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Click here for the full text of this decision FACTS:The wholesale electric power industry consists of the generation of electrical power, the transmission of electricity over power lines and the distribution of power to customers. To enhance reliability and facilitate the purchase of electrical power among utilities, Texas’ electric utilities formed the Electric Reliability Council of Texas, an interconnected network of transmission lines that serves most of the state. Municipalities own some of the electric utilities belonging to ERCOT. Texas Municipal Power Agency (TMPA) is a municipality-owned utility (MOU) that sells electric power at wholesale to its member cities: Denton, Garland and Greenville (the northern cities), and Bryan, pursuant to identical power sales contracts (collectively, the PSC). The PSC, entered into in 1976, requires TMPA to generate electric power at its generating plant in Grimes County and transmit power to the member cities at their respective points of delivery. Each member city then pays for the amount of power that it used under the power sales rate applicable to all member cities. The PSC is a bundled contract, meaning that the power seller (TMPA) provides generation, transmission and distribution of power under one contract. Because the contract and rate are bundled, member cities are never charged a separate price for transmission power; they have discretion only regarding the amount of power they take and the point of delivery. Historically, ERCOT MOUs were not subject to regulation by the commission. In 1995, however, the Legislature authorized the commission to regulate wholesale transmission service by electrical utilities, including MOUs, when it enacted Chapter 35 of the Public Utility Regulatory Act (PURA) to promote competition in the wholesale electricity market. The 1995 PURA amendments granted utilities open access to transmission lines, allowing utilities to purchase power from remote sellers without obtaining transaction agreements for the use of transmission lines. Under later PURA amendments, the Legislature gave MOUs the ability to choose when and how they would participate in the newly competitive, deregulated electricity market. If an MOU chooses to participate, a decision that is irreversible, the retail customers in that municipality may select their power provider. After enactment of Chapter 35 and under its new authority over MOUs, the commission adopted transmission service rules, including a wholesale transmission-pricing methodology to establish transmission charges for all ERCOT utilities. The commission’s pricing scheme for transmission service, which resulted in lower rates than one of the member cities was required to pay under the PSC’s bundled rate, led to the underlying dispute in this case. In 1997, the commission engaged in its first proceeding to set rates that each ERCOT utility would pay and receive for wholesale transmission service. The commission transmission charges were based in part on the distance power traveled from a generating plant to the point of delivery. As part of a “transition mechanism,” TMPA filed a pleading with the commission claiming that, for purposes of the new pricing scheme, TMPA was not a transmission customer and could thus recover its full costs and escape paying to subsidize other utilities. TMPA and the member cities reportedly agreed that the cities should be the wholesale transmission customers that nominate their own loads for the transmission service of TMPA-generated electricity to their cities. As a result, the commission assigned wholesale transmission charges to each member city. Because the PSC provides that TMPA will include in its sales rate all costs associated with delivery of TMPA-generated power to the member cities, the TMPA board of directors in July 1997 voted to reimburse the member cities for the commission-imposed transmission charges. In June 2001, the Texas Supreme Court invalidated the commission’s pricing methodology rules. It held that the commission’s “pricing scheme,” because although the commission has an oversight role regarding transmission regulation of MOUs, it lacked authority to set rates for MOUs. As a result of the court’s decision and a settlement among all ERCOT utilities, the 201st District Court in Travis County reversed the commission’s 1997 rate-setting order in 2003. The commission engaged in a second rate-setting proceeding in 1998. As in the 1997 rate-setting proceeding, TMPA and the member cities listed the individual cities as transmission customers. Again, the 98th district court in Travis County reversed the commission’s 1998 rate-setting order. An appeal followed, but it arose from two proceedings both challenging the scope of authority PURA gives the commission over MOUs. First, before the court ruled the commission’s pricing methodology for MOUs invalid, the city of Bryan initiated a complaint proceeding before the commission, alleging that TMPA’s inclusion of the commission-imposed transmission charges in its uniform rate violated Chapter 35 of PURA, the commission’s 1997 rate-setting order and the commission’s pricing rules. The bundled sales rate Bryan paid TMPA under the PSC was higher than what it would owe if it were able to pay the commission-set transmission charges and any remaining sales charges separately. As a result, Bryan contended that TMPA reallocated the northern cities’ more expensive transmission costs to Bryan. The second proceeding began before the 1999 PURA amendments became effective, when the commission engaged in its rate-setting proceeding to establish wholesale transmission rates. TMPA argued that, under the PSC, it was the transmission customer and could nominate the load for delivery of electricity from TMPA’s generating plant. Citing TMPA’s contrary filings in the 1997 and 1998 rate-making proceedings, Bryan argued that it was the transmission customer. Based on TMPA’s statements in the 1997 rate-making case, the commission assumed Bryan could be treated as the transmission customer without violating the PSC. The commission concluded that Bryan was “entitled to unbundled transmission service.” TMPA and the northern cities sought judicial review of the 1999 rate-setting order, and TMPA sought a declaratory judgment. As in the suit seeking review of the commission’s Bryan Complaint Proceeding order, TMPA sought declarations regarding 1. the commission’s jurisdiction and authority to unbundle and affect the terms of the PSC between TMPA and Bryan and the contract sales rate, and 2. the parties’ obligations under the PSC. The 200th District Court in Travis County heard the cases together and issued rulings that were essentially the same as those in the Bryan Complaint Proceeding. As with the appeals of the 1997 and 1998 rate-setting orders, the district court reversed the commission’s order and remanded the rate-setting proceedings to the commission, granted partial summary judgment in favor of Bryan, denied TMPA’s motion for summary judgment and dismissed TMPA’s declaratory judgment claims. The 3rd Court of Appeals reviewed together the district court’s rulings from the Bryan Complaint Proceeding and the 1999 rate-setting proceeding. On appeal from the Bryan Complaint Proceeding, TMPA and the northern cities challenged the partial summary judgment and the district court’s dismissal of the declaratory judgment claims. The northern cities did not seek review of the district court’s reversal of the commission’s order. On appeal from the 1999 rate-setting proceeding, TMPA and the northern cities did not contest the reversal of the commission’s rate-setting order but challenged the district court’s rulings regarding the commission’s jurisdiction. The 3rd Court of Appeals concluded that Chapter 35 of PURA conferred jurisdiction on the commission to determine whether the terms on which TMPA provided transmission services to Bryan were reasonable. Therefore, the 3rd Court affirmed the district court’s grant of summary judgment in favor of Bryan and the district court’s denial of TMPA’s motions for partial summary judgment, and it affirmed the district court’s dismissal of TMPA’s request for declaratory relief. HOLDING:The court reversed the 3rd Court’s judgment sustaining the trial court’s rulings on motions for summary judgment; and it rendered judgment in favor of TMPA and the northern cities that the commission lacked jurisdiction to unbundle or interfere with the PSC and also lacked jurisdiction to modify the uniform sales rate for wholesale electric power under the PSC. The court also reversed the 3rd Court’s judgment sustaining the dismissal of the declaratory judgment claims filed by TMPA, and it remanded those claims to the court of appeals for further consideration. Having concluded that Chapter 35 of PURA does not expressly or impliedly delegate to the commission authority to regulate or revise power sales contracts or the uniform rates set pursuant to such contracts, the court held that the commission’s actions to revise the rate Bryan had to pay for transmission service effectively unbundled the PSC and exceeded the authority granted in Chapter 35 of PURA. The court also found no conflict between the provisions of Chapter 35 and those of Chapter 40. Chapter 40, the court stated, clarifies the role of MOUs in the newly deregulated market. In that chapter, the Legislature did not require MOUs to unbundle services and expressly provided that the decision of whether to unbundle rests exclusively with the MOU. The court stated that it could not conclude that the provisions of Texas Utility Code �40.101, which protect interference with or abrogation of contracts between an MOU and its retail or wholesale customers, do not apply when operating under Chapter 35. Thus, the court held that the commission lacked jurisdiction under PURA to modify, regulate or abrogate the PSC between TMPA and the member cities, and also make changes to the bundled sales rate for wholesale electric power under the PSC. The court remanded the declaratory judgment claims, because it could not determine whether they had been heard of the merits. In conclusion, the court held that PURA does not give the commission express or implied power to regulate, modify or abrogate the PSC between TMPA and its member cities, or to do what to the bundled uniform sales rate charged to MOUs under that contract. OPINION:Green, J., delivered the opinion of the court, in which Jefferson, C.J., and Hecht, O’Neill, Wainwright, Medina and Johnson, JJ., joined. DISSENT:Brister, J., filed a dissenting opinion, in which Willett, J., joined. “The Public Utility Commission”has jurisdiction over municipally owned utilities . . . to regulate wholesale transmission rates.’ Yet the Court holds it cannot regulate those rates when the parties have a private contract, even if that contract itself recognizes that it is subject to governmental rates and regulations. Requiring the Commission to act but denying it the power to act is, as James Madison wrote more than two centuries ago, contrary to both law and reason. . . . Because the Legislature has ordered the Commission to set these rates but the Court holds it cannot, I respectfully dissent.”

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