         .   .

     -           -




                                 The Attorney                    General                 of Texas
                                                         December       8,    1981
MARK WHITE
Attorney General


SupremeCowl BulldIng           Mr. George l-l. Cowden, Chairman                           Opinion     No.    W-406
P. 0. Box 12545                Texas Public   Utility   Commission
AIlstIn. TX. 78711             7800 Shoal Creek Boulevard                                 Be:     Appeals     to Texas       Public
51214752501                    Suite 400N                                                 Utility           Commission            of
Telex 9101874-1367             Austin.  Texas     78757                                   municipal            rate          orders
Telecooier 5121475J3266
                                                                                          regarding       municipally         owned
                                                                                          electric    utilities
1607 MaIn St.. suite 1400
Dallas, TX. 75201              Dear Chairman     Cowden:
21417428944

                                       You have requested     an opinion on questions      concerning   the meaning
4824 Alberta Ave.. Suite 160   of several     provisions    of the Public    Utility     Regulatory   Act,    article
El Paso, TX. 79905             1446(c),     V.T.C.S.     [hereinafter    "the     act"].      The hey      sections,
915/533.34S4                   26(c)-(e),    read as follows:

1220 Dallas Ave.. Suite 202
                                                   (c)      Ratepayers        of a municipally          owned gas or
Houston. TX. 77002                         electric       utility       outside      the municipal        limits      may
7131850.0665                               appeal any action              of the governing           bady affecting
                                           the rates of the municipally                    owned gas or electric
                                           utility        through        filing      with     the     commission        or
505 Broadway, Suite 312
Lubbock. TX. 79401
                                           railroad        commission,         as appropriate,          petition      for
5061747.5238                               review signed by the lesser                   of 10,000 or 5 percent
                                           of the ratepayers               served     by such utility           outside
                                           the     municipal          limits.          For    purposes        of    this
4309 N. Tenth. Suite 6
                                           subsection        each person           receiving      a separate        bill
McAllen. TX. 78501
512B524547                                 shall be considered               as a ratepayer.           But no person
                                           shall       be    considered           as    being      more      than     one
                                           ratepayer         notwithstanding             the    number       of    bills
200 u*kl Plaza, .9&e 400                   received.           Such petition             for    review       shall      be
San Antonio. TX. 75205                     considered          properly         signed      by any person.              or
51a2254191
                                           spouse        of     any       such      person,       in     whose      name
                                           residential         utility       service     is carried.
An Equal Opportunity/
Atflrrnative Action Employer                      (d)   The appeal    process     shall    be instituted
                                           within     30 days    of   the   final     decision    by the
                                           governing    body with the filing        of a petition       for
                                           review with the commission         or railroad      cormsission
                                           and copies     served   on all parties       to the original
                                           rate proceeding.




                                                                             p.   1379
                                                                                                            .
Mr. George     M. Cowden - Page 2         (MJ-406)

                                                                                                    -   -


                   (e)     The commission   or railroad    comission
             shall   hear such appeal     de novo and by its     final
             order   shall    fix such rates   as the municipality
             should have fixed     in the ordinance    from which the
             appeal was taken.

      Your    first   question     is:

                    Since the commission has jurisdiction                   over an
             appeal     from a municipal         rate     order      regarding      a
             municipally       owned utility,      does this jurisdiction
             include      jurisdiction       to set     rates      charged      both
             outside       and within       municipal       limits?         If   the
             commission        has jurisdiction         to    set     rates     both
             within    and outside      municipal     limits,       then, when a
             petition      for review is filed          pursuant       to section
             26(c).     is    the    commission   required        to    set rates
             charged both outside         and within municipal            limits?

        Municipalities          are     excluded     from    the    definitions     of   “public
utility”      or “utility”         set forth      in section     3(c)   of the act.      But see
V.T.C.S.      art.    1446~ )49(a)        (municipality      within    definition    of ‘“retail
public    utility”         for    purposes     of -article      VII of the act);          Public
Utility     Commission v. City of Coahoma, 25 Tex. Sup. Ct. J. 155 (Nov.
25, 1981).         Although      section    27(f)   prescribes      that a municipally      owned
utility      is subject         to the reporting          requirements       of thst~ section,
article     III,    which prescribes         the basic jurisdiction           of the regulatory
authorities        subject     to the act, provides         at section      20:

                      Nothing in this article           shall be construed       to
              confer      on the colmnission         or railroad       conaaission
              power or jurisdiction           to regulate     or supervise      the
              rates or service          of any utility      owned and operated
              by any municipality            within    its boundaries       either
              directly          or     through      a     municipally         owned
              corporation,         or to affect         or limit      the power,
              jurisdiction,         or duties of the municipalities            that
              have      elected      to regulate       and supervise        public
              utilities         within     their    boundaries,        except     as
              provided       in this Act.        (Emphasis added).

       Your query is whether or not section                  26(e).    which requires        the
commission     to “fix    such rates as the municipality              should have fixed        in
the ordinance       from which the appeal was taken,”              impliedly     confers   upon
the commission        the authority      to set rates       for those customers          inside
the city    limits     upon an appeal under section            26(c).      We conclude      that
it does not.        Under section     3(c).    a municipslity       is expressly      excluded
from    the    definition      of    “public     utility.”         Section      20 expressly
excludes    the commission       from regulating       a municipal      utility    within    its
boundaries      “except    as provided      in this Act.”        Whenever the act seeks
to make exceptions          to these exclusions,          it does so expressly,           as In
section    27(f)    concerning     reports    to the commission.         and section      49(a)




                                          p.   1380
Mr. George      M. Cowden - Page 3 (HW-406)




involving     certification.              It does not           follow  that there could be an
implied     inclusion      of      a    subject  that           had previously   been expressly
excluded.

      Your second        question         is   as follows:

                   If in sn appeal brought       pursuant  to section
             26(c)   the commission may set rates charged outside
             municipal   limits  only.   then in setting  such rates,
             may the commission     consider  system-wide  data?

      Section      22 of     the    act    provides       as follows:

                      Notwithstanding               any other         provision         of this
              section.      municipalities              shall continue            to regulate
              each kind of local                   utility        service       inside      their
              boundaries          until          the      commission            has      assumed
              jurisdiction         over the respective                   utility       pursuant
              to this Act.           If a municipality                does not surrender
              its jurisdiction,               local     utility       service       within the
              boundaries        of      the municipality                shall       be exempt
              from      regulation             by     the      commission           under      the
              provisions       of this Act to the extent                       that this Act
              applies       to local            service,         and the municipality
              shall       have,          regarding             service           within        its
              boundaries,          the         right        to      exercise         the      same
              regulatory         powers         under the same standards                       and
              rules     as the commission,                   or other         standards        and
              rules not inconsistent                   therewith.         Notwithstanding
              any such election,                 the commission             may consider           a
              public     utility’s          revenues and return on investment
               in exempt areas               in fixing           rates     and charges           in
              nonexempt areas,              and may also exercise                   the powers
               conferred      necessary           to give effect           to orders under
               this    Act,     for       the benefit              of nonexempt            areas.
              Likewise.        in      fixing         rates        and charges            in the
               exempt area,           the governing               body may consider                a
               public    utility’s          revenues and return on investment
               in    nonexempt         areas.            Utilities         serving         exempt
               areas      shall          be        subject          to      the       reporting
               requirements        of this Act.                 Such reports           shall     be
               filed   with the governing                  body of the municipality
               as well as with the commission.                            Nothing        in this
               section      shall       limit        the duty and power of the
               commission         to       regulate          service         and     rates       of
               municipally           regulated             utilities            for      service
              provided        to     other          areas       in     Texas.         (Emphasis
               added).

        The Texas Supreme Court,        In City of Corpus Christ1                                      v. Public
Utility     Commission,     572  S.W.Zd    290  (Tex.  1978).  held                                     that the
commission     could    consider   system-wide    data in setting                                      rates for




                                                  p.   1381
Mr. George    M. Cowden - Page 4          @W-406)


                                I
customers    within     the city        limits     which    were   served    by a public
utility.      Although     a municipally          owned utility       is not    a “public
utility”    for    purposes      of   section     22.    the final     sentence   of   that
section   clearly    imports      that the commission         has the same powers with
regard to municipal       utilities      operating     outside   the city limits     as are
given with regard       to public       utilities     under the former provisions        of
that section.       Since under those provisions             data from nonexempt areas
may be used,      the commission        may consider       system-wide    data in fixing
rates in a section       26(c)     appeal.

      Your   third     and fifth    questions     are    as follows:

                      Inan appesl         brought       pursuant       to section
             26(c),    does the commission             have power to compel
             the municipally-owned             utility       to provide       data,
             such as expense,         revenue,     rate base, and financial
             information,        relevant     to the ratemaking           issues?
             If so, can the commission               compel the municipally
             owned     utility        to    provide        such      data    on     a
             system-wide       basis?      Are there        any limits     on the
             commission’s        power     to    require        the   municipally
             owned utility          to provide        data     relevant    to the
             ratemaking      issues?

                   Does    the   commission     have      jurisdiction      to
             compel   the municipally-owned         utility       to provide
             data,   such as customer        lists,      relevant      to the
             determination     of the validity      of the petition       for
             review filed    pursuant to section       26(c)?

      Section     27 of the act provides               that the commission         may require
the reporting       of certain information             from public utilities,        including
municipal    utilities:

                     (a)     Every     public    utility        shall    keep and
             render      to the regulatory        authority       in the manner
             and       form     prescribed        by      the      commission...
             commission        uniform      accounts        of    all     business
             transacted.        The commission or railroad             commission
             t=Y     also    prescribe       forms     of    books.     accounts,
             records,       and    memoranda       to     be     kept    by     such
             utilities,      including     the books,      sccounts.       records,
             and memoranda of the rendition               of and capacity        for
             service      as well as the receipts              and expenditures
             of    moneys,     and any other           forms,      records,      and
             memoranda which in the judgment of the commission
             or railroad       commission      may be necessary           to carry
             out any of the provisions            of this Act.

                      . . . .




                                           p.   1382
Mr. George    M. Cowden - Page 5             @W-406)




                    (c)   Every public     utility     shall   keep separate
             accounts    to show all profits          or losses      resulting
             from the sale       or lease     of appliances,         fixtures.
             equipment,    or other merchandise.             No such profit
             or loss    shall   be taken into        consideration       by the
             regulatory    authority   in arriving        at any rate to be
             charged for service      by any such public          utility,     to
             the extent     thst such merchandise           is not integral
             to the provision      of utility      service.

                   (d)   Every public      utility     is required      to keep
             and render      its    books,      accounts,      records,     and
             memoranda accurately       and faithfully        in the manner
             and form prescribed       by the commission         or railroad
             commission,    and to comply with all            directions     of
             the regulatory      authority      relating    to such books,
             accounts,   records,     and memoranda.        The regulatory
             authority   may require      the examination       and audit of
             all accounts.

                      . . . ,

                     (0           For    the   purposes     of   this       section,
             “public            utility”     includes      “municipally         owned
             utility.”             (Emphasis added).

        Subsections    (a) and (d) require       each public   utility   to render its
books,     accounts    and records        to the commission.        Municipally    owned
utilities      are subject    to this requirement.        Sec. 27(f).      Furthermore.
section     16 provides     the commission      with “the general      power...    to do
all    things,    whether    specifically     designated    in this Act or implied
herein,     necessary     and convenient      to the exercise      of this    power and
jurisdiction.”        That section      goes on to state:

             The    commission      may      call     and    hold     hearings,
             administer     oaths,     receive      evidence      at hearings,
             issue     subpoenas      to    compel      the     attendance      of
             witnesses      and    the     production        of     papers    and
             documents,    and make findings          of fact and decisions
             with respect      to administering           the provisions        of
             this Act or the rules,          orders,     or other actions       of
             the commission.        (Emphasis added).

       We conclude     that since section   26(c)   authorizes   the commission    to
review    the ordinance      of the city    upon the filing       of the petition
therein,     the commission      may compel     the production      of informa,tion
necessary     to perform that function     pursuant    to the portion   of section
16 cited    above.     Thus. the commission   may compel the production      of the
information     specified   in your questions     three and five.

      Your   fourth       and sixth      questions     respectively       are as follows:




                                              p.   1383
Hr.     Ccorge U. CuwJcn - i’:tgc! 6           (MU-406)




                    Must a petition       for review    brought   pursuant
              to section     26(c)  be filed    within    30 days of the
              final   decision     of   the   governing     body   of   the
              municipality,     in accordance   with section     26(d)?

                    Must   the    commission              hear  appeals   brought
              pursuant   to section    26(c)             de novo.  in accordance
              with section    26(e)?

         The query here is whether  the                provisions       of sections   26(d)   and
(e)     apply  to appeals under section                 26(c).        Section   26 provides    in
full:

                    (a)    Any party     to a rate proceeding    before
              the governing     body of a municipality      may appeal
              the   decision     of    the   governing  body   to    the
              commission    or railroad    commission.

                     (b)     Citizens    of a municipality      may appeal
              the decision        of the governing     body in any rate
              proceeding         to   the    commission      or   railroad
              commission      through   the filing    of a petition      for
              review     signed     by the    lesser  ~of 20,000     or    10
              percent    of the number of qualified        voters  of such
              municipality.

                      (c)     Ratepayers      of a municipally           ovned gas or
              electric      utility     outside      the municipal         limits     may
              appeal any action           of the governing            body affecting
              the rates of the municipally                 owned gas or electric
              utility       through     filing       with      the    commission         or
              railroad       commission,       as appropriate,          petition       for
              review signed by the lesser                of 10.000 or 5 percent
              of the ratepayers            served     by such utility            outside
              the     municipal       limits.          For      purposes       of    this
              subsection       each person         receiving       a separate        bill
              shall be considered            as a ratepayer.           But no person
              shall      be    considered        as     being      more      than     one
              ratepayer        notwithstanding           the     number of         bills
              received.          Such petition           for     review      shall      be
              considered         properly       signed       if     signed      by    any
              person.      or spouse        of any such person,               in whose
              name residential         utility      service      is carried.

                     (d)   The appeal   process     shall    be instituted
              within     30 days    of  the   final     decision    by the
              governing    body with the filing       of a petition       for
              review with the commission        or railroad      commission
              and copies     served  on all  parties      to the original
              rate proceeding.




                                             p.   1384
    Hr. George     M. Cowden - Page 7               (MU-406)
a



                        (e)     The cossnission    or railroad   emission
                  shall   hear such appeal      de novo and by its     final
                  order   shall    fix  such rates    as the municipality
                  should have fixed      in the ordinance    from which the
                  appeal was taken.       (Emphasis added).

          Section    26 thus provides     for   three  forms of                     appeal   from   the
    governing    body of the municipality     to the commission:

           (a)    Party      to proceeding          before     commission;

           (b)    Petition      of   citizens of           the municipality;

           (c)    Petition      of   ratepayers         outside     the city   limits.

           All    three      provisions      refer       to sn “appeal”        of  the municipal
    ordinance,       while subsections         (d) and (e) refer        to the “appeal      process”
    and “such appeal .‘I          Also,    subsection        (e) refers    to the “petition        for
    review.”       All five provisions           are grouped together         under one section.
    Because      of    this,    we conclude           that    both   subsections     Cd) and (4
    prescribe       the procedure       for the .three          types of appeal      listed     under
    (a),    (b),     and (c).       Therefore,        subsections     (d) and (e)     do apply to
    appeals made under subsection                (c).

           Your seventh        question        is   as follows:

                         If the commission      is required     to hear appeals
                  brought    pursuant    to section       26(c)   de novo,     does
                  that require     the commission     to establish      the total
                  revenue    requirement     of    the utility      even if     the
                  petition     for    review      is    limited      to    revenue
                  allocation    and rate design?

          Under section      26(e)  the review of the city ordinance          is de novo.
    Since the effect      of this requirement       is that the commission must make
    a complete       redetermination      of   the    rates,     the    commission    would
    necessarily      be   required    to   redetermine       the   revenue   requirement.
    However,    this    would not preclude        the commission        from honoring     an
    agreement of the parties        as to what the revenue requirement          would be.

           Your   final      question     is    as follows:

                         In a petition     for review brought pursuant   to
                  section    26(c).  do all of the ratemaking provisions
                  of article     VI apply?

           As previously      stated,    municipalities     are      excluded     from              the
    meaning    of    “public  utility”     and “utility”      by section       3(c).                All
    provisions    under article     VI refer    to public  utilities      or utility.                No
    exceptions     are made for municipal        utilities as under sections          27            and
    49.    Therefore,    we conclude   that the provisions        of article     VI do              not
    apply to appeals under section         26(e).




                                                      p.     1385
Hr. George kl. Cowden - Page 8 (MJ-406)




                                       SUtiMARY

                   In hearing         an appeal        pursuant       to section
            26(c)     of       article        1446(c).       V.T.C.S.,          from
            ratepayers      of a municipally          owned utility        outside
            of the municipal          limits,    the Texas Public          Utility
            Commission      does not have authority                to set rates
            for customers        inside     the city     limits.       In setting
            the rates      for    ratepayers       outside     of the city         it
            may consider         system-wide       data,     and may require
            municipal       utilities         to    submit       the     indicated
            information.        The procedural         requirements       found in
            sections     26(d)     and (e) apply          to an appeal        under
            section     26(c).         In hearing         such     appeals,       the
            commission          must        redetermine           the       revenue
            requirement.

                                                        Very   truly     yours,




                                                        MARK            WHITE
                                                        Attorney       General of   Texas

JOHN W. FAINTER, JR.
First Assistant Attorney          General

RICHARD E. GRAY III
Executive Assistant        Attorney     General

Prepared    by J. Scott Wilson         and Jon Bible
Assistant    Attorneys  General

APPROVED:
OPINION COMMITTEE

Susan L. Garrison,       Chairman
Jon Bible
Rick Gilpin
Jim Moellinger
J. Scott Wilson




                                            p.   1386
