Public Utility Commission of Texas // City of Denton Operating as Denton Municipal Electric v. City of Denton Operating as Denton Municipal Electric // Cross-Appellee Public Utility Commission of Texas

ACCEPTED
15-25-00018-CV
FIFTEENTH COURT OF APPEALS
AUSTIN, TEXAS
8/25/2025 4:03 PM
No. 15-25-00018-CV CHRISTOPHER A. PRINE
CLERK
IN THE COURT OF APPEALS FILED IN
15th COURT OF APPEALS
FOR THE FIFTEENTH JUDICIAL DISTRICT AUSTIN, TEXAS
AUSTIN, TEXAS 8/25/2025 4:03:13 PM
CHRISTOPHER A. PRINE
Clerk
PUBLIC UTILITY COMMISSION OF TEXAS,
Appellant/Cross-Appellee,
v.
CITY OF DENTON, OPERATING AS DENTON MUNICIPAL ELECTRIC,
Appellee-Cross-Appellant.

On Appeal from the 459th District Court of Travis County, Texas
The Hon. Maya Guerra Gamble, Presiding Judge, Cause No. D-1-GN-23-008974

REPLY BRIEF OF APPELLANT
PUBLIC UTILITY COMMISSION OF TEXAS

KEN PAXTON JORDAN PRATT
Attorney General of Texas Assistant Attorney General
State Bar No. 24140277
BRENT WEBSTER Jordan.Pratt@oag.texas.gov
First Assistant Attorney General
RALPH MOLINA JOHN R. HULME
Deputy First Assistant Attorney General Special Counsel
State Bar No. 10258400
AUSTIN KINGHORN John.Hulme@oag.texas.gov
Deputy Attorney General for Civil
Litigation Environmental Protection Division
Office of the Attorney General
KELLIE E. BILLINGS-RAY P.O. Box 12548, MC-066
Chief, Environmental Protection Austin, Texas 78711-2548
Division (512) 463-2012 | Fax: (512) 320-0911
ATTORNEYS FOR APPELLANT/
CROSS-APPELLEE PUBLIC UTILITY
August 25, 2025 COMMISION OF TEXAS

ORAL ARGUMENT REQUESTED
TABLE OF CONTENTS

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

GLOSSARY OF ACRONYMS AND TECHNICAL TERMS ............................... vi

STATEMENT REGARDING CITATIONS .......................................................... vii

INTRODUCTION .....................................................................................................1

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

I. The Commission correctly set Denton Electric’s
DSCR at 1.25x.......................................................................................4

A. Denton Electric’s requested DSCR of 1.75x was
unreasonable................................................................................5

B. The Commission’s conclusion to set Denton
Electric’s DSCR at 1.25x allows Denton
Electric to maintain its credit rating and receive
a reasonable rate of return above its operating
expenses. ...................................................................................10

II. The Commission properly modified the RFP and
applied it to Denton Electric’s amended application. .........................14

A. The modification to the RFP was not a
significant change. ....................................................................16

B. Denton Electric waived the alleged Open
Meetings Act violation. .............................................................20

PRAYER ..................................................................................................................24

CERTIFICATE OF COMPLIANCE .......................................................................27

CERTIFICATE OF SERVICE ................................................................................28

ii
INDEX OF AUTHORITIES

Cases Page(s)

AEP Tex. Com. & Indus. Retail Ltd. P’ship v. Pub. Util. Comm’n of
Tex.,
436 S.W.3d 890 (Tex. App.—Austin 2014, no pet.) ............................................4

BFI Waste Sys. of N. Am., Inc. v. Martinez Env’t Grp.,
93 S.W.3d 570 (Tex. App.—Austin 2002, pet. denied) .....................................21

Bluefield Water Works & Improvement Co. v. Pub. Serv. Comm’n
of W. Va.,
262 U.S. 679 (1923) ............................................................................................11

Burke v. Cent. Educ. Agency,
725 S.W.2d 393 (Tex. App.—Austin 1987, writ ref’d n.r.e.) ........... 3, 20, 21, 22

Cent. Power & Light Co. v. Pub. Util. Comm’n of Tex.,
36 S.W.3d 547 (Tex. App.—Austin 2000, pet. denied) .................................9, 10

Cities for Fair Util. Rates v. Pub. Util. Comm’n of Tex.,
924 S.W.2d 933 (Tex. 1996) ..............................................................................10

City of El Paso v. Pub. Util. Comm’n of Tex.,
883 S.W.2d 179 (Tex. 1994) ..............................................................................10

Fox v. City of El Paso,
292 S.W.3d 247 (Tex. App.—El Paso 2009, pet. denied) ..................................24

Nobles v. Emps. Ret. Sys. of Tex.,
53 S.W.3d 483 (Tex. App.—Austin 2001, no pet.) ..............................................5

Pub. Util. Comm’n of Tex. v. GTE-Sw., Inc.,
901 S.W.2d 401 (Tex. 1995) ................................................................................1

R.R. Comm’n of Tex. v. Entex, Inc.,
599 S.W.2d 292 (Tex. 1980) ..............................................................................11

R.R. Comm’n of Tex. v. Hous. Nat. Gas Corp.,
289 S.W.2d 559 (Tex. 1956) ..............................................................................11

iii
Sw. Bell Tel. Co. v. Pub. Util. Comm’n of Tex.,
571 S.W.2d 503 (Tex. 1978) ..................................................................... 1, 5, 11

Temple Indep. Sch. Dist. v. English,
896 S.W.2d 167 (Tex. 1995) ..........................................................................9, 19

Tex. Turnpike Auth. v. City of Fort Worth,
554 S.W.2d 675 (Tex. 1977) ..............................................................................15

Willacy Cnty. Appraisal Dist. v. Sebastian Cotton & Grain, Ltd.,
555 S.W.3d 29 (Tex. 2018).................................................................................17

Statutes

Tex. Gov’t Code
§ 2001.023...........................................................................................................23
§ 2001.024...........................................................................................................23
§ 2001.029...........................................................................................................23
§ 2001.146(g) ......................................................................................................21
§ 2001.174(2) ........................................................................................................5

Tex. Util. Code
§ 40.004(1) ............................................................................................................6

Rules

16 Tex. Admin. Code
§ 22.80.......................................................................................................... 16, 18
§ 25.192(c)(3) .............................................................................................. 1, 5, 6

Tex. R. App. P. 38.3.................................................................................................24

Travis (Tex.) Civ. Dist. Ct. Loc. R. 10.5(e) .............................................................24

Other Authorities

Pub. Util. Comm’n of Tex., Open Meeting Information and Agenda
(Oct. 6, 2022), Texas Secretary of State: Open Meetings, Docket
No. 52353, Application of Rayburn Country Electric
Cooperative, Inc. to Change Wholesale Transmission Service
Rates (Final Order),

iv
https://texas-sos.appianportalsgov.com/rules-and-
meetings?interface=VIEW_OPEN_MEETINGS_SUMMARY&
recordId=249725 (accessed Aug. 7, 2025) .........................................................15

v
GLOSSARY OF ACRONYMS AND TECHNICAL TERMS

Term Meaning
City City of Denton
Commission Public Utility Commission of Texas
Denton Electric Denton Municipal Electric
DSCR Debt Service Coverage Ratio
ERCOT Electric Reliability Council of Texas
OPUC Office of Public Utility Counsel
Policy Debt Management Policy
PURA Public Utility Regulatory Act
RFP Rate-Filing Package

vi
STATEMENT REGARDING CITATIONS

In this brief, citations to the Clerk’s Record will be in the following form: CR

at [Page number]. Citations to the Supplemental Clerk’s Record will be in the

following form: Suppl. CR at [Page number]. Citations to the Reporter’s Record will

be in the following form: RR at [Page number]. Citations to the Administrative

Record, which was admitted into evidence in the Reporter’s Record, will be in the

following form: RR, AR [Item number] at [Page number]. All cited page numbers

refer to the document’s original page numbers when practical. Otherwise, the PDF

page number will be cited in the following form: RR, AR [Item number] at PDF

[Page number].

vii
INTRODUCTION

The rate of return that the Public Utility Commission of Texas

(“Commission”) set for Denton Municipal Electric (“Denton Electric”) in this

transmission rate case is consistent with the applicable statutes and rules, reasonable,

and supported by the record evidence. The district court judgment reversing the

Commission’s order on this basis should be reversed.

Under the Public Utility Regulatory Act (“PURA”), the Commission has the

discretion to set a utility’s reasonable rate of return as a question of fact. Sw. Bell

Tel. Co. v. Pub. Util. Comm’n of Tex., 571 S.W.2d 503, 515-16 (Tex. 1978). The

Texas Supreme Court has recognized that ratemaking is a complex process that

“relies substantially upon informed judgment and expertise and utilizes projections

and estimates in virtually all areas.” Pub. Util. Comm’n of Tex. v. GTE-Sw., Inc., 901

S.W.2d 401, 411 (Tex. 1995). For this reason, the Legislature granted the

Commission considerable discretion when weighing the evidence and determining

a reasonable rate of return that a utility can recover through its transmission rates.

Id. at 409-10. Under the Commission’s rules, a municipally owned utility can receive

a rate of return based on its actual debt service and a reasonable coverage ratio. 16

Tex. Admin. Code § 25.192(c)(3). While municipally owned utilities can request

any coverage ratio in their transmission rate application, the Commission will only

grant a reasonable coverage ratio that is supported by the evidence.

1
Denton Electric alleges that the Commission’s determination was based on an

improper modification to the Rate-Filing Package (“RFP”) instructions. Appellee

Br. 8. But this contention fundamentally misunderstands how a ratemaking

proceeding works. The Commission does not set a municipally owned utility’s rate

of return based on language in the instructions of the RFP. The RFP is neither law

nor a Commission rule. It is merely a standardized application form containing the

requirements for utilities to follow when submitting a rate application and an

explanation of how the Commission will process the rate application. Denton

Electric’s rate of return is a question of fact that falls squarely within the

Commission’s discretion under its statutory authority to determine a utility’s

reasonable rate of return and to ensure that its rates are just and reasonable.

Regardless, the Commission properly modified the RFP during the October

2022 open meeting and applied the modified RFP to Denton Electric’s amended

application. Denton Electric cites to no authority for its argument that the

modification was a significant change requiring publication in the Texas Register

before implementation. Commission Rule 22.80 as a whole demonstrates that a

change is only significant if it has an effect on the filing requirements in a standard

form adopted under the rule. Because the modification to the RFP did not change

any filing requirements, it was not a significant change.

2
Additionally, Denton Electric waived any alleged Open Meetings Act

violation by not raising this legal basis in its motion for rehearing. Denton Electric’s

argument that the motion for rehearing stated that the Commission gave no notice of

the modification, and that this statement encompasses an alleged Open Meetings Act

violation, has no merit. Appellee Br. 21. It is longstanding precedent that the legal

basis for an alleged error cannot be supplied in general terms. Burke v. Cent. Educ.

Agency, 725 S.W.2d 393, 397 (Tex. App.—Austin 1987, writ ref’d n.r.e.). In any

event, the Commission complied with the Open Meetings Act when it modified the

RFP during another utility’s transmission rate proceeding because the modification

was a consequence of applying the RFP to that utility’s application when issuing a

final order setting its transmission rates.

Denton Electric misreads the Commission’s rules and the RFP to insist that it

is entitled to a Debt Service Coverage Ratio (“DSCR”) of 1.75x. This would be a

huge amount and reflect a rate of return nearly double its current debt obligations.

This rate of return would completely cover Denton Electric’s debt obligations and

give it an additional 75% of those debt obligations as pure profit that it would recover

through the rates it charges every ratepayer in the Electric Reliability Council of

Texas (“ERCOT”) market. Denton Electric based its demand on the City of Denton’s

(“City”) Debt Management Policy (“Policy”) issued after this proceeding began,

RR, AR Item 178 at 3:6-7, a policy that has nothing to do with Denton Electric’s

3
current existing debt. In other words, the City Policy does not represent its actual

debt obligations. The City Policy is forward-looking and directs municipal utilities

to acquire future bonds with a DSCR of 1.50x. RR, AR Item 112 at 11:17-18. But

all the bonds that Denton Electric currently holds require a DSCR of 1.25x, which

is consistent with the City’s prior debt management policy that directed municipal

utilities to acquire bonds with this ratio. The record demonstrates that Denton

Electric’s actual principal and interest payments require a DSCR of 1.25x.

In short, Denton Electric failed to support the reasonableness of its requested

1.75x coverage ratio. The Commission applied its rule and, based on the evidence in

the record, concluded that a DSCR of 1.25x provided Denton Electric with a

reasonable rate of return. The Commission would have reached this conclusion

under both the old and modified RFP. Thus, the district court erred when it held that

the Commission’s conclusion was arbitrary and capricious because it was based on

the modified RFP.

ARGUMENT

I. The Commission correctly set Denton Electric’s DSCR at 1.25x.

Under the substantial evidence rule, the Court determines whether Denton

Electric’s substantial rights were prejudiced by the Commission applying the

modified RFP to its application. AEP Tex. Com. & Indus. Retail Ltd. P’ship v. Pub.

Util. Comm’n of Tex., 436 S.W.3d 890, 914 (Tex. App.—Austin 2014, no pet.)

4
(citing Tex. Gov’t Code § 2001.174(2); Nobles v. Emps. Ret. Sys. of Tex., 53 S.W.3d

483, 489-90 (Tex. App.—Austin 2001, no pet.) (holding that erroneously placing the

burden of proof on the insured was harmless error because evidence in the record

supported the agency’s conclusion)). Denton Electric has shown no such harm to its

substantial rights. The record demonstrates that it failed to support the

reasonableness of its requested DSCR of 1.75x. The Commission applied its rule,

and the modified RFP, to conclude that the 1.25x DSCR stated in Denton Electric’s

bonds provided it with a reasonable rate of return. However, even if the Commission

applied the old RFP, it would have come to the same conclusion. The presumption

of reasonableness for an additional 0.25x on top of the ratio stated in Denton

Electric’s bonds was rebutted by evidence in the record. Denton Electric did not

provide any additional evidence to support a ratio above the ratio stated in its bonds.

Thus, Denton Electric’s substantial rights were not prejudiced because under both

the old and the modified RFP, the Commission properly set Denton Electric’s DSCR

at 1.25x.

A. Denton Electric’s requested DSCR of 1.75x was unreasonable.

The Commission has the discretion to set a utility’s rate of return as a question

of fact. Sw. Bell Tel. Co., 571 S.W.2d at 515-16. Denton Electric chose, under the

Commission’s rules, to use the debt service coverage method to calculate its rate of

return. 16 Tex. Admin. Code § 25.192(c)(3). When utilities select this method, their

5
rate of return is based on their actual debt service and a reasonable coverage ratio.

Id. When determining a reasonable coverage ratio, the Commission will consider the

ratio in the utility’s most recently issued bond indentures or a city ordinance and the

most recent rate action of the rate setting authority. Id.

Denton Electric argues that the Commission is required to consider its City

Policy when determining a reasonable coverage ratio because the City Policy was

the most recent rate action of the rate setting authority. Appellee Br. 12. But Denton

Electric’s novel interpretation of this section of the Commission’s rule is contrary to

the plain language. First, the City Policy is not a “rate action.” It is a debt

management policy issued by the City that applies to all financing activities of the

City, including the debt service of municipal utilities. RR, AR Item 178 at 3:6-8. It

has nothing to do with transmission rates. Second, the City is not the rate-setting

authority over Denton Electric. The City has no authority to set Denton Electric’s

transmission rates. Tex. Util. Code § 40.004(1). This section of the Commission’s

rule merely directs the Commission to consider the DSCR that the utility received

in its previous transmission rate case. Thus, this section of the rule has no relevance

to the City Policy.

Municipally owned utilities can request any coverage ratio they deem is

appropriate. But the RFP provides instructions that explain how the Commission

weighs the evidence when determining a reasonable coverage ratio. First, the

6
Commission will look to the ratio that the utility’s bonds themselves require for the

utility to meet its debt obligations. RR, AR Item 206 at 15, AR Item 117 at PDF 21.

Under the old RFP, an additional 0.25x on top of the ratio provided in the bonds was

presumed reasonable. RR, AR Item 117 at PDF 21. If the utility’s bonds do not

provide a ratio, then the Commission will consider a ratio provided in a city policy

or ordinance. RR, AR Item 206 at 15, AR Item 117 at PDF 21. Last, the RFP

provides that if the utility requests any other ratio besides these, they must justify

and explain the reasonable circumstances supporting it. RR, AR Item 206 at 15, AR

Item 117 at PDF 21.

Here, Denton Electric did not ask for the ratio in its bonds. In fact, it did not

even ask for the 1.50x ratio provided in its City Policy. It asked for a 1.75x ratio,

based on the City Policy and an additional coverage of 0.25x. RR, AR Item 112 at

11:13-15. Once again, Denton Electric ignores the plain and unambiguous language

in the old RFP by claiming that the extra 0.25x is mandatory for municipally owned

utilities. Appellee Br. 31. But the old RFP clearly stated, “the debt service coverage

levels stated in the [transmission service provider]’s most recently issued bond and

debt covenants plus additional coverage of 0.25 for municipal utilities and river

authorities shall be presumed reasonable.” RR, AR Item 117 at PDF 21. Denton

Electric had every right to request a DSCR of 1.75x, but, to receive this ratio, it had

7
to justify it and explain the circumstances that supported a ratio other than that

expressly stated in its bonds. Denton Electric did not do this.

The only basis Denton Electric offered for its requested ratio of 1.75x was its

City Policy and misinterpreting the old RFP as entitling it to this. Commission staff’s

expert witness, Mark Filarowicz, testified to the contrary that the facts and

conditions of this case, and the documentation submitted by Denton Electric in this

proceeding “do not justify a [DSCR] of 1.75x under any circumstance.” RR, AR

Item 112 at 13:20-21. Mr. Filarowicz explained that Denton Electric’s bonds all

stated a DSCR of 1.25x. Id. at 9:22-10:2. Thus, under the clear instructions in both

the old and modified RFP, the Commission did not need to consider the City Policy.

Id. at 16:5-8. Furthermore, Mr. Filarowicz explained that the information provided

by Denton Electric to support its debt service needs, that is, what it needs to cover

its principal and interest payments, demonstrated that its current actual DSCR was

1.25x. Id. at 17:22-24. Mr. Filarowicz concluded that Denton Electric’s application

and supporting documentation did not provide any justification for increasing its

DSCR above the 1.25x ratio stated in its bonds. Id. at 17:19-21. He emphasized that,

under the Commission’s rules and the RFP, Denton Electric had the burden of proof

to support its requested coverage ratio and that Denton Electric’s “meager support

. . . does not justify the (rather high) requested [DSCR] of 1.75x.” Id. at 16:9-13.

8
The most that Denton Electric could have received using the presumption in

the old RFP was 1.50x—an additional 0.25x on top of the 1.25x ratio stated in its

bonds. Denton Electric argues that this was not rebutted by any evidence in the

record. Appellee Br. 30. However, expert testimony is evidence. Cent. Power &

Light Co. v. Pub. Util. Comm’n of Tex., 36 S.W.3d 547, 561 (Tex. App.—Austin

2000, pet. denied) (holding that figures generated by expert witnesses constituted

substantial evidence to support the Commission’s conclusion). Not only did Mr.

Filarowicz find that the evidence in the record did not justify any coverage above

the ratio stated in Denton Electric’s bonds, but the Office of Public Utility Counsel’s

(“OPUC”) expert witness, Mark Garrett, also provided testimony expressly finding

that 1.50x was unreasonable. Mr. Garrett analyzed similarly situated utilities and

concluded that the highest reasonable ratio that Denton Electric could possibly

receive was 1.42x. RR, AR Item 110 at 8:1-9. He explained that 1.42x was the

maximum ratio he could calculate that would be considered reasonable. RR, AR

Item 168 at 74:4-6. Thus, anything more than 1.42x was unreasonable.

“A presumption is simply a rule of law requiring the trier of fact to reach a

particular conclusion in the absence of evidence to the contrary.” Temple Indep. Sch.

Dist. v. English, 896 S.W.2d 167, 169 (Tex. 1995). Here, there was record evidence

that 1.50x was unreasonable. Thus, the presumption in the old RFP that 1.50x was

reasonable was rebutted, and Denton was required to come forward with evidence

9
to support any additional coverage above that provided for in its bonds. Denton did

not provide any additional evidence to support a coverage ratio above 1.25x.

The Commission is the judge of the weight of the evidence and the credibility

of witnesses. Cent. Power & Light Co., 36 S.W.3d at 561. When given a range of

reasonable options, the Commission has the discretion to select within that range.

City of El Paso v. Pub. Util. Comm’n of Tex., 883 S.W.2d 179, 186 (Tex. 1994).

Based on the evidence in the record, the Commission could select a reasonable

coverage ratio from a range of 1.25x and 1.42x. The Commission applied its rule

and concluded that the 1.25x ratio required by Denton Electric’s bonds provided it

with a reasonable rate of return. RR, AR Item 159 at 11. The Commission’s

conclusion was supported by substantial evidence, and it would have reached this

conclusion under both the old and modified RFP.

B. The Commission’s conclusion to set Denton Electric’s DSCR at
1.25x allows Denton Electric to maintain its credit rating and
receive a reasonable rate of return above its operating expenses.

Denton Electric cannot justify the high debt ratio it claims it is entitled to

because of the need to cover its operating expenses and maintain its credit rating.

“[A] utility is entitled to rates sufficient to repay its expenses, without a return or

profit on those expenses, and to provide a return on the invested capital included in

its rate base, without repaying that investment.” Cities for Fair Util. Rates v. Pub.

Util. Comm’n of Tex., 924 S.W.2d 933, 935 (Tex. 1996). Texas courts have followed

10
the principle that “to avoid confiscation the rate of return must be high enough to

attract ample capital but need not be beyond that.” Sw. Bell Tel. Co., 571 S.W.2d at

515 (emphasis added) (quoting R.R. Comm’n of Tex. v. Hous. Nat. Gas Corp., 289

S.W.2d 559, 572 (Tex. 1956)). The Texas Supreme Court has acknowledged that the

basic legal requirements for a rate of return have been set out by the U.S. Supreme

Court. R.R. Comm’n of Tex. v. Entex, Inc., 599 S.W.2d 292, 295 (Tex. 1980). In turn,

the U.S. Supreme Court has held that a public utility

has no constitutional right to profits such as are realized or anticipated
in highly profitable enterprises or speculative ventures. The return
should be reasonably sufficient to assure confidence in the financial
soundness of the utility and should be adequate, under efficient and
economical management, to maintain and support its credit and enable
it to raise the money necessary for the proper discharge of its public
duties.
Bluefield Water Works & Improvement Co. v. Pub. Serv. Comm’n of W. Va., 262

U.S. 679, 692-93 (1923).

A DSCR of 1.25x allows Denton Electric to receive a return above its

operating expenses. Denton Electric seems to conflate its operating expenses and its

rate of return by arguing that a DSCR of 1.25x would not allow it to meet its debt

obligations and its cash needs. Appellee Br. 9, 37. However, these are two separate

components of Denton Electric’s transmission revenue requirement. The

Commission’s Final Order allows Denton Electric to recover through its

transmission rates its full reasonable and necessary operating expenses of

11
$13,548,937. RR, AR Item 159 at 8. Separately, using the DSCR of 1.25x, the

Commission calculated Denton’s rate of return at 6.21%. Id. Applying the rate of

return of 6.21% to Denton’s transmission rate base resulted in a return on rate base

of $11,930,303. Id. This number reflects recovery of its full debt obligations and an

additional 25% of those debt obligations as an additional return on investment. Thus,

Denton’s transmission rates allow it to recover its full reasonable and necessary

operating expenses and full debt obligations as well as a return on its invested capital

above its operating expenses and debt obligations.

The record also demonstrates that a DSCR of 1.25x would allow Denton

Electric to maintain its credit. Denton Electric’s own witness, Antonio Puente,

provided testimony supporting this conclusion. Rating service agencies provide

credit ratings on municipally owned utility bonds and issue guidance on how those

ratings are calculated. One factor, of many, that rating agencies use when

determining a utility’s credit rating is the utility’s DSCR. See, e.g. RR, AR Item 2 at

PDF 91-92. Mr. Puente testified that Denton Electric’s bonds are currently rated in

the “A” category by Fitch Ratings’ service. RR, AR Item 207 at 16:3-4. Fitch

Ratings’ analysis considers Denton Electric’s DSCR of 1.25x within the median

range for bonds rated in the “A” category. See RR, AR Item 2 at PDF 80-81. Mr.

Puente acknowledged this fact. RR, AR Item 207 at 16:3-4. Thus, the Commission’s

conclusion to set its DSCR at 1.25x allows it to maintain a credit rating within the

12
“A” category. Additionally, Standard & Poor’s rating service provides that a

coverage ratio of 1.20x – 1.40x is considered “strong.” RR, AR Item 2 at PDF 105.

Therefore, a DSCR at 1.25x allows Denton Electric to remain within the “strong”

coverage category. Furthermore, Fitch Ratings revised Denton Electric’s rating

outlook from “negative” to “stable” while this transmission rate case was pending

before the Commission. RR, AR Item 221 at 1. This revision expressly took into

consideration Denton Electric’s pending transmission rate application. Id. at 7. Thus,

the Commission set Denton Electric’s DSCR at a ratio that Fitch Ratings considered

sufficient when it revised Denton’s rating outlook from “negative” to “stable.”

Indeed, Denton Electric is effectively arguing for the Commission to provide

a return necessary to upgrade its credit rating by granting it a greater DSCR than

that provided in its bonds. In fact, Mr. Puente admitted as much when he stated that

Denton Electric’s requested 1.75x coverage ratio would “lead to an improved bond

rating.” RR, AR Item 207 at 16:22-23. However, the Commission is under no duty

to increase a utility’s credit rating, but only to ensure that the utility maintains its

credit. As Mr. Garrett explained, when setting rates, the utility’s desire for a high

DSCR needs to be weighed against the Commission’s duty to ensure that rates are

just and reasonable for consumers. RR, AR Item 110 at 7:15-16. The Commission

balanced these interests in concluding that a DSCR of 1.25x provides Denton

Electric with an opportunity to earn a reasonable return on its invested capital in

13
excess of its reasonable and necessary operating expenses. RR, AR Item 159 at 10.

Therefore, there is no basis for Denton Electric’s argument that setting its DSCR at

1.25x, the ratio required by its bonds, and the ratio considered “strong” by Standard

& Poor’s and within Fitch’s median coverage ratio for the “A” category, would

financially harm Denton Electric. Appellee Br. 27. Thus, the Commission’s

conclusion to set Denton Electric’s DSCR at 1.25x satisfies the legal requirements

by allowing it to maintain its credit and receive a reasonable rate of return above its

operating expenses. Consequently, the district court erred by finding the

Commission’s conclusion to set Denton Electric’s DSCR at 1.25x was arbitrary and

capricious.

II. The Commission properly modified the RFP and applied it to Denton
Electric’s amended application.

Denton Electric waived an alleged Open Meetings Act violation because its

motion for rehearing at the Commission did not state this legal basis for challenging

the modification to the RFP. However, even if it was not waived, there is no Open

Meetings Act issue here. The Commission’s directive to its staff to modify the

instructions to the RFP during the October 2022 open meeting was not a violation

of that statute. The Commission made the instruction to its staff in connection with

the Commission’s consideration of another non-investor-owned utility’s

transmission rate application using the RFP that all non-investor-owned utilities are

14
required to use, including Denton Electric. 1 The potential issuance of a final order

on that utility’s transmission rate application was noticed. 2 A final Commission

order sets a utility’s transmission rates, and a determination on a utility’s rate of

return is a fundamental aspect of the Commission’s action in setting a utility’s

transmission rates. The agenda item did not need to specify that the Commission

might, in connection with this, direct its staff to modify the instructions to the debt

service coverage method in the RFP because the modification was merely a

consequence of the Commission’s conclusion in setting that utility’s rate of return

using the debt service coverage method. See Tex. Turnpike Auth. v. City of Fort

Worth, 554 S.W.2d 675, 676 (Tex. 1977) (“There is no necessity . . . to state all of

the consequences which may necessarily flow from the consideration of the subject

stated.”).

Additionally, the Commission complied with its own rule when it modified

the RFP. The Commission adopted the RFP under Commission Rule 22.80. That

rule allows the agency to require that applications filed with the Commission be

submitted on and comply with standard forms. It may update these standard forms

1
Pub. Util. Comm’n of Tex., Open Meeting Information and Agenda (Oct. 6, 2022), Texas
Secretary of State: Open Meetings, Docket No. 52353, Application of Rayburn Country Electric
Cooperative, Inc. to Change Wholesale Transmission Service Rates (Final Order),
https://texas-sos.appianportalsgov.com/rules-and-
meetings?interface=VIEW_OPEN_MEETINGS_SUMMARY&recordId=249725 (accessed Aug.
7, 2025).
2
Id.

15
at any time, and only significant changes need to be published in the Texas Register

before their implementation. Here, the modification to the RFP was not a significant

change because it merely revised the instructions for the debt service coverage

method and did not change any filing requirements.

A. The modification to the RFP was not a significant change.

Whether or not the modification to the RFP was a significant change would

have no impact on the Commission’s conclusion to set Denton Electric’s DSCR at

1.25x. Although the Commission ultimately applied the modified RFP to Denton

Electric’s amended application, the Commission would have reached the same

conclusion using the old RFP.

In any event, Denton Electric has cited no authority to justify its argument that

the modification to the RFP was a “significant change.” It simply asserts that the

modification removed a presumption and “[o]f course, that was a significant

change.” Appellee Br. 16. But Denton Electric does not provide any basis for this

assertion. While citing to the “significant change” language in Commission Rule

22.80, Denton Electric ignores the rest of the rule, which requires that applications

be submitted on standard forms, contain all information designated on the standard

form, and substantially comply with the standard form. 16 Tex. Admin. Code §

22.80. When interpreting the rule, the phrase “significant change” cannot be taken

out of context from the purpose of the rule or the other provisions in the rule. See

16
Willacy Cnty. Appraisal Dist. v. Sebastian Cotton & Grain, Ltd., 555 S.W.3d 29, 39

(Tex. 2018) (“We recognize a fundamental principle of statutory construction that

words’ meanings cannot be determined in isolation but must be drawn from the

context in which they are used.”). Furthermore, Denton Electric neglects to mention

that under this rule the Commission has complete authority to make any change to

its standard forms, and the only requirement for “significant changes” is that they be

published in the Texas Register before implementation, not before the Commission

changes the form. Thus, any alleged injury from the modification is that Denton

Electric did not receive notice through the Texas Register, not that the Commission

removed the presumption.

The RFP is not law, and a utility’s rate of return is not established based on

the instructions in a standardized application form. Denton Electric says that the

modified RFP limits the rate of return that a municipally owned utility can receive.

Appellee Br. 26. But the modification does no such thing. Utilities can still request

any coverage ratio they deem appropriate. RR, AR Item 206 at 15. The Commission

will weigh the evidence and determine whether a utility’s request is reasonable. The

only difference is that an additional 0.25x on top of the ratio provided in the utility’s

bonds is not presumed reasonable. It was never deemed reasonable, and a utility was

never entitled to receive the additional coverage. The presumption was rebuttable,

and any party to the proceeding could put forward evidence demonstrating that

17
additional coverage was unreasonable. Indeed, that is exactly what occurred in this

proceeding. And as the sole judge of the weight of the evidence, the Commission

could conclude that the presumption was rebutted based on the facts and data

provided by a utility in its application.

Additionally, the RFP is not a Commission rule. Denton Electric

acknowledges this. Appellee Br. 35. But inexplicably, having based its entire

challenge to the Commission’s rate-of-return determination on the presumption

afforded by the old RFP, Denton Electric now claims that the RFP is not binding and

that it need not comply with its application requirements. See Appellee Br. 41.

Essentially, Denton Electric argues that the Commission is required to grant it an

additional 0.25x coverage ratio based on the presumption in the instructions of the

old RFP, while at the same time arguing that Denton Electric itself is not bound to

follow the filing requirements in the RFP. Denton Electric’s own confusion over the

nature of the RFP demonstrates why the Commission’s modification was not a

significant change.

As explained, the RFP was adopted under Commission Rule 22.80 as a

standard form for all transmission rate applications. Under Rule 22.80, applications

must contain all matters designated in the RFP and shall conform substantially to it.

16 Tex. Admin. Code § 22.80. The depreciation study that Denton Electric failed to

submit with its application, that it now says the Commission had no authority to

18
require it to submit, Appellee Br. 41, is just such a “matter designated” in the RFP

that Denton Electric’s application “shall contain.” RR, AR Item 206 at 20. It is one

of the items that a utility is required to file with its transmission rate application. On

the other hand, the debt service coverage presumption in the old RFP is not such a

filing requirement for applicants. It simply explains how the Commission weighed

the evidence when determining a reasonable coverage ratio. The modification to the

instructions removing this presumption was not a significant change because it did

not alter any of the requirements that utilities must follow when they submit their

applications.

Furthermore, the Commission properly applied the modified RFP to Denton

Electric’s amended application. Denton Electric has no vested right in any rate of

return, other than the rate of return that the Commission grants in a comprehensive

transmission rate proceeding. As discussed, Denton Electric has no vested right in

the additional 0.25x presumption provided in the old RFP. This was always a

rebuttable presumption that only applied to utilities that selected the debt service

coverage method for their rate of return and requested the coverage ratio provided

for in its bonds. Such a presumption merely directs the fact finder to reach a

particular conclusion in the absence of evidence to the contrary. Temple Indep. Sch.

Dist. v. English, 896 S.W.2d 167, 169 (Tex. 1995). But the fact that Denton Electric

had no vested right in the presumption is beside the point because Denton Electric

19
submitted a comprehensive amended application after the Commission modified the

RFP, and the RFP in effect at the time the amended application was filed applied to

its amended application.

Thus, the modification to the RFP was not a significant change, and the

Commission properly applied it to Denton Electric’s amended application. The

district court erred by finding that the Commission’s Final Order was improperly

based on the modified RFP.

B. Denton Electric waived the alleged Open Meetings Act violation.

Denton Electric waived the alleged Open Meetings Act violation by not

raising it in its motion for rehearing at the Commission. Denton admits that a motion

for rehearing must be sufficiently definite to apprise the agency of the error claimed.

Appellee Br. 20. However, a general “heads-up,” as Denton Electric claims, is not

sufficient. Id. To the contrary, longstanding precedent holds that the motion for

rehearing cannot state the factual or legal basis in only general terms. Burke, 725

S.W.2d at 397. Because Denton Electric never specifically alleged an Open

Meetings Act violation in its motion for rehearing, the district court erred by

concluding that the Commission modified the RFP in violation of the Open Meetings

Act.

To preserve error for judicial review, the motion for rehearing must state: “(1)

the particular finding of fact, conclusion of law, ruling, or other action by the agency

20
which the complaining party asserts was error; and (2) the legal basis upon which

the claim of error rests.” Id.; Tex. Gov’t Code § 2001.146(g). Under the fair-notice

standard, the complaining party is required to succinctly set out both elements in its

motion for rehearing. Burke, 725 S.W.2d at 397. The two elements may not be

supplied in general terms, and the agency and reviewing court may not be forced to

speculate about what the complaining party intended. Id.

Denton Electric’s motion for rehearing never mentioned the Open Meetings

Act even once, let alone did it cite any specific Open Meetings Act provision that

the Commission allegedly violated. Instead, Denton Electric challenged the

Commission’s modification to the RFP on only two legal grounds: (1) that the Final

Order incorrectly found that the modification “did not invoke the publication

requirements of Commission Substantive Rule 22.80 because that rule only applies

to a ‘significant change’ to an existing form and that the modification was

insignificant” and (2) that the modification to the RFP constituted impermissible ad

hoc rulemaking. RR, AR Item 162 at 9, 15. That the RFP was modified in violation

of the Open Meetings Act is found nowhere in the motion for rehearing. Thus,

Denton Electric did not preserve error on any alleged violation of the Open Meetings

Act. See BFI Waste Sys. of N. Am., Inc. v. Martinez Env’t Grp., 93 S.W.3d 570, 579

(Tex. App.—Austin 2002, pet. denied) (holding that the errors alleged in the motion

21
for rehearing did not encompass or imply the agency action that the district court

found to be in error).

Merely alleging that the Commission provided “no notice” of the modification

is not sufficient to preserve error on an alleged Open Meetings Act violation.

Appellee Br. 21. Simply asserting the Commission was required to give notice could

implicate countless statutory provisions or Commission rules. The Commission is

not required to speculate on which notice requirement Denton Electric contends it

violated. Stating that “lack of notice . . . was contrary to all applicable statutory and

regulatory authority” is not sufficient. Appellee. Br. 25. Courts have long held that

a motion for rehearing is insufficient to preserve error by broadly stating that a

conclusion of law or finding of fact “violate[s] constitutional or statutory

provisions.” Burke, 725 S.W.2d at 397 (“To generalize in this way is to omit; and,

to omit is to render doubtful what is intended to be included in such overly broad

assignments of error.”). But even if such broad assertions were sufficient to preserve

error, Denton Electric never made such sweeping claims in its motion for rehearing

here. Denton Electric’s specific legal basis in its motion for rehearing was that notice

was required under Commission Rule 22.80, or in the alternative, the Commission

was required to go through formal “notice and comment” rulemaking to modify the

RFP.

22
Additionally, simply stating that the modification occurred at an open

meeting, Appellee Br. 22, is not alleging the Open Meetings Act was violated.

Denton Electric’s motion for rehearing alleged that the Commission violated Rule

22.80 by not publishing the modification in the Texas Register. RR, AR Item 162 at

11-12. That is not the same as alleging that a potential change had to be noticed to

be considered at an open meeting. These are two distinct notice requirements. Thus,

the Commission can comply with the Open Meetings Act by modifying the RFP

during an open meeting but still violate Commission Rule 22.80 by not publishing

the modification before it was implemented, which is precisely what Denton

Electric’s motion for rehearing alleged by never raising an Open Meetings Act

violation.

Furthermore, Denton Electric’s claim that the modification constituted

impermissible ad hoc rulemaking is not an alleged Open Meetings Act violation.

RR, AR Item 162 at 15. Again, these are distinct notice requirements. Formal “notice

and comment” rulemaking involves a long process in which the Commission accepts

and responds to comments before adopting a new rule or modifying an existing rule.

See Tex. Gov’t Code §§ 2001.023, .024, .029. The allegation that the modification

did not meet the exceptions for ad hoc rulemaking, and therefore needed to go

through notice and comment rulemaking, in no way encompasses an alleged Open

Meetings Act violation.

23
And even if the Court finds Denton Electric’s motion for rehearing sufficient

to preserve error on the alleged Open Meetings Act violation, Denton Electric

waived the issue by not raising it in its opening brief at the district court. Denton

Electric dropped its argument that the modification constituted impermissible ad hoc

rulemaking, and its sole basis for the alleged error was that the modification “was

effected in violation of the Commission’s own regulations,” citing Rule 22.80.

Suppl. CR at 142. The Travis County District Court Local Rules provide that any

issue not briefed is waived. Travis (Tex.) Civ. Dist. Ct. Loc. R. 10.5(e). The first

time the Open Meetings Act was ever cited in this case was in Denton Electric’s

reply brief at the district court. There, for the first time, Denton Electric alleged that

the Commission modified the RFP in violation of the Open Meetings Act. Suppl.

CR at 339-340. However, “[t]he Rules of Appellate Procedure do not allow an

appellant to raise an issue in a reply brief which was not included in his original

brief.” Fox v. City of El Paso, 292 S.W.3d 247, 249 (Tex. App.—El Paso 2009, pet.

denied) (citing Tex. R. App. P. 38.3). The issue was waived, and the district court

erred by concluding that the Commission modified the RFP in violation of the Open

Meetings Act.

PRAYER

Denton Electric has not shown any reversible error in the Commission’s Final

Order setting its DSCR at 1.25x. Accordingly, the Commission respectfully requests

24
that the Court reverse the district court’s judgment and render judgment affirming

the Commission’s Final Order in all respects.

Respectfully submitted,

KEN PAXTON
Attorney General of Texas

BRENT WEBSTER
First Assistant Attorney General

RALPH MOLINA
Deputy First Assistant Attorney General

AUSTIN KINGHORN
Deputy Attorney General for Civil
Litigation

KELLIE E. BILLINGS-RAY
Chief, Environmental Protection Division

/s/ Jordan Pratt
JORDAN PRATT
Assistant Attorney General
State Bar No. 24140277
Jordan.Pratt@oag.texas.gov

JOHN R. HULME
Special Counsel
State Bar No. 10258400
John.Hulme@oag.texas.gov

Environmental Protection Division
Office of the Attorney General
P.O. Box 12548, MC 066
Austin, Texas 78711-2548
Phone: (512) 463-2012
Fax: (512) 320-0911

25
Attorneys for Appellant Public Utility
Commission of Texas

26
CERTIFICATE OF COMPLIANCE

Pursuant to Rule 9.4(i)(3) of the Texas Rules of Appellate Procedure, I certify
that this brief contains 6,127 words, as calculated by Microsoft Word, the computer
program used to create this document.

/s/ Jordan Pratt
JORDAN PRATT

27
CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing document has
been forwarded to the following attorneys via the Court’s electronic filing case
management system and/or electronic mail on August 25, 2025.

Jose E. de la Fuente Sharbel A. Sfeir
jdelafuente@lglawfirm.com sharbel.sfeir@opuc.texas.gov
Gabrielle C. Smith Michael Martinez
gsmith@lglawfirm.com Michael.martinez@opuc.texas.gov
Jamie L. Mauldin Justin Swearingen
jmauldin@lglawfirm.com justin.swearingen@opuc.texas.gov
Roslyn M. Warner Chris Ekoh
rwarner@lglawfirm.com chris.ekoh@opuc.texas.gov
LLOYD GOSSELINK ROCHELLE & OFFICE OF PUBLIC UTILITY
TOWNSEND, P.C. COUNSEL
816 Congress Avenue, Suite 1900 1701 N. Congress Avenue, Suite 9-180
Austin, Texas 78701 P.O. Box 12397
Telephone: (512) 322-5800 Austin, Texas 78711-2397
Facsimile: (512) 472-0532 Telephone: (512) 936-7500
Facsimile: (512) 936-7525
Attorneys for Appellee
City of Denton, operating as Denton Attorneys for Intervenor
Municipal Electric Office of Public Utility Counsel

Katherine L. Coleman
kcoleman@omm.com
Michael A. McMillin
mmcmillin@omm.com
John R. Hubbard
jhubbard@omm.com
O'MELVENY & MYERS LLP
303 Colorado St., Suite 2750
Austin, Texas 78701
Telephone: (737) 261-8600

Attorneys for Intervenor
Texas Industrial Energy Consumers
/s/ Jordan Pratt
JORDAN PRATT

28
Automated Certificate of eService
This automated certificate of service was created by the efiling system.
The filer served this document via email generated by the efiling system
on the date and to the persons listed below. The rules governing
certificates of service have not changed. Filers must still provide a
certificate of service that complies with all applicable rules.

David Laurent on behalf of Jordan Pratt
Bar No. 24140277
david.laurent@oag.texas.gov
Envelope ID: 104817120
Filing Code Description: Brief Requesting Oral Argument
Filing Description: Reply Brief of Appellant Public Utility Commission of
Texas
Status as of 8/25/2025 4:10 PM CST

Associated Case Party: Texas Industrial Energy Consumers

Name BarNumber Email TimestampSubmitted Status

Katherine Coleman 24059596 kcoleman@omm.com 8/25/2025 4:03:13 PM SENT

Michael McMillin mmcmillin@omm.com 8/25/2025 4:03:13 PM SENT

John Hubbard jhubbard@omm.com 8/25/2025 4:03:13 PM SENT

Associated Case Party: City of Denton

Name BarNumber Email TimestampSubmitted Status

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Gabrielle Smith 24093172 gsmith@lglawfirm.com 8/25/2025 4:03:13 PM SENT

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Devin Alexander devin.alexander@cityofdenton.com 8/25/2025 4:03:13 PM SENT

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Case Contacts

Name BarNumber Email TimestampSubmitted Status

David Laurent david.laurent@oag.texas.gov 8/25/2025 4:03:13 PM SENT

Associated Case Party: Public Utility Commission of Texas

Name BarNumber Email TimestampSubmitted Status
Automated Certificate of eService
This automated certificate of service was created by the efiling system.
The filer served this document via email generated by the efiling system
on the date and to the persons listed below. The rules governing
certificates of service have not changed. Filers must still provide a
certificate of service that complies with all applicable rules.

David Laurent on behalf of Jordan Pratt
Bar No. 24140277
david.laurent@oag.texas.gov
Envelope ID: 104817120
Filing Code Description: Brief Requesting Oral Argument
Filing Description: Reply Brief of Appellant Public Utility Commission of
Texas
Status as of 8/25/2025 4:10 PM CST

Associated Case Party: Public Utility Commission of Texas

Name BarNumber Email TimestampSubmitted Status

John RHulme John.Hulme@oag.texas.gov 8/25/2025 4:03:13 PM SENT

Jordan Pratt Jordan.Pratt@oag.texas.gov 8/25/2025 4:03:13 PM SENT

Associated Case Party: Office of Public Utility Counsel

Name BarNumber Email TimestampSubmitted Status

Chris Ekoh chris.ekoh@opuc.texas.gov 8/25/2025 4:03:13 PM SENT

Justin Swearingen justin.swearingen@opuc.texas.gov 8/25/2025 4:03:13 PM SENT

Christiana Segura 24143396 christiana.segura@opuc.texas.gov 8/25/2025 4:03:13 PM SENT

Michael Martinez michael.martinez@opuc.texas.gov 8/25/2025 4:03:13 PM SENT

Sharbel Sfeir sharbel.sfeir@opuc.texas.gov 8/25/2025 4:03:13 PM SENT