Court of Appeals of Texas, Seventh District, Amarillo
Appeal from the 345th District Court Travis County, Texas
Trial Court No. D-1-GN-16-001675, Honorable Scott H. Jenkins,
QUINN, C.J., and PIRTLE and PARKER, JJ.
C. Parker Justice
courts are to defer to statutory interpretations made by the
regulatory agency tasked with a statute's enforcement.
This is a case in which the Public Utility Commission of
Texas altered the proposal for decision entered by the
administrative law judges (ALJs) that initially heard the
case. Applicable statutes make clear that the Commission is
authorized to alter the ALJs' proposal for decision if
such alteration is supported by substantial evidence.
Appellant, Southwestern Public Service Company (SPS),
contends that the Commission's alteration of the
ALJs' proposal was in violation of its statutory
authority to make such changes. Given the deference afforded
the Commission's statutory interpretation, we conclude
that the Commission acted appropriately in altering the
ALJs' proposal and we affirm the trial court's
and Procedural Background
a vertically integrated electric utility that serves retail
customers in Texas and New Mexico, and wholesale customers in
both states. Because SPS is a government-sanctioned monopoly
in its service area, the Commission is tasked with ensuring
that its rates are just and reasonable as a substitute for
requested Commission approval to increase the rate it charged
in the Texas retail market. Initially, SPS requested an
increase of $64.75 million but, subsequently, lowered its
request to $42.07 million. After an evidentiary hearing,
three ALJs issued a proposal for decision recommending a
$14.4 million annual increase in SPS's Texas retail
revenue requirement. The Commission modified the ALJs'
proposal for decision, including rejecting use of SPS's
actual capital structure, denying recovery of expenses
related to SPS's annual incentive compensation program,
and disallowing a post-test-year adjustment to the test year
jurisdictional allocation based on a decrease in sales in
SPS's wholesale market.
Following the Commission's decision, SPS filed a suit for
judicial review. The district court affirmed the
Commission's order in all respects. SPS timely appealed.
By its appeal, SPS presents three issues. By its first issue,
SPS contends that the Commission erred by altering the
ALJs' recommendation regarding SPS's capital
structure. SPS contends, by its second issue, that the
Commission erred in disallowing half of its annual incentive
compensation expense based on the program having a
financially based "affordability trigger." Finally,
SPS contends that the Commission erred by rejecting SPS's
proposed "known and measurable" adjustment to its
jurisdictional allocation based on a post-test-year decrease
in sales in its wholesale market.
assessing the scope of an agency's authority, we must
give serious consideration to the contemporaneous
construction of a statute by the administrative agency
charged with its enforcement. Sergeant Enters., Inc. v.
Strayhorn, 112 S.W.3d 241, 246 (Tex. App.-Austin 2003,
no pet.) (citing Tarrant Appraisal Dist. v. Moore,
845 S.W.2d 820, 823 (Tex. 1993)). This is so because the
legislature intends that an agency created to centralize
expertise in a certain regulatory area be given a great
degree of discretion in the methods it uses to accomplish its
regulatory function. Id. "If the agency's
interpretation is consistent with the language and the
purposes of the statute, the court will accept it, even if
other more reasonable interpretations exist."
Anderson-Clayton Bros. Funeral Home, Inc. v.
Strayhorn, 149 S.W.3d 166, 178 (Tex. App.-Austin 2004,
pet. denied). However, we do not grant complete discretion to
the agency charged with regulating a particular area.
party to a proceeding before the Commission is entitled to
judicial review under the substantial evidence rule. Tex.
Util. Code Ann. § 15.001 (West 2016). In reviewing a
case decided under the substantial evidence rule, "a
court may not substitute its judgment for the judgment of the
state agency on the weight of the evidence on questions
committed to agency discretion . . . ." Tex. Gov't
Code Ann. § 2001.174 (West 2016). Under the substantial
evidence standard, the reviewing court must determine
whether, after considering the totality of the evidence,
reasonable minds could have reached the same conclusion that
the agency reached in the disputed action. Coal. for Long
Point Pres. v. Tex. Comm'n on Envtl. Quality, 106
S.W.3d 363, 366 (Tex. App.- Austin 2003, pet. denied). The
reviewing court may not substitute its judgment for that of
the agency and must limit its review to the evidence upon
which the agency based its decision. Id. The
reviewing court is not tasked with determining whether the
agency made the right decision, but rather whether there is
some reasonable basis in the record for the agency's
action. Id. at 367. We begin with the presumption
that the agency's findings, inferences, conclusions, and
decisions are supported by substantial evidence, and the
burden of proving otherwise is on the contestant.
agency's decision is arbitrary or results from an abuse
of discretion if the agency: (1) failed to consider a factor
the legislature directs it to consider; (2) considers an
irrelevant factor; or (3) weighs only relevant factors that
the legislature directs it to consider but still reaches a
completely unreasonable result." City of El Paso v.
Pub. Util. Comm'n of Tex., 883 S.W.2d 179, 184 (Tex.
1994). In addition, if the agency fails to follow the clear,
unambiguous language of its own regulation, it acts
arbitrarily and capriciously. Pub. Util. Comm'n of
Tex. v. Gulf States Utils. Co., 809 S.W.2d 201, 207
first issue, SPS contends that the Commission erred by
adopting a hypothetical capital structure rather than
SPS's actual capital structure. According to SPS, the
Commission committed legal error by adopting a new policy
without following proper procedure, and by failing to comply
with the statutory requirements for ...