Court of Appeals of Texas, Third District, Austin
THE DISTRICT COURT OF TRAVIS COUNTY, 200TH JUDICIAL DISTRICT
NO. D-1-GN-14-004463, HONORABLE RHONDA HURLEY, JUDGE
THE DISTRICT COURT OF TRAVIS COUNTY, 98TH JUDICIAL DISTRICT
NO. D-1-GN-14-004471, HONORABLE RHONDA HURLEY, JUDGE
THE DISTRICT COURT OF TRAVIS COUNTY, 345TH JUDICIAL DISTRICT
NO. D-1-GN-14-004405, HONORABLE RHONDA HURLEY, JUDGE
THE DISTRICT COURT OF TRAVIS COUNTY, 126TH JUDICIAL DISTRICT
NO. D-1-GN-14-004571, D-1-GN-14-004569, D-1-GN-14-004580,
D-1-GN-14-004568, D-1-GN-14-004462, HONORABLE RHONDA HURLEY,
Justices Puryear, Pemberton, and Goodwin.
MELISSA GOODWIN, JUSTICE.
these related appeals, Freestone Power Generation, LLC;
Freeport Energy Center, LLC; Brazos Valley Energy, LLC;
Tenaska Gateway Partners, Ltd.; Ennis Power Co., LLC; Hays
Energy, LLC; Midlothian Energy, LLC; and Wise County Power
Co., LLC (Appellants) appeal from the trial court's
judgment affirming the orders of the Texas Commission on
Environmental Quality (TCEQ) upholding the decision of
Richard A. Hyde, P.E., Executive Director of TCEQ (the ED)
(sometimes jointly TCEQ) to issue negative use determinations
in response to Appellants' applications for use
determinations for pollution control property. See
30 Tex. Admin. Code. § 17.2(17) (2008) (Tex. Comm'n
on Envtl. Quality, Definitions) (defining "use
determination" as positive or negative finding by ED
that property is used wholly or partly for pollution control
purposes and listing percentage of property determined to be
used for pollution control). Appellants sought property tax
exemptions by applying for positive use determinations for
heat recovery steam generators (HRSGs) used in their power
plants. See Tex. Tax Code § 11.31 (providing
for property tax exemptions for pollution control property).
The ED issued negative use determinations, and TCEQ upheld
his determinations. Appellants filed petitions for judicial
review, see Tex. Water Code § 5.351 (providing
for judicial review of TCEQ acts), and the cases were
assigned to the same judge, consolidated for briefing
purposes, and heard together. The trial court affirmed
TCEQ's orders, and these appeals followed. For the reasons
that follow, we reverse the trial court's judgment and
remand for further proceedings.
1993, Texas voters ratified a constitutional amendment
authorizing the Legislature to enact general laws exempting
from ad valorem taxation "all or part of real and
personal property used, constructed, acquired, or installed
wholly or partly to meet or exceed rules or regulations
adopted by any environmental protection agency of the United
States, this state, or a political subdivision of this state
for the prevention, monitoring, control, or reduction of air,
water, or land pollution." Tex. Const. art. VIII, §
1-l(a) (see Tex. H.J.R. Res. 86,
§§ 1- 2, 73d Leg., R.S., 1993 Tex. Gen. Laws 5576,
5576-77). The Legislature codified the amendment by enacting
section 11.31 of the Tax Code. See Act of May 10,
1993, 73d Leg., R.S., ch. 285, §§ 1, 5, 1993 Tex.
Gen. Laws 1322, 1322-24 (codified as amended at Tex. Tax Code
§ 11.31). Subsection (a) of section 11.31 provides that
"[a] person is entitled to an exemption from taxation of
all or part of real and personal property that the person
owns and that is used wholly or partly as a facility, device,
or method for the control of air, water, or land
pollution." Tex. Tax Code § 11.31(a). A
"facility, device, or method for the control of air,
water, or land pollution, " is defined as:
land that is acquired after January 1, 1994, or any
structure, building, installation, excavation, machinery,
equipment, or device, and any attachment or addition to or
reconstruction, replacement, or improvement of that property,
that is used, constructed, acquired, or installed wholly or
partly to meet or exceed rules or regulations adopted by any
environmental protection agency of the United States, this
state, or a political subdivision of this state for the
prevention, monitoring, control, or reduction of air, water,
or land pollution.
Id. § 11.31(b). Property that meets the
statutory definition and qualifies for the exemption is
referred to as "pollution control property."
See id. § 11.31(c)(3), (f), (h), (i).
person who wishes to obtain an exemption for particular
property must apply for a "use determination" from
the ED that the property "is used wholly or partly as a
facility, device, or method for the control of air, water, or
land pollution"-i.e., that the property is
pollution-control property eligible for the exemption.
See id. § 11.31(a)-(d). The applicant must
detail "the anticipated environmental benefits from the
installation of the" pollution control property, its
estimated cost, and "the purpose of the installation . .
. and the proportion of the installation that is pollution
control property." Id. § 11.31(c). Upon
receipt of the application, the ED must determine "if
the facility, device, or method is used wholly or
partly" to control pollution "and, if applicable,
the proportion of the property that is pollution control
property." See id. § 11.31(d). He must
also notify the chief appraiser of the appraisal district for
the county in which the property is located of the use
determination. See id.
applicant or the appraisal district may appeal the ED's
use determination to the TCEQ commissioners. See id.
§ 11.31(e). The commissioners must consider the appeal
at their next regularly scheduled meeting and either affirm
the use determination or remand it for re-determination.
See id. Such an appeal "is not a contested
case" for purposes of the Administrative Procedure Act
(APA). See id.; see also Tex. Gov't
Code §§ 2001.001-.902. TCEQ's order in such a
proceeding may be challenged through a suit for judicial
review in district court in Travis County, see Tex.
Water Code §§ 5.351, .354, and the district
court's judgment is "appealable as are other civil
cases in which the district court has original jurisdiction,
" id. § 5.355. If an applicant obtains a
final positive use determination, i.e., a determination that
the property is wholly or partly pollution control property,
the applicant can then apply for the exemption with the local
appraisal district where the property is located.
See Tex. Tax Code § 11.31(i); see also
id. § 11.43 (setting forth application
requirements). The chief appraiser must accept the ED's
positive use determination as "conclusive evidence"
that the property (or, if applicable, the proportion of the
property that the ED found to be pollution control property)
qualifies for the exemption. See id. §
2001, the Legislature amended section 11.31 to require that
TCEQ adopt rules that "establish specific standards for
considering applications for determinations" and
"allow for determinations that distinguish the
proportion of the property that is used to control, monitor,
prevent, or reduce pollution from the proportion of property
that is used to produce goods or services." See
Act of May 22, 2001, 77th Leg., R.S., ch. 881, § 1, 2001
Tex. Gen. Laws 1774, 1775 (codified at Tex. Tax Code §
11.31(g)(1), (3)). The amendments prohibited the ED from
granting a positive use determination "unless the
property meets the standards established under rules adopted
under this section." Id. (codified at Tex. Tax
Code § 11.31(h)).
response, TCEQ amended its rules. See 26 Tex. Reg.
7420 (2001), adopted 27 Tex. Reg. 185 (2002)
(codified at 30 Tex. Admin. Code §§ 17.1-.25) (2002
Rules). The 2002 Rules prohibited the ED from determining
that property is pollution control property unless (1) the
property was "used, constructed, acquired, or installed
wholly or partly to meet or exceed laws, rules, or
regulations adopted by any environmental protection agency of
the United States, Texas, or a political subdivision of
Texas, for the prevention, monitoring, control, or reduction
of air, water, or land pollution"-i.e., unless it met
the statutory definition of pollution control property-and
(2) "the requirements of § 17.15 and § 17.17
of this title (relating to Review Standards and Partial
Determination) have been met." See 2002 Rules
§ 17.4(c). Section 17.15 set out in a "Decision
Flow Chart" standards for making use determinations and
prescribed three lines of inquiry for the ED to apply.
See id. § 17.15 (flow chart located at 27 Tex.
Reg. at 303). First, he was to consider whether installation
of the equipment allowed the applicant to meet or exceed a
specific, identifiable environmental law or regulation.
See id. (flow chart and n.3). If he concluded that
it did, the ED next was to consider whether the installation
provided an environmental benefit "at the site where it
was installed." See id. (flow chart and n.4).
If the ED answered this second question in the affirmative,
the property was considered "eligible" for a
positive use determination, and the issue was the proportion
of the property that was considered to be pollution control
property, as opposed to production property. See id.
(flow chart and ns. 6 & 7).
determining the proportion of the property that was pollution
control property, the Decision Flow Chart and other 2002
Rules created three categories of applications for use
1.Tier I applications for property that TCEQ had
predetermined were partially or wholly pollution control
property and were listed on a "predetermined equipment
list" (PEL). See id. § 17.2(9), (11).
2. Tier II applications for property that was used wholly for
pollution control purposes but was not on the predetermined