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Click here for the full text of this decision FACTS:The appellant, CenterPoint Energy Entex, is a gas utility subject to the Gas Utility Regulatory Act. For more than 25 years, Entex purchased gas on behalf of customers served by the Tyler Integrated Distribution System and charged customers under tariffs approved by the city of Tyler, termed “rate schedules.” Since 1985, each of Entex’s approved rate schedules included a purchased gas adjustment (PGA) provision, an automatic escalator mechanism devised by utility regulators to deal with rapid fluctuations in the cost of natural gas. In 2002, the city began reviewing Entex’s past customer gas charges. Entex had been acquiring its gas through two gas contracts, one with Texas GasMark Inc. and one with TXO Gas Marketing Corp. After this review, the city believed that Entex acted wrongfully by charging the higher-priced gas to residential and small commercial customers while reserving the lower-priced gas for large commercial customers. The city made further charges alleging that Entex had filed misleading tariffs, failed to request annual price redeterminations, and failed to charge non-Tyler customers for their proportionate share of Entex’s capital costs. The parties jointly requested that the Railroad Commission initiate a proceeding to determine whether Entex has properly and lawfully charged and collected for gas sales to residential and commercial customers served from the TIDS during the period from Nov. 1, 1992 to Oct. 31, 2002, to consider any appropriate remedies, including but not limited to, refunds, with interest, and to enter such orders as may be appropriate. The parties disputed what the commission’s review should entail. The commission set the matter before two hearing examiners, who decided that “issues related to a consideration of the reasonableness and necessity of Entex’s gas costs and gas purchase practices will be considered in this proceeding.” The commission denied Entex’s appeal of this decision. After a hearing on the merits, the hearing examiners rejected the city’s argument that any proceeding that affects the compensation of a utility is a ratemaking proceeding. Instead, they decided that “ratemaking proceedings” are only those that are exclusively devoted to rates such that they may result in changed rates. Thus, the examiners found that the city could not be entitled to reimbursement for its expenses. On appeal, the commission reversed that holding and awarded the city 90 percent of its expenses. Entex then filed suit in Travis County district court seeking a declaration that the commission lacks authority to conduct a retroactive prudence review of gas purchases and, alternatively, that such an action by the commission is not a “ratemaking proceeding” in which the city could obtain expense reimbursement. It also asked the district court to enjoin enforcement of the commission’s order requiring Entex to reimburse the city 90 percent of its expenses. The district court rendered judgment declaring that the commission has authority to conduct a retroactive prudence review of gas purchases and that such a proceeding is a ratemaking proceeding in which the city could recover expenses. This appeal followed. HOLDING:Affirmed in part; reversed and remanded in part. The approved rate schedules in this case amount to a rule providing a three-step process for computing a customer’s monthly gas charge. First, the rate schedule sets each customer a minimum monthly bill, $9.19. Second, the rate schedule defines the price of gas per 100 cubic feet of gas. Collectively, these prices may be termed the “rate base” because they set the base from which the actual customer charge will vary according to the terms of the third part of the rate schedule, the PGA clause. The third component, the PGA clause, states that the “net monthly rate per unit sold is predicated upon a price of natural gas purchased for resale” at $4.5705 per Mcf (one thousand cubic feet). As a result, the actual customer charge for gas would be the amount set by the base rate, adjusted for the deviation of the cost of gas to Entex from the assumed purchase price of $4.5705 per Mcf. This rule fits squarely within the statutory definition of rate. See Texas Utilities Code �101.003(12)(B). The court concludes that an Entex gas rate consists of its entire rate schedule, which may result in differing customer charges month-to-month. When a PGA clause is approved, the power to review past purchases and order refunds is necessary to ensure compliance with the approved rate. The court finds it reasonably necessary for the commission to have the power to review past gas purchases and order refunds as part of its express audit power to ensure compliance with the approved rate and its implied power to approve PGA clauses. The commission’s authority to conduct a retroactive review of gas purchases does not involve retroactively changing the terms of Entex’s approved rate schedule. Instead, the commission is attempting to review gas purchases that resulted in changes to the amounts charged to Entex’s customers under the terms of its PGA clause. The city’s underlying claim, the basis for the commission’s action, amounts to one of abuse of the PGA clause, a variable in Entex’s approved rate; the proceedings concern the alleged misapplication of Entex’s rates rather than an attempt to change the terms of the rates. In other words, the commission’s review is not an attempt to order Entex to calculate its charges differently; rather, it would be ordering Entex only to calculate its charges correctly. The court concludes that the filed rate doctrine does not prevent regulatory review of allegedly imprudent expenditures automatically passed through to the ratepayers through a PGA clause. The commission’s claimed authority to conduct retroactive reviews of gas purchases and to order refunds has statutory support and does not violate either the filed rate doctrine or the rule against retroactive ratemaking. The court agrees with Entex’s argument that retroactive review of its gas purchases is not a “ratemaking proceeding” in which the commission could require it to reimburse the city for its costs for participating in the review. OPINION:Pemberton, J.; Law, CJ, Smith and Pemberton, JJ.

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