Opinion

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-01-00195-CV

Reliant Energy, Incorporated, Appellant

v.

Public Utility Commission of Texas; Office of Public Utility Counsel; and Steering

Committees for the Cities Served by TXU Electric and Central Power

and Light Company, Appellees

DIRECT APPEAL FROM PUBLIC UTILITY COMMISSION OF TEXAS

In this direct appeal, we must determine whether the Public Utility Commission of

Texas (the "Commission") erred in promulgating price-to-beat rules that fail to ensure an initial fuel

factor above market costs. Reliant Energy, Incorporated ("Reliant") brings this suit challenging the

validity of these rules. Because the Commission acted within its authorized powers, we uphold the

price-to-beat regulations as enacted.

BACKGROUND

In 1999, the Texas Legislature amended the Public Utility Regulatory Act ("PURA")

and enacted Chapter 39 "to protect the public interest during the transition to and in the

establishment of a fully competitive electric power industry." (1) Tex. Util. Code Ann. § 39.001 (a)

(West. Supp. 2001). As part of the utility industry deregulation, the Legislature created a statutory

scheme whereby the regulated utility industry would be separated or "unbundled" into three distinct

entities: (1) power generation companies; (2) retail electric providers ("REPs"); and (3) transmission

and distribution utilities. Id. § 39.051. Once the statute goes into effect, electric providers formerly

affiliated with regulated utilities will be required to provide electricity to residential and small

commercial customers at a rate of six percent less than the rate in effect on January 1, 1999, adjusted

to reflect the fuel factor as determined by the Commission. (2) Id. §§ 39.202, .406. This price is

referred to as the "price-to-beat." (3) Id. § 39.202. In enacting the price-to-beat statute, the Legislature

intended for new REPs not affiliated with the regulated utility industry to enter the market and

compete for customers with affiliated REPs, those that were formerly part of the bundled utility

companies.

The Commission was mandated to effectuate an across the board six percent

reduction to the base rate portion of the price-to-beat. Id. § 39.202(b). As part of the goal to

promote competition, the Commission was given the express authority to make adjustments to the

fuel factor portion of the price-to-beat. Id. Once established, the price-to-beat is to remain in effect

for five years, unless the affiliated REP loses forty percent of its customers. (4) Id. § 39.202(a), (e).

In determining whether the forty percent threshold has been met, the Commission excludes

customers that are dropped by the affiliated REP to a provider of last resort ("POLR"). 26 Tex. Reg.

2680 , 2708 (2001) (to be codified at 16 Tex. Admin. Code § 25.41 ). By statute, POLRs are required

to offer standard retail service packages for certain customers, as designated by the Commission, at

a fixed, nondiscountable rate. Tex. Util. Code Ann. § 39.106 (b).

DISCUSSION

In three issues, Reliant challenges the Commission's scope of authority under PURA,

both express and implied. Reliant first contends that PURA requires the Commission to implement,

as part of the Legislative scheme to ensure a competitive market after deregulation, an initial price-to-beat fuel factor above market costs so as to secure immediate profits for new entrants into the

retail electricity market. Reliant also contests the validity of the Commission's decision, when

evaluating whether incumbent utility providers have lost forty percent of their residential and small

commercial customers, to exclude from market share calculations customers served by a POLR.

Finally, Reliant contends that rule 25.41, as promulgated by the Commission, violates the reasoned

justification requirement of Texas Government Code section 2001.033. See Tex. Gov't Code Ann.

§ 2001.033 (West 2000).

In determining whether the Commission's rule is valid, we must first ascertain

whether the Legislature expressly gave the Commission the power to guarantee nonaffiliated retail

electric providers an initial profit. See Public Util. Comm'n v. City Public Serv. Bd. of San Antonio ,

44 Sup. Ct. J. 1014, 2001 Tex. LEXIS 71, at *15 (Tex. June 28, 2001). If no express authority is set

forth, we must then consider whether that power is reasonably necessary for the Commission to

fulfill the express function and duties prescribed by the Legislature. Id. Where such authority exists,

a rule need only be based on a legitimate position of the agency to be upheld. Chrysler Motors Corp.

v. Texas Motor Vehicle Comm'n , 846 S.W.2d 139, 142 (Tex. App.--Austin 1993, no writ) (citing

Bullock v. Hewlett-Packard Co. , 628 S.W.2d 754, 756 (Tex. 1982)).

Administrative Rule Making

Reliant contends that the Commission's substantive rule 25.41 is void because the

Commission failed to include in it any mechanism to guarantee initial headroom. (5) This omission,

argues Reliant, invalidates the rule because a rule that does not ensure sufficient initial headroom

"fails to accomplish the legislative goal of promoting competition." State administrative agencies

have only those powers expressly conferred upon them by the Legislature. City Public Serv. Bd. of

San Antonio , 2001 Tex. LEXIS 71, at *15 (citing Public Util. Comm'n v. GTE-Southwest, Inc. , 901

S.W.2d 401, 407 (Tex. 1995); State v. Public Util. Comm'n , 883 S.W.2d 190, 194 (Tex. 1994)). But

an agency may also have implied powers--those that are reasonably necessary to carry out the

express responsibilities given to it by the Legislature. Id. (citing GTE-Southwest , 901 S.W.2d at

407 ). However, the law prohibits agencies from exercising what is effectively a new power, or a

power contradictory to the statute, based merely on a claim that the power is expedient for

administrative purposes. Id. (citing GTE-Southwest , 901 S.W.2d at 407 (quoting Sexton v. Mt. Olivet

Cemetery Ass'n , 720 S.W.2d 129, 137-38 (Tex. App.--Austin 1986, writ ref'd n.r.e.))).

Here, Texas Utility Code section 39.202 dictates how the Commission is to determine

the price-to-beat. See Tex. Util. Code Ann. § 39.202 (a), (b). The statute requires the Commission

to set the price-to-beat at a rate "six percent less than the affiliated electric utility's corresponding

average residential and small commercial rates, on a bundled basis, that were in effect on January

1, 1999, adjusted to reflect the fuel factor," as determined by the Commission. Id. § 39.202(a).

Because there is nothing in the statutory language pertaining to headroom, we must look to the entire

statutory scheme to determine whether the Commission was required to consider headroom in setting

the initial price-to-beat. See State v. Public Util. Comm'n , 883 S.W.2d at 196 .

In ascertaining the scope of an agency's authority, we give great weight to the

contemporaneous construction of a statute by the administrative agency charged with its

enforcement. Id. at 197 (citing Dodd v. Meno , 870 S.W.2d 4, 7 (Tex. 1994); Tarrant Appraisal Dist.

v. Moore , 845 S.W.2d 820, 823 (Tex. 1993)). We recognize that the Legislature intends an agency

created to centralize expertise in a certain regulatory area "be given a large degree of latitude in the

methods it uses to accomplish its regulatory function." Id.

According to the Commission, rule 25.41 reflects a reasonable balance between the

competing interests of REPs and customers--namely, fostering competition while simultaneously

providing customers a prompt reduction from regulated rates. Reliant does not contest the

Commission's power to establish the initial price-to-beat. Instead, Reliant contends that the

Commission was required to include in rule 25.41 a mechanism guaranteeing that the price-to-beat

would be above market cost and that, in failing to do so, it ignored the legislative goals underlying

PURA and deregulation--establishing a competitive electricity market.

PURA encompasses competing policy considerations: electric consumers' interest

in lowering costs versus electric retailers' interest in establishing competition. This Court does not

decide matters of policy. Our role is limited to evaluating whether the Commission acted contrary

to the statute. Reliant argues that in setting the initial price-to-beat, "the Commission could have

provided a mechanism that would have established an adequate margin between the price-to-beat

and the market cost of power," yet "the final rule contained no provision ensuring adequate initial

headroom." Reliant concedes that the Commission had the authority to set the initial price-to-beat.

Although the Commission could ensure adequate initial headroom, nothing in the statute requires

it to do so; neither can such a requirement be found upon examination of the entire statutory scheme.

Therefore, we cannot say that the Commission erred by not including a provision guaranteeing new

entrants adequate initial headroom to secure a profit. Accordingly, Reliant's first issue is overruled.

Provider of Last Resort

Reliant next contends that, because the PURA provides no basis for excluding POLR

customers from the target forty percent affiliated REP reduction rate calculation, rule 25.41 is

invalid. Here, Reliant asserts that, to the extent the Commission exercised an implied power to insert

a non-statutory exclusion in the rule, the Commission overstepped its authority. In deciding whether

the Commission exceeded its authority, we ask if the rule is in harmony with the general statutory

objectives. Chrysler Motors Corp. , 846 S.W.2d at 141 . The stated purpose of PURA Chapter 39

is to facilitate the transition between the regulated and deregulated utility market. See Tex. Util.

Code Ann. § 39.001 (a).

Reliant argues that excluding POLR customers from the forty percent target

calculation thwarts the overall intent of PURA section 39.202(e), which, Reliant asserts, "is simply

to ensure that a threshold percentage of the residential and small commercial loads formerly served

by integrated utilities is served by entities other than the affiliated REP before price-to-beat

restrictions are lifted." The Commission responds by claiming that the POLR provision directly

serves the legislative purpose of the statute by counting only those customers lost to new REPs

through the competitive process.

In construing the Commission's authority, we must look to the statute as a whole, not

section 39.202(e) in isolation. It is undisputed that the intent of PURA is to provide a smooth

transition from a regulated utility industry to a deregulated one. We cannot require the Legislature

to include every detail and anticipate all unforeseen circumstances in statutes delegating authority

to the Commission. To do so would defeat the purpose of delegating legislative authority. Railroad

Comm'n v. Lone Star Gas Co. , 844 S.W.2d 679, 689 (Tex. 1992). One of the bill's sponsors,

Representative Wolens, commented at the House floor discussion on May 20, 1999 that the

deregulation statute is intended to give competitors an opportunity to enter and compete in the

electricity market. He explained that the forty percent provision was to be used as a tool to ascertain

market power: "We say that as a matter of market power, if the incumbent loses 40% of their

customers, competition begins and then they can lower their price."

These comments bolster the Commission's argument that the forty percent provision

was intended to be used as an indicator for a functioning competitive market. Excluding customers

served by a POLR is consistent with the overall legislative scheme of calibrating the competitive

market place. A rule need only be based on a legitimate position of the agency to be upheld; it "need

not be wise, desirable, or even necessary." Chrysler Motors Corp. , 846 S.W.2d at 142 . Thus, to the

extent that the Commission exercised an implied power in excluding POLRs from the threshold forty

percent determination, we cannot say such action is incongruent with the legislative purpose of

promoting competition. Therefore, we overrule Reliant's POLR issue.

Reasoned Justification

One of the stated purposes of the APA is to provide for public participation in the

rulemaking process. See Tex. Gov't Code Ann. § 2001.001 . Accordingly, sections 2001.021-.034

establish a system of informal or "notice-and-comment" rulemaking. Id. §§ 2001.021-.034; see also

Unified Loans, Inc. v. Pettijohn , 955 S.W.2d 649, 651 (Tex. App.--Austin 1997, no pet.). In order

to adopt a rule, an agency must provide: (1) public notice; (2) an opportunity for and full

consideration of comments; and (3) a reasoned justification for the rule enacted. See Tex. Gov't

Code Ann. §§ 2001.023 , .029, .033 (West Supp. 2001); see also McCarty v. Texas Parks & Wildlife

Dep't , 919 S.W.2d 853, 854 (Tex. App.--Austin 1996, no writ).

Reliant does not take issue with whether the Commission satisfied the requirements

that it provide public notice and an opportunity for comments before adopting the price-to-beat

rules. (6) The controversy instead concerns whether the Commission provided a reasoned justification

for rule 25.41. This is the first time that we have been explicitly called upon to construe the reasoned

justification requirements since the 1999 amendments to the APA. After a careful review of the

changes to section 2001.033, we conclude that the Legislature did not intend to effectuate a material

change.

To satisfy the reasoned justification requirement, an agency's order adopting a rule

must explain how and why the agency reached the conclusion it did. See National Ass'n of Indep.

Insurers v. Texas Dep't of Ins. , 925 S.W.2d 667, 669 (Tex. 1996) ("NAII"). A reasoned justification

must include: (1) a summary of comments the agency received from interested parties; (2) a

summary of the factual basis for the rule; and (3) the reasons why the agency disagrees with a party's

comments. Tex. Gov't Code Ann. § 2001.033 (1); see also Texas Hosp. Ass'n v. Texas Workers'

Comp. Comm'n , 911 S.W.2d 884, 886 (Tex. App.--Austin 1995, writ denied).

In addition to these three criteria, the agency must provide a reasoned justification for

the rule as a whole. See Texas Hosp. Ass'n , 911 S.W.2d at 886 (citing Railroad Comm'n v. Arco Oil

& Gas Co. , 876 S.W.2d 473, 492 (Tex. App.--Austin 1994, writ denied); Chrysler Motors Corp. ,

846 S.W.2d at 143 ). By requiring an agency to expressly state a reasoned justification for a rule, the

Legislature sought to bring the decisionmaking process into the open. See Arco , 876 S.W.2d at 480 ;

see also NAII , 925 S.W.2d at 669 ("Requiring an agency to demonstrate a rational connection

between the facts before it and the agency's rules promotes public accountability and facilitates

judicial review.").

An agency rule not adopted in substantial compliance with the rulemaking provisions

of the APA section is voidable. Tex. Gov't Code Ann. § 2001.035 (a). The reasoned justification

requirement imposed by section 2001.033 confines a reviewing court's inquiry to the face of the

order finally adopting the rule. See Arco , 876 S.W.2d at 480 (citing Ron L. Beal, The Scope of

Judicial Review of Agency Rulemaking: The Interrelationship of Legislating and Rulemaking in

Texas , 39 Baylor L. Rev. 597 , 690 (1987)); see also Methodist Hosps. v. Industrial Accident Bd. , 798

S.W.2d 651, 659 (Tex. App.--Austin 1990, writ dism'd w.o.j.). In Methodist Hospitals , this Court

held that the

question of substantial compliance . . . is a question of law to be determined solely

from the face of the [adopting] order . . . . So much is necessarily implied by the

statute itself. Substantial compliance is not a question of fact, to be determined by

evidence adduced subsequently in a reviewing court, concerning whether the agency

had unstated factual bases for its rule or unstated reasons for disagreeing with party

submissions and proposals, and what these were in fact , or whether any stated factual

bases or reasons for disagreeing were in fact considered and accepted by the agency

on sufficient evidence .

798 S.W.2d at 659 (emphasis in original).

Therefore, to substantially comply with the reasoned justification requirement, the

four corners of the agency's final notice must present the agency's justification in a "relatively clear,

precise, and logical fashion." (7) Arco , 876 S.W.2d at 492 . Furthermore, an agency's order must

accomplish the legislative objectives underlying the reasoned justification requirement and come

fairly within the character and scope of each of the statute's requirements in specific and

unambiguous terms. See NAII , 925 S.W.2d at 669 (citing Arco , 876 S.W.2d at 491 ; Methodist

Hosps. , 798 S.W.2d at 654 ). The essential legislative objective of the reasoned justification

requirement is

to give notice of the factual, policy, and legal basis for the rule, as adopted or

construed by the agency, in light of all the evidence gathered by the agency and

submitted by interested parties during the comment period. This overall objective

can be broken down into two fundamental goals of the reasoned justification

requirement: (1) to ensure the agency fully considered the comments submitted and

(2) to provide the factual basis and rationality of the rule as determined by the

agency.

Arco , 876 S.W.2d at 491 .

We review a challenge to the reasoned justification requirement using an "arbitrary

and capricious" standard, with no presumption that facts exist to support the agency's order. See

Texas Hosp. Ass'n , 911 S.W.2d at 887 ; see also Arco , 876 S.W.2d at 490-91 . In applying an

arbitrary and capricious test to agency rulemaking, we examine whether the agency's explanation

of the facts and policy concerns it relied on when it adopted the rule demonstrates that the agency

considered all the factors relevant to the objectives of the agency's delegated rulemaking authority,

and engaged in reasoned decisionmaking. See Arco , 876 S.W.2d at 491 . An agency acts arbitrarily

if in making a decision it commits any of the following errors: (1) omits from its consideration a

factor that the Legislature intended the agency to consider in the circumstances; (2) includes in its

consideration an irrelevant factor; or (3) reaches a completely unreasonable result after weighing

only relevant factors. Statewide Convoy Transps. Inc. v. Railroad Comm'n , 753 S.W.2d 800, 804

(Tex. App.--Austin 1988, no writ); see also Bullock v. Hewlett-Packard Co. , 628 S.W.2d 754, 756

(Tex. 1982) (stating a rule is arbitrary and capricious when it lacks a legitimate reason to support it).

As set out in the Utility Code, the Commission's statutory mandate is "to protect the

public interest during the transition to and in the establishment of a fully competitive electric power

industry." Tex. Util. Code Ann. § 39.001 . The Legislature delegated to the Commission the power

to adopt rules pursuant to this mandate. Id. § 11.02(c). In particular, the Commission must set the

price-to-beat by decreasing base rates by six percent and adjusting the fuel factor to account for

changes in the market. Id. § 39.202. Thus, within the four corners of the Commission's order

adopting the price-to-beat rules, we must be able to determine that the Commission considered and

found facts to support its decision that the initial price-to-beat need not include sufficient headroom

to ensure nonaffiliated REPs would realize a profit.

To determine whether the Commission's order adopting the price-to-beat rules

satisfies the reasoned justification requirement of the APA, we consider each substantive element

set out in the statute. See Tex. Gov't Code Ann. § 2001.033 ; see also Methodist Hosps. , 798 S.W.2d

at 659 . The first element is "a summary of comments received from parties interested in the rule that

shows the names of interested groups or associations offering comment on the rule and whether they

were for or against its adoption." Id. The Commission's order sets out expressly and at some length

the information required by the first element. Because Reliant does not complain that the summary

of comments is absent from the order; we need not consider this item further.

The crux of Reliant's challenge concerns the second and third elements of the

reasoned justification requirement: "a summary of the factual basis for the rule as adopted which

demonstrates a rational connection between the factual basis for the rule and the rule as adopted" and

"the reasons why the agency disagrees with party submissions and proposals." Id. Reliant contends

that the adopting order fails to explain why the Commission rejected proposed solutions that would

have remedied the problem of inadequate headroom. In particular, Reliant argues that the order fails

to demonstrate an adequate consideration of lack of an initial headroom amount that would ensure

a profit margin and encourage competition. Reliant contends that the statements of justification in

the adopting order are merely conclusory and do not substantially comply with the reasoned

justification requirement of the APA. Reliant recognizes that the Commission did consider that the

initial headroom might be below market value. (8) Reliant goes on to comment, however, that the "rule

should have been drafted in a way that would have avoided this problem."

The order acknowledges that determining the appropriate mechanism to use in

adjusting the fuel factor portion of the price-to-beat "was by far the most controversial aspect of"

rule 25.41. The Commission urges that several portions of the order adopting the price-to-beat rule

satisfy the reasoned justification requirement. Specifically, the order recognizes that the

lack of headroom demonstrates that the economics of serving [price-to-beat]

customers make[s] it unlikely that . . . customers will benefit from competition. It

is illogical to remedy this problem by increasing the [price-to-beat] to a level that

exceeds the rate that these customers would have paid with continued regulation in

order that they can benefit from competition.

This language precisely states the reasons why the new rules were adopted, namely to ensure

customers will realize a rate reduction after deregulation.

Additionally, the Commission points out that rule 25.41(g) authorizes the

Commission to make fuel factor adjustments in three situations: (1) if the affiliated REP

demonstrates that the existing fuel factor does not adequately reflect significant changes in the

market price of natural gas and purchased energy; (2) upon a finding by the Commission that the

affiliated REP will be unable to maintain its financial integrity; or (3) the Commission may adjust

the price-to-beat under PURA section 39.262, the "true-up" provision. The Commission contends

that these provisions justify its decision not to increase the initial headroom in the price-to-beat rule

because they provide viable alternatives to setting an artificially high price-to-beat as a means of

ensuring competition.

These comments provide a reasoned justification for the Commission's conclusion

that the alternative mechanisms proposed in lieu of creating greater headroom are more efficacious

to accomplish the dual legislative purpose of providing customer savings and encouraging retail

competition. The Commission analyzed whether other measures would adequately ensure

competition and its order explains why requiring sufficient initial headroom to ensure profitability

is unnecessary to the legislative scheme of developing competition and protecting consumers. See

Methodist Hosps. , 798 S.W.2d at 659 . Thus, this portion of the rule satisfies the reasoned

justification requirements.

Reliant next argues that the order fails to justify the rejection of an electricity

commodity index requested by Reliant and other parties. The Commission argues that its responses

to arguments made by interested parties fully explain the reasons it concluded that the rule as enacted

adequately encourages competition. For example, in its order, the Commission explained:

It is not appropriate to move to such an index until the stranded costs of the affiliated

PGC are finalized as any stranded cost charges . . . will not be finalized until stranded

costs are finalized. At that time, if the price to beat for an affiliated REP is in danger

of being below market because of high market prices for generation, the return of any

excess mitigation, or negative stranded costs if the commission determines that it has

the authority to require the return of negative stranded costs, can be used to address

concerns about headroom and thereby mitigate the effects of high market prices on

price to beat customers. Subsection (g)(1)(F) has been added to allow for this

transition and prescribes these preconditions and the methods by which an affiliated

REP must transition to the use of an electricity index.

Thus, the Commission was convinced that adequate safeguards exist for offsetting changes in market

conditions so that the price-to-beat need not be adopted to the exclusion of all other remedies. These

statements secure the legislative objectives that underlie the reasoned justification requirement.

While the reasoned justification requirement does not demand that an agency provide detailed

findings of fact and conclusions of law, see Chrysler Motors Corp. , 846 S.W.2d at 143 , an agency

must provide more than a general reference to statutory authority, Arco , 876 S.W.2d at 494 ; see also

Beal, 45 Baylor L. Rev. at 33 ("Mere reiteration of the statutory language does not ensure that the

agency relied on and informed interested parties of the underlying factual basis for the rule,

according to the legislative objective."). Here, the Commission satisfied this burden, having noted

in its order its reasons for disagreeing with the submissions and proposals it received.

Reliant's final contention is that, in rejecting a move to an electric commodity index,

the Commission failed to justify its disregard for the balanced plan the Legislature crafted to

stimulate competition in the period before the 2004 true-up and to protect affiliated REPs from

devastating losses. This argument is inextricably linked to the Commission's rejection of an

electricity index. In its order, the Commission explained that it disagreed with Reliant's position

because after "2002, the market price of [electricity] generation will likely be set by gas-fired

generation, and as such, it is appropriate to apply the changes in the market price of natural gas and

purchased energy to the entire fuel factor in order to maintain the level of headroom in the price to

beat." The Commission's reasons for its rejection of an electric commodity index is directly

responsive to Reliant's expressed concerns and satisfies the reasoned justification requirement.

CONCLUSION

Having overruled Reliant's three issues, we sustain the validity of rule 25.41 as

enacted by the Commission.

Jan P. Patterson, Justice

Before Justices Kidd, Yeakel and Patterson

Affirmed

Filed: November 15, 2001

Publish

1. Pursuant to this goal, the Legislature also amended section 11.002 to provide the Public Utility

Commission of Texas with "authority to make and enforce rules necessary to protect customers . . .

consistent with the public interest." Tex. Util. Code Ann. § 11.002 (c) (West Supp. 2001).

2. "Fuel factor" is a term of art that is not statutorily defined. However, the Commission has

prescribed to it a particular meaning in its substantive rules. See Tex. Gov't Code Ann. § 311.011

(West 1998); 16 Tex. Admin. Code § 25.237 (West 2001). Rule 25.41(g) mandates utilities to

utilize substantive rule 25.237, its existing fuel factor rule, to set the initial price-to-beat fuel factor.

See 26 Tex. Reg. 2680 , 2707 (2001) (to be codified at 16 Tex. Admin. Code § 25.41 ); see also 16

Tex. Admin. Code § 25.237 (c) (requiring utilities to prove that the expenses to be recovered through

the fuel factor are reasonable estimates of their eligible fuel expenses during the period the factor is

to be in effect).

3. The price-to-beat is comprised of two components, the base rate and the fuel factor rate, and

is defined as the cost at which an affiliated retail electric provider must make electricity available

to residential and small commercial customers on a bundled basis. Tex. Util. Code Ann. 39.202(a)

(West Supp. 2001). Bundled basis refers to the rates charged before deregulation.

4. In determining whether a REP has lost forty percent of its customer base, the Commission will

consider whether the REP can show that the electric power consumption of the relevant customer

group served by nonaffiliated REPs meets or exceeds forty percent of the total number of kilowatt-hours consumed by residential customers and forty percent of the difference between the total

number of kilowatt-hours consumed by small commercial customers served by the affiliated electric

utility during the calendar year 2000 minus the aggregated load served by the affiliated REP. Tex.

Util. Code Ann. § 39.202 (e).

5. "Headroom" refers to the margin between the price-to-beat and the new retailer's costs of

providing electricity.

6.

Proposed rule 25.41, relating to the price-to-beat, was published in the Texas Register on

November 20, 2000. Initial comments on the rule were filed December 11, 2000 by approximately

thirteen interested organizations. Reply comments were filed on January 2, 2001. The Commission

held public hearings on proposed rule 25.41 on January 11th and 22nd, 2001. Representatives from

approximately fifteen interested parties and organizations attended the January 11th hearing while

only about eight were present at the hearing on the 22nd. Reliant participated in both public hearings

and the initial comment proceeding. The final order was issued March 20, 2001.

7. See also

Ron L. Beal, The Scope of Judicial Review of Agency Rulemaking: The

Interrelationship of Legislating and Rulemaking in Texas , 39 Baylor L. Rev. 597 , 688 (1987)

("[T]he test of substantial compliance should not allow an agency to 'fill in the blanks' with

meaningless rhetoric and thereby frustrate the legislative intent of reasoned decision making. The

legislative intent undisputably requires a focused analysis by the agency of all relevant factual, policy

and legal issues resulting not only in a justification, but a reasoned justification of the rule.").

8. In its brief, Reliant comments, "The Commission undoubtedly realized that the margin between

an affiliated REP's commodity costs and its price-to-beat may be negative."