Dallas, Texas Isn't a Person, But Private Corporations Are

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Dallas is not a person. It's a city.  But a private corporation is a person.  That's what the Third Court of Appeals in Austin held last week, handing a defeat to the City of Dallas in its bid to become a retail electric provider.  The practical result is that Dallas will not be able to buy power directly from power generators.  

But the question remains – was the Third Court handing down a decision showing a bias toward private sector interests over the public sector, or was the court simply irked at a perceived bluff by the city?

Briefly, Dallas had applied to the Public Utility Commission of Texas (PUC) to be certified as a retail electric provider; the PUC denied Dallas' application, ruling that, as municipal corporations, cities were not eligible to be retail electric providers. Dallas petitioned district court in Travis County for judicial review and lost; it then filed its appeal.

To see what Dallas was really trying to do, read below the jump. CORPORATIONS ARE PEOPLE TOO

Under the Texas Utilities Code, a person meeting certain requirements can apply to the PUC and be certified as a retail electric provider, allowing that person to purchase power directly from power generators, thereby cutting steps and cost out of the supply chain.  See Tex.Util.Code §39.352(b). For the PUC-certified retail electric provider, power is less expensive.  However, the applicant must be a person.  

The law considers corporations to be people, and cities such as Dallas are municipal corporations; ruling that Dallas is a person would seem to be a slam dunk. Not so fast. Dallas relied on the Texas Utilities Code to support its argument that it was a person. The PUC relied on the same Code to argue that it was not. The court favored the provisions chosen by the PUC, and further relied on the PUC's rules interpreting the term “person” concerning the certification of retail electric providers.  

The court acknowledged that “we will generally uphold an agency's interpretation of an ambiguous statute that it is charged with enforcing provided that the construction is reasonable and in accord with the plain language of the statute.”  While this type of interpretation is accepted by Texas and federal courts, this presents two problems: (1) one party's interpretation of the law is automatically given greater weight – even if erroneous; and (2) such an interpretation relies on the language of the statute being plain, which, in the case of an ambiguity, it is not.

But was the court making a blanket rule, or simply writing narrowly because it did not like the particular arguments the city made?  

WAS DALLAS CUTTING COSTS OR CUTTING INTO THE MARKET?

Dallas argued that it applied for retail electricity provider status solely to supply itself with electricity – presumably at more affordable rates.  The court was unimpressed, explaining that there are already rules in place allowing cities to negotiate favorable rates for purchasing power for proprietary use; moreover, those rules prohibit cities from purchasing electricity for resale to their own citizens.  

The rules barring resale to citizens, however, did not apply to retail electric providers.  The court appears to be calling Dallas' bluff, indicating that Dallas' arguments were little more than pretext to clear the way for Dallas to enter the market to purchase electricity cheaply and resell it for profit.  

Had Dallas prevailed, it would have cost other private electricity providers a large customer, even if Dallas were purchasing for its own account.  Were Dallas engaging in resale, it would have cut even deeper into the margins of the current private resellers. For now, Dallas will have to find other ways to either save money or generate revenue on behalf of its constituents.

The case is City of Dallas v. Public Utility Commission of Texas, 03-11-000635-CV

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