
TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN





NO. 03-01-00195-CV



Reliant Energy, Incorporated, Appellant

v.


Public Utility Commission of Texas; Office of Public Utility Counsel; and Steering

Committees for the Cities Served by TXU Electric and Central Power

and Light Company, Appellees





DIRECT APPEAL FROM PUBLIC UTILITY COMMISSION OF TEXAS





	In this direct appeal, we must determine whether the Public Utility Commission of
Texas (the "Commission") erred in promulgating price-to-beat rules that fail to ensure an initial fuel
factor above market costs.  Reliant Energy, Incorporated ("Reliant") brings this suit challenging the
validity of these rules.  Because the Commission acted within its authorized powers, we uphold the
price-to-beat regulations as enacted.


BACKGROUND
	In 1999, the Texas Legislature amended the Public Utility Regulatory Act ("PURA")
and enacted Chapter 39 "to protect the public interest during the transition to and in the
establishment of a fully competitive electric power industry." (1)  Tex. Util. Code Ann. § 39.001(a)
(West. Supp. 2001).  As part of the utility industry deregulation, the Legislature created a statutory
scheme whereby the regulated utility industry would be separated or "unbundled" into three distinct
entities: (1) power generation companies; (2) retail electric providers ("REPs"); and (3) transmission
and distribution utilities.  Id. § 39.051.  Once the statute goes into effect, electric providers formerly
affiliated with regulated utilities will be required to provide electricity to residential and small
commercial customers at a rate of six percent less than the rate in effect on January 1, 1999, adjusted
to reflect the fuel factor as determined by the Commission. (2) Id. §§ 39.202, .406.  This price is
referred to as the "price-to-beat." (3) Id. § 39.202.  In enacting the price-to-beat statute, the Legislature
intended for new REPs not affiliated with the regulated utility industry to enter the market and
compete for customers with affiliated REPs, those that were formerly part of the bundled utility
companies.
	The Commission was mandated to effectuate an across the board six percent
reduction to the base rate portion of the price-to-beat.  Id. § 39.202(b).  As part of the goal to
promote competition, the Commission was given the express authority to make adjustments to the
fuel factor portion of the price-to-beat.  Id.  Once established, the price-to-beat is to remain in effect
for five years, unless the affiliated REP loses forty percent of its customers. (4) Id. § 39.202(a), (e). 
In determining whether the forty percent threshold has been met, the Commission excludes
customers that are dropped by the affiliated REP to a provider of last resort ("POLR").  26 Tex. Reg.
2680, 2708 (2001) (to be codified at 16 Tex. Admin. Code § 25.41).  By statute, POLRs are required
to offer standard retail service packages for certain customers, as designated by the Commission, at
a fixed, nondiscountable rate.  Tex. Util. Code Ann. § 39.106(b).

DISCUSSION
	In three issues, Reliant challenges the Commission's scope of authority under PURA,
both express and implied.  Reliant first contends that PURA requires the Commission to implement,
as part of the Legislative scheme to ensure a competitive market after deregulation, an initial price-to-beat fuel factor above market costs so as to secure immediate profits for new entrants into the
retail electricity market.  Reliant also contests the validity of the Commission's decision, when
evaluating whether incumbent utility providers have lost forty percent of their residential and small
commercial customers, to exclude from market share calculations customers served by a POLR. 
Finally, Reliant contends that rule 25.41, as promulgated by the Commission, violates the reasoned
justification requirement of Texas Government Code section 2001.033.  See Tex. Gov't Code Ann.
§ 2001.033 (West 2000).
	In determining whether the Commission's rule is valid, we must first ascertain
whether the Legislature expressly gave the Commission the power to guarantee nonaffiliated retail
electric providers an initial profit.  See Public Util. Comm'n v. City Public Serv. Bd. of San Antonio,
44 Sup. Ct. J. 1014, 2001 Tex. LEXIS 71, at *15 (Tex. June 28, 2001).  If no express authority is set
forth, we must then consider whether that power is reasonably necessary for the Commission to
fulfill the express function and duties prescribed by the Legislature.  Id.  Where such authority exists,
a rule need only be based on a legitimate position of the agency to be upheld.  Chrysler Motors Corp.
v. Texas Motor Vehicle Comm'n, 846 S.W.2d 139, 142 (Tex. App.--Austin 1993, no writ) (citing
Bullock v. Hewlett-Packard Co., 628 S.W.2d 754, 756 (Tex. 1982)).

Administrative Rule Making
	Reliant contends that the Commission's substantive rule 25.41 is void because the
Commission failed to include in it any mechanism to guarantee initial headroom. (5)  This omission,
argues Reliant, invalidates the rule because a rule that does not ensure sufficient initial headroom
"fails to accomplish the legislative goal of promoting competition."  State administrative agencies
have only those powers expressly conferred upon them by the Legislature.  City Public Serv. Bd. of
San Antonio, 2001 Tex. LEXIS 71, at *15 (citing Public Util. Comm'n v. GTE-Southwest, Inc., 901
S.W.2d 401, 407 (Tex. 1995); State v. Public Util. Comm'n, 883 S.W.2d 190, 194 (Tex. 1994)).  But
an agency may also have implied powers--those that are reasonably necessary to carry out the
express responsibilities given to it by the Legislature.  Id. (citing GTE-Southwest, 901 S.W.2d at
407).  However, the law prohibits agencies from exercising what is effectively a new power, or a
power contradictory to the statute, based merely on a claim that the power is expedient for
administrative purposes.  Id. (citing GTE-Southwest, 901 S.W.2d at 407 (quoting Sexton v. Mt. Olivet
Cemetery Ass'n, 720 S.W.2d 129, 137-38 (Tex. App.--Austin 1986, writ ref'd n.r.e.))).
	Here, Texas Utility Code section 39.202 dictates how the Commission is to determine
the price-to-beat.  See Tex. Util. Code Ann. § 39.202(a), (b).  The statute requires the Commission
to set the price-to-beat at a rate "six percent less than the affiliated electric utility's corresponding
average residential and small commercial rates, on a bundled basis, that were in effect on January
1, 1999, adjusted to reflect the fuel factor," as determined by the Commission.  Id. § 39.202(a). 
Because there is nothing in the statutory language pertaining to headroom, we must look to the entire
statutory scheme to determine whether the Commission was required to consider headroom in setting
the initial price-to-beat.  See State v. Public Util. Comm'n, 883 S.W.2d at 196.
	In ascertaining the scope of an agency's authority, we give great weight to the
contemporaneous construction of a statute by the administrative agency charged with its
enforcement.  Id. at 197 (citing Dodd v. Meno, 870 S.W.2d 4, 7 (Tex. 1994); Tarrant Appraisal Dist.
v. Moore, 845 S.W.2d 820, 823 (Tex. 1993)).  We recognize that the Legislature intends an agency
created to centralize expertise in a certain regulatory area  "be given a large degree of latitude in the
methods it uses to accomplish its regulatory function."  Id.
	According to the Commission, rule 25.41 reflects a reasonable balance between the
competing interests of REPs and customers--namely, fostering competition while simultaneously
providing customers a prompt reduction from regulated rates.  Reliant does not contest the
Commission's power to establish the initial price-to-beat.  Instead, Reliant contends that the
Commission was required to include in rule 25.41 a mechanism guaranteeing that the price-to-beat
would be above market cost and that, in failing to do so, it ignored the legislative goals underlying
PURA and deregulation--establishing a competitive electricity market.
	PURA encompasses competing policy considerations: electric consumers' interest
in lowering costs versus electric retailers' interest in establishing competition.  This Court does not
decide matters of policy.  Our role is limited to evaluating whether the Commission acted contrary
to the statute.  Reliant argues that in setting the initial price-to-beat, "the Commission could have
provided a mechanism that would have established an adequate margin between the price-to-beat
and the market cost of power," yet "the final rule contained no provision ensuring adequate initial
headroom."  Reliant concedes that the Commission had the authority to set the initial price-to-beat. 
Although the Commission could ensure adequate initial headroom, nothing in the statute requires
it to do so; neither can such a requirement be found upon examination of the entire statutory scheme. 
Therefore, we cannot say that the Commission erred by not including a provision guaranteeing new
entrants adequate initial headroom to secure a profit.  Accordingly, Reliant's first issue is overruled.

Provider of Last Resort
	Reliant next contends that, because the PURA provides no basis for excluding POLR
customers from the target forty percent affiliated REP reduction rate calculation, rule 25.41 is
invalid.  Here, Reliant asserts that, to the extent the Commission exercised an implied power to insert
a non-statutory exclusion in the rule, the Commission overstepped its authority.  In deciding whether
the Commission exceeded its authority, we ask if the rule is in harmony with the general statutory
objectives.  Chrysler Motors Corp., 846 S.W.2d at 141.  The stated purpose of PURA Chapter 39
is to facilitate the transition between the regulated and deregulated utility market.  See Tex. Util.
Code Ann. § 39.001(a).
	Reliant argues that excluding POLR customers from the forty percent target
calculation thwarts the overall intent of PURA section 39.202(e), which, Reliant asserts, "is simply
to ensure that a threshold percentage of the residential and small commercial loads formerly served
by integrated utilities is served by entities other than the affiliated REP before price-to-beat
restrictions are lifted."  The Commission responds by claiming that the POLR provision directly
serves the legislative purpose of the statute by counting only those customers lost to new REPs
through the competitive process.
	In construing the Commission's authority, we must look to the statute as a whole, not
section 39.202(e) in isolation.  It is undisputed that the intent of PURA is to provide a smooth
transition from a regulated utility industry to a deregulated one.  We cannot require the Legislature
to include every detail and anticipate all unforeseen circumstances in statutes delegating authority
to the Commission.  To do so would defeat the purpose of delegating legislative authority.  Railroad
Comm'n v. Lone Star Gas Co., 844 S.W.2d 679, 689 (Tex. 1992).  One of the bill's sponsors,
Representative Wolens, commented at the House floor discussion on May 20, 1999 that the
deregulation statute is intended to give competitors an opportunity to enter and compete in the
electricity market.  He explained that the forty percent provision was to be used as a tool to ascertain
market power: "We say that as a matter of market power, if the incumbent loses 40% of their
customers, competition begins and then they can lower their price."
	These comments bolster the Commission's argument that the forty percent provision
was intended to be used as an indicator for a functioning competitive market.  Excluding customers
served by a POLR is consistent with the overall legislative scheme of calibrating the competitive
market place.  A rule need only be based on a legitimate position of the agency to be upheld; it "need
not be wise, desirable, or even necessary."  Chrysler Motors Corp., 846 S.W.2d at 142.  Thus, to the
extent that the Commission exercised an implied power in excluding POLRs from the threshold forty
percent determination, we cannot say such action is incongruent with the legislative purpose of
promoting competition.  Therefore, we overrule Reliant's POLR issue.

Reasoned Justification
	One of the stated purposes of the APA is to provide for public participation in the
rulemaking process.  See Tex. Gov't Code Ann. § 2001.001.  Accordingly, sections 2001.021-.034
establish a system of informal or "notice-and-comment" rulemaking.  Id. §§ 2001.021-.034; see also
Unified Loans, Inc. v. Pettijohn, 955 S.W.2d 649, 651 (Tex. App.--Austin 1997, no pet.).  In order
to adopt a rule, an agency must provide: (1) public notice; (2) an opportunity for and full
consideration of comments; and (3) a reasoned justification for the rule enacted.  See Tex. Gov't
Code Ann. §§ 2001.023, .029, .033 (West Supp. 2001); see also McCarty v. Texas Parks & Wildlife
Dep't, 919 S.W.2d 853, 854 (Tex. App.--Austin 1996, no writ). 
	Reliant does not take issue with whether the Commission satisfied the requirements
that it provide public notice and an opportunity for comments before adopting the price-to-beat
rules. (6)  The controversy instead concerns whether the Commission provided a reasoned justification
for rule 25.41.  This is the first time that we have been explicitly called upon to construe the reasoned
justification requirements since the 1999 amendments to the APA.  After a careful review of the
changes to section 2001.033, we conclude that the Legislature did not intend to effectuate a material
change.
	To satisfy the reasoned justification requirement, an agency's order adopting a rule
must explain how and why the agency reached the conclusion it did.  See National Ass'n of Indep.
Insurers v. Texas Dep't of Ins., 925 S.W.2d 667, 669 (Tex. 1996) ("NAII").  A reasoned justification
must include: (1) a summary of comments the agency received from interested parties; (2) a
summary of the factual basis for the rule; and (3) the reasons why the agency disagrees with a party's
comments.  Tex. Gov't Code Ann. § 2001.033(1); see also Texas Hosp. Ass'n v. Texas Workers'
Comp. Comm'n, 911 S.W.2d 884, 886 (Tex. App.--Austin 1995, writ denied).
	In addition to these three criteria, the agency must provide a reasoned justification for
the rule as a whole.  See Texas Hosp. Ass'n, 911 S.W.2d at 886 (citing Railroad Comm'n v. Arco Oil
& Gas Co., 876 S.W.2d 473, 492 (Tex. App.--Austin 1994, writ denied); Chrysler Motors Corp.,
846 S.W.2d at 143).  By requiring an agency to expressly state a reasoned justification for a rule, the
Legislature sought to bring the decisionmaking process into the open.  See Arco, 876 S.W.2d at 480;
see also NAII, 925 S.W.2d at 669 ("Requiring an agency to demonstrate a rational connection
between the facts before it and the agency's rules promotes public accountability and facilitates
judicial review.").
	An agency rule not adopted in substantial compliance with the rulemaking provisions
of the APA section is voidable.  Tex. Gov't Code Ann. § 2001.035(a).  The reasoned justification
requirement imposed by section 2001.033 confines a reviewing court's inquiry to the face of the
order finally adopting the rule.  See Arco, 876 S.W.2d at 480 (citing Ron L. Beal, The Scope of
Judicial Review of Agency Rulemaking: The Interrelationship of Legislating and Rulemaking in
Texas, 39 Baylor L. Rev. 597, 690 (1987)); see also Methodist Hosps. v. Industrial Accident Bd., 798
S.W.2d 651, 659 (Tex. App.--Austin 1990, writ dism'd w.o.j.).  In Methodist Hospitals, this Court
held that the 

question of substantial compliance . . . is a question of law to be determined solely
from the face of the [adopting] order . . . .  So much is necessarily implied by the
statute itself.  Substantial compliance is not a question of fact, to be determined by
evidence adduced subsequently in a reviewing court, concerning whether the agency
had unstated factual bases for its rule or unstated reasons for disagreeing with party
submissions and proposals, and what these were in fact, or whether any stated factual
bases or reasons for disagreeing were in fact considered and accepted by the agency
on sufficient evidence.


798 S.W.2d at 659 (emphasis in original). 
	Therefore, to substantially comply with the reasoned justification requirement, the
four corners of the agency's final notice must present the agency's justification in a "relatively clear,
precise, and logical fashion." (7) Arco, 876 S.W.2d at 492.  Furthermore, an agency's order must
accomplish the legislative objectives underlying the reasoned justification requirement and come
fairly within the character and scope of each of the statute's requirements in specific and
unambiguous terms.  See NAII, 925 S.W.2d at 669 (citing Arco, 876 S.W.2d at 491; Methodist
Hosps., 798 S.W.2d at 654).  The essential legislative objective of the reasoned justification
requirement is

to give notice of the factual, policy, and legal basis for the rule, as adopted or
construed by the agency, in light of all the evidence gathered by the agency and
submitted by interested parties during the comment period.  This overall objective
can be broken down into two fundamental goals of the reasoned justification
requirement: (1) to ensure the agency fully considered the comments submitted and
(2) to provide the factual basis and rationality of the rule as determined by the
agency.


Arco, 876 S.W.2d at 491.
	We review a challenge to the reasoned justification requirement using an "arbitrary
and capricious" standard, with no presumption that facts exist to support the agency's order.  See
Texas Hosp. Ass'n, 911 S.W.2d at 887; see also Arco, 876 S.W.2d at 490-91.  In applying an
arbitrary and capricious test to agency rulemaking, we examine whether the agency's explanation
of the facts and policy concerns it relied on when it adopted the rule demonstrates that the agency
considered all the factors relevant to the objectives of the agency's delegated rulemaking authority,
and engaged in reasoned decisionmaking.  See Arco, 876 S.W.2d at 491.  An agency acts arbitrarily
if in making a decision it commits any of the following errors: (1) omits from its consideration a
factor that the Legislature intended the agency to consider in the circumstances; (2) includes in its
consideration an irrelevant factor; or (3) reaches a completely unreasonable result after weighing
only relevant factors.  Statewide Convoy Transps. Inc. v. Railroad Comm'n, 753 S.W.2d 800, 804
(Tex. App.--Austin 1988, no writ); see also Bullock v. Hewlett-Packard Co., 628 S.W.2d 754, 756
(Tex. 1982) (stating a rule is arbitrary and capricious when it lacks a legitimate reason to support it).
	As set out in the Utility Code, the Commission's statutory mandate is "to protect the
public interest during the transition to and in the establishment of a fully competitive electric power
industry."  Tex. Util. Code Ann. § 39.001.  The Legislature delegated to the Commission the power
to adopt rules pursuant to this mandate.  Id. § 11.02(c).  In particular, the Commission must set the
price-to-beat by decreasing base rates by six percent and adjusting the fuel factor to account for
changes in the market.  Id. § 39.202.  Thus, within the four corners of the Commission's order
adopting the price-to-beat rules, we must be able to determine that the Commission considered and
found facts to support its decision that the initial price-to-beat need not include sufficient headroom
to ensure nonaffiliated REPs would realize a profit.
	To determine whether the Commission's order adopting the price-to-beat rules
satisfies the reasoned justification requirement of the APA, we consider each substantive element
set out in the statute.  See Tex. Gov't Code Ann. § 2001.033; see also Methodist Hosps., 798 S.W.2d
at 659.  The first element is "a summary of comments received from parties interested in the rule that
shows the names of interested groups or associations offering comment on the rule and whether they
were for or against its adoption."  Id.  The Commission's order sets out expressly and at some length
the information required by the first element.  Because Reliant does not complain that the summary
of comments is absent from the order; we need not consider this item further.
	The crux of Reliant's challenge concerns the second and third elements of the
reasoned justification requirement: "a summary of the factual basis for the rule as adopted which
demonstrates a rational connection between the factual basis for the rule and the rule as adopted" and
"the reasons why the agency disagrees with party submissions and proposals."  Id.  Reliant contends
that the adopting order fails to explain why the Commission rejected proposed solutions that would
have remedied the problem of inadequate headroom.  In particular, Reliant argues that the order fails
to demonstrate an adequate consideration of lack of an initial headroom amount that would ensure
a profit margin and encourage competition.  Reliant contends that the statements of justification in
the adopting order are merely conclusory and do not substantially comply with the reasoned
justification requirement of the APA.  Reliant recognizes that the Commission did consider that the
initial headroom might be below market value. (8)  Reliant goes on to comment, however, that the "rule
should have been drafted in a way that would have avoided this problem."
	The order acknowledges that determining the appropriate mechanism to use in
adjusting the fuel factor portion of the price-to-beat "was by far the most controversial aspect of"
rule 25.41.  The Commission urges that several portions of the order adopting the price-to-beat rule
satisfy the reasoned justification requirement.  Specifically, the order recognizes that the

lack of headroom demonstrates that the economics of serving [price-to-beat]
customers make[s] it unlikely that . . . customers will benefit from competition.  It
is illogical to remedy this problem by increasing the [price-to-beat] to a level that
exceeds the rate that these customers would have paid with continued regulation in
order that they can benefit from competition.


This language precisely states the reasons why the new rules were adopted, namely to ensure
customers will realize a rate reduction after deregulation.
	Additionally, the Commission points out that rule 25.41(g) authorizes the
Commission to make fuel factor adjustments in three situations: (1) if the affiliated REP
demonstrates that the existing fuel factor does not adequately reflect significant changes in the
market price of natural gas and purchased energy; (2) upon a finding by the Commission that the
affiliated REP will be unable to maintain its financial integrity; or (3) the Commission may adjust
the price-to-beat under PURA section 39.262, the "true-up" provision.  The Commission contends
that these provisions justify its decision not to increase the initial headroom in the price-to-beat rule
because they provide viable alternatives to setting an artificially high price-to-beat as a means of
ensuring competition.
	These comments provide a reasoned justification for the Commission's conclusion
that the alternative mechanisms proposed in lieu of creating greater headroom are more efficacious
to accomplish the dual legislative purpose of providing customer savings and encouraging retail
competition.  The Commission analyzed whether other measures would adequately ensure
competition and its order explains why requiring sufficient initial headroom to ensure profitability
is unnecessary to the legislative scheme of developing competition and protecting consumers.  See
Methodist Hosps., 798 S.W.2d at 659.  Thus, this portion of the rule satisfies the reasoned
justification requirements.
 Reliant next argues that the order fails to justify the rejection of an electricity
commodity index requested by Reliant and other parties.  The Commission argues that its responses
to arguments made by interested parties fully explain the reasons it concluded that the rule as enacted
adequately encourages competition.  For example, in its order, the Commission explained:

It is not appropriate to move to such an index until the stranded costs of the affiliated
PGC are finalized as any stranded cost charges . . . will not be finalized until stranded
costs are finalized.  At that time, if the price to beat for an affiliated REP is in danger
of being below market because of high market prices for generation, the return of any
excess mitigation, or negative stranded costs if the commission determines that it has
the authority to require the return of negative stranded costs, can be used to address
concerns about headroom and thereby mitigate the effects of high market prices on
price to beat customers.  Subsection (g)(1)(F) has been added to allow for this
transition and prescribes these preconditions and the methods by which an affiliated
REP must transition to the use of an electricity index.


Thus, the Commission was convinced that adequate safeguards exist for offsetting changes in market
conditions so that the price-to-beat need not be adopted to the exclusion of all other remedies.  These
statements secure the legislative objectives that underlie the reasoned justification requirement. 
While the reasoned justification requirement does not demand that an agency provide detailed
findings of fact and conclusions of law, see Chrysler Motors Corp., 846 S.W.2d at 143, an agency
must provide more than a general reference to statutory authority, Arco, 876 S.W.2d at 494; see also
Beal, 45 Baylor L. Rev. at 33 ("Mere reiteration of the statutory language does not ensure that the
agency relied on and informed interested parties of the underlying factual basis for the rule,
according to the legislative objective.").  Here, the Commission satisfied this burden, having noted
in its order its reasons for disagreeing with the submissions and proposals it received.
 Reliant's final contention is that, in rejecting a move to an electric commodity index,
the Commission failed to justify its disregard for the balanced plan the Legislature crafted to
stimulate competition in the period before the 2004 true-up and to protect affiliated REPs from
devastating losses.  This argument is inextricably linked to the Commission's rejection of an
electricity index.  In its order, the Commission explained that it disagreed with Reliant's position
because after "2002, the market price of [electricity] generation will likely be set by gas-fired
generation, and as such, it is appropriate to apply the changes in the market price of natural gas and
purchased energy to the entire fuel factor in order to maintain the level of headroom in the price to
beat."  The Commission's reasons for its rejection of an electric commodity index is directly
responsive to Reliant's expressed concerns and satisfies the reasoned justification requirement.

CONCLUSION
	Having overruled Reliant's three issues, we sustain the validity of rule 25.41 as
enacted by the Commission.


  
					Jan P. Patterson, Justice
Before Justices Kidd, Yeakel and Patterson
Affirmed
Filed:   November 15, 2001
Publish
1.        Pursuant to this goal, the Legislature also amended section 11.002 to provide the Public Utility
Commission of Texas with "authority to make and enforce rules necessary to protect customers . . .
consistent with the public interest."  Tex. Util. Code Ann. § 11.002(c) (West Supp. 2001).
2.        "Fuel factor" is a term of art that is not statutorily defined.  However, the Commission has
prescribed to it a particular meaning in its substantive rules.  See Tex. Gov't Code Ann. § 311.011
(West 1998); 16 Tex. Admin. Code § 25.237 (West 2001).  Rule 25.41(g) mandates utilities to
utilize substantive rule 25.237, its existing fuel factor rule, to set the initial price-to-beat fuel factor. 
See 26 Tex. Reg. 2680, 2707 (2001) (to be codified at 16 Tex. Admin. Code § 25.41); see also 16
Tex. Admin. Code § 25.237(c) (requiring utilities to prove that the expenses to be recovered through
the fuel factor are reasonable estimates of their eligible fuel expenses during the period the factor is
to be in effect).
3.        The price-to-beat is comprised of two components, the base rate and the fuel factor rate, and
is defined as the cost at which an affiliated retail electric provider must make electricity available
to residential and small commercial customers on a bundled basis.  Tex. Util. Code Ann. 39.202(a)
(West Supp. 2001).  Bundled basis refers to the rates charged before deregulation.
4.        In determining whether a REP has lost forty percent of its customer base, the Commission will
consider whether the REP can show that the electric power consumption of the relevant customer
group served by nonaffiliated REPs meets or exceeds forty percent of the total number of kilowatt-hours consumed by residential customers and forty percent of the difference between the total
number of kilowatt-hours consumed by small commercial customers served by the affiliated electric
utility during the calendar year 2000 minus the aggregated load served by the affiliated REP.  Tex.
Util. Code Ann. § 39.202(e).
5.        "Headroom" refers to the margin between the price-to-beat and the new retailer's costs of
providing electricity.
6.        Proposed rule 25.41, relating to the price-to-beat, was published in the Texas Register on
November 20, 2000.  Initial comments on the rule were filed December 11, 2000 by approximately
thirteen interested organizations.  Reply comments were filed on January 2, 2001.  The Commission
held public hearings on proposed rule 25.41 on January 11th and 22nd, 2001.  Representatives from
approximately fifteen interested parties and organizations attended the January 11th hearing while
only about eight were present at the hearing on the 22nd.  Reliant participated in both public hearings
and the initial comment proceeding.  The final order was issued March 20, 2001.
7.        See also Ron L. Beal, The Scope of Judicial Review of Agency Rulemaking: The
Interrelationship of Legislating and Rulemaking in Texas, 39 Baylor L. Rev. 597, 688 (1987) 
("[T]he test of substantial compliance should not allow an agency to 'fill in the blanks' with
meaningless rhetoric and thereby frustrate the legislative intent of reasoned decision making.  The
legislative intent undisputably requires a focused analysis by the agency of all relevant factual, policy
and legal issues resulting not only in a justification, but a reasoned justification of the rule.").
8.        In its brief, Reliant comments, "The Commission undoubtedly realized that the margin between
an affiliated REP's commodity costs and its price-to-beat may be negative."

