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Brazos Electric Power Cooperative, Inc. v. Texas Commission On Environmental Quality

Supreme Court of Texas

May 3, 2019

Brazos Electric Power Cooperative, Inc., Petitioner,
v.
Texas Commission on Environmental Quality and Richard A. Hyde, Executive Director of the Texas Commission on Environmental Quality, Respondents

          Argued January 24, 2019

          On Petition for Review from the Court of Appeals for the Eighth District of Texas

          OPINION

          Debra H. Lehrmann Justice.

         At issue in this case is whether Texas Tax Code Section 11.31 gives the Texas Commission on Environmental Quality discretion to deny an ad valorem tax exemption for heat recovery steam generators, devices the Legislature has deemed "pollution control property." The court of appeals held that the Commission does have that discretion. We disagree; thus, we reverse the court of appeals' judgment and remand the case to the Commission for further proceedings consistent with this opinion.

         I. BACKGROUND

         Because this case involves tax exemptions for a particular type of property, we begin with a description of the property at issue-heat recovery steam generators-and the statutory framework governing pollution-control-related tax exemptions.

         A. The Property

         A heat recovery steam generator, or "HRSG," is a "combined-cycle" method of electricity production that increases power plant efficiency by using waste heat to generate more electricity than a "single-cycle" system. A typical single-cycle facility generates electricity by burning natural gas (or other combustible fuels) in a combustion turbine. This process creates waste heat and produces nitrogen oxides and other pollutants. A HRSG captures some of the waste heat created in the primary cycle and uses it to drive a steam turbine, generating even more electricity.

         Diagram of a Combined-Cycle Plant[1]

         (Image Omitted.)

         Because a combined-cycle system generates more electricity than a single-cycle system per unit of fuel consumed, it emits fewer harmful pollutants per unit of electricity produced.

         B. Statutory Framework

         1. The Exemption: § 11.31(a) & (b)

         In 1993, the Texas Constitution was amended to authorize the Legislature to exempt 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).[2] The amendment's ratification made effective a statute passed earlier that year providing 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).[3] The Legislature defined a "facility, device, or method for the control of air, water, or land pollution" (henceforth referred to as "pollution control property") as:

Land . . . 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). In other words, property whose function, id. § 11.31(a), and purpose, id. § 11.31(b), are wholly or partly to prevent, monitor, control, or reduce pollution is "pollution control property" and is at least partly exempt from ad valorem taxation.

         2. The Exemption Process: § 11.31(c), (d), & (e)

         To obtain an exemption under Section 11.31, the property owner must first submit an application to the Commission's Executive Director that contains the following information:

(1) the anticipated environmental benefits from the installation of the facility, device, or method for the control of air, water, or land pollution;
(2) the estimated cost of the pollution control facility, device, or method; and
(3) the purpose of the installation of such facility, device, or method, and the proportion of the installation that is pollution control property.

Id. § 11.31(c). Applications for property whose use is partly productive and partly for pollution control must also "present such financial or other data as the executive director requires by rule" to determine what proportion of the property is used for pollution control. Id.

         Upon submission of an application, the Executive Director "shall determine if the facility, device, or method is used wholly or partly as a facility, device, or method for the control of air, water, or land pollution"; that is, the Executive Director shall determine if the property is pollution control property. Id. § 11.31(d). Subsection (d) further instructs the Executive Director to notify the appraiser for the county where the property is located (1) that the property owner has applied for an exemption and (2) whether and what proportion of the property qualifies. Id. The Executive Director's decision is referred to as a "use determination." See 30 Tex. Admin. Code § 17.2(11). If the Executive Director determines that the property is used wholly or partly for pollution control (and is thus entitled to an exemption), he issues a "positive use determination";[4] otherwise, he issues a "negative use determination." See id. Applicants may appeal a negative use determination to the Commission. Tex. Tax Code § 11.31(e).

         3. Standards for Making Exemption Determinations: ...


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