purpose      of     [section       5.02(b)]      to change,         in any
             way,      the       [commission's]           well-established            and
             well-conceived           regulation       of either        city    gate or
             pipeline-to-pipeline                  transactions.              (Emphasis
             added).

        We are reouired      to construe       an amendment in harmonv with the act
it amends or to which it is added.                 American Surety Co. v. Axtell              Co.,
36 S.W.2d 715 (Tex.            1931);    Shipley       v. Floydada        Independent      School
District,     250 S.W. 159 (Tex.          1923).       Our interpretation         must express
only the will       of the makers of the law, not forced                     or strained,       but
simply     such as the words of the law-in                     their     plain    sense    fairly
sanction     and will     clearly     sustain.        Railroad    Coomission       of Texas v.
Miller,     434 S.W.2d 670 (Tex.          1968).       We may not construe          the statute
so as to ascribe        to the legislature           an unjust     or unreasonable         thing,
if   it   is reasonably         susceptible       of    a construction         that will        not
accomplish      such a result.          Anderson v. Penix,            161 S.W.2d 455 (Tex.
1942).       A statute      must be construed             as a whole,          Texas    Turnpike
Authority     v. Shepperd,        279 S.W.2d 302 (Tex.             1955),     and all     of its
parts harmonized       if possible.          Stark v. Chaison,          50 S.W.Zd 776 (Tex.
1932).     We must give effect         to the entire        act, Martin v. Sheppard,            102
S.W.2d 1036 (Tex.          1937),    according       to the evident         intention     of the
legislature.         State     v.     Jackson,        376    S.W.2d      341     (Tex.     1964).
Therefore,      we must interpret           section      5.02(b)     in such a way as to
harmonize it with the remaining parts of GURA and so as not to ascribe
to the legislature        an unreasonable        result.




                                              p.    637
Honorable     Mack Wallace        - Page 7       (~~-147)




       Accordingly,          we     interpret        section      5.02(b)        to     require       the
commission to hold a rate just and reasonable                         and approve such rate in
certain    transactions         after    it has found the existence                of one of three
specified      facts,      but only       if a city        gate sale-for-resale              to a gas
distribution        utility      is not involved           as the final           consumer        in the
chain of transactions.               In other words, Gas Utility                A can by contract
transfer     gas to Gas Utility            B, such transaction            being governed by the
presumption       created      by section        5.02(b).      Gas Utility         B can, in turn.
transfer     that gas by contract               to a large volume contract                  industrial
customer,     again with this second transaction                      governed      by the section
5.02(b)      presumption.             On the        other      hand,       had     Gas     Utility        B
subsequently        sold the gas it received                 from Gas Utility             A to a gas
distribution          facility        at     the     city     gate,       the    section         5.02(b)
presumption       would be inapplicable                and the commission             could      inquire
into the reasonableness              of the rate charged in the transaction                     between
Gas Utility       A and Gas Utility            B.     If we were to read the statute                     in
any other        way,      our    interpretation          would      effectively         vitiate       the
authority     of the commission             to regulate      city gate transactions.                 This
we are unwilling           to do, since such a result               is clearly       not the intent
of the legislature.

        Accordingly,   the Railroad      Commission is not precluded      by section
5.02(b)     of GURA from fully        investigating    the reasonableness       of the
rate charged in any pipeline-to-pipeline            or other similar   large volume
contract      customer   transaction      when such a rate      will    directly    or
indirectly      affect  a city    gate sale-for-resale      to a gas distribution
utility.

                                            SUMMARY

                   The Railroad        Commission      is not precluded        by
               section     5.02(b)    of article      1446e. V.T.C.S.,       (Gas
               Utility     Regulatory     Act)   from fully      investigating
               the reasonableness          of  the rate      charged      in any
               pipeline-to-pipeline         or other similar        large volume
               contract     customer    transaction      when such rate will
               directly      or indirectly     affect     a city      gate sale-
               for-resale      to a gas distribution       utility.




                                                            JIM      MATTOX
                                                            Attorney  General        of Texas

TOM GREEN
First Assistant          Attorney     General




                                                 p.   638
Honorable   Mack Wallace   - Page 8     (JM-147)




DAVID R. RICHARL'S
Executive Assistant    Attorney   General

Prepared    by Jim Moellinger
Assistant    Attorney General

APPROVED:
OPINION COMMITTEE

Rick Gilpin,   Chairman
Colin Carl
Susan Garrison
Jim Moellinger
Nancy Sutton




                                  p.   639
