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Mountain Peak Special Utility District v. Public Utility Commission of Texas

Court of Appeals of Texas, Third District, Austin

November 2, 2017

Mountain Peak Special Utility District, Appellant
v.
Public Utility Commission of Texas and The City of Midlothian, Appellees

         FROM THE DISTRICT COURT OF TRAVIS COUNTY, 200TH JUDICIAL DISTRICT NO. D-1-GN-15-002843, HONORABLE ORLINDA NARANJO, JUDGE PRESIDING

          Before Justices Puryear, Field, and Bourland

          MEMORANDUM OPINION

          SCOTT K. FIELD, JUSTICE

         The Public Utility Commission of Texas (the Commission) granted the petition of the City of Midlothian (the City) for expedited release of a portion of property it owned from the certificated service area of Mountain Peak Special Utility District (Mountain Peak). See Tex. Water Code § 13.254(a-5) (providing for expedited release of property not receiving water or sewer service from certificate holder). In its suit for judicial review of the Commission's order, Mountain Peak contended that the Commission erred in granting the City's petition for decertification because the statutory requirements for expedited release pursuant to section 13.254(a-5) were not met. Specifically, Mountain Peak argued that the property the City sought to have decertified was in fact "receiving water service" from Mountain Peak and thus was not eligible for expedited release under section 13.254(a-5). Mountain Peak also asserted that the decertification petition should not have been approved because the City excluded from its request for expedited release a 6.7-acre piece of property that it owned within Mountain Peak's certificated service area. In addition, Mountain Peak asserted that the Commission's approval of the petition for decertification should be set aside because federal law preempted the decertification of any of Mountain Peak's certificated service area. After a hearing, the district court affirmed the Commission's order granting the City's petition for decertification. We will affirm the district court's judgment.

         FACTUAL AND PROCEDURAL BACKGROUND

         Mountain Peak is a conservation and reclamation district operating as a special utility district created under Article XVI, Section 59, of the Texas Constitution and regulated by the Commission. See Tex. Const. art. XVI, § 59; Act of May 13, 2013, 83d Leg., R.S., ch. 170, § 2.96, 2013 Tex. Gen. Laws 725, 769 (transferring to Public Utility Commission powers, duties, functions, programs, and activities of Texas Commission on Environmental Quality relating to economic regulation of water and sewer service); see also Tex. Water Code §§ 13.002-.515 (establishing comprehensive regulatory system to regulate retail public utilities), .002(19) ("retail public utility" includes political subdivision operating, maintaining, or controlling facilities for providing potable water service for compensation). Mountain Peak holds a certificate of convenience and necessity (CCN) that authorizes it to be the exclusive water-service provider within a specifically defined territory, which is referred to as its "certificated area." See Tex. Water Code § 13.244 (setting forth requirements for application for CCN).

         The City owns approximately 104 acres of land in Ellis County that was located within Mountain Peak's certificated area. The City filed a petition with the Commission seeking to remove the 104 acres from Mountain Peak's certificated area pursuant to Texas Water Code section 13.254(a-5). Section 13.254(a-5) provides that the owner of a tract of land that is 25 acres or larger and located in certain counties, including Ellis County, may petition for, and is entitled to, expedited release of that tract from a certificated area if the tract is "not receiving water service." Id. § 13.254(a-5).[1] In its petition, the City stated that the 104-acre property was not receiving water or sewer service from Mountain Peak. The petition was supported by the affidavit of Michael G. Adams, the City's Executive Director of Engineering and Utilities, in which he averred that the 104-acre property "currently is not receiving potable water service, or water of any type from [Mountain Peak], " that the City "has not requested water service from Mountain Peak, " and "[i]f Mountain Peak has any water facilities near or adjacent to the [104-acre property], those facilities were installed and are used to provide water service to property other than the [104-acre property]."

         Mountain Peak filed a motion to intervene and opposed the petition. Mountain Peak asserted that the petition seeking decertification of a part of Mountain Peak's certificated area was in conflict with a contractual commitment between the City and Mountain Peak that had been approved by the Commission's predecessor agency, the Texas Natural Resources Conservation Commission (TNRCC), in 1997. Mountain Peak also asserted that the 104-acre property was "receiving water service" from Mountain Peak because there was a sewer lift station owned and operated by Mountain Peak located on the north part of the property. According to Mountain Peak, there was a two-inch water line running 200 to 300 yards from a connection to a 12-inch water main owned and operated by Mountain Peak and terminating inside a meter box with an angle-stop valve on the 104-acre property next to the lift station. Mountain Peak stated that the two-inch water line supplied water from Mountain Peak's public water system to the City for use at the lift station such that the 104-acre property was "receiving water service" from Mountain Peak. Finally, Mountain Peak asserted that the City's petition was not administratively complete because it did not include "evidence that the owner of the tract of land in question-the City of Midlothian-authorized and approved" the petition.[2]

         The Commission's Staff reviewed the petition and Mountain Peak's response and recommended that Mountain Peak's petition be deemed deficient until the City provided proof that (1) the request did not seek to violate currently applicable contract terms, and (2) the City did not seek approval of an application that would violate Texas Water Code section 13.254(a-5). The Commission then issued an order directing the City to amend its application to cure the deficiencies identified by the Commission's Staff. The City filed its response arguing that Mountain Peak's bare allegations of a contractual impediment to the decertification request did not render its petition administratively incomplete. Additionally, while maintaining its position that the existence of an unmetered water line to the lift station did not cause the 104-acre property to be "receiving water service" such that it was disqualified from expedited decertification pursuant to section 13.254(a-5), in order to eliminate any question in that regard, the City amended its petition to seek decertification of only 97.3 acres (the Park Property) of the 104 acres described in its original application. The amendment excluded 6.7 acres of property on which the lift station was located.[3]

         Mountain Peak continued to object to the decertification petition and added a complaint that the City was not authorized to amend its petition to seek decertification of property different from that described in its original petition, and that it could not "arbitrarily" exclude part of its property from the area it sought to remove from Mountain Peak's certificated area. Mountain Peak also argued that, even if it was proper for the City to seek expedited release of only the Park Property, sufficient water lines, facilities, and water supplies existed on or near the Park Property such that it, too, was "receiving water service" and therefore could not qualify for expedited release under section 13.254(a-5). The administrative record includes additional briefing and evidence in the form of affidavits and exhibits filed by both the City and Mountain Peak relevant to the disputed issues.

         The Commission concluded that the City had satisfied the criteria for expedited decertification as set forth in Texas Water Code section 13.254(a-5) and approved the request for expedited release of the Park Property from Mountain Peak's certificated area. Mountain Peak's motion for rehearing was overruled by operation of law. Mountain Peak then filed a suit for judicial review in Travis County district court.

         In the district court, Mountain Peak again asserted that the City could not carve out the 6.7-acre portion of its property from the property for which it sought decertification and, in any event, that the Park Property was "receiving water service" from Mountain Peak. Mountain Peak also continued to maintain that removal of the Park Property from its certificated area was in conflict with the 1997 TNRCC order that, according to Mountain Peak, approved and incorporated an agreement between Mountain Peak and the City to refrain from seeking to alter or amend one another's CCNs or interfere with the boundaries of their respective CCNs. Mountain Peak also argued that federal law preempted the removal of any property from its certificated area. Specifically, Mountain Peak asserted that federal law protects the service area of entities like Mountain Peak that have outstanding debt to the federal government for loans obtained through a federal program designed to assist the development of water distribution and sewer service facilities in rural areas. See 7 U.S.C. § 1926 (establishing loan program through United States Department of Agriculture to aid designated associations in developing and operating water distribution and sewer service facilities in rural areas). The Commission filed a general denial of Mountain Peak's claims, and the City intervened in support of the Commission.

         Following a hearing, the trial court rendered judgment affirming the Commission's order approving the City's request for expedited release of the Park Property from Mountain Peak's certificated area. Mountain Peak then perfected this appeal.

         Standard of Review

         Section 13.381 of the Texas Water Code provides that any party to a proceeding before the Commission is entitled to judicial review under the substantial-evidence rule. See Tex. Water Code § 13.381. Section 13.002 defines "proceeding" to mean "any hearing, investigation, inquiry, or other fact-finding or decision-making procedure" under Texas Water Code chapter 13. Id. § 13.002(16). Thus, we must review the Commission's decision in this case "through the prism of substantial evidence review." Texas Gen. Land Office v. Crystal Clear Water Supply Corp., 449 S.W.3d 130, 135 (Tex. App.-Austin 2014, pet. denied) (quoting Texas Water Comm'n v. Lakeshore Util. Co., 877 S.W.2d 814, 818 (Tex. App.-Austin 1994, writ denied)). Under this standard, we may not, with respect to questions committed to the Commission's discretion, substitute our judgment for that of the Commission on the weight of the evidence. See Tex. Gov't Code § 2001.174. We must, however, reverse the Commission's decision if it prejudices substantial rights because its findings, inferences, conclusions, or decisions (1) violate a constitutional or statutory provision; (2) exceed the Commission's statutory authority; (3) were made through unlawful procedure; (4) are affected by other error of law; (5) are not reasonably supported by substantial evidence considering the reliable and probative evidence in the record as a whole; or (6) are arbitrary or capricious or characterized by an abuse of discretion or a clearly unwarranted exercise of discretion. Id. § 2001.174(2).

         An agency's decision is presumed to be valid, and it is supported by substantial evidence if the evidence in its entirety is sufficient to allow reasonable minds to have reached the conclusion the agency must have reached to justify the disputed action. Texas State Bd. of Dental Exam'rs v. Sizemore, 759 S.W.2d 114, 116 (Tex. 1988). The evidence in the record may preponderate against the agency's decision yet still provide a reasonable basis for the decision and thereby meet the substantial-evidence standard. Texas Health Facilities Comm'n v. Charter Med.-Dallas, Inc., 665 S.W.2d 446, 452 (Tex. 1984). The question of whether an agency's decision is supported by substantial evidence is a question of law, and we owe no deference to the district court's decision. See Firemen's & Policemen's Civ. Serv. Comm'n v. Brinkmeyer, 662 S.W.2d 953, 956 (Tex. 1984). We review questions of statutory construction de novo. See Railroad Comm'n v. Texas Citizens for a Safe Future & Clean Water, 336 S.W.3d 619, 624 (Tex. 2011).

         Did the Commission err by permitting the City to amend its petition to seek expedited release of the Park Property and not of the 6.7 acres?

         Mountain Peak asserts that the Commission erred by permitting the City to file an amended decertification petition that removed 6.7 acres from the area for which it sought expedited release. According to Mountain Peak, because the 6.7 acres was not a "separately deeded and acquired tract, " it could not be omitted from the acreage for which decertification was requested, and the Commission's decertification order was therefore erroneous.[4] Mountain Peak has not identified any statutory support for its position that the City could not exclude the 6.7 acres from the property for which it sought expedited release from Mountain Peak's certificated service area. Section 13.254(a-5) requires only that the property sought to be decertified be a tract of land of at least 25 acres located in certain counties and that it not be "receiving water service." See Tex. Water Code § 13.254(a-5). The Park Property was of the required size and located in an eligible county, and the Commission found that it was not receiving water service. As this Court has previously concluded, section 13.254(a-5) does not have an "all or nothing" requirement that prevents a landowner from choosing to seek expedited release of some, but not all, of its property located in a certificated service area. See Crystal Clear Water Supply Corp., 449 S.W.3d at 136.

         Mountain Peak argues that permitting a landowner to seek decertification of some, but not all, of its property in a certificated service area could cause landowners to "simply draw circles around [multiple service] connections, carve them out, and decertify the rest of the property." This argument ignores the fact that one consideration when determining whether a piece of property is "receiving water service" is whether there are water facilities or lines committed to serving the property. See id. at 137. If those lines or facilities exist, it does not matter whether they are located on or simply near the property for which the landowner seeks expedited release. Carving out the land they are located on from the property they serve does not mean that those lines or facilities are not taken into account when determining whether the property for which decertification is requested is "receiving water service" for purposes of section 13.254(a-5). Id. The Commission's having permitted the City to amend its petition to remove 6.7 acres from the property for which it sought expedited release from Mountain Peak's certificated service area does not provide a basis for reversing the Commission's order.

         Was the Park Property "receiving water service?”

         The Commission determined that the Park Property was not receiving water service from Mountain Peak. It expressly found that the Park Property was "not receiving actual water from Mountain Peak" nor had Mountain Peak committed facilities or lines providing water to the Park Property or performed acts or supplied anything to the Park Property. See id. (property is not "receiving water service" if there are no water facilities or lines committed to serving property and CCN holder has not performed any act or supplied anything to that property related to providing water to that property).

         In support of its petition for decertification, the City submitted three affidavits from Michael Adams. The contents of Adams's affidavits regarding water service ...


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