Cities of Austin v. Southwestern Bell Telephone Co.

In 1995, the Texas Legislature amended the Public Utility Regulatory Act (PURA) to introduce incentive regulation as an alternative to the traditional rate-of-return scheme for setting telephone rates. 1 Under incentive regulation, a telephone company must cap its rates for basic network services, set according to previously-established rate groups. 2 The rate cap is subject to certain statutory exceptions, including one providing that the Public Utility Commission of Texas (PUC) “shall allow a rate group reclassification that results from access line growth.” 3

Under that exception,…