Hermenia Jenkins v. Crosby Independent School District and Michael L. Williams in His Official Capacity as State Commissioner of Education

ACCEPTED

03-15-00313-CV

6023524

THIRD COURT OF APPEALS

AUSTIN, TEXAS

7/10/2015 3:56:40 PM

JEFFREY D. KYLE

CLERK

NO. 03-15-00313-CV

_______________________________________________________________

RECEIVED IN

3rd COURT OF APPEALS

IN THE COURT OF APPEALS AUSTIN, TEXAS

7/10/2015 3:56:40 PM

THIRD SUPREME JUDICIAL DISTRICT AT AUSTIN, TEXAS

JEFFREY D. KYLE

________________________________________________________________

Clerk

HERMENIA JENKINS,

Appellant,

v.

CROSBY INDEPENDENT SCHOOL DISTRICT AND

MICHAEL L. WILLIAMS, COMMISSIONER OF EDUCATION,

Appellees.

________________________________________________________________

On Appeal from the 200th District Court of Travis County, Texas;

Trial Court Cause No. D-1-GN-14-000619

________________________________________________________________

BRIEF OF AMICUS CURIAE

TEXAS ELEMENTARY PRINCIPALS AND SUPERVISORS ASSOCIATION

DANIEL A. ORTIZ

State Bar No. 15323100

GIANA ORTIZ

State Bar No. 24053824

The Ortiz Law Firm

1304 West Abram Street, Suite 100

Arlington, Texas 76013

817-861-7984 Telephone

817-861-8909 Facsimile

dortiz@ortizlawtx.com

gortiz@ortizlawtx.com

ATTORNEYS FOR AMICUS CURIAE TEXAS

ELEMENTARY PRINCIPALS AND

SUPERVISORS ASSOCIATION

IDENTITY OF PARTIES AND COUNSEL

Amicus curiae Texas Elementary Principals and Supervisors Association

adopts the parties’ identity of parties and counsel to the order appealed from,

and supplements as follows:

Attorneys for Amicus Curiae TEPSA:

Daniel A. Ortiz

Giana Ortiz

1304 West Abram Street, Suite 100

Arlington, Texas 76013

817-861-7984 Telephone

IDENTITY OF BRIEFING PARTY

Pursuant to Texas Rule of Appellate Procedure 11(b), this amicus curiae

brief is tendered on behalf of Texas Elementary Principals and Supervisors

Association.

SOURCE OF FEE PAID

Pursuant to Texas Rule of Appellate Procedure 11(c), this amicus curiae

brief is funded wholly by Texas Elementary Principals and Supervisors

Association, by and through member contributions.

Brief of Amicus Curiae TEPSA Page i

TABLE OF CONTENTS

Cases Page

IDENTITY OF PARTIES AND COUNSEL ................................................. i

TABLE OF CONTENTS ................................................................................ ii

INDEX OF AUTHORITIES.......................................................................... iii

INTEREST OF AMICUS CURIAE TEPSA ................................................... 1

STATEMENT OF THE CASE ...................................................................... 2

ISSUES PRESENTED.................................................................................... 2

STATEMENT OF FACTS ............................................................................. 2

SUMMARY OF ARGUMENT ...................................................................... 3

ARGUMENT ................................................................................................. 4

I. The Unique Role of Principal .................................................... 4

A. Principals Are Treated as Unique by the Legislature ...... 6

B. Principals Are Treated as Unique by the School

Community ...................................................................... 9

II. “Principal” Is a Protected “Professional Capacity” ................. 10

III. Jenkins’ Contract is Not an “Administrator Contract” ............ 14

IV. The Commissioner’s Decision is Not Entitled to Deference ... 16

PRAYER ....................................................................................................... 17

CERTIFICATE OF SERVICE ..................................................................... 20

APPENDIX INDEX ..................................................................................... 21

Brief of Amicus Curiae TEPSA Page ii

INDEX OF AUTHORITIES

Cases Page

French v. School Bd., 568 So. 2d 497 (Fla. Dist. Ct. App. 1990) ...................... 11

Joyce v. Spring-Ford Area Sch. Dist.,

600 A.2d 1302 (Pa. Commw. Ct. 1991) .......................................................... 11

Murphy v. St. Paul Pub. Schs., 795 N.W.2d 30 (Minn. Ct. App. 2011) ............ 11

Pub. Util. Comm’n v. Gulf States Utils. Co.,

809 S.W.2d 201 (Tex. 1991)........................................................................ 3, 17

Commissioner Decisions

Barich v. Canadian Independent School District,

Docket No. 106-R1-585 (Comm’r Educ. 1985) ........................................ 12, 14

Jenkins v. Crosby Independent School District,

Docket No. 043-R10-1211 (Comm’r Educ. 2013) ........................ 12, 13, 15, 16

Lehr v. Ector County Independent School District,

Docket No. 003-R3-0908 (Comm’r Educ. 2011) .............................. 3, 8, 13, 17

Pasqua v. Fort Stockton Independent School District,

Docket No. 011-R3-1102 (Comm’r Educ. 2004) ............................................ 12

Ramos v. El Paso Independent School District,

Docket No. 002-R10-900 (Comm’r Educ. 2002) ............................................ 12

Tuck v. Alief Indep. Sch. Dist.,

Docket No. 008-R10-1007 (Comm’r Decision 2012) ............................... 14, 15

Veliz v. Donna Independent School District,

Docket No. 011-R3-999 (Comm’r Educ. 2000) .............................................. 12

Brief of Amicus Curiae TEPSA Page iii

Wheeler v. Austin Independent School District,

Docket No. 008-R3-1108 (Comm’r Educ. 2011) ............................................ 14

Statutes

19 TEX. ADMIN. CODE § 149.2001 ........................................................................ 8

19 TEX. ADMIN. CODE § 232.2 (b) ........................................................................ 8

19 TEX. ADMIN. CODE § 241.1 .............................................................................. 8

19 TEX. ADMIN. CODE § 242.1 .............................................................................. 8

TEX. EDUC. CODE § 11.201 ................................................................................... 6

TEX. EDUC. CODE § 11.201(a)) ............................................................................. 3

TEX. EDUC. CODE § 11.202 ........................................................................... 3, 6, 7

TEX. EDUC. CODE § 11.202(a)............................................................................... 3

TEX. EDUC. CODE § 11.253 ................................................................................... 7

TEX. EDUC. CODE § 21.046 ................................................................................... 8

TEX. EDUC. CODE § 21.201(1) .................................................... 10, 12, 14, 15, 16

TEX. EDUC. CODE § 21.202 ........................................................................... 10, 11

TEX. EDUC. CODE § 21.206 ................................................................................. 10

TEX. EDUC. CODE § 21.206(b) ............................................................................ 16

TEX. EDUC. CODE § 21.211 ................................................................................. 10

TEX. EDUC. CODE § 21.354 ................................................................................... 7

TEX. FAMILY CODE § 52.02(7) .............................................................................. 9

Rules

Texas Rule of Appellate Procedure 38.1 .............................................................. 2

Board Policies

Crosby Indep. Sch. Dist. Bd. Policy DP (Local) .................................................. 7

Crosby Indep. Sch. Dist. Bd. Policy FOE (Legal)................................................ 9

Brief of Amicus Curiae TEPSA Page iv

INTEREST OF AMICUS CURIAE TEPSA

Formed in 1917, the Texas Elementary Principals and Supervisors

Association (“TEPSA”) consists of some 5,800 Pre-K-8th grade principals and

supervisors working in the public schools of Texas. TEPSA provides support

for its members by way of advocacy, legislative representation, and professional

development. TEPSA members are the chief leaders in hundreds of public

school districts across the state, in rural, urban, and suburban areas. The vast

majority of TEPSA members serve as principals and assistant principals in

public elementary schools. TEPSA is interested in this case because the ability

of a school district to unilaterally transfer Texas public school principals to any

position other than principal creates a career crisis, and economic detriment,

from which TEPSA seeks to protect Texas public school principals. TEPSA

further seeks to promote the legal rights of such principals throughout Texas.

Each of the thousands of educators serving Texas public school children

plays a vitally important role in our state’s future. Principals, not unlike

superintendents, serve a uniquely crucial role: As the superintendent is the chief

instructional leaders of the school district, the principal is the chief instructional

leader of the school building. It takes a great deal of dedication, personal

sacrifice, and devotion to service to become a principal. Those individuals who

Brief of Amicus Curiae TEPSA Page 1

have succeeded in attaining the credentials and experience to become a

principal should not be unilaterally demoted to a non-principal position without

some form of notice and hearing. The title is not easily earned and should not be

freely stripped away.

STATEMENT OF THE CASE

This is an appeal from a decision of the Texas Commissioner of

Education (the “Commissioner”). This amicus curiae brief is presented to the

Court advocating a reversal of the Commissioner’s decision by way of an

appropriate and equitable interpretation of the statutes and case law.

ISSUES PRESENTED

Pursuant to Texas Rule of Appellate Procedure 38.1, TEPSA presents this

brief not to raise additional issues but to advocate a position on issues raised by

the parties.

STATEMENT OF FACTS

TEPSA adopts the parties’ statements of the facts to the extent such facts

are undisputed. To the extent there exist disputed facts, TEPSA does not take a

position on such facts unless otherwise noted herein.

Brief of Amicus Curiae TEPSA Page 2

SUMMARY OF THE ARGUMENT

Involuntarily stripping the principal of a principal’s title is tantamount to

a public termination—the effect on the educator’s reputation and earning

potential being swift and not easily reversed. TEPSA does not posit that Texas

principals have a right to a principal’s position, but rather that Texas principals

have a right to process before being stripped of that title. Because the

principal’s role garners unique treatment both under the law and in the school

district community, to strip the principal of the title and duties constitutes a

deprivation of a property interest such that due process is required.

First, the legislature treats a principal and a superintendent differently

than any other person employed by a school district—but agency law has not

abided by that distinction. Agency law through Commissioner’s decisions,

reflects application of an arbitrary distinction between superintendent—as “sui

generis” the educational leader and chief executive officer of the school

district—and treats all other “administrators” as equal. E.g., Lehr v. Ector

County Ind. Sch. Dist., Docket No. 003-R3-0908 (Comm’r Educ. 2011)

(quoting TEX. EDUC. CODE § 11.201(a)). This distinction ignores the plain

language of the statute which also identifies the principal’s role as sui generis

on the campus—“the instructional leader of the school.” TEX. EDUC. CODE

Brief of Amicus Curiae TEPSA Page 3

§ 11.202(a). The principal, unlike any other person on a campus, has a

statutorily defined role and attendant duties. TEX. EDUC. CODE § 11.202.

Second, the principal’s visibility in the community is second only to that

other unique role—the superintendent. Principal reassignments are public

events and, thanks to the internet, follow the principal for the rest of her career.

The courts’ duty of deference to agency decisions does not permit this Court to

affirm the agency’s decision where, as here, it is inconsistent with the statute.

See Pub. Util. Comm’n v. Gulf States Utils. Co., 809 S.W.2d 201, 207 (Tex.

1991). This Court should overturn the Commissioner’s decision in this case to

apply fundamental principles of statutory construction. The notion that the

legislature meant to treat a superintendent as beyond compare—but treat the

principal as if she were any other “administrator”—is a fiction created by the

Commissioner and which must be corrected by this Court.

ARGUMENT

I. The Unique Role of Principal

The principal is the single chief instructional leader of each public school

campus in Texas. The principal reports directly to the highest ranks in the

school district—the superintendent(s) and the elected school board. The

principal is charged with direction of all activities on a campus from custodial

Brief of Amicus Curiae TEPSA Page 4

and maintenance services, to athletics, extracurricular activities, instruction, and

testing. In this role, the principal performs a balancing act at all times—

implementing policy promulgated by central administration, while maintaining

high standards and morale on the campus. At times forced to choose sides (e.g.,

central office vs. teachers, parent vs. teacher, student vs. student, parent vs.

parent, etc.), there are some battles a principal cannot win. The principal must

make the most reasonable and intelligent choice with the information she has at

that given moment, and face the fallout.

For this reason, and because almost every reassignment will constitute a

demotion for the principal, the position dictates some minimal process to

insulate principals from the inherent political risks associated with the job. That

is, when a principal is “reassigned” to a role of significantly less authority (as is

any non-principal role), this information is not only reflected on the person’s

work history but it is also a very public event. It makes the newspapers and

television news, even in large cities. However, a demotion from a principal

position—the chief instructional leader position—to assistant principal,

attendance coordinator, or any other non-principal position has the same

practical effect for the educator as a termination or nonrenewal without

requiring the school districts to abide by the procedures set forth in the Texas

Brief of Amicus Curiae TEPSA Page 5

Education Code. By permitting the school districts to circumvent those

processes to avoid risks, or inconvenience, the Commissioner’s decision in

effect condones the school district’s de facto termination or nonrenewal without

the due process protections afforded Texas educators in the Texas Education

Code.

A. Principals Are Treated as Unique by the Legislature. Like

superintendents, the role and duties of a principal are expressly set forth by

statute. State law defines the job duties for superintendent and principal. TEX.

EDUC. CODE §§ 11.201, 11.202. All other school positions are subject to being

completely defined by the school district—through the superintendents and

principals or their designees. There is no mystery as to the principal’s duties.

The duties, and the role, are clearly stated in state law, and may be augmented

by the school district.

Specifically:

a. The principal of a school is the instructional leader of the

school and shall be provided with adequate training and

personnel assistance to assume that role.

b. Each principal shall:

1. Except as provided by Subsection (d), approve all

teacher and staff appointments for that principal’s

campus from a pool of applicants selected by the

Brief of Amicus Curiae TEPSA Page 6

district or of applicants who meet the hiring

requirements established by the district, based on

criteria developed by the principal after informal

consultation with the faculty;

2. set specific education objectives for the principal’s

campus, through the planning process under Section

11.253;

3. develop budgets for the principal’s campus;

4. assume the administrative responsibility and

instructional leadership, under the supervision of the

superintendent, for discipline at the campus;

5. assign, evaluate, and promote personnel assigned to

the campus;

6. recommend to the superintendent the termination or

suspension of an employee assigned to the campus or

the nonrenewal of the term contract of an employee

assigned to the campus; and

7. perform other duties assigned by the superintendent

pursuant to the policy of the board of trustees.

TEX. EDUC. CODE § 11.202; see also Crosby Indep. Sch. Dist. Bd. Pol’y

DP(Local) (setting forth additional qualifications unique for the principal).

Principals not only have a unique job description provided by state law,

principals are also assessed by specific statutory appraisal guidelines, separate

and apart from teachers, assistant principals, and other administrators. See TEX.

EDUC. CODE § 21.354. The Texas Administrative Code also sets forth

Brief of Amicus Curiae TEPSA Page 7

professional standards for principals as distinct from teachers, assistant

principals, and other administrators. See 19 TEX. ADMIN. CODE § 149.2001.

Moreover, unlike for any other administrator position, state law dictates the

certification requirements for superintendent and principal. TEX. EDUC. CODE

§ 21.046. Additionally, there are only two categories of administrator

certificates in Texas: the superintendent and principal. See 19 TEX. ADMIN.

CODE §§ 241.1 et seq., §§ 242.1 et seq.1

The school district in this case has asserted that because an assistant

principal is required to hold a principal’s certificate, the two positions are equal

for reassignment purposes. Using this same analysis, a superintendent could be

reassigned to be a principal, because a superintendent is required to hold a

principal’s certificate. However, the Commissioner has prohibited such

demotion. E.g., Lehr v. Ector County Ind. Sch. Dist., Docket No. 003-R3-0908

(Comm’r Educ. 2011). Indeed, the arbitrary distinction between the protection

afforded to the superintendent from unlawful reassignment to principal—

whereas the principal’s demotion to assistant is lawful—has no support in the

statutes.

1

19 TEX. ADMIN. CODE § 232.2 (b): Classes of certificates include the following: 1.

superintendent; 2. principal; 3. classroom teacher; 4. instructional educator other than

classroom teacher, including reading specialist; 5. master teacher; 6. school librarian; 7.

Brief of Amicus Curiae TEPSA Page 8

B. Principals Are Treated as Unique by the School Community.

Principals are unique, indispensable, members of the campus community. For

each public school campus in this state, there exists only one principal. The

same is not true for assistant principals. Indeed, each principal is aided in that

role by one or several “assistants,” depending on the size of the campus. A

principal is strengthened and the campus is made more successful with a good

assistant principal. The principal often delegates responsibilities related to

student discipline, teacher appraisals, special education, lunch duty, bus duty,

textbooks, and others to her assistant. See, e.g., Tex. Family Code § 52.02(7)

(providing that a principal or his designee must assume responsibility of a child

taken into custody and returned to the school); Crosby Indep. Sch. Dist. Bd.

Pol’y FOE(Legal) (permitting the principal or his designee to place a student in

alternative education or expel a student immediately under certain conditions).

Delegation and designation of duties is left to the discretion of the principal and

varies from campus to campus. The assistant’s job is to carry out the duties as

assigned by the principal. While the assistant principal is a crucial component

of the well-oiled campus machinery, the reality is that no person on the school

district staff—from the paraprofessional to the superintendent—considers the

school counselor; 8. educational diagnostician; and 9. educational aide.

Brief of Amicus Curiae TEPSA Page 9

assistant to be the “same professional capacity” as the principal. The legal

fiction that they are the “same professional capacity” exists only in

Commissioner decisions and finds no support either in the law or in practice.

II. “Principal” Is a Protected “Professional Capacity”

Chapter 21 of the Texas Education Code provides certain protections and

procedures for the nonrenewal or the termination of the educator, affording the

educator (or principal, as in this case) notice of the reasons for the adverse

employment action, and an opportunity for a hearing. See TEX. EDUC. CODE

§§ 21.206, 21.211. However, when the educator is reassigned, such procedural

protections are not invoked—unless the reassignment constitutes a “change in

professional capacity.” Texas Education Code § 21.202 provides that if the

school district does not nonrenew the educator contract, that the teacher must be

employed in the same professional capacity for the following school year.2

That is, the Texas Education Code § 21.201(1) defines “teacher” broadly:

“A superintendent, principal, supervisor, classroom teacher, counselor, or other

2

The District and the Commissioner have relied on the well-established right of public school

supervisors to reasonably reassign personnel. And indeed, the vast majority of professional

employment contracts contain a reassignment clause like Jenkins’ that says something similar

to this: “The District shall have the right to assign or reassign the Employee to positions,

duties, or additional duties and to make changes in responsibilities, work, or transfers, at any

time during the contract term.” However, the reassignment authority is always limited by the

professional capacity of the employee.

Brief of Amicus Curiae TEPSA Page 10

full-time professional employee who is required to hold a certificate issued

under Subchapter B, or a nurse.” Just five sections later, § 21.202 says that the

“teacher” must be employed in the same professional capacity for the following

school year unless the school board elects to nonrenew the employee’s contract.

Plainly, “principal” is a specific subset of the broadly defined “teacher,” and is

considered by the legislature to be a distinct professional capacity. When the

principal is reassigned to a different professional capacity—for example to an

assistant principal—TEPSA argues that such reassignment constitutes a

termination or nonrenewal of the existing contract with the teacher and invokes

certain rights to process. See also Joyce v. Spring-Ford Area Sch. Dist., 600

A.2d 1302 (Pa. Commw. Ct. 1991) (transfer of principal to newly created

coordinator position in central office constituted a demotion); French v. School

Bd., 568 So. 2d 497 , 498-99 (Fla. Dist. Ct. App. 1990) (transfer of elementary

school principal to position of assistant junior high school principal affects

substantial interests and therefore requires a hearing); Murphy v. St. Paul Pub.

Schs., 795 N.W.2d 30 (Minn. Ct. App. 2011) (“[The principal] suffered a

reduction in rank or a transfer to a lower branch of service when she was

assigned to an assistant-principal position.”).

In this case, the Commissioner devotes a great deal of discussion to the

Brief of Amicus Curiae TEPSA Page 11

concept of “same professional capacity.” Jenkins v. Crosby Indep. Sch. Dist.,

Docket No. 043-R10-1211 (Comm’r Educ. 2013). However, the legislative

history and statutory analysis therein sheds little or no light on why principals—

unlike the other professional capacities set forth in § 21.201(1), including

superintendent, teacher, and nurse, have been excluded from recognition as a

“professional capacity.” The end result is arbitrary and detrimental: A

superintendent is a superintendent. A teacher is a teacher. A counselor is a

counselor. A librarian is a librarian. A nurse is a nurse. But all

“administrators” are equal.3

The Commissioner has arbitrarily interpreted “administrator” broadly to

include assistant elementary school principal, high school principal, middle

school assistant principal, attendance coordinator, and others. See e.g., Pasqua

v. Fort Stockton Ind. Sch. Dist., Docket No. 011-R3-1102 (Comm’r Educ.

2004); Ramos v. El Paso Ind. Sch. Dist., Docket No. 002-R10-900 (Comm’r

Educ. 2002); Veliz v. Donna Ind. Sch. Dist., Docket No. 011-R3-999 (Comm’r

3

And indeed, teacher/coaches, teacher/deans, nurses, and counselors have all been preserved

as a “professional capacity” by Commissioner’s decisions. E.g., Jenkins v. Crosby Ind. Sch.

Dist., Docket No. 043-R10-1211 (Comm’r Educ. 2013) (“A classroom teacher cannot be

reassigned as a counselor. A counselor cannot be reassigned as a nurse. A nurse cannot be

reassigned as a librarian.”); Barich v. Canadian Ind. Sch. Dist., Docket No. 106-R1-585

(Comm’r Educ. 1985).

Brief of Amicus Curiae TEPSA Page 12

Educ. 2000). This broad interpretation of the word “administrator,” by which

the Commissioner erroneously equates principal with any number of other

administrative positions, becomes an improper circumvention of the due-

process type protections set forth in the Texas Education Code. Principals are

entitled to the nominal legal protections that come with the unique nature of the

job as evidenced by state law.

The Commissioner’s approach to analyzing administrator reassignments

is not workable. Prior Commissioner’s decisions equate all administrators,

other than the superintendent, paving the way for school districts to reassign a

principal to any other administrative or quasi-administrative position. Lehr v.

Ector County Indep. Sch. Dist., Docket No. 003-R3-0908 (Comm’r Educ.

2011). However, and as set forth supra, one can clearly conclude that the

legislature intended for principals to be treated as unique, and deserving of

protection from reassignments.

In the decision before the Court, the Commissioner portends that to

recognize the principal’s status would be to overturn decades of precedent.

TEPSA respectfully disagrees. Pursuant to the plain language of the statute,

principals are among the specifically identified protected professional

capacities. Jenkins v. Crosby Ind. Sch. Dist., Docket No. 043-R10-1211

Brief of Amicus Curiae TEPSA Page 13

(Comm’r Educ. 2013). A correct reading of the statute does not equate to a sea

change in all administrator reassignment cases. The traditional factors—

including duties, responsibilities and salaries—would apply to consider the

comparative “professional capacity” of non-principal administrator positions.

See Barich v. Canadian Ind. Sch. Dist., Docket No. 106-R1-585 (Comm’r Educ.

1985). The Commissioner’s analysis has heretofore failed to explain why

principals are excluded as a “professional capacity” when they are specifically

named in Texas Education Code § 21.201(1).

III. Jenkins’ Contract Is Not an “Administrator” Contract

Educator employment contracts must contain a valid “professional

capacity.” See, e.g., Tuck v. Alief Indep. Sch. Dist., Docket No. 008-R10-1007

(Comm’r Decision 2012); Wheeler v. Austin Indep. Sch. Dist., Docket No. 008-

R3-1108 (Comm’r Educ. 2011). Such a professional capacity may be “broad,”

but not overly broad.4 See Tuck v. Alief Indep. Sch. Dist., Docket No. 008-R10-

4

However, there is no remedy for a school-district employee when her employer fails to

follow this requirement. Rather, the Commissioner asserts that he will protect school

employees from school districts that abuse their reassignment authority, but he has shown

little or no inclination to do so with administrator reassignments. In response, school districts

have broadened the employment categories to a point beyond recognition. A “teacher”

contract is apparent on its face. But, what about “administrator”? Or, as in the case of Ms.

Jenkins’ contract, an “employee”? Neither is decipherable and both are intended to be as

broad as possible to insulate the school district from any claims of wrongful reassignment.

Their breadth, at least as applied to principals, is an abuse by the school district of its right to

reassign.

Brief of Amicus Curiae TEPSA Page 14

1007 (Comm’r Decision 2012). In Ms. Jenkins’s contract, her professional

capacity was defined only as “employee.” Jenkins v. Crosby Ind. Sch. Dist.,

Docket No. 043-R10-1211 (Comm’r Educ. 2013). “Employee” is overly broad

and not a legitimate professional capacity. See Tuck v. Alief Indep. Sch. Dist.,

No. 008-R10-1007 (Comm’r Decision 2012). Where the professional capacity

listed in the contract is not legitimate, the Commissioner holds that he “must

then evaluate the two positions primarily by comparing professional duties and

responsibilities but also including other factors such as salary and who an

employee reports to.” See id. Here, the Commissioner improperly inserted the

word “administrator” into Jenkins’ contract, where it did not exist. Jenkins v.

Crosby Ind. Sch. Dist., Docket No. 043-R10-1211 (Comm’r Educ. 2013).

Based on that improper reconstruction of the contract terms, the Commissioner

is able to justify his own holding as consistent with prior decisions. A review of

Ms. Jenkins’ position which she had held for a number of years (principal), the

duties attendant to that position, and a review of § 21.201(1) should have led

the Commissioner to an easy result: Jenkins was hired as a principal. When

given the opportunity to repair the contract to the employee’s favor, and in

Brief of Amicus Curiae TEPSA Page 15

compliance with statutes and contract law, the Commissioner went in the

opposite direction.5

IV. The Commissioner’s Decision Is Not Entitled to Deference

The Commissioner writes: “Precedent should not be lightly overturned.

Teachers and school districts base important decisions in reliance on

Commissioner’s Decisions.” Jenkins v. Crosby Indep. Sch. Dist., Docket No.

043-R10-1211 (Comm’r Educ. 2013). It is exactly for this reason that this case

is so important. The Commissioner’s decision equating “principal” and

“administrator” will be relied upon and exploited by school districts—and it is

contrary to the plain language of the statute. In making statements such as,

“The positions described in the first sentence of Texas Education Code section

21.201(1) may or may not be professional capacities for purposes of Texas

Education Code section 21.206(b),” the Commissioner exhibits a disregard for

the language of the statute. Jenkins v. Crosby Indep. Sch. Dist., Docket No.

043-R10-1211 (Comm’r Educ. 2013) (emphasis added). In drawing arbitrary

5

Educator contracts specifying “Administrator” professional capacity are very common but

problematic in a way not experienced with any other contract category. Administrator

contracts are used for every administrator position from assistant superintendent to textbook

coordinator; from principal to transportation director. The range and breadth of the possible

reassignments for administrators is greater than for any other job category, and is limited only

by the imagination of the district. There is a wider hierarchy of “administrator” positions than

in the other professional categories. That is why this case is so important. The commissioner

has reached a point where he approves every administrator reassignment, because in his view,

Brief of Amicus Curiae TEPSA Page 16

lines which include superintendents and counselors as professional capacities—

while creating a new label for principals as “administrators”—the

Commissioner’s holding is wholly inconsistent with the language of the statute.

Further, affording superintendents reassignment protections as “sui

generis” the educational leader and chief executive officer of the school district

ignores the legislature’s treatment of superintendents and principals

congruently. E.g., Lehr v. Ector County Ind. Sch. Dist., Docket No. 003-R3-

0908 (Comm’r Educ. 2011). That is, the superintendent and principal are the

same in that they are both treated differently by the legislature. The

Commissioner’s refusal to do the same is arbitrary and inconsistent with the

language of the statute. As such, the decision is not entitled to deference of this

Court. See Pub. Util. Comm’n v. Gulf States Utils. Co., 809 S.W.2d 201, 207

(Tex. 1991).

PRAYER

It has been said that no one in a school district has a harder job than the

principal. Every day, these leaders serve thousands of campuses filled with

children of diverse ethnic, socio-economic, and cultural backgrounds, who

come to school, each with his own educational history and needs. The public

one administrator is like another.

Brief of Amicus Curiae TEPSA Page 17

schools turn no child away. The principals serve the families—as community

and instructional leaders. They serve legions of professional and supporting

staff from the custodians to the head football coach. No person within a school

district is expected to wear more hats than the principal.

The Commissioner has missed the mark in interpreting a principal to be

the same professional capacity as an assistant principal—or as a general

“administrator.” The treatment of the position in the statutes, along with the

clear language therein, point toward an intent of the legislature to distinguish

the principal from other administrators. It is beyond reason to read the statute,

as the Commissioner does, to equate “principal” with the word “administrator.”

TEPSA prays this Court would overturn the Commissioner’s decision in this

case to apply fundamental principles of statutory construction.

Dated: July 10, 2015

Brief of Amicus Curiae TEPSA Page 18

Respectfully submitted,

__/s/ Giana Ortiz____________

DANIEL A. ORTIZ

State Bar No. 15323100

GIANA ORTIZ

State Bar No. 24053824

The Law Office of Daniel A. Ortiz

1304 West Abram Street, Suite 100

Arlington, Texas 76013

817-861-7984 Telephone

817-861-8909 Facsimile

dortiz@ortizlawtx.com

gortiz@ortizlawtx.com

ATTORNEYS FOR AMICUS CURIAE

TEXAS ELEMENTARY PRINCIPALS

AND SUPERVISORS ASSOCIATION

CERTIFICATE OF COMPLIANCE

I certify that this Brief was produced on a computer using Microsoft

Word 2007 and contains 4,256 words, as determined by using the computer

software’s word-count function, excluding the sections of the Brief listed in

Texas Rule of Appellate Procedure 9.4(i)(1).

Signed this 10th day of July 2015.

__/s/ Giana Ortiz_____________

Giana Ortiz

Brief of Amicus Curiae TEPSA Page 19

CERTIFICATE OF SERVICE

Pursuant to the Texas Rules of Procedure and the Texas Rules of

Appellate Procedure, I certify that a true and correct copy of the foregoing

document was served on the following person by certified mail, return receipt

requested, and by email on the 10th of July, 2015:

David Hodgins Andrew Lutostanski

Thompson & Horton LLP Assistant Attorney General

3200 Southwest Freeway, Suite 2000 P.O. Box 12548, Capitol Station

Houston, TX 77027 Austin, TX 78711-2548

dhodgins@thompsonhorton.com

Andrew.lutostanski@texasattorneygene

ral.gov

Kevin F. Lungwitz

The Lungwitz Law Firm, P.C.

3005 S. Lamar Blvd.

Suite D-109-362

Austin, Texas 78704-4785

kevin@lungwitzlaw.com

__/s/ Giana Ortiz_____________

Giana Ortiz

Brief of Amicus Curiae TEPSA Page 20

APPENDIX

A. Cases:

Public Utility Comm’n v. Gulf States Utils. Co., 809 S.W.2d 201, 207

(Tex. 1991)

B. Decision of the Texas Commissioner of Education:

Pasqua v. Fort Stockton Independent School District, Docket No. 011-

R3-1102 (Comm’r Educ. 2004)

C. Crosby Indep. Sch. Dist. Board Policies:

Policy DP (Local)

Policy FOE (Legal)

Brief of Amicus Curiae TEPSA Page 21

APPENDIX A

Caution

As of: August 4, 2014 12:48 PM EDT

Public Utility Com. v. Gulf States Utilities Co.

Supreme Court of Texas

April 3, 1991, Delivered

No. C-9731

. Reporter: 809 S.W.2d 201; 1991 Tex. LEXIS 42; 34 Tex. Sup. J. 49.5

PUBLIC UTILITY COMMISSION OF TEXAS and avoided costs, found in 16 Tex. Admin. Code § 23.66(e)

OFFICE OF PUBLIC UTILTIY COUNSEL, Petitioners, (1988), did not apply to voluntary contracts arranged

v. GULF STATES UTILITIES COMPANY, Respondent outside the requirements of 16 Tex. Admin. Code ·§

23.66(d), bui only applied to compelled purchases. The

Subsequent History: [**1] Dissenting Opinion of June court held ·that petitioner's decision regarding the

19, 1991. allocation of proceeds was not supjJorted by substantial

evidence and did not take all relevant factors into

Prior History: From Travis County; Third District. consideration. The court remanded for determination of

proper allocation and to a11ow respondent to recover

ICore Terms purchased price payments.

ratepayers, cogeneration, qualifying, rates, purchases, Outcome

costs, electric utility, regulationS, Venture, energy, plants, The court affinned the judgment that revei'sed petitioner's

electricity, customers, public interest, public utility, final order. The court held that the restrictiOns on recovery

negotiated, shareholders, proceeds, facilities, factois, of payments in excess of avoided costs did not apply-to

requirements, contractual, increment~, provides, volutilary arrangements with qualifying co-gener~ting

industrial, substantial evidence, federal regulation, facilities and that respondent should be allowed to rei::over-

arrangements, state regulation, electric energy those costs. The court held that allocation of proceedS was

not supported by substantial evidence and remanded for

redetermination.

ICase Summary

Procedural Posture ILexisNexis® Headnotes

Petitioner Public Utility Commission sought review of a

Energy & Utilities Law > Cogenerntion & Independent Companies >

judgment from the Court of Appeals (Texas) that reversed General Overview

petitioner's final order approving respondent utility Energy & Utilities Law > Cogenerntion & Independent Companies >

company's request to sell and then repurchase generating Public Utility Regulntory Policies Act > General Overview

units, but imposed conditions regarding the recovery of Energy & Utilities Law> Cogeneration & Independent Companies>

payments in excess of avoided costs and allocation of Public Utility Regulatory Policies Act > Purchasing Requirements

proceeds. Petitioner asserted its decision was supported by Energy & Utilities Law > Electric Power Industry > State

substantial evidence. Regulntion > General Overview

Overview HNl To encourage cogeneration, Congress enacted § 210

The court affinned a judgment that reversed a final order of the Public Utility Regulatory Policies Act of 1978

(PURPA), 16 U.S.C.S. § 824a-3_ An obstacle to the

of petitioner Public Utility Commission. Respondent

development of cogeneration facilities in the past had been

utility company proposed to sell two generating units to a

the reluctance of the traditional utilities to purchase excess

joint venture, then purchase the entire electrical output power from, or sell bacl"Up power to, these nontraditional

from the plants for ·distribution to its customers. Applying

facilities. Section 210 of PURPA attempts to remove this

the state and federal regulations governing the purchase of

obstacle by requiring that electric utilities purchase

power from a qualifying co-generating facility, petitioner electrical energy from qualifying co-generating or small

a11owed the sale, but prohibited respondent from

power production facilities (QFs) and provide back-up

recovering from its ratepayers payments in excess of power to QFs on a nondiscriminatory basis.

respondent's avoided costs and required respondent to

divide the proceeds of the sale between ratepayers and Energy & Utilities Lnw > Regulntors >US Federnl Energy Regulntory

shareholders. The court held that the restrictions regarding Commission > General Overview

Giana Ortiz

Page 2 of 15

809 S.W.2d 201, *201; 1991 Tex. LEXIS 42, **l

Energy & Utilities Lnw > Cogenerntion & Independent Compnnies > utility, detennines that a lower rate is in the public interest

Genernl Overview and is sufficient to encourage cogeneration.

Energy & Utilities Law > Electric Power Industry > Electric Power

Rntes > General Overview Energy & Utilities Law> Regulators >US Federal Energy Regulntory

Energy & Utilities Law > Electric Power Industry > Electric Power Commission > Authorities & Powers

Rates > Retail Rntes Energy & Utilities Law > ... > US Federul Energy Regulatory

Commission >Civil Actions >Jurisdiction

Energy & Utilities Law > Electric Power Industry > State

Regulation> General Overview Energy & Utilities Law > Cogenerntion & Independent Companies >

General Overview

Energy & Utilities Law > Utility Companies > Rates > General

Overview Energy & Utilities Law > Cogenerntion & Independent Companies >

Public Utility Regulatory Policies Act> Compliance Enforcement

HN2 Congress provides that the rates established by the Energy & Utilities_ Law > Electric Power Industry > Electric Power

U.S. Federal Energy Regulatory Commission for the Rates > Retail Rntes

purchases of electricity by a utility ( 1) shall be just and Energy & Utilities Lnw > Pipelines & Transportation >Pipelines >

Rates

reasonable to the utility's customers, and (2) shall not

discriminate against qualifying co-generating facilities. 16 Energy & Utilities Lnw > Utility Companies > Rates > General

Overview

U.S.C.S. § 824-3!bl.

Energy & Utilities Law> Co.generation & Independent Companies> HN6 Nothing in 18 C.F.R. § 292.JOl!b)(]) limits the

Genernl Overview authority of any electric utility or any qualifying

Energy & Utilities Law > Electric Power Industry > State co-generating facility to agree to a rate for any purchase

Regulation > General Overview which differs from the rate which would otherwise be

Energy & Utilities Law > Utility Companies > Rates > General required by this subpart.

Overview

Energy & Utilities Law > Cogeneration & Independent Companies >

HN3 16 U.S.C.S. § 824a-3!d) provides that no rule Generul Overview

prescribed under subsection (a) .of this section shall Energy & Utilities Law·> Electric Power Industry >: Electric Power

provide for a rate which exceeds the incremental cost ·to Rates > General Overview

the electric utility of alternatiVe electric energy. The Energy & Utilities Law > Oil, Gas & Mineral Interests > Purchase

Contrncts > Price Tenns

incremental cost of alternative electric energy is defined as

Energy & Utilities Law > Utility Companies > Rntes > General

the cost the utility would have incurred if it bad generated

Overview

· itself or purchas~d from another utility the same amount of

po~er it purchased from the qualifying co-generating HN7 Rates for purchases from a qualifying facility. ( 1)

facility (QF).16 U.S.C.S. § 824a-3(d). By setting a ceiling Rates for purchases of energy and capacity from any

of incremental cost on the amount a utility could be forced qualifying facility shall be just and reasonable lo the

to pay for a QF's power, Congress intended to encourage consumers of the electric utility and in the public interest,

cogeneration without requiring a utility's ratepayers to and shall ·not discriminate against qualifying cogeneration

subsidize co-generators. and small power production facilities. (2) Rates for

purchases .of energy ad capacity from any qualifying

Energy & Utilities Law> Regulators >US Federal Energy Regulntory

Commission > Authorities & Powers facility shall not exceed avoided costs; however, in the

Energy & Utilities Law > Cogeneration & Independent Companies > case in which the rates for purchase are based upon

General Overview estimates of avoided costs over the specific term of the

contract or their legally enforceable obligation, the rates

HN4 18 C.F.R. § 292.304119901 require that each electric for such purchases do not violate this subsection if the

utility purchase any energy and capacity which is made rates for such purchases differ from avoided costs at the

available from n qualifying co-generating facility. time of delivery. 16 Tex.·Admin. Code § 23.66(e)(l), (2)

(1988).

Energy & Utilities Law> Cogeneration & Independent Companies>

Genera). Overview Energy & Utilities Law> Cogeneration & Independent Companies >

Energy & Utilities Law > Pipelines & Transportntion > Pipelines > General Overview

Rntcs Energy & Utilities Lnw > Electric Power Industry > Electric Power

Energy & Utilities Law > Utility Companies > Rules > General Rates > General Overview

Overview Energy & Utilities Law > Utility Companies > Rntes > General

Overview

HNS 18 C.F.R. § 292.304 (]9901 sets the rate of payment

for such purchases equal to the utility's full avoided cost HN8 Rates for purchases satisfy the requirements of

unless the state regulatory authority, or an unregulated paragraph (1) of this subsection if they equal avoided cost.

Giana Ortiz

Page 3 of 15

809 S.W.2d 201, *201; 1991 Tex. LEXIS 42, **l

(4) Rates for purchases from qualifying facilities shall be HNJI The court reads 16 Tex. Admin. Code § 23.66(e)

in accordance with paragraph (1)-(3) of this subsection, (1988) as operating solely to set the rates that the Public

regardless of whether the electric utility making· such Utility Commission can compel a utility to pay for a

purchases is simultaneously making sales to the qualifying qualifying co-generating facility's (QF) power if the utility

facility. (5) Payments by a utility to any qualifying facility, and the QF are unable to reach a voluntary agreement. 16

if in accordance with paragraphs (1)-(3) of this subsection, Tex. Admin. Code § 23.66(e) does not impose a ceiling on

shall be considered reasonable and necessary operating the amount a utility can contract to pay for a QF' s power,

expenses by that utility. 16 Tex. Admin. Code § nor does it limit the amount a utility can recover from its

23.66(e)(3)-(5) (1988). ratepayers under such voluntary arrangements.

CivilProcedure > ... > Eminent Domain Proceedings > Energy & Utilities Law> Cogeneration & Independent Companies>

Commissioners > Reports General Overview

Energy & Utilities Law > Regulators >Public Utility Commissions > Energy & Utilities Law > Utility Companies > Rates > General

Rntemnking Procedures Overview

Energy & Utilities Law > Cogenemtion & lnd!!pendent Companies >

Genernl Over<;ew HNJ2 16 Tex. Admin. Code § 23.66(e) (1988)

Energy & Utilities Law > Electric Power Industry > State avoided-cost rules therefore do not apply to voluntary

Regulation > Geneml Overview

contracts arranged outside the requirements of 16 Tex.

Energy & Utilities Law > Utility Companies > Ownership & Admin. Code § 23.66(d). This interpretation of

Restructuring

subsections (d) and (e) is in harmony with the plain

HN9 Tex. Rev. Civ. Stat. Ann. art. 1446c, § 63 (Supp. language of 16 Tex. Admin. Code § 23.66(b), which

1991) requires public utilities to report to the Public Utility permits a utility and a qualifying .co-generating facility to

Commission (Commission) any sale of a plant when the agree to a rate which differs from the rate that would

total consideration exceeds $ 100,000. The Commission otherwise be required whether above, below, or equal to

then must determine if the transaction is consistent with avoided cost.

the public interest. If .the Commission finds that the

transaction is not in the public interest•. the Comrilission Energy & Utilities Law > Cogeneration -& lndepende.nt Companies >

Geneml Overview

shall take the effect of the transaction into consideration in

the rate-making proceedings and shall disallow the effect Energy & Utilities Law > Oil, Gas & Mineml Interests > Purchase

Contracts > Price Tenns

of such transaction if it will unreasonably affect rates or

service. Energy & Utilities Law > Utility Companies > Rates > General

Overview

Administrative Law > Judicial Review > Standards of Review >

General Overview HN13 Because 16 Tex. Admin. Code § 23.66(e) (1988)

Administrative Law > Judicial Review > Standards of Review> Rule does not apply to contractual arrangements between

Interpretation utilities and qualifying co-generating facilities, it does not

Criminal Law & Procedure > ... > Standards of Review > Plain impose any limitation on the amount a utility can recover

Error > Definition of Plain Error from its customers for such contractual payments.

Energy & Utilities Law> ... >Public Utility Commissions >Hearings

& Orders > Judicial Review Energy & Utilities Lnw > Regulators > Public Utility Commissions >

Energy & Utilities Law > Utility Companies > General Overview Authorities & Powers

Environmental Law > Administrative Proceedings & Litigation > Energy & Utilities Law > Cogeneration & Independent Compnnies >

Judicial Review General Overview

Energy & Utilities Law > Electric Power Industry > State

HNJO The Public Utility Commission's (Commission) Regulation > General Overview

interpretation of its own regulations is entitled to Energy & UtilitieS Law >Utility Companies > General Overview

deference by the courts. The appellate court's review is

limited to determining whether the administrative HN14 The court holds that the federal regulations do not

interpretation is plainly erroneous or inconsistent with the grant the Texas Public Utility Commission any more

regulation. However, if the Commission has failed to authority to regulate negotiated purchases than do the state

follow the clear, unambiguous language of its own regulations.

regulation, the court must reverse its action as arbitrary

and capricious. Energy & Utilities Law > Cogeneration & Independent Companies >

General Overview

Energy & Utilities Law> Cogeneration & Independent Compnnies > Energy & Utilities Law > Pipelines & Transportation > Pipelines >

General Overview Ra Ies

Energy & Utilities Law > Utility Companies > Rntes > General Energy & Utilities Law > Utility Companies > Rates > Genernl

Overview Overview

Giana Ortiz

Page 4 of 15

809 S.W.2d 201, *201; 1991 Tex. LEXIS 42, **1

HNJS 18 C.F.R. § 292.3031a) 11990) provides that a utility that group, as between shareholders and ratepayers, that

is obligated to purchase any energy and capacity made has borne the financial burdens and risks of the asset sold.

available from a qualifying co-generating facility. Such In addition to these two general equitable factors, ·courts

purchases must be made in accordance with 18 C.F. R. § have also considered numerous other factors, including

292.304, which sets the rate for purchases at avoided cost. whether the asset sold had been included in the rate base

Because § 292.304 is applied through § 292.303, the over the years, whether the asset was depreciable property,

avoided-cost limit applies only to compelled purchases. nondepreciable property, or a combination of the two

Administrative Law > Judicial Review > Standards of Review >

types, the impact of the proposed allocation on the

Substantial Evidence financial strength of the utility, the reason for the asset's

appreciation, any advantages enjoyed by the shareholders

HN16 The appellate court's inquiry is.whether the Public because of favored treatment accorded the asset, the

Utility Commission's decision is reasonably supported by dividends paid out to the shareholders over the years, and

substantial evidence in view of the r~liable and probative any extraordinary burdens borne by the ratepayers in

evidence in the record as a whole. connection with that asset.

Administrative Law > Judicial Review > Standards ·of Review >

Counsel: The Honorable Dan Morales, Attorney General

Arbitrary & Capricious Standard of Review

of Texas, Ms. Susan D. Bergen, Office of Attorney General

Administrative Law > Judicial Review > Standards of Review >

Substantial Evidence of Texas, Dan Morales, A. G., Ms. C. Kingsbery Ottmers,

Office of Public Utility Counsel, Mr. John L. Laakso,

HN17 Agency decisions that are not supported by Assistant Public Counsel, Office of Public Utility Counsel,

substantial evidence are deemed arbitrary and capricious. Austin, Texas, for Petitioners.

Administrative Law > Judicial Review > Stnndnrds of Review > Mr. Barry Bishop, Clark, Thomas, Winters & Newton, Mr.

Substantial Evidence

John F. Williams, Clark, Thomas, Winters & Newton,

Austin, Texas, for Respondent.

HNJS In applying the substantial evidence test, the

appellate court-may not, however, .substitute its judgment

Judges: Thomas R. Phillips, C.J. Concurring and

as to the weight of the evidence for that of the agency. dissenting opinion by' Justice Raul A. Gonzalez and Oscar

Energy & Utilities Lnw > Cogeneration & Independent Companies >

H. Mauzy JJ.

General Overview

Opinion by: PHILLIPS

Energy & Utilities Law > Utility Companies > Rates· > General

Overview

HN19 The issue of the proper a11ocation of proceeds from

IOpinion

the sale of assets is a complicated one that cannot be [*202] OPINION

resolved simply by reference to who paid for the property.

This case is an administrative appeal from a final order of

Energy & Utilities Lnw > Cogeneration & Independent Companies >the Texas Public Utility Commission. Gulf States Utilities

General Overview Company (GSU) sought the Commission's approval of the

Energy & Utilities Law > Utility Companies > Rates > General sale of two of GSU's generating units and of GSU's

Overview

proposed rate treatment of certain revenues and expenses

associated with that transaction. GSU proposed to sell the

HN20 A proper allocation of proceeds from the sale of

two plants to a joint venture comprised of GSU and three

assets can be detennined only by an analysis of an the

of its Louisiana industrial customers; GSU then planned lo

equities involved.

purchase the entire electrical output [**2] from the plants

Energy & Utilities Lnw > Cogeneration & Independent Companies > for distribution to its ·customers. GSU requested. the

General Overview Commission to rule that, in future rate proceedings, it be

Energy & Utilities Law > Utility Companies > Rates > General , allowed to recover from its ratepayers its total purchase

Overview price for the electricity and furthermore that it be allowed

Energy & Utilities Lnw > ... > Rates > Rntemnking Factors > Rate to allocate the proceeds from the sale of the depreciated

Buse plants to its shareholders rather than to its ratepayers.

HN21 The equitable principles commonly used to resolve The Commission concluded that the proposed sale was

allocation problems are that benefits should follow generally in the public interest but imposed two conditions

burdens and that gain should follow risk of Joss. In other on GSU's treatment of the transaction in future rate

words, in the general case, the gain should be allocated to proceedings. First, the Commission determined that it was

Giana Ortiz

Page 5 of 15

809 S.W.2d 201, *202; 1991 Tex. LEXIS 42, **2

not in the public interest for GSU' s ratepayers "to pay in 1978 (PURPA). Pub. L. No. 95-617,92 Stal. 3117 (1978)

excess of GSU's avoided cost" for power purchased from (codified as amended al 16 U.S.C. § 824a-3 (1988)). An

the joint venture. Therefore, tlie Commission held that it obstacle to the development of cogeneration facilities in

would not allow GSU to recover from its Texas ratepayers the past had been the reluctance of the traditional utilities

payments for electricity from the joint venture in excess of to purchase excess power from, or sell backup power to,

GSU's avoided cost. Second, the Commission determined these nontraditional facilities. FERC v. Mississivpi. 456

that GSU must divide the proceeds from the sale of the U.S. at 750-51. 102 S.ct. at 2132-33, 72 LEd.2d at 541.

plants between the ratepayers and its shareholders in Section 210 ofPURPAattempts to remove this obstacle by

proportion to the amount each group contributed to the requiring that electric utilities purchase electrical energy

cost of the plants. from qualifying cogenerating or small power production

facilities 1 [**5] (QFs) and provide back-up power to QFs

The district court affirmed the Commission's-order. The on a nondiscriminatory basis. 2

court of appeals then reversed [**3] the judgment of the

district court and remanded the case to the Co1n1nission. In section 21.0, Congress directed the Federal Energy

784 S. W.2d 519. The Commission and the Office of Public Regulatory Commission (FERC) lo prescribe., within one

Utility Counsel now appeal to. this court. We must first year of the statute's enactment, rules requiring electric

determine whether the applicable stale and federal utilities to purchase power from and sell power to QFs.

regulations permit a utility purchasing power from a PURPA § 210(a), 16 U.S.C. § 824-J(a) (]9881. HN2

cogenerator to recover from its ratepayers payments in Congress further provided that the rates established by

excess of its avoided cost. Second, we must determine FERC for the purchases of electricity by a utility (1) shall

\V~ether the Commission's allocation of the utility's be just and .reasonable to the utility's customers, and (2)

proceeds from the sale of its plants was proper. For the shall not discriminate against QFs. PURPA § 210(b), 16

reasons that follow, we affirm the judgment of the court of U.S.C. § 824-3(b) (]988). HN3 Section 210(b) also

appeals. provides that "nb . -.. rule prescribed under subsection (a)

of this section shal.l provide for a rate which exceeds the

I [**6] incremental cost to the electric utility of alternative

A electric en~rgy." Id. The 1rincremCntal cost of alternative

electric energy" is defined as the cost the utility would

In 1978, in response to rising energy costs and recent fuel have incurred if it had generated itself or purchased from

shortages, Congress sought ways to conserve energy to another utility the same amount of power it purchased

reduce [*203] the nation's dependenCe on foreign oil and from the QF. PURPA § 210(d), 16 U.S.C. § ;~24a-3(d)

on natural gas. See Federal Energy Rer:ulaton1 Con11n '11 v. (/988). By setting a ceiling of incremental cost on the

Mississippi. 456 U.S. 742. 745-46. 102 S.Ct. 2126, 2130, amount a utility could be forced to pay for a QF's poW-er,

72 LEd.2d 532. 538 (1982). One possible remedy was to Congress intended to encourage cogeneration without

increase the use of cogeneration. Cogeneration involves requiring a utility's ratepayers to subsidize cogenerators.

the simultaneous production of electrical power and H.R. CONF. REP. NO. 1750, 95th Cong., 2d Sess. 98,

thermal energy, such as heat or steam, usually at an reprinted in 1978 U.S. CODE CONG & ADMIN. NEWS

industrial site. Id. at 750 & n.11, 102 S.Ct. at 2132 & n.11, 7797, 7832.

72 LEd.2d at 541 & n.11. By making [**4] productive

use of the "waste" heat produced in the generation of Pursuant to this statutory authority, FERC has adopted

electricity, cogeneration can reduce fuel consumption by regulations governing an electric utility's purchases from

as much as one half. See C. PHILLIPS, THE QFs. Seel8 C.F.R. pt. 292 (1990). HN4 The regulations

REGULATION OF PUBLIC UTILITIES: THEORY AND require that each electric utility "purchase, in accordance

PRACTICE 452 n.92 (1988); see also 45 Fed. Reg. 12,215 with § 292.304, any energy and capacity which is made

(1980). available from a qualifying facility." Id.§ 292.303. HNS

Section 292.304 sets the rate · of payment for such

HNl To encourage cogeneration, Congress enacted purchases equ~l to the utility's full avoided cost unless the

section 210 of the Public Utility Regulatory Polities Act of slate regulatory authority (or an unregulated utility)

1

Small power production facilities are those which use biomass, waste, geothermal resources, or renewable resources such as

wind, water, or solar energy to produce electrical power.

2

A further obstacle to cogeneration had been the risk that a cogenenllor would be considered a public utility and thus be

subject to burdensome state and federal regulation. FERC v. !vfississipvi. 456 U.S. at 750-51. 102 S.Ct. at 1133. 72 L.Ed.2d at

541. PURPA directs FERC to prescribe rules exempting QFs from certain state and federal Jaws governing conventional electric

utilities. PURPA § 210(e), 16 U.S.C. § 824a-3(el (1988).

Giana Ortiz

Page 6 of 15

809 S.W.2d 201, *203; 1991 Tex. LEXIS 42, **6

determines [**7] that a lower rate is in the public interest enacted its own rules governing a utility's purchases of

and is sufficient to encourage cogeneration. Id.§_ power from a QF. Tex. Pub. Util. Comm'n, 16 TEX.

292.3041b )(2 I. (The term "full avoided cost" is equivalent ADMIN. CODE § 23.66 (West Sept. I, 1988) ("Rule

to PURPA's "incremental cost.") Finally, the regulations 23.66").

provide that "HN6 nothing in this subpart ... limits the

authority of any electric utility or any [QF] to agree to The Texas rules apply to FERC-certified QFs, id. §

[*204] a rate for any purchase ... which differs from the 23.66(a)(l5), and are very similar to FERC's rules. Rule

rate . . . which would otherwise be required by this 23.66(d) of the Texas rules provides that "in accordance

subpart." Id.§ 292.30J(b)(/). with subsections (e) - (h) of this section, each electric

utility shall purchase any energy and capacity that is made

Because Congr~ss intended that state regulatory available from a qualifying facility . . . ." Id. §

authorities be the primary enforcers of PURPA, section 23.66(d)(l)(A). Rule 23.66(e) requires that rates for such

210(!) of PURPA orders each state regulatory authority to purchases "shall be just and reasonable to the consumers

implement FERC's rules. 3 [**10] I6 U.S.C. § 824-3([) of the electric utility and in the public interest, and shall

(/ 988 ). In 1981, the Texas legislature added a provision to not ·discriminate against" QFs. Id. § 23.66(e)(l). The rates

the Texas Public Utility Regulatory Act (Texas PURA) to "shall not exceed avoided cost.'' Id. § 23.66(e)(2).

the effect that the Commission "shall make·and enforce "Avoided cost" has the same meaning as in FERC's

rules reasonably required to implement the rules and regulations. Id. § 23.66(a)(2). Rates which equal [**9]

regulations of the Federal Energy Regulatory Commission avoided cost are deemed to be just and reasonable, id. §

pertaining to the production of electric energy by [QFs]." 23.66(e)(3), and such payments are considered

Act of Apr. 1, 1981, 67th Leg., R.S., ch. 31, § 2, 1981 Tex. "reasonable and necessary operating expenses of [the]

Gen. Laws 70, 71. This provision was later amended to utility." Id. § 23.66(e)(5). 4 Finally, as in FERC's rules, the

order the Commission to "make and enforce rules [**8] to Texas rules provide that nothing in the rules "shall limit

encourage the economical production of electrical' energy the authority of any electric utility or any qualifying

by [QFs]." Act of May 26, 1983, 68th Leg., R.S., cb. 274, facility to agree to a rate for any [*205] purchase, or

§ l, 1983 Tex. Gen. Laws i258, 1280 (codified at TEX. terms or conditions rela~ng to any purchase, which differ

REV. CIV. STAT. ANN. art. 1446c, § I61g) (Vernon Supp. from the rate or terms Or conditions that would otherwise

1991)). Pursuant to these directives, the Commission has be required by this subsection." Id. § 23.66(b)(2)(A).

3

The U.S. Supreme Court has held that the federal government may constitutionally order the states to implement FERC's·

regulations through state courtS or agencies. FERC v. !v!ississippi. 456 U.S. at 760-61. 102 S.Ct. at 2138. 72 L.Ed.2d at 547-48.

Under this federal command, states. have the authority to· promulgate regulations mirroring the federal regulations. 45 Fed. Reg.

12,216 (1980). However, it is unclear ·Whether, under PURPA, a state may promulgate additional regulations in the .field of

cogeneration. In general, a state may enact its own laws or regulations as long as the federal authority has not preempted all

state efforts to regulate in the area and as long as the state laws or regulations do not conflict with federal la\VS or regulations.

Citv of New York v. FCC. 486 U.S. 57, 64. 108 S.CL. 1637, 1642, 100 L.Ed.2d 48, 57 (19881. Whether PURPA and the FERC

regulations completely preempt state regulation in the area of cogeneration is an open question. The issue of preemption is discussed

at infra note 11.

4

In full, Rule 23.66(e) provides:

HN7 (e) Rates for purchases from a qualifying facility.

(1) Rates for purchases of energy and capacity from any qualifying facility shall be just and reasonable to the consumers of the

electric utility and in the public interest, and shall not discriminate against qualifying cogeneration and small power production

facilities.

(2) Rates for purchases of energy ad capacity from any qualifying facility shall not exceed avoided costs; however, in the case in

which the rates for purchase are based upon estimates of avoided costS over the specific tenn of the contract or their legally

enforceable obligation, the rates for such purchases do not violate this subsection if the rates for such purchases differ from avoided

costs at the time of delivery.

HNS (3) Rates for purchases satisfy the requirements of paragraph (1) of this subsection if they equal avoided cosL

(4) Rates for purchases from qualifying facilities shall be in accordance with paragraph (1)-(3) of this subsection, regardless of

whether the electric utility making such purchases is simultaneously making sales to the qualifying faci1ity.

(5) Payments by a utility to any qualifying facility, if in accordance with paragraphs (1)-(3) of this subsection, shall be considered

reasonable and necessary operating expenses by that utility.

16 TEX. ADMIN. CODE§ 23.66(e) (West Sept. 1, 1988).

Giana Ortiz

Page 7 of 15

809 S.W.2d 201, *205; 1991 Tex. LEXIS 42, **II

[**11] The first issue we must address in this case Venture as a QF, contingent on the Venture' s reaching

concerns the proper interpretation of the above federal and certain milestones in converting the plants from natural

state regulations governing a utility's purchases of gas to petroleum coke operation.

electricity from a QF. The questions presented are (1)

whether the regulations prohibit a utility from contracting Completion of the agreement to form the Venture was

for and paying a rate in excess of its avoided cost and (2) made contingent on the Commission's [**14] approval of

whether, if a utility may pay more than avoided cost, the GSU's proposed rate treatment of certain revenues and

regulations impose a limitation on how much of these expenses arising out of the sale. GSU requested such

payments the utility can recover from its ratepayers. The approval under section 63 of the Texas PURA. HN9 This

controversy arises because both sets of regulations section requires public utilities to report lo the

expressly allow a utility and a QF to agree to any rate for Commission any sale of a plant when the total

purchased power, see 18 C.F.R. § 292.30Jlbl!ll (]9901: 16 consideration exceeds $ 100,000. The Commission then

TEX. ADMIN. CODE § 23.66(b)(2)(A) (West Sept. 1, must determine if the transaction "is consistent with the

1988), but in subsequent provisions limit pur<:=hased po.wer public interest." TEX. REV. CN. STAT. ANN. an. 1446c. §

payments to av.aided cost. Seel8 C.F.R. § 292.304(a)(2) 63 (Vernon Supp. 1991). If the Commission finds that the

(]9901; 16 TEX. ADMIN. CODE § 23.66(e)(2) (West transaction is not in_ the Public interest, the Commission

Sept 1, 1988). "shall take the effect of the transaction into consideration

in the rate-making proceedings" and "shall ... disallow the

B effect of such transaction if it will unreasonably affect

rates or service." Id.

We consider these questions in light of the circumstances

presented by this case. GSU is a public electric Utility [*206] Section 63 does not require a utility to obtain the

located in Texas near the Louisiana border. In 1984, two of Commission's approval prior to such sales. Furthermore,

GSU's 1a.rgest industrial customers, both situated in the Commission does not set electric utility rates in a

Louisiana, notified GSU that they were ·planning to build section 63 proceeding. Nevertheless, .the Commission

[**12] a cogeneration facility, which would enabl.e them must determine the effect of a transaction on future

eventually to withdraw from GSU's system. 5 Normally, ratemaking prOceedings in order to determine whether the

the loss of such major customers from GSU's ·system transaction as proposed wiU be in the public interest. In

would result in increases in the rates paid by the remaining their section 63 application, therefore, the [**15] parties

customers. These increases would occur because the to the Venture requested a prospective ruling on the future

utility's fixed costs would have to be spread over a smaller rate treatment that would be granted the transaction.

number of ratepayers. As a way to keep the industrial Specifically, GSU requested a ruling from the Commission

customers in its system· and thereby to prevent such rate that GSU be allowed to pass on the full amount of its

increases, GSU proposed the formation of a joint payments to the Venture for electricity (the purchased

cogeneration venture with the customers. power payments) to its ratepayers and that it be allowed to

allocate the entire proceeds from the sale of the plant to its

GSU and three of its Louisiana-based industrial customers shareholders.

eventually entered into an agreement to form the Nelson

Industrial Steam Company Project (the Venture). Under After a hearing, the Hearing Examiner detennined that the

the terms of this agreement, GSU agreed to sell two of its sale of the plants to the Venture was generally in the public

electrical generating plants to the Venture and to run the interest. The Examiner then found that GSU' s purchased

plants on behalf of the Venture. 6 GSU further [**13] power payments might at times exceed GSU's avoided

agreed to purchase the entire electric output from the cost The Examiner determined that avoided cost was the

plants for its general power supply at a price calculated by maximum rate that would be deemed just and reasonable

a contractual formula. 7 In return for GSU's undertakings, and in the public interest under Rule 23.6(\(e). However,

the three industrial members of the Venture agreed to she concluded that GSU should be allowed to seek

continue as GSU's customers. FERC later certified the recovery of any purchased power payments in excess of its

5

The customers' desire to withdraw was motivated in part by rate increases produced by an expensive nucJear power p1ant that

GSU had recently brought on line.

6

GSU would have a 1% interest in the Venture.

7

The contractual formula is based on the current Louisiana tariff for large industrial customers and on the Venture's production

costs, rather than on GSU's avoided cost. Depending on the values for the factors in the formula, the purchased po\ver rate may

be less than or greater than avoided cost If the rate exceeds avoided cost, the industrial customers are required to purchase additional

amounts of electricity to partially offset GSU's increased cost

Giana Ortiz

Page 8 of 15

809 S.W.2d 201, *206; 1991 Tex. LEXIS 42, **15

avoided cost in future rate or fuel-reconciliation sale proceeds was not supported by substantial evidence in

proceedings. 8 In order to recover the payments, GSU the record. 784 S. W.2d at 533.

Would have to show that the

II

costs were necessary as a means to keep its industrial load

on the system, that the ratepayers benefited by the

We first address that part of the Commission's order

retention of the industrial [**16] load on the system, that

holding that GSU cannot recover from its ratepayers

the costs in excess of avoided costs were at a minimum,

purchased power payments in excess of avoided cost. The

and tPat given these circumstances, its fuel costs were at

Commission's ·ruling is based on its interpretation of the

their lowest reasonable level.

state regulations, in particular Rule 23.66. As described

Tex. Pub. Util. Comm'n, Application of Gulf States Utils. above; Rule 23.66(b)(2)(A) allows utilities and QFs to

Co. for Approval of a Joint Ve.nture Cogeneration Project agree to any rate, while Rule 23.66(e) st~tes that purchases

and Treat1nent of Revenues, Docket No. 7147, 14 TEX. of energy from QFs shall not exceed avoided cost. Thus,

P.U.C. BULL. 49, 66-67 (Mar. ·21, 1988) [hereinafter the two rules appear to conflict. The Commission atteinpts

Docket No. 7147]. The Examiner further determined that to harmonize the two rules by interpreting them to permit

it would be unreasonable for the ratepayers to absorb all a utility and a QF to contract only .for rates below avoided

the costs associated with the purchased power payments. cost. The Commission also argues that, ·even if Rule

As to the allocation of the sale proceeds, the Examiner 23.66(b) allows a utility [**19] to pay a rate above

concluded that the ratepayers should be credited with 83 avoided cost, Rule 23.66(e) prohibits a utility from

percent of the proceeds because they paid ~or 83 percent of recovering from its ratepayers any payments, whether

the cost of the plants. The ratepayers' 83 percent share of negotiated or compelled, in excess of avoided cost.

the proceeds would be deemed "other electric utility According to the Commission, Rule 23.66(e) provides that

income" and would be used to offset the amount of only thos.e payments that are equal to avoided cost are just,

revenue otherwise required to be generated by the rates. reasonable, and in the public·interest. Therefore, it is not

just; reaSonable, or in the public interest for the ratepa)iers

[**17] The Commission's final order deleted the Hearing

Examiner's fmdings that GSU could seek recovery of the to pay more than avoided cost under any circumstances.

full amount of its purchased power payments and Finally, the Commission argues that FERC' s regulations

substituted findings that GSU could not recover anything also place a limit of avoided cost on purchased power

above avoided cost. Th~ final order thus stated that "it is payments.

not in the public interest for GSU's Texas ratepayers to

pay in excess ·of GSU's avoided cost for purchased power

HNIO The CommiSs~on's interpretation of its own

from a qualifying cogeneration project" and that "in future regulations is entitled to deference by the courts. See Udall

rate proceedings, [GSU] is limited to recovering those v. Tallma11. 380 U.S. 1. 16. 85 S.Ct. 792. 801. 13 LEd.2d

purchased power payments to the Venture that do not 616. 625 119651; Lloyd A. Frv Roofing Co. '" State. 541

exceed GSU's avoided costs." 9 Docket No. 7147, supra p. S. W.2d 639. 644 !Tex. Civ. App. -- Dallas 1976. writ refd

10, at 98. The parties to the Venture later went ahead with n.r.e. l. Our review is limited to determining whether the

the transaction despite the Commission's disallowance of administrative interpretation "is plainly erroneous or

the requested rate treatment. inconsistent with the regulation." United States v.

Lario11off, 431 U.S. 864. 872. 97 S.Ct. 2150. 2155, 53

GSU appealed to the district court, which affirmed the l.Ed.2d 48. 56 119771 (quoting Bowles v. Seminole Rock

Commission's order. GSU then appealed to the court of Co .. 325 U.S. 410. 414. 65 S.Ct. [**20] 1215. 1217. 89

appeals, which reversed the judgment of [**18] the L.Ed. 1700. 1702 (!945ll. However, if the Commission

district court and remanded to the Commission. The court has failed to follow the clear, unambiguous language of its

of appeals held that the Commission's interpretation of own regulation, we must reverse its action as arbitrary and

Rule 23.66 as imposing a ceiling on negotiated purchased capricious. See Sani Houston E/ec. Coop .. Inc. v. Public

power payments· was unreasonable under the text of the Util. Comm'n, 733 S. W.2d 905. 913 !Tex. App. -- Austill

provision and contrary to the provisions and purposes of 1987. lVrit den 'dJ; see also Lelvis v. Jacksonville Bldg. &

the Texas [*207] PURA. 784 S.W.2d at 528. The court of

appeals also held that the Commission's allocation of the

8

At reconciliation proceedings, a utility's fuel costs over a period are reconciled with the projected costs for that period and a

credit or charge is assessed to the ratepayers accordingly. See 16 TEX. ADMIN. CODE§ 23.23(b)(2)(H) (West Sept. 1, 1988).

9

One of the Commissioners dissented from the part of the final order limiting GSU' s recovery to avoided cost

Giana Ortiz

Page 9 of 15

809 S.W.2d 201, *207; 1991 Tex. LEXIS 42, **20

Loan Ass'n, 540 S. W.2d 307, 310 !Tex. 1976), and Ex parte interpretation that subsection (b) allows a utility to

Roloff. 510 S. W.2d 913. 915 !Tex. 1974). 10 contract for any price belolv avoided cost but not for a

· price above avoided cost. Finally, HN13 because Rule

We hold that the Commission acted arbitrarily in adopting 23.66(e) does not apply to contractual arrangements

an interpretation contrary to the [**21] plain language of between ulilities and QFs, it does not impose any

its regulation. Rules 23.66(b)(2)(A) and 23.66(e) can be limitation on the amount a utility can recover from its

hannonized, but not in the manner suggested by the customers for such contractual payments. The provision

Commission. HNJJ We read Rule 23.66(e) as operating that payments equal to avoided cost "shall be considered

solely to set the rates that the Commission can co1npel a reasonable and necessary operating expenses of that

utility to pay for a QF's power ifthe utility and the QF are utiliiy" merely ensures that a utility can recover the full

unable to reach a voluntary agreement. Rule 23.66(e) doe_s amount of the payments it is conzpel/ed to make by the

not impose a ceiling on the amount a utility can contract Commission. 'Subsection (e)(5) does not provide that

lo pay for a QF's power, nor does it limit the amount a contractual payments above. avoided cost can never be

utility can recover from its ratepayers under such considered reasonable and necessary operating expenses

voluntary arrangements·. · .of the utility. ·

Our interpretl)tion is based on the interaction between Rule We must also [**23) consider the application of PURPA

23.66(e) and Rules 23.66(d) and 23.66(b). Rule 23.66(d) and the federal regulations because the transaction

obligates a utility to purchase power from a QF if the QF between GSU and the Venture is governed by federal law

makes such power available. Subsection (d) also provides as well as by Texas law. The interstate activities of GSU

that the rates for purchases made under that subsection are clearly bring it within the reach of the federal regulations.

governed by Rule 23.66(e). See 16 TEX. ADMIN. CODE FERC v. Mississippi. 456 U.S. 742, 757," 102 S.Ct. 2126,

§ 23.66(d)(l)(A) (West Sept. l, 1988) ('Tu accordance 2136, 72 LEd.2d 532, 545 11982 I. In addition, to the

with subsection[] (e) . . . of this section, each electric extent that the state regulations implement PURPA, the

utility shall purchase any energy and capacity that is made federal regulations _serve as a· guideline to and may control

available from a [QF] . . . · ."). HN12 Rule 23.66(e)'s. the scope of the state regulations.

avoided-cost rules therefore do [*208) not apply to

voluntary contracts arranged [**22] outside the HN14 We hold that the federal regulations do not grant the

requirements of Rule 23.66(d). This interpretation of Commission any more authority to regulate negotiated

subsections (d) and (e) is in harmony with the plain purchases than do the-state regulations. II [**26] Like Lhe

language of Rule 23.66(b), which permits a utility and a Texas-regulations, the federal regulations do not authorize

QF "to agree to a rate which differs from the rate that the Commission to alter the terms of a purchased power

would otherwise be required" whether above, belo1v, or contract between a utility and a QF. Neither do they set a

equal to avoided cost. We find no justification in the limit of avoided cost on the amount of such payments a

language of Rule 23.66(b) to support the Commission's utility can recover from its ratepayers. Thus, HNlS section

10

The standard for reviewing the Commission's interpretation of its regulations that were promulgated to implement federal

law, as well as for reviewing the Commission's interpretation of federal regulations, might well be less deferential. However, in

the absence of any requests from the parties to use a different standard, we-apply the deferential standard enunciated in the text to

all of the Commission's interpretations in the present case.

11

Because we find that the federal and state regulations are identical in this regard, we do not reach the issue of whether the

federal law preempts state regulation in the area of cogeneration. To the extent that the Texas regulations imposed different

requirements than did the federal regulations, it would be necessary to detennine whether the federal law preempted Texas regulation.

The answer is unclear. As discussed supra note 3, PURPA directs states to implement FERC~s rules; however, neither PURPA

nor the federa). regulations expressly state whether additional state regulation is preempted._

The preemption issue has previously arisen in situations where states have tried to impose a compeUed rate that is higher than

FERC.'s avoided cost ceiling. FERC originally stated that "the States are free ... to enact laws or regulations providing for rates

which -would result in even greater encouragement of these technologies," i.e., rates·above avoided cost. 45 Fed. Reg. 12,221

(1980). In 1988, FERC proposed changes to the regulations that would prohibit states from setting a compelled rate higher than

avoided cost. 53 Fed. Reg. 933 l (1988); see Occidental Chem. Corp. v. FERC. 869 F.2d 127. 128 (2d Cir. 1989). These changes are

still pending. Prior to these recent developments, the lower federal courts had disagreed on whether PURPA preempts state

regulations that set a price above avoided cost. Compare Consolidated Edison Co. v. Public Sen: Con11n 'n. 63 N. Y.2d 424. 436

n.8. 483 N.Y.S.2d 153. 157 n.8. 472 N.E.2d 981. 985 n.8 0984)with Kansas Ctn• Power & Light Co. v. State Corn. Co111m'n. 234

Kan. 1052. 1057-58. 676 P.2d 764. 767-68 (1984). The Supreme Court has declined to address the issue. See Consolidated

Edison Co. v. Public Sen'. Comn1'11. 470 U.S. 1075. 105 S.Ct. 1831. 85 L.Ed.2d 132 (1985) (dismissing the appeal from the

Court of Appeals of New York for want of a substantial federal question).

Giana Ortiz

Page JO of 15

809 S.W.2d 201, *208; 1991 Tex. LEXIS 42, **26

292.303(a J of the federal regulations provides that a utility that previous opinion was to have prospective effect only);

is obligated to purchase any energy and capacity made Bates Fabrics Inc. i~ Public Utils. Conun 'n. 447 A.2d

available from a QF. Such purchases must be ·made in 1211. 1214 (Me. 1982) ("We conclude that the federal·

accordance with section 292.304, which sets the rate for scheme expressly excludes from its reach a1l otherwise

purchases [**24] at avoided cost. Because section binding contracts between utilities and" QFs.). Finally, the

292.304 is applied through section 292.303, the regulations say nothing about hoW much of its purchased

avoided-cost limit applies only to compelled purchases. power payments a utility can recover from its ratepayers.

This interpretation of sections 292.303 and 292.304 is in

harmony with the language of section 292.30Jlb)(J ), [**27] Our holding that the state and federal regulations

which provides that nothing is to limit the authority of a governing a utility's purchases of power from a QF do not

utility or QF "to agree lo a rate for any purchase ... which apply to voluntary arrangements between a utility and a

differs from the rate . . . which would otherwise be QF. does not deprive the Commission of its regulatory

required by this subpart." 12 [*209] 18 C.F.R. § authority over the amount of such contractual payments

292.30J(b)(J J 11990}. See An1erica11 Paper-Inst.. Inc. v. that a utility may "recover from its customers. GSU may

A1nerican Elec. PolverSe111. Com .. 461 U.S. 402. 416. 103 contract for any purchase price it wishes; however,

S.Ct. 1921. 1930. 76 L.Ed.2d 22, 35 (1983) ("The whether such cost will be fully recoverable from the

Cqmmission 's [full-avoided-cost] rule simply establishes ratepayers Vo'.ill be subject to the Commission's ordinary

the rate that applies in the absence of a waiver or a specific ratemaking powers. GSU's purchase of electricity from

contractual agreement."); 13 see also In re Vicon Recoven• the Venture is a fuel cost, see 16 TEX. ADMIN. CODE §

Sys .. 153 Vt. 539, 572 A.2d 1355, 1358 Cl 990) ("The rate 23.23(b)(2)(B) (West Sept. I, 1988), which, like any other

provisions of§ 292 apply only ... in a situation where the expense, is subject to disallowance by the Commission

electric utility is forced to purchase power from the small upon a finding that the expense is unreasonable,

producer. The regulations make clear that uti1ities and unnecessary, or not in the public interest. 14SeeTEX. REV.

[QFs] can agree to a rate different than would otherwise be ClV. STAT. ANN. nrt. 1446c, §§ 38, 39(a), 4l(c)(3)(D)

mandated."); Barasch v. Public Util. Co1n111'n. 119 Pa. (Vernon Supp. 1991); 15 16 TEX. [*210] ADMIN. CODE

Commw. 81. [**25] 546 A.2d1296. 1300 (Pa. Commw. § 23.23(b) (West Sept. I, 1988) (utility must show that

ill ("privately negotiated contracts setting rates for QF contract negotiations for puri::hased power have produced

power are essentially outside the federal and state rules"), the lowest reasonable cost of fuel. to ratepayers); see also

modified,550 A.2d 257 !Pa. Commw. Ct. 1988) (holding Suburban Util. Corn. v. Public Util. Con1ni 'n. 652 S. lV.2d

12

_ FERC's comments accompanying the federal regulations.adopt this interpre.tation:

Paragraph (b)(l) [allowing utilities and QFs to agree to any rate] reflects the Commission's view that the rate provisions of

section 210 of PURPA apply only if a [QF] chases to avail itself of that section. Agreements between an electric utility and a

[QF] for purchases at rates different than rates required by these rules ... do not violate the Commission's rules under section

210 of PURPA. The Commission recognizes that the abi1ity of a [QF] to negotiate with an electric utility is buttressed by the existence

of the rights and protections of these rules.

45 Fed. Reg. 12,217 (1980).

13

We disagree witlt the Commission's interpretation of the Supreme Court's comment that "a qualifying facility and a utility

may negotiate a contract setting a price that is lower than a full avoided cost rate." A111erican Paper Inst.. 461 U.S. at 416. 103 S.Ct

at 1930. 76 L.Ed.2d at 35. We do not read this statement to mean that a utiJity may not negotiate for a price above avoided cost

because the Court was not asked to consider the status of prices above avoided cost

14

Allowing the Commission to examine the fairness and reasonableness of GSU's payments to the Venture will not result in

the improper application of ratemaking principles to cogenerators, as the Commission warns. Congress intended that cogenerators

nqt be subject to the "type of examination that is traditionally given to electric .utility rate applications to determine what is the

just ad reasonable rate that they shou1d receive for their electric power." H.R. CONF. REP. No. 1750, 95th Cong., 2d Sess. 97,

reprinted in 1978 U.S. CODE CONG. & ADMIN. NEWS 7797, 7831. However, the Commissioner's task in this case is to analyze

the purchased power rate in terms of its fairness to GSU's ratepayers, not its fairness to the Venture, and the fonner inquiry

will not involve application of ratemaking principles to the Venture. ·

15

We do not agree with the court of appeals that Texas PURA section 41A is applicable here. Under section 41A, a voluntary

purchased power agreement between a utility and a QF may be certified by the Commission if "the payments provided for in the

agreement over the contract tenn are equal to or Jess than the utility's avoided costs as established by the commission and in

effect at the time the agreement was signed .... " Once certified, the payments under the agreement are presumed to be reasonable

and necessary expenses of the utility in any future rate proceedings. In the present case, however, section 41 A does not apply

because GSU has not requested section 41A certification. Furthennore, we do not think this specific certification procedure was

meant to deprive a utility of its Rule 23.66(b) power to contract for a rate above avoided cost.

Giana Ortiz

Page 11of15

809 S.W.2d 201, *210; 1991 Tex. LEXIS 42, **27

358. 362 !Tex. 1983) (''The [**28] PUC's ratemaking III

power includes the discretion to disallow improper

expenses."). In fact, section 63, under which this The second issue we must resolve is whether the

proceeding was brought, expressly orders the Commission Commission properly allocated the gains from the sale of

to disallow any effect of the transaction that will the plants between GSU's ratepayers and its shareholders.

unreasonably affect rates. Under the agreement, the Venture is to pay for the plants

in twenty annual installments of$ 6.35 million each (the

[**29] The Commission suggests that it would never be fixed asset payments), for a total income stream of$ 127

fair to the ratepayers for a utility to pay in excess of its million. GSU requested that it be allowed to allocate the

avoided costs for power since by definition the utility

entire amount of each fixed asset payment, Le., the entire

could obtain the same amount of power elsewhere by

proceeds of the sale, to its shareholders. [**32] The

paying avoided cost. But using this argument to set an

Commission instead ordered that GSU allocate 83 percent

absolute ceiling on purchased power payments ignores the

of each fixed asset payment, or 83 percent of the total sale

plain language of the Commission's own rules, which do

not authorize the Commission to impose a ceiling of proceeds, to its ratep_ayers, thereby reducing the amount

avoided cost on such payments. Under the rules, the the utility w'as entitled to recover through its rates by_ that

Commission must conduct an independent, factual inquiry amount.

in each case to detennine whether payments in excess of

avoided cost are reasonable and necessary, considering the We must reverse the Commission's allocation of the

effects of the transaction as a whole. 16 profits if it is not [*211] reasonably supported by

substantial evidence in the record or if the Commission's

[**30] Because the Commission was not called upon to action was arbitrary, capricious, or an abuse of discretion.

set rates in the section 63 proceeding from which this case Administrative Procedure and Texas Register Act, TEX.

arose, we do not remand this part of the case to the REV. CJV. STAT. ANN. art. 6252-13a. § 191ell5), i.Ql

Commission. Instead, we order the Commission to allow (Vemori Supp. 1991); Railroad Con1n1'11 v. Continental

GSU to recover purchased power payments in excess of its Bus Svs., 616 S. W'.2d 179. 181 !Tex. 1981). HN16 Our

avoided cost in future rate proceedings if GSU establishes inquiry is whethef the COmmission's decision is

to the C.ommission's satiSfactiOn that the payments are reasonably suppo],1ed by substantial evidence in view of

reasonable and necessary expenses. The Commission the reliable and probative evidence in the record as a

contends that, since GSU and the industrial customers whole. Texas Health Facilities Co11un '11 v. Charter

have already gone ahead with the Venture, GSU can no Medical-Dallas. Inc .. 665 S. \Y.2d 446, 452 (Tex. 1984).

longer justify the payments on the grounds that they are

HN17 Agency decisions that are not supported by

necessary to retain the customers in the system. However,

substantial evidence are deemed arbitrary and capricious.

we believe that it may still be possible for GSU to

id. at 454. HN18 In applying this test, we may not,

establish the necessity of the Venture and the contractual

however, substitute our judgment as to the weight of the

rates. GSU should be allowed to show that, absent the

Venture, the industrial customers would have left its evidence for that of the agency. [**33] ld. at 452.

system because independent cogeneration was

economically more attractive than remaining in the The Commission's decision to a11ocate 83 percent of the

system, that the contractual rates are necessary to make the fixed asset payments .to the ratepayers is based on the

Venture more attractive the independent cogeneration, and testimony of the Office of Public Utility Counsel's witness

that such rates are at the minimum level. If GSU is able to Dr. Steven Anderson and of the Commission's staff

satisfy the Commission that payments above avoided accountant Paul Bellon. GSU has indirectly recovered 83

[**31] cost are justified, then the Commission should percent of the cost of the plants from the ratepayers

determine what portion of the costs of the Venture it is thr5Jugh depreciation expense allowed for the plants and

reasonable and necessary for the ratepayers to bear, given figured into the rate base. Both Anderson and Bellon

the distribution of benefits from the Venture to the testified that "because the Company and the shareholders

ratepayers and to the shareholders. 17 have recovered 83 percent of the costS related ·to [the

16

We reject the Office of Public Utility Counsel's alternative argument that the Commission's holding was based on its

independent determination that, on the facts of this case, payments in excess of avoided cost were unreasonable expenses under

the general standards for allowability of expenses or fuel costs. It is clear from the Commission's Final Order, as wen as from the

Commission's own position in this appeal, that the Commission's interpretation of Rule 23.66 fanned the only basis for its

decision.

17

In conducting this latter inquiry, the Commission should consider the benefits accruing to GSU's shareholders because of

GSU's 1% share in the Venture, as well as any other income earned by GSU as a result of its operation of the plants on behalf

of the Venture.

Giana Ortiz

Page 12 of 15

809 S.W.2d 201, *211; 1991 Tex. LEXIS 42, **33

generating facilities], the ratepayers should receive 83 (MacKinnon, J.• concurring in part and dissenting in part);

percent of the fixed asset payment GSU receives from the ivashington Pub. Interest Org.. 393 A.2d at 89. 91-92;

sale·of the units." Docket No.. 7147, supra p. JO. at 56. Kansas Poi~·er & Light Co .. 620 P.2d at. 341.

We hold that the Commission's decision is not reasonably In the present case, the Commission allocated the sale

supported by substantial evidence in the record. The proceeds in direct proportion to the amount the

Commission based its decision solely on conclusory shareholders and the ratepayers contributed to the cost of

testimony that cites only the evidence of the ratepayers' the plants. This fonnula is based on only one of the above

contribution to depreciation. The Commission did not principles, that benefits should follow burdens. In addition

consider any other factors that would be relevant to to ignoring the [*212] other considerations outlined

allocation of a utility's proceeds from the sale of assets. above, [**36] 18 the Commission did not articulate its

HN19 The issue of the proper allocation of.such proceeds reasons for concluding that the ratepayers are entitled to a

is a complicated [**34] One that cannot be resolved percentage of the proceeds exactly equal to the percentage

simply by reference to who paid for the property. See of the cost they have paid. The Commission cited only the

Washington Pub. Interest qrg. v. Public Serv. Co1n1n'n. testimony of witnesses Anderson and Bellon but there is

393 A.2d 71. 72 (D.C. 1978): see also Democratic Cent. no evidence in the record to explain· how they reached

Conznt. v. Washington MetrO. Area Transit Con1m'n. 158 their conclusions. We therefore hold that the

App. D.C. 7. 485 F.2d 786 !D.C. Cir. 1973); Kansas Power Commission's allocation is not supported by substantial

& Light Co. v. State Corv. Co1n1n 'n. 5 Kan. App. 2d 514. evidence because we find that the evidence the

620 P.2d 329 !Ct. App. 1980!. HN20 A proper allocation Commission cited does not support its decision and

of proceeds can be determined only by an analysis of all because the Commission failed to consider evidence

· the equities involved. See, e.g., De1nocratic Cent. Co1111n .. relating to other relevant factors. We remand the case to

485 F.2d at 821; Kansas Power & Light Co .. 620 P.2d at the Commission for it to recalculate the allocation of the

340. fixed asset .payments along the lines Of the analysis

suggested above, although we d.o not require the

HN21 The equitable princ~ples commonly used to resolve Commissio.n to consider all of the abpve factors nor forbid

allocation problems are that "be'nefits should follow it from· considering others. However. the Commission

burdens" and that "gain should follow risk of loss." should set forth the factors it considers relevant and should

Deniocratic Cent. Co1n1n .. 485 F.2d at 806; Washington explain how these factors are evaluated in the present case.

Pub. Interest Org.. 393 A.2d at 92. In other words, in the

general case, the gain should be allocated to that group (as [**37] N

between shareholders and ratepayers) that has borite the For the reasons stated above, we affirm the judgment of

financial burdens (e.g., depreciation, maintenance, taxes) the court of appeals. This case is therefore remanded to the

and risks of the asset sold. In addition to these two general Commission for it to determine the proper allocation

equitable factors, courts have also considered numerous between the shareholders and ratepayers of the fixed asset

other factors, including [**35] whether the asset sold had payments after consideration of the factors the

been included in the rate base over the years, whether the Commission determines are appropriate. The Commission

asset was depreciable property, nondepreciable property, is further ordered to allow GSU to recover its purchased

or a combination of the two types, the impact of the price payments in future rate proceedings if GSU shows

proposed allocation on the financial strength of the utility, that the payments are reasonable and necessary expenses.

the reason for the asset's appreciation (e.g., inflation, a

general increase in property values in the area), any Concur by: GONZALEZ (In Part); MAUZY (In Part)

advantages enjoyed by the shareholders because of

favored treatment accorded the asset, the dividends· paid Dissent by: GONZALEZ (In Part); MAUZY (In Part)

out to the shareholders over the years, and any

extraordinary burdens borne by the ratepayers in

connection with that asset. See Detnocratic Cent. Contm ..

IDissent

485 F.2d at 791-92. 821-22; id. at 831-32 841-44 CONCURRING AND DISSENTING OPINION

18

The Commission itself had previously recommended that some of these factors be considered in allocation of gain cases. See

Tex. Pub. Util. Comm'n, Application of Gulf States Utils. Co. for Authority to Clwnge Rates and Inquiry of the Public Util.

Comm'n of Tex. into the Pntdence and Efficiency of the Planning and Manage1nent of tile River Bend Nuclear Generating Station,

Docket Nos. 7195 & 6755, 14 TEX. P.U.C. BULL. 1943, 2217 (May 16, 1988) (suggesting that the analysis described in Judge

MacKinnon's concurring and dissenting opinion in Democratic Cent. Comm be used in future allocation cases). Whi1e we do not

necessarily endorse these precise factors, we do endorse the general approach of considering various equitable fac!ors, such as

those discussed in the text, in allocation detenninations.

Giana Ortiz

Page 13 of 15

809 S.W.2d 201, *212; 1991 Tex. LEXIS 42, **37

Raul A. Gonzalez, Justice incremental cost to the electric utility of alternative

electric energy.

I concur with the· co_urt that PUC' s allocation of the fixed

asset payments is not supported by the record. However, I 16 U.S.C. § 824a-3(b) [**39] (1988). In enacting

disagree with the court's conclusion that PUC's PURPA, Congress was mindful to maintain the balance

interpretation of its own rule was erroneous or arbitrary. In between encouraging cogeneration and not shifting the

my opinion, PUC correctly interpreted its own Rule 23.66 burden of cost to the ratepayer. The congressional intent

to hold Lhat GSU cannot recover from its ratepayers an for the incremental cost limitation "was to ensure that

amount exceeding its "avoided costs." 1 For this reason, I PURPA did not become a utility-funded welfare program

dissent from part II of the court's opinion. for QFs, since such 'funding' would essentially come from

th_e pockets of electric cqnsumers. Greensboro Lt.unber Co.

[**38] FEDERAL LAW - THE AVOIDED COST RULE 1•. Georgia Power Co., 643 F.S1mp. 1345. 1369 n.30 (N.D".

Ga. 1986), ajf'd,844 F.2d 1538 Ultlr Cir. 1988). The

In 1978, the United States Congress enacted the Public ~oncept of limiting purchased power payments to QFs at

Utility Regulatory Policies Act of 1978 (PURPA). PURPA or below avoided cost maintains that balance. Pursuant to

established the utility's incremental cost of alternative the authority grunted to it by PURPA, the Federal Energy

electric energy as the ceiling on payments.to cogenerators. Regulatory Commission (FERC) adopted rules and

The term incremental cost is defined in the Act as the cost regulations pertaining to cogeneration and small power

of the energy which, but for the purchase from the production. 18 C.F.R. Part 292 11990). These regulations

cogenerator, such utility would generate or purchase from require the rates for the purchase of electricity from

another source. 16 U.S.C. § 824a-31dl 11988). Incremental . federal qualifying cogeneration facilities to be based on

cost is referred to as "avoided cost" in the Texas Public avoided cost and establish avoided cost as the maximum

Utility Regulatory Act (PURA). TEX. REV. C1V. STAT. rate. 18 C.F.R. § 292.3041bl(3) 119901. The United Stales

ANN. art. /446c (Vernon Supp. 1991). With respect to Supreme Court has found that FERC has the authority to

rates for purchases of electricity from qualifying facilities adopt a full avoided cost rule, and to set full avoided cost

(QFs), Congress provided that the rate [**40] its the maximum· rate. Auierican PaDer Inst.. Inc.

v. Anzerican Elec. Polver Serv. Corp .. 461 U.S. 402. 103

(1) shall be just and reasonable to the electric consumers S.Ct. 1921, 76 LEd.2d 22 11983). 2 FERC has done so.

of the electric utility and in the public interest, and Thus, federal law sets avoided cost as the maximum rate.

3

(2) shall not discriminate against qua1ify~ng cogenerators

or qualifying small power producers. [**41] THE PUBLIC UTILITY REGULATORY ACT

[*213] No such rule prescribed under subsection (a) of In section 41A of the Public Utility Regulatory Act, the

this section shall provide for a rate which exceeds the Texas legislature enacted similar provisions controlling

1

"Avoided costs" is defined by the substantive ru1es of the PUC as:

The incremental costs to an electric utility of electric energy or capacity or both, which, but for the purchase from the qualifying

facility or qualifying facilities, such utility would generate itself or purchase from another source.

Tex. Pub. Util. Comm'n, 16 TEX. ADMIN. CODE § 23.66(a)(2) (West Sept. 1, 1988) (Arrangements Between Qualifying

Facilities and Electric Utilities).

2

In referring to contractual agreements, the Court cited lS C.F.R. § 292.301fb){l), which is identical to§ 23.66(b)(2)(A), for

the principle that "a qualifying facility and a utility may negotiate a contract setting a price that is lower than a full-avoided-cost

rate." 461 U.S. at 416 (emphasis added). Thl!S, the full-avoided-cost rule sets the maximum rate that applies in the absenc.e of

a FERC waiver. Nowhere in American Paper is there any indication that a utility and a QF may negotiate a rate that is above avoided

cost.

3

All parties agree that the FERC regulations preempt a contrary interpretation by the PUC. The PUC and the Office of Public

Utility Counsel (OPC) contend that the PUC has no authority under federal law to approve a rate in excess of avoided cost. GSU

argues that the PUC is misinterpreting the FERC regulation. GSU' s interpretation is contrary to the stated purpose of PURPA.

If GSU is given free rein to charge the public for QF purchases in excess of avoided cost, the revenue collected from the utility's

customers will exceed the revenues that would h:Uve been collected if the utility had procured power from other sources. Such a

free rein would permit a utility and willing cogenerator to circumvent the rule's protection of the general public by simply converting

the transaction into contractual form. So long as the utility may freely pass~through excessive QF prices to the general public,

there is no inherent motivation for either the utility or the cogenerator to protect ratepayers from rapidly escalating revenue

requirements. This result is inconsistent with the congressional intent behind PURPA.

Giana Ortiz

Page 14 of 15

809 S.W.2d 201, *213; 1991 Tex. LEXIS 42, **41

transactions between electric utilities and qualifying QF were not tied to its avoided cost but rather to a

cogenerators. Section 4IA states in pertinent part: contractual rate, the PUC rejected GSU's request for an

automatic pass-through under section 63 of PURA and

(b) If an electric utility and a qualifying facility enter into limited GSU's recovery for those payments from its Texas

an agreement providing for the purchase of capacity ... ratepayers to its avoided cost.

the commission shall detennine whether:

GSU contends that section 23.66(b)(2)(A) allows it to

(1) the payments provided for in the agreement over the contractually agree to a rate in excess of its avoided cost.

contract te~ are equal to or less than the utility's avoided Section 23.66(b)(2)(A) provides:

costs as established by the commission and in effect at the

tim~ the agreement was signed .... Nothing in ~s subsection:

PURA, § 41A(b)(J) (emphasis added). Section 41A of (A) shall limit the authority of any electric utility or any

PURA requires an automatic determination that prices qualifying facility to agree to a rate for any pllrchase, or

paid for power from a qualifying facility that are at or tenns or conditio~s relating to any purchase, which differ

below avoided cost are just and reasonable. 4 The PUC's from the rate or terms· or conditions that would otherwise

prohibition on prices in [*214] excess of avoided cost be required by this subsection.

conforms to the requirement of PURA § 41A which

obligates the PUC to approve an agreement between a QF GSU argues that pursuant to section 23.66(b)(2)(A), the

and a utility so long as it detennines that payments "are avoided cost ceiling in Rule 23.66(e) applies only to

equal to or less than the utility's avoided cost.". contracts that are initiated under the mandatory terms of

the rule, as opposed to voluntarily negotiated contracts ·

[**42] RULE 23.66(e)(2) - THE AVOIDED COST between electric utilities like GSU and QFs. The PUC

LIMITATION rejected this argument. I agree with the PUC.

Pursuant to its obligation under PURA § ! 6(g), the PUC In a seemingly innocuous statement purporting to interpret

enacted rules governing the recovery of fuel costs and Rule 23.66(d), ·the majority states that "Rule 23.66(e)'s

agreements between electric utilities and QFs: The PUC avoided-cost [**44] rules ... do not apply to voluntary

limited a utility's recovery of purchased power payments contracts arranged outside the requirements of Rule

to a QF to that utility's "avoided cost." Tex. Pub. Util. 23.66(d)." S.W.2d at . Although Rule 23.66(d) does

Comm'n, 16 TEX. ADMIN..CODE §§ 23.23(b)(4){A), require utilities to purchase power when a QF makes it

23.66(e) (West Sept. 1, 1988). In pertinent part, section available, the language of the rule does not support the

23.66(e) states: majority's contention that "th~ avoided-cost limit applies

only to compelled purchases."ld. at . The conclusion that

(1) Rates for purchases of energy and capacity from any the avoided-cost rules do not apply to voluntary contracts

qualifying facility shall be just and reasonable to the is without foundation. PURA simply does not distinguish

consumers of the electric utility and in the public interest, between voluntary and involuntary agreements.

and sha11 not discriminate against qualifying cogeneration Subsection 23.66(b)(2) in no way provides that rule 23.66

and small power production facilities. does not apply to a "negotiated" rate. It merely makes clear

that the parties can negotiate a rate other than the avoided

(2) Rates for purchases of energy and capacity from any cost. See, e.g., 16 TEX. ADMIN. CODE §

qualifying facility shall not exceed avoided cost; .... 23.66(d)(l)(F)(iv) (West Sept. 1, 1988) (when purchasing

capacity parties can negotiate for price lower than avoided

(3) Rates for purchases satisfy the requirements of cost). Nothing in rule 23.66 provides that the utility may

paragraph (1) of this subsection if they equal avoided cost. recover an amount greater than the avoi~ed cost from the

ratepayers.

The PUC interprets this rule to mean that only if a utility's

purchased power payments to the QF equal avoided costs Further, the court's construction ~ould effectively destroy

or are lower than the avoided costs may those rates be the avoided cost rule. The court's interpretation allows the

deemed just and reasonable and in the public interest. utility and QF freedom to agree on a rate as provided

[**43] Because GSU's purchased power payments to the [**45] for in section 23.66(b)(2)(A) to trump the rule that

4

Section 41A(c) requires the PUC to certify that the agreement meets the avoided cost limitation of subsection (b)(l). Subsection

(c) provides that "in setting the electric utitlity's rates for a period during which the certification is effective, the regulatory

authority sha11 consider paymenlS made under the agreement to be reasonable and necessary operating expenses of the electric

utility.".

Giana Ortiz

Page JS of 15

809 S.W.2d 201, *214; 1991 Tex. LEXIS 42, **45

rates for purchases shall not exceed avoided costs (Rule would hold that the PUC correctly interpreted Rule 23.66

23.66(e)(2)), yet still requires the agreed rate to ''be just to limit GSU's recovery to its avoided [**47] costs.

and reasonable," as is required [*215] in Rule

23.66(e)(l). There is no logical reason to interpret Rule CONCURRING AND DISSENTING OPINION

23.66(2)(a) to trump Rule 23.66(e)(2), yet be subject to the

Oscar H. Mauzy, Justice

requirement of Rule 23.66(e)(J). Further, the very avoided

cost limitation of Section 23.66(e)(2) which GSU asserts This utility case presents two issues involving the

to be inapplicable to "negotiated contracts" contains respective burdens of shareholders and ratepayers. In

explanatory language referring to "estimates of avoided disposing of both issues, the majority heeds the complaints

costs over the specific term of the contract or other legally of the utility company, but fails to recognize the burdens

Senforceable obligation." Thus, the drafters of section borne by the ratepayers. I dissent from part II of the

23.66 envisioned the application of an avoided cost majority opinion, and concur only in the result of part III.

standard to negotiated contracts.

AS to the first issue, I agree with Justice Gonzalez that

To allow GSU to pass on the costs of prOduction from the Rule 23.66(e) prohibits a utility from recovering

venture even if they exceed the avoided cost rule allows purchased 'power payments in excess of the utility's

utilities to make a complete end run around the rule and in avoided cost. Nothing in either the language or the history

the process completely eviscerate it. In other words, GSU of that rule suggests that its tenns are inapplicable to

is restricted from raising its rates by the avoided cost rule negotiated contracts. Certainly, a utility may contract for a

so it sells its plants to a joint venture in which it maintains rate which is lolver than its incremental cost; but the

an ownership interest. GSU the°: repurchases the governing federal statute explicitly prohibits the. adoption

electricity [**46] at a higher rate than its avoided cost of a rate which exceeds the utility's incremental cost. 16

a.nd, because of the majority's opinion, is allowed to pass U.S.C. § 824a-3(b)(l988). Thus, Rule 23.66(e)(2) should

through that extra expens·e to its Texas ratepayers while be read to mean exactly what it says: that a utility's

creating windfall earnings for GSU's investors. GSU is purchase rate "shall not exceed avoided -cost." See

having its cake and eating it too. It receives management A1nerican Paper Inst.. Inc. v. An1e1ican Elec. Po1i er Sen1.

1

fees, a percentage of the price that is. paid to the ventu·re, Caro.. 461 U.S. 402, 416. 103 S.ct. 1921, [**481 1930,

and it receives a profit when that verY same energy is sold 76 L.Ed.2d 22. 35 (1983)("[A] qualifying facility and a

at higher rates as a result of the production costs that are utility may negotiate a contract setting a price that is lo1ver

passed through to ratepayers even though those costs are than a full avoided cost rate.")(emphasis added).

in excess of the avoided cost rule. This is exactly the type

of activity that is prohibited by the avoided cost rule. As to the allocatiQn of proceeds from asset sales, I agree

that the Commission should have considered factors other

An agency's interpretation of its own regulations should than the relative contributions to depreciation. I would

be given deference by the courts. See United States i•. emphasize, however, that the Commission's discretion in

Larimzoff431 U.S. 864. 872-73. 97 S.Ct. 2150. 53 L.Ed.2d this context is sharply limited. By shouldering the main

48 11977); Calverl v. Kadane. 427 S. W2d 605. 608 (Tex. financial burdens associated with utilities, and by

1968): Lloyd A. Frv Roofing Co. v. State, 541 S. W2d 639. assuming the risk of loss, ratepayers establish valid

644 !Tex. Civ. App. -- Dallas 1976. writ refd n.r.e.). In my interests in utility assets. Those interests must be taken

opinion, the PUC's interpretation of its rules is not into account whenever such assets are sold; any failure to

arbitrary, capricious nor plainly erroneous. Accordingly, I do so will necessarily rise to an abuse of discretion.

Giana Ortiz

APPENDIXB

2004 TX Educ. Agency LEXIS 17

Copyright (c) 2004 Texas Education Agency

June 15, 2004; June 15, 2004

DOCKET NO. Oll-R3-1102

Reporter: 2004 TX Educ. Agency LEXIS 17

IPAUL PASQUA ; v. ; FORTSTOCKTON INDEPENDENT SCHOOL DISTRICT

Core Terms

reass~gnment, constructive discharge, high school principal, middle school, .fair dealing, good faith, grievance,

exhaust, resign, school district

Panel: [*1] ROBERT SCOTT, CHIEF DEPUTY COMMISSIONER BY DESIGNATION

Opinion

DECISION OF THE DESIGNEE OF THE COMMISSIONER

Statement of the Case

Petitioner, Paul Pasqua, appeals the action of Respondent, FortStock/011 Independent School District, concerning

his grievance. Joan Stewart was initially appointed as the Administrative· Law Judge to -preside over this cause.

Subsequently, Christopher Maska was appointed substitute Administrative La\v Judge. 'Petitioner is represented by Sam

D. Sparks, Attorney at Law,· San Angel~, Texas. Respondent is represented by Shellie Hoffman Ctow, Attorney at-

Law, Austin, Te{Cas.

The Administrative Law Judge issued a Proposal for Decision recommending that Petitioner's appeal be denied. No

exceptions were filed.

· Findings of Fact

After due consideration of the record and matters officially noticed, it is concluded that the following Findings of

Fact are supported by substantial evidence and are the Findings of Fact that can best support Respondent's decision:

1. For eleven years, Petitioner, Paul Pasqua, served as a high school principal for Respondent, FortStockton

Independent School District.

2. On April 8, 2002, Petitioner received a two-year contract. The [*2] contract was entitled "Two-Year Tenn

Contract for Certified Administrator Position as Assigned." The contract provides:

2. The board will pay Employee in twelve installments an annual salary according to the compensation

plan adopted by the Board, but in no event less than the 2001/2002 annual salary.

4. Employee. shall be subject to assignment and reassignment of positions or duties, additional duties,

changes in responsibilities or work, transfers, or reclassification at any time during the contract term.·

3. On August 19, 2002, after the completion of the first day of the 2002-2003 school year, Petitioner was called lo

the Superintendent's office and was assigned to the position of assistant middle school principal.

4. Petitioner filled the position of assistant middle school principal until his resignation on November 6, 2002.

5. Petitioner received full compensation until he resigned.

6. Board members did not conduct a meeting without posting notice to decide whether Petitioner should be

reassigned.

Giana Ortiz

Page 2 of 4

2004 TX Educ. Agency LEXIS 17, *4

7. Petitioner did not file a timely grievance concerning the lack of evaluations.

8. Petitioner failed to raise a constructive discharge argument before the board of trustees. [*3]

Discussion

Petitioner contends that Respondent demoted him by reassigning him from high school principal to assistant middle

school principal, constructively terminated his contract, failed to evaluate him, and violated the Open Meetings

Act. Respondent denies these allegations, alleges that Petitioner failed to exhaust administrative remedies, and argues

that the case is moot.

Mootness

Respondent contends that this -case is moot because Petitioner has resigned from his contract. However, Petitioner

alleges that Respondent's actions amount to constructive discharge. If Petitioner were correct as to the constructive

discharge claim, relief could be grri.nted. Based on this allegation, the case is not moot.

Contract

Petitioner contends that his reassignment from high school principal to assistant middle school principal was a

demotion which resulted in constructive discharge. Petitioner also contends that his property rights in his contract

were violated. The Commissioner's jurisdiction over such claims must be based upon Texas Education Code section

7.057 la):

(2) actions or decisions of any school district board of trustees that [*4] violate:

(B) a provision of a written employment contract between the ~chool district and a sChool

district employee, if a violation causes or would cause monetfily harm.

Petitioner had a property interest in his tt?rm contract during the contract's term. The issues are whether

the contract was violated and did this result or would it result in monetary harm.

For eleven years, Petitioner served as a high school principal for Respondent. On April 8, 2002, Petitioner received

a two-year contract The contract was entitled ''Two-Year Term Contract for Certified Administrator Position as

Assigned." The contract provides:

2. The board will pay Employee in twelve installments an annual salary according to the compensation

plan adopted by the Board, but in no event Jess than the 2001/2002 annual salary.

4. Employee shall be subject to assignment and reassignment of positions or duties, additional duties,

changes in responsibilities or work, transfers, or reclassification at any time during the contract term.

On August 19, 2002, after the completion of the first day of the 2002-2003 school year, Petitioner was called

to the Superintendent's office and was assigned to [*5] the ·position of assistant.middle school principal. Petitioner

filled this position until November 6, 2002, when he resigned.

Propertv Right

Petitioner's contract is not a contract for the position of high school principal. It is a contract for a certified

administrator position as assigned. Assistant middle school principal is a certified administrator position. 19 Tex.

Admin. Code ch. 241. The Commissioner has held that the professional capacity of administrator is to be broadly

interpreted for reassignment purposes. Carpenter v. Wichita Falls Independent School District, Docket No. 247-R3-491

(Comm'r Educ. 1993). While Petitioner was not assigned to the assistant principal position until after he had

completed his first day of the new school year as a high school principal, the contract itself allows Petitioner to be

Giana Ortiz

Page 3 of 4

2004 TX Educ. Agency LEXIS 17, *5

reassigned as long as compensation is not reduced from that in the 2001-2002 school year. Petitioner did not lose

any compensation. Petitioner's reassignment did not violate his contract.

Good Faith

Petitioner contends that the timing of the reassignment was unfair and that he should have been given a chance to

remediate if his perfonnance were questioned. [*6] Petitioner alleges that if Respondent had notified him at the

beginning of the summer that he would be reassigned for the next school year that he could have sought other high

school principal positions. During that time frame, districts would still be looking to fill principal positions and

Petitioner could still represent that his position with Respondent was high school principal. Petitioner's argument is

that Respondent owe~ Petitioner a duty of good faith and fair dealing . However, in Texas th~re is no duty of good faith

and fair dealing in the employment context. Citv of' Midland v. O'Brvallf. 18 S. W.3d 209. 216 !Tex. 2000). Further,

even if a cause of action for good faith and fair dealing existed, the only damages in the present case would be lost

earnings capacity or loss of reputation. The Commissioner lacks jurisdiction over an employment contract case

based on such damages. Smith v. Nelson. 53 S. W.3d 792. 795 (Tex.· App.-Austin 2001, pet. denied),

Constructive Discharge

It has been held that "A constructive discharge occurs when the employer makes conditions so intolerable that a

reasonable person in the employee's [*7] position would have felt compelled to resign." Jett v. Dallas Indep. Sch.

Dist.. 798 F.2d 748. 755 (5th Cir. 1986) aff'd in part 109 S.Ct. 2702 (}989). Petitioner has failed to exhaust

a

administrative remedies as to this issue. Petitioner did not make constructive discharge argument before the

board of trustees. This is not surprising because the board hearing occurred on October 28, 2002 and Petitioner did

not resign until November 6, 2002. But even assuming that Petitioner-had exhausted administrative remedies he would

not prevail. The record does not support a finding that Respondent made Petitioner's working conditions intolerable.

While Petitioner's anger at being reassigned is understandable, being assigned to position of less prestige does

not by itself constitute constructive discharge.

Evaluations

Petitioner notes that be was not formally evaluated during the 1999-2000 and 2000-2001 school years. While this

could be related to a violation of Texas Education Code sections 21.354 and 39.054, Petitioner should ha:ve brought

a grievance as to those events under the district's [*8] grievance policy. Wittman v. Nelson. JOOS. lV.3d 356. 360

(Tex. App.-San Antonio 2002 pet. denied). Respondent limited Petitioner's presentation concerning evaluations to

arguments as to how he exhausted local remedies. TR. 4. Even if Petitioner were correct that the failure to provide

evaluations violated the school laws of this state, the Commissioner could not as a result order the requested relief

of reinstatement and back pay.

Open Meetings Act

Petitioner contends that board members violated the Open Meetings Act by agreeing to the reassignment of

Petitioner outside of a properly called meeting. Tex. Gov't Code§ 551.041. The record is scant as to this issue.

Petitioner's representative's allegations taken alone do not constitute a violation of the Open Meetings Act. Tr. 16-17.

However, the superintendent's testimony was that he made the decision himself without board approval. Tr. 24.

The record does not support a finding that a vi~lation occurred. Even if a violation occurred it would not result in

the vote on Petiti.oner's grievance being overturned. A discussion that was not properly conducted according to the Open

Meetings Act does not result [*9] in voiding a vote at a properly called meeting on the same subject. Hill v.

Palestine !11dep. Selz. Dist.. 113 S. W.3d 14. 17 (Tex. App.-Tyler 2000, pet denied).

Conclusion

Respondent did not violate Petitioner's contract by reassigning Petitioner. Petitioner's contract allowed for the

reassignment. Petitioner failed to exhaust administrative remedies as to his constructive termination and evaluation

claims. Respondent did not violate the Open Meetings Act. Petitioner's appeal should be denied.

Conclusions of Law

Giana Ortiz

Page 4 of 4

2004 TX Educ. Agency LEXIS 17, *9

After due consideration of the record, matters officially noticed, and the foregoing Findings of Fact, in my capacity

as Designee of the Commissioner of Education, I make the following Conclusions of Law:

1. The Commissioner has jurisdiction to hear this cause under Texas Education Code section 7.057 except as

specified in Conclusions of Law Nos. 2, 6-8.

2. Because Petitioner failed to exhaust administrative remedies as to his constructive discharge and evaluation

claims, the Commissioner lacks jurisdiction over these claims. 19 Tex. Ad1nin. Code § 157.1056(a) [*10]

3. As pied, this caSe is not moot.

4. Assistant middle school principal is a certified administrator position. 19 Tex: Adrnin. Code ch .. 241.

5. Petitioner's reassignment did not violate ·his contract.

6. There is not a duty of good faith and fair dealing in the employment law context.

7. The Commissioner lacks jurisdiction over Petitioner's good faith and fair dealing claim. 19 Tex. Atbnbz. Code §

I 57. 10561a /.

8. Even if there were a duty of good faith and fair dealing in the employment context, jurisdiction would not exist

under Texas Education Code section 7.057fa)(2)fB) be~ause the Commissioner lacks jurisdiction on a claim of lost

earnings capacity or loss of reputation. 19 Tex. Ad1ni11. Code § 157. /056fa).

9. Members of Respondent's board of trustees did not violate the Open Meetings Act as they did not preapprove

Petitioner's reassignment outside of a properly called meeting. Tex. Gov't Code§ 551.041

10. Even if members of Respondent's board of trustees had violated the Open Meetings Act by preapproving

Petitioner's reassignment outside of a properly [*11] ·Called meeting, this does not result in the board's vote to deny

Petitioner's grievance being declared void.

11. Petitioner's appeal should be denied.

ORDER

After due consideration of the record, matters officially noticed and the foregoing Findings of Fact and Conclusions

of Law, in my capacity as Designee of the Commissioner of Education, it is hereby

ORDERED that Petitioner's appeal be, and is hereby, DENIED.

SIGNED AND ISSUED this 15th day of JUNE, 2004.

Giana Ortiz

APPENDIX C

Crosby ISD

101906

PERSONNEL POSITIONS DP

(LOCAL)

PRINCIPAL In addition to the minimal certification requirement, the principal

QUALIFICATIONS shall have at least:

1. Working knowledge of curriculum and instruction;

2. The ability to evaluate instructional program and teaching ef-

fectiveness;

3. The ability to manage budget and personnel and coordinate

campus functions;

4. The ability to explain policy, procedures, and data;

5. Strong communications, public relations, and interpersonal

skills;

6. Three years’ experience as a classroom teacher;

7. Prior experience in instructional leadership roles; and

8. Other qualifications deemed necessary by the Board.

DATE ISSUED: 12/2/2002 ADOPTED: 1 of 1

UPDATE 69

DP(LOCAL)-A

Crosby ISD

101906

STUDENT DISCIPLINE FOE

EMERGENCY AND ALTERNATIVE PLACEMENT (LEGAL)

EMERGENCY The principal or the principal’s designee is not prohibited from or-

PLACEMENTS dering the immediate placement of a student in a disciplinary alter-

DAEP native education program (DAEP) if the principal or designee rea-

sonably believes that the student’s behavior is so unruly, disruptive,

or abusive that it seriously interferes with a teacher’s ability to

communicate effectively with students in class, with the ability of

students to learn, or with the operation of school or a school-

sponsored activity.

EXPULSION A principal or designee may order the immediate expulsion of a

student if the principal or designee reasonably believes that such

action is necessary to protect persons or property from imminent

harm.

PROCEDURE At the time of an emergency placement or an emergency expul-

sion, the student shall be given oral notice of the reason for the ac-

tion. The reason must be a reason for which placement in a DAEP

or expulsion may be made on a nonemergency basis. Within a

reasonable time, but not later than the tenth day after the place-

ment or expulsion, the student shall be accorded the appropriate

due process required for a removal or an expulsion. [See FOA,

FOC, and FOD]

STUDENTS WITH If the student is a student with disabilities who receives special ed-

DISABILITIES ucation services, the emergency placement is subject to federal

law and regulations and must be consistent with the consequences

that would apply under Education Code Chapter 37, Subchapter A,

to a student without a disability. [See FOF]

IMMUNITY A principal or designee is not liable in civil damages for an emer-

gency placement.

Education Code 37.019

TITLE 5 FELONY OR The Board or designee, after an opportunity for a hearing may ex-

AGGRAVATED pel a student and elect to place the student in an alternative setting

ROBBERY as provided below if:

1. The student has been arrested for, charged with, referred to a

juvenile court for, received deferred prosecution for, received

probation for, received deferred adjudication for, found by a

court or jury to have engaged in, or been convicted of, con-

duct defined as a felony offense in Penal Code, Title 5 [see

FOC(EXHIBIT)] or the felony offense of aggravated robbery

under Penal Code 29.03; and

2. The Board or the Board’s designee determines that the stu-

dent’s presence in the regular classroom:

a. Threatens the safety of other students or teachers;

DATE ISSUED: 10/5/2011 1 of 6

UPDATE 91

FOE(LEGAL)-P

Crosby ISD

101906

STUDENT DISCIPLINE FOE

EMERGENCY AND ALTERNATIVE PLACEMENT (LEGAL)

b. Will be detrimental to the educational process; or

c. Is not in the best interests of the District's students.

The Board or designee may expel the student and order the

placement regardless of:

1. The date the conduct occurred;

2. The location of the conduct;

3. Whether the conduct occurred while the student was enrolled

in the District; or

4. Whether the student has successfully completed any court

disposition requirements imposed in connection with the con-

duct.

ALTERNATIVE The student must be placed in:

SETTING

1. A juvenile justice alternative education program (JJAEP), if

the District is located in a county that operates a JJAEP or the

District contracts with the juvenile board of another county for

the provision of a JJAEP; or

2. A DAEP.

DURATION OF Notwithstanding Education Code Section 37.009(c) or (d) (place-

PLACEMENT ments beyond one year) or any other provision of Education Code

Chapter 37, Subchapter C, the student is subject to the placement

until:

1. The student graduates from high school;

2. The charges are dismissed or reduced to a misdemeanor of-

fense; or

3. The student completes the term of the placement or is as-

signed to another program

These provisions continue to apply if the student transfers to an-

other district in the state.

The student is entitled to periodic review [see FOC at 120-DAY

REVIEW OF STATUS].

Any decision of the Board or designee under the above provisions

is final and may not be appealed.

The above provisions apply notwithstanding any other provision of

Education Code Chapter 37, Subchapter A, except that Section

37.007 (expulsion) prevails to

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