Mont Belvieu Caverns, LLC v. Texas Commission on Environmental Quality And Zak Covar, Successor to Mark R. Vickery, Executive Director of the Texas Commission on Environmental Quality

• Court: Court of Appeals of Texas
• Decided: August 3, 2012
• Docket: 03-11-00442-CV
• Status: Published

Opinion

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-11-00442-CV

Mont Belvieu Caverns, LLC, Appellant

v.

Texas Commission on Environmental Quality; and Zak Covar, Successor to Mark R. Vickery, Executive Director of the Texas Commission on Environmental Quality, Appellees

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 200TH JUDICIAL DISTRICT NO. D-1-GN-09-000043, HONORABLE TIM SULAK, JUDGE PRESIDING

OPINION

Mont Belvieu Caverns, LLC, appeals a final summary judgment that it take nothing

in a suit for judicial review of a Texas Commission on Environmental Quality (TCEQ) order

determining that a new brine-pond system Mont Belvieu had installed at one of its facilities

did not qualify for the “pollution control property” tax exemption. See Tex. Tax Code Ann. § 11.31

(West Supp. 2011).1 Mont Belvieu brings two issues, urging that (1) the district court erred in

granting the summary judgment and in denying a cross-motion Mont Belvieu had filed; and (2) the

district court abused its discretion in denying Mont Belvieu certain discovery. We will overrule

these issues and affirm the district court’s judgment.

1 We cite the current versions of statutes and rules where there has been no material intervening substantive change. BACKGROUND

Regulatory context

To best understand the relevance and legal significance of the historical facts

underlying this appeal, it is helpful to begin with an explanation of the regulatory regime through

which the “pollution control property” exemption is administered and TCEQ’s role within it.2

Statutory framework

In November 1993, Texas voters ratified amendments to their state constitution

authorizing the Legislature to enact general laws exempting from ad valorem taxation “all or part

of real and personal property used, constructed, acquired, or installed” after January 1, 1994, “wholly

or partly to meet or exceed rules or regulations adopted by any environmental protection agency of

the United States, this state, or a political subdivision of this state for the prevention, monitoring,

control, or reduction of air, water, or land pollution.” Tex. Const. art. VIII, § 1-1 (adopted at the

Nov. 2, 1993 election (see Tex. H.J.R. Res. 86, § 2, 73d Leg., R.S., 1993 Tex. Gen. Laws 5576)).3

Conditioned on ratification, the Legislature enacted a new section 11.31 of the tax code, which took

effect on January 1, 1994. See Act of May 10, 1993, 73d Leg., R.S., ch. 285, §§ 1, 5 (codified as

amended at Tex. Tax Code Ann. § 11.31). Subsection (a) of section 11.31 states that “[a] person is

entitled to an exemption from taxation of all or part of real and personal property that the person

2 Some of the ensuing discussion concerns actions or events involving TCEQ’s predecessor agency, the Texas Natural Resource Conservation Commission. For clarity, and because there is no distinction between the two that is material to our analysis, we use “TCEQ” to refer to both TNRCC and TCEQ. 3 The amendment thereby created an exception to article VIII’s general requirements that “[t]axation shall be equal and uniform” and that “[a]ll real property and tangible personal property in this State . . . shall be taxed in proportion to its value.” See Tex. Const. art. VIII, § 1(a)-(b).

2 owns and that is used wholly or partly as a facility, device, or method for the control of air, water,

or land pollution.” Tex. Tax Code Ann. § 11.31(a). A “facility, device, or method for the control

of air, water, or land pollution,” is defined in subsection (b) of section 11.31 as:

land that is acquired after January 1, 1994, or any structure, building, installation, excavation, machinery, equipment, or device, and any attachment or addition to or reconstruction, replacement, or improvement of that property, that is used, constructed, acquired, or installed wholly or partly to meet or exceed rules or regulations adopted by any environmental protection agency of the United States, this state, or a political subdivision of this state for the prevention, monitoring, control, or reduction of air, water, or land pollution.

Id. § 11.31(b). However, the Legislature limited this definition somewhat by providing that property

used in “manufactur[ing] or produc[ing] a product or provid[ing] a service that prevents, monitors,

controls, or reduces air, water, or land pollution,” such as a landfill, did not, for that reason

alone, qualify for the exemption. See id. § 11.31(a).4 Property that meets the statutory definition

and qualifies for the exemption is termed, as shorthand, “pollution control property” within

section 11.31. See id. § 11.31(c), (f), (h), (i).

In addition to creating this tax exemption for pollution-control property in tax code

section 11.31, the Legislature also established a two-stage process for administering the exemption.

In the first stage, a person desiring to obtain the exemption for particular property must apply for a

determination from TCEQ’s executive director (commonly termed a “use determination”5) that

4 The Legislature also excluded from the exemption property used for residential purposes, or for recreational, park, or scenic uses as defined in tax code section 23.81. See Tex. Tax Code Ann. § 11.31(a) (West Supp. 2011). 5 See 30 Tex. Admin. Code § 17.2(11) (2012) (Tex. Comm’n on Envtl. Quality, Definitions) (defining “use determination” as a “finding, either positive or negative, by the executive director that

3 the property “is used wholly or partly as a facility, device, or method for the control of air, water, or

land pollution”—i.e., the property is pollution-control property eligible for the exemption. See id.

§ 11.31(c), (d); cf. § 11.31(a), (b) (statutory definition). The applicant must detail, inter alia, “the

proportion of the installation that is pollution control property” and, if the property is not wholly

pollution-control property, “such financial or other data as the executive director requires by

rule for the determination of the proportion of the installation that is pollution control property.” Id.

§ 11.31(c). Upon such application, the executive director must determine “whether the facility,

device, or method is used wholly or partly to control pollution and, if applicable, the proportion of

the property that is pollution control property.” See id. § 11.31(d).

The executive director’s use determination may be “appealed” to TCEQ

commissioners. See id. § 11.31(e). The commissioners must consider the appeal at their next

regularly scheduled meeting and either affirm the use determination or remand it for re-

determination. See id. Such an appeal “is not a contested case” for purposes of the Administrative

Procedures Act. See id.6 TCEQ’s order in such a proceeding may be challenged through a suit for

judicial review under the general authorization in section 5.351 of the water code, see Tex. Water

Code Ann. §§ 5.351, .354 (West 2008), with the district court’s judgment being subject to the

appellate process as with “other civil cases in which the district court has original jurisdiction.” Id.

§ 5.355 (West 2008).

the property is used wholly or partially for pollution control purposes and listing the percentage of the property that is determined to be used for pollution control”). 6 The Administrative Procedure Act (APA) is codified at Tex. Gov’t Code Ann. §§ 2001.001–.902 (West 2008).

4 If an applicant succeeds in obtaining a final use determination that the property is

wholly or partly pollution-control property (termed a “positive” use determination7), the applicant

can then apply for the exemption with the local appraisal district where the property is located. See

Tex. Tax Code Ann. § 11.31(i); see also id. § 11.43 (setting forth application requirements). The

district court must accept the TCEQ executive director’s positive use determination as “conclusive

evidence” that the property (or, if applicable, the proportion of the property that the executive

director found to be pollution-control property) qualifies for the exemption. See id. § 11.31(i);

see also id. § 11.31(d).

The 2002 rule amendments

In 2001 amendments to section 11.31, the Legislature mandated that TCEQ

promulgate new rules clarifying and refining the standards the executive director employed when

deciding use-determination applications. See Act of May 22, 2001, 77th Leg., R.S., ch. 881, § 1,

2001 Tex. Gen. Laws 1774, 1775 (codified at Tex. Tax Code Ann. § 11.31(g)). These rules, the

Legislature specifically required, “must . . . establish specific standards for considering applications,”

“ensure that determinations are equal and uniform,” and—of particular significance to this

appeal—“allow for determinations that distinguish the proportion of property that is used to control,

monitor, prevent, or reduce pollution from the proportion of property that is used to produce goods

or services.” See id. (codified at Tex. Tax Code Ann. § 11.31(g)). With this, the Legislature added

an express prohibition barring the executive director from granting any positive use determination

7 See 30 Tex. Admin. Code § 17.2(11).

5 unless the property complied with those “standards established under rules adopted under this

section.” Id. (codified at Tex. Tax Code Ann. § 11.31(h)).

In recognizing—and requiring TCEQ to make—a distinction between “property

that is used to control, monitor, prevent, or reduce pollution” (i.e., pollution-control property) and

“property that is used to produce goods and services,” the Legislature drew a conceptual line similar

to one suggested by the Attorney General in an opinion he had issued a few weeks earlier construing

tax code section 11.31. See Tex. Atty Gen. Op. No. JC-0372 (2001). Opinion JC-0372 responded

to a request from TCEQ’s chairman inquiring, in part, whether the pollution-control property

exemption applied to equipment used to make a product that limits pollution through its design (he

cited the example of a boiler constructed with technology that achieves more complete combustion

and, in turn, lower emissions), as opposed to pollution-control equipment that is “added on” to

production equipment (e.g., controls at the end of the production process, like scrubbers). See id.

at 3–4. While suggesting that “an add-on device” would be “wholly” pollution-control property and

thus qualify for an exemption for the total value of that property, the Attorney General, construing

section 11.31’s definition of pollution-control property and its provisions relating to partial

exemptions, reasoned that “property that serves both a production and a pollution-reduction

purpose[] is not entitled to a tax exemption on the total value of the property,” but only a partial

exemption corresponding to the “portion of property that actually controls pollution.” See id. at 6–7.

The Attorney General concluded by suggesting that “[t]he legislature may want to provide [TCEQ]

with additional guidance regarding the proper criteria for assessing what portion of property actually

controls pollution,” further observing that the legislation that later became the 2001 amendments to

11.31 was already under consideration. See id. at 7 n.4.

6 In response to the Legislature’s mandate, TCEQ made sweeping changes to

its rules concerning use applications, which were (and still are) codified in chapter 17 of

Texas Administrative Code title 30. See 26 Tex. Reg. 7420 (2001), adopted by 27 Tex. Reg. 185

(2002) (codified at 30 Tex. Admin. Code §§ 17.1–.25) (2002) (“2002 Rules”). The 2002 rules

prohibited the executive director from determining that property is pollution-control property unless

(1) the property was “used, constructed, acquired, or installed wholly or partly to meet or exceed

laws, rules, or regulations adopted by any environmental protection agency of the United States,

Texas, or a political subdivision of Texas, for the prevention, monitoring, control, or reduction or

air, water, or land pollution”—i.e., it met the statutory definition of pollution-control property8—and

(2) “the requirements of § 17.15 and § 17.17 of this title (relating to Review Standards and Partial

Determination) have been met.” See 2002 Rules § 17.4(d).

Section 17.15 of the 2002 Rules, in turn, required the executive director to apply

standards set forth in a “Decision Flow Chart” when deciding use applications. See id. § 17.15 (flow

chart located at 27 Tex. Reg. at 303). The Decision Flow Chart prescribed three sets of inquiries

with respect to each piece of property for which the exemption was claimed. First, the executive

director was to consider whether the installation of the equipment or process in question allowed the

applicant to meet or exceed a specific, identifiable environmental law or regulation. See id. (flow

chart & n.3). If he found in the affirmative, the executive director next considered whether the

equipment or process provided an identifiable environmental benefit “at the site where it is

installed.” See id. (flow chart & n.4). If this second question was answered in the affirmative, the

8 See Tex. Tax Code Ann. § 11.31(a), (b). The rule similarly tracked section 11.31’s exclusions and limitations. See 2002 Rules § 17.4(a); see also id. § 17.6.

7 property was considered “eligible” for a positive use determination, and the issue then became

the proportion of the property that was to be considered pollution-control property. See id.

To ascertain the proportion of the property that was pollution-control property, the

Decision Flow Chart and other rules prescribed three alternative analytical tracks or “tiers.” Under

“Tier I,” the applicable proportion was to be determined by referring to a “predetermined equipment

list” (PDL), a listing of generic property categories and types for which the executive director had

previously determined an applicable percentage of pollution-control use. See id. §§ 17.2(9), (11)

(defining “predetermined equipment list” and “Tier I” respectively), 17.15 (flow chart). If the

property appeared on the PDL or was necessary for the installation or operation of property listed

there, the executive director would grant a positive use determination for the property, with the

applicable percentage of use as the PDL prescribed. See id. § 17.2(11), 17.15 (flow chart). If the

property did not appear on the PDL, the application was to be analyzed under either “Tier II,” which

inquired whether or not the property was wholly (100%) pollution-control property, or “Tier III,”

which assumed that the property was only partially pollution-control property and focused

on ascertaining the appropriate percentage of use. See id. § 17.2(7), (12), (13) (defining “partial

determination,” “Tier II,” and “Tier III” respectively), 17.15 (flow chart). Rule 17.17 governed

Tier III determinations, also termed “partial determinations.” See id. § 17.2(7), 17.17.

Rule 17.17 required the executive director to determine the “creditable partial

percentage for a property or project which is not used wholly for pollution control” through a series

of calculations derived from cost accounting principles. See id. § 17.17(b); see also id. § 17.2(4)

(defining “cost analysis procedure”). Simply described, the calculations sought to identify the

percentage of the property’s total capital costs that were attributable to the property’s pollution-

8 control feature by (1) comparing the total capital costs to the cost of comparable equipment without

the pollution-control feature, and (2) adjusting downward for (a) any increases in productive capacity

attributable to the new property and (b) the value of any waste byproducts that could be reused

or recycled due to the new pollution-control feature. See id. § 17.17 (referenced charts located at

27 Tex. Reg. at 305–06 ); see also id. § 17.2(1), (2), (3), (10) (defining “byproduct,” “capital cost

new,” “capital cost old,” and “production capacity factor” respectively).9

The 2002 Rules likewise imposed procedural demands upon applicants that

corresponded to the analytical tier under which the use determination was being sought. An

applicant could file a “Tier I” application for a determination based on the PDL, or a “Tier II”

application seeking to demonstrate that the property was wholly (100%) pollution-control property,

and otherwise would be required to file a “Tier III” application seeking a partial determination. See

id. § 17.2(11)–(13), 17.17(a). Tier III applications were the most complex, with applicants

required to supply “a worksheet showing the calculation of the Cost Analysis Procedure, § 17.17

9 The 2002 Rules prescribed the following formula to determine the creditable partial percentage for a property or project that is not used wholly for pollution control:

See 2002 Rules § 17.17(b). “Byproduct” in the above formula is determined as follows:

See id. § 17.17(c).

9 of this chapter (relating to Partial Determination), and explaining each of the variables.” See id.

§ 17.10(d)(5). The rules likewise imposed filing fees corresponding to the relative complexity

and resource-intensiveness of the work the application demanded of TCEQ’s staff, with Tier I

applications requiring the lowest application fee, Tier III applications the highest, and Tier II

applications in between. See id. § 17.20(a).

The 2008 rule amendments

Although TCEQ’s 2002 Rules required the executive director to establish the PDL

and made it an integral part of the percentage-of-use analysis, see id. §§ 17.2(9), (11), 17.4(c), 17.15,

the agency did not include the PDL itself within those rules. Instead, TCEQ styled the PDL as an

“appendix” to a “Technical Guidelines Manual” that the agency published to give guidance to use-

determination applicants. See 19 Tex. Reg. 7793, 7794–96 (Feb. 4, 1994) (describing manual and

explaining that the PDL would be kept separate as an appendix because of the need to continually

revise the PDL “independent of the manual”). The agency justified this approach as warranted by

the need for flexibility in making revisions to the PDL as staff found appropriate “without the

formality of rulemaking.” See id. at 7796.

This changed, however, after the Legislature amended tax code section 11.31 in 2007

to require TCEQ to promulgate rules establishing “a nonexclusive list of facilities, devices, or

methods for the control of air, water, or land pollution” and update it at least once every three years.

See Act of May 28, 2007, 80th Leg., R.S., ch. 1277, § 4, 2007 Tex. Gen. Laws 4261, 4264 (codified

at Tex. Tax Code Ann. § 11.31(k), (l)). TCEQ responded to this and other mandates in the

legislation by promulgating rule amendments that took effect on February 7, 2008. See 32 Tex. Reg.

10 6985 (2007), adopted by 33 Tex. Reg. 932 (2008) (codified at 30 Tex. Admin. Code §§ 17.1–.20)

(2008) (“2008 Rules”).10 The amendments’ chief impact relevant to this case was to replace the

former PDL with “Part A” of a new and slightly different “Equipment and Categories List” (ECL)

that was incorporated into the rules themselves. See 2008 Rules § 17.2(7) (defining “Equipment and

Categories List”), 17.14 (describing “Equipment Categories List).11

Mont Belvieu seeks a use determination

Appellant Mont Belvieu is in the business of storing natural gas liquids in

underground salt dome caverns. To remove gases from the storage caverns, Mont Belvieu pumps

in brine—heavily salted water—to displace the gases. Conversely, when Mont Belvieu desires to

pump gases into the caverns, brine must be removed. In recent decades, Mont Belvieu and affiliated

entities have constructed large surface impoundments or “ponds” at their storage facilities to

retain displaced brine for future reuse. Such ponds fall within the definition of “brine pits” that are

regulated by Texas Railroad Commission to ensure that, among other concerns, brine does

not discharge into and pollute surface or subsurface waters. See generally 16 Tex. Admin. Code

§ 3.8(d)(8) (2012) (Tex. Railroad Comm’n, Water Protection) (“Rule 8”); see also id. § 3.8(a)(2)

(defining “brine pit”).

10 TCEQ made further amendments to its use-determination rule in 2010, but these are not material to our analysis. See 35 Tex. Reg. 6255 (2010), adopted 35 Tex. Reg. 10964 (2010) (codified at 30 Tex. Admin. Code §§ 17.1–.25). 11 The other portion of the ECL, “Part B,” consisted of certain categories of pollution-control equipment that the Legislature’s 2007 amendments required TCEQ to include in the ECL. See Tex. Tax Code Ann. § 11.31(k); 2008 Rules § 17.14(a).

11 Mont Belvieu maintains that its brine ponds and related piping, pumps, and

equipment qualify as 100% pollution-control property, reasoning that these facilities represent an

environmentally preferable alternative to their other principal option for handling displaced

brine—disposing of it through injection wells, see 16 Tex. Admin. Code § 3.9 (2012) (Tex. Railroad

Comm’n, Disposal Wells), a method that would also necessitate that the company consume large

quantities of fresh water to create new brine when needed. As if echoing this view, the PDL (i.e.,

the list of predetermined pollution-control property categories under the 2002 Rules) listed “Brine

Storage Ponds”—including not only the excavation, but liners, pumps, and other “ancillary

equipment”—as 100% pollution-control property:

No. Media Equipment Description Percent S-20 Land/Water Surface Impoundments and Excavation ponds, clay 100% Ancillary Equi pm ent and synthetic liners, leak (Including Brine Storage d e t e c t i o n s ys t e m s , Ponds) leachate collection and treatment equipment, monitor well, pumps, etc.

2002 Rules § 17.14(a) (table at S-20). And Mont Belvieu or its affiliates successfully obtained

at least five 100% positive use determinations for brine-pond systems between 1997 and

2007, including a 2007 Tier I determination for two ponds at its “East Storage” facility in

Chambers County.

On February 12, 2008—five days after the 2008 Rules took effect and replaced the

PDL with the ECL—Mont Belvieu submitted a Tier I application seeking a 100% positive use

12 determination for a $23 million brine storage pond system at its “North Storage” facility in Chambers

County. The application described the project and its anticipated environmental benefits as follows:

This Project [will] consist of one 4.0 million barrel HDPE [high-density polyethylene] double lined brine pond, instrumentation, pond piping, electrical substation and associated equipment. The brine pond will accomplish two significant purposes, waste minimization and prevention of salt water intrusion into inland waters. Also, by recycling brine, rather than using fresh water which would become brine in daily operation of the cavern system, the total quantity of waste generated will be significantly reduced by constructing this brine pond. The current scope of this project includes the construction of one 35ft X 70ft concrete pump pit, and the installation of one 600 HP tra[n]sfer pump. Also included is 3,500['] of 30" HDPE piping from the new pond to North St[ora]ge . . . .

Mont Belvieu claimed that the project’s installation allowed it to meet or exceed 16 Tex.

Admin. Code § 3.8—i.e., Rule 8, the Railroad Commission rule regulating “brine pits.” It cited

category S-20 as the basis for a Tier I determination, as had the 2007 Tier I application for the East

Storage brine ponds. However, category S-20 had been changed in the new ECL:

No. Media Equipment Description Percent S-20 Land/Water Surface Impoundments Excavation ponds, clay and 100% and Ancillary Equipment synthetic liners, leak detection (Including Brine systems, leachate collection Disposal Ponds) and treatment equipment, monitor well, pumps, etc.

2008 Rules § 17.14(a) (table at S-20) (emphasis added).

This time, in what Mont Belvieu characterizes as a stunning about-face, TCEQ’s

executive director issued a negative use determination for the brine-pond system, explaining that

“[t]he equipment is considered to be production equipment and not pollution control property.”

13 Mont Belvieu appealed the negative use determination to TCEQ commissioners. Mont Belvieu,

the executive director, and the Office of Public Interest Counsel each submitted briefing,12 and

Mont Belvieu additionally submitted evidence attempting to demonstrate that the executive director

had previously issued 100% positive use determinations for several similar or identical brine-pond

projects. In his briefing, the executive director urged the commissioners to affirm his negative use

determination because (1) brine storage ponds were no longer included in category S-20 and were

thus no longer eligible on that basis for a Tier I determination; (2) the North Storage brine-pond

system was used to manage the level of gases in the storage caverns and was thus considered

production equipment; and (3) the project and equipment identified in Mont Belvieu’s

application—the concrete pump pit, transfer pump, and piping to and from the brine pond—similarly

failed the requirement that it provide an environmental benefit at the site of installation because

they merely moved brine into and out of the caverns. On the other hand, the executive director

acknowledged that certain components of the brine-pond system “installed to prevent contamination

of surface or subsurface water in the state, such as synthetic liner, leak-detection systems, and

monitoring equipment may qualify for [the] exemption.” Nonetheless, he insisted that any such

relief was unavailable in the procedural context of Mont Belvieu’s pending application, which

sought a Tier I determination for the entire brine-pond system.

The commissioners considered Mont Belvieu’s appeal during one of their regular

public meetings and afforded counsel for Mont Belvieu and the executive director five minutes

each to present oral argument. During this portion of the meeting, two exchanges occurred between

12 The local appraisal district did not file any briefing.

14 Mont Belvieu and the commissioners that have significance to this appeal. First, Mont Belvieu

acknowledged that, as the executive director had argued, it used the North Storage brine-pond system

in producing its gas-storage services—i.e., the system was, at least in part, “production property”

and not exclusively pollution-control property. Second, the commissioners, echoing the executive

director’s suggestions that certain components of the system would likely qualify as pollution-control

property, inquired whether Mont Belvieu desired a remand so that it could submit an application

limited to or otherwise distinguishing the system’s pollution-control components or features.

Mont Belvieu declined this invitation, steadfastly insisting that it was entitled to a 100% positive use

determination for the entire brine-pond system. Immediately following the latter exchange, TCEQ

commissioners voted unanimously to affirm the executive director, “having concluded that the

Executive Director’s Determination was in accordance with the applicable statutes and rules.”

Proceedings in district court

Mont Belvieu sued TCEQ and its executive director (collectively “TCEQ” with

reference to this litigation) seeking to challenge the agency’s final order. As authorized by water

code section 5.351, Mont Belvieu sought judicial review of the order, asserting that its North Storage

brine-pond system qualified for a 100% positive use determination and that TCEQ’s contrary

decision was arbitrary and capricious. Mont Belvieu also asserted claims for declaratory relief under

section 2001.038 of the APA13 and the Uniform Declaratory Judgments Act (UDJA)14 challenging

the validity and TCEQ’s construction of tax code section 11.31 and accompanying regulations.

13 See Tex. Gov’t Code Ann. § 2001.038. 14 See Tex. Civ. Prac. & Rem. Code Ann. §§ 37.001–.011 (West 2008).

15 Specifically, Mont Belvieu sought declarations that: (1) TCEQ’s construction of tax code section

11.31 and accompanying regulations in relation to the North Storage brine-pond system “ignore the

plain terms of the statute and engraft additional requirements,” causing the agency to render “ultra

vires decisions beyond the scope of the agency’s authority”; (2) TCEQ’s “decision to treat Mont

Belvieu differently from virtually identical, prior applicants” violated the company’s due-process and

equal-protection rights under the federal and state constitutions; (3) TCEQ’s denial of the pollution-

control exemption through administrative means and any judicial review limited to the substantial-

evidence standard violated constitutional due-process, equal-protection, open-courts, and jury-trial

protections; (4) tax code section 11.31 was an unconstitutional delegation of legislative authority to

TCEQ; and (5) TCEQ’s application of its administrative rules had caused Mont Belvieu’s property

taxes to be “excessive and unlawful.”

Mont Belvieu propounded discovery requests on TCEQ. These requests consisted

of contention interrogatories, requests for production, and requests for admission inquiring into

TCEQ’s legal and factual bases for determining that the North Storage brine-pond system was not

100% pollution-control property and how that determination compared to the agency’s prior use

determinations involving other brine ponds. Mont Belvieu also requested admissions to the effect

that its North Storage brine-pond system had environmentally beneficial effects. TCEQ sought a

protective order, arguing principally that the requests were not reasonably calculated to lead to

the discovery of admissible evidence because judicial review was confined to the agency record.

Mont Belvieu moved to compel.

While these discovery-related motions remained pending, Mont Belvieu filed a

motion for partial summary judgment on its judicial-review claim. Mont Belvieu sought to establish

16 that TCEQ had acted arbitrarily and capriciously based on evidence purporting to demonstrate

conclusively that the agency had previously granted 100% positive use determinations on projects

similar or identical to its North Storage brine-pond system. Relatedly, Mont Belvieu asserted several

summary-judgment grounds attempting to demonstrate that TCEQ’s intervening change from the

PDL to the ECL did not provide legal support or justification for treating the North Storage brine-

pond system differently. Specifically, Mont Belvieu urged that, as a matter of law, the applicability

of the pollution-control property exemption was governed by the rules in effect on January 1,

2008—i.e., the PDL—and that TCEQ’s application of the ECL instead was unconstitutionally

retroactive. In the event the ECL did apply, Mont Belvieu further asserted that the North Storage

brine-pond system still came within category S-20, and thus qualified for a Tier I 100% positive use

determination, because there was no substantive distinction between “brine storage ponds” and

“brine disposal ponds.” And even if there were such a difference, Mont Belvieu urged further in the

alternative, S-20’s reference to “brine disposal ponds” was merely illustrative and non-exclusive,

and the system was still a “surface impoundment” that fit within the categorical description.

In addition to responding to Mont Belvieu’s summary-judgment motion, TCEQ filed

a cross-motion for partial summary judgment that Mont Belvieu take nothing on its judicial-review

claim. Among its grounds, TCEQ asserted that, contrary to Mont Belvieu’s contentions, any

allegedly “unequal” treatment of the North Storage brine-pond system was justified by the new

ECL and that its application of the new list was not retroactive, much less unconstitutionally so. As

additional grounds, TCEQ relied on the now-undisputed fact that the system was, at least in part,

production property, urging that this fact negated the possibility of the 100% positive use

determination Mont Belvieu had sought and that, similarly, various system components merely

17 served production purposes and did not provide an environmental benefit at the site. Although

reiterating its prior acknowledgments that certain system components might qualify for the

exemption, TCEQ likewise urged again that any such relief was unavailable under the procedural

posture of Mont Belvieu’s Tier I application.

Hearings were held on both the summary-judgment motions and the pending

discovery motions. Following both hearings, the district court granted TCEQ’s motion for protective

order and denied Mont Belvieu’s motion to compel.15 A few days later, the district court

granted TCEQ’s cross-motion for partial summary judgment and denied Mont Belvieu’s motion.

The district court’s order did not state the specific grounds on which it relied. Subsequently, and

expressly without conceding the merits of the district court’s prior rulings, Mont Belvieu filed a

notice of partial non-suit as to its remaining claims in order to make the district court’s summary-

judgment order final. Mont Belvieu identified the “Undecided Claims” as its “due process and equal

protection claims, ultra vires claim, claim that TCEQ denied Mont Belvieu’s access to open courts

or trial by jury, claim that Tax Code section 11.31 is an unconstitutional delegation of legislative

authority, and claim that the subject taxes are excessive and unlawful.” The district court then signed

a final judgment incorporating its prior rulings and the nonsuit. This appeal followed.

ANALYSIS

Mont Belvieu brings two issues on appeal. In the first, Mont Belvieu urges that

the district court erred in granting TCEQ’s summary-judgment motion and denying its own. In the

15 Although the Honorable Tim Sulak ultimately signed the final judgment, as reflected in our caption, the Honorable Lora Livingston heard and ruled on the discovery motions and the Honorable Stephen Yelenosky ruled on the partial summary judgment motions.

18 second, Mont Belvieu argues that the district court abused its discretion in denying Mont Belvieu’s

motion to compel discovery and granting TCEQ a protective order.

Before turning to these issues, we emphasize some significant aspects of the

procedural posture in which they are presented to us. Most prominently, when asserting its

exemption claim before TCEQ, Mont Belvieu opted to stand or fall based on a claimed entitlement

to a 100% positive use determination for its North Storage brine-pond system—an all-or-nothing

claim that the system is wholly pollution-control property—and in particular a Tier I determination

based on category S-20 of the relevant listing of predetermined pollution-control property.

Consequently, the merits of Mont Belvieu’s underlying judicial-review claim turn on whether TCEQ

acted arbitrarily or capriciously in determining that the brine-pond system was not in category S-20

of that listing and thereby failed to qualify for a Tier I determination.16 “An administrative agency

is said to act arbitrarily or capriciously where, among other things, it fails to consider a factor

the Legislature has directed it to consider, considers an irrelevant factor, or considered relevant

factors but still reaches a completely unreasonable result.” City of Waco v. Texas Comm’n on Envtl.

Quality, 346 S.W.3d 781, 819 (Tex. App.—Austin 2011, pet. denied) (citing City of El Paso

v. Public Util. Comm’n, 883 S.W.2d 179, 184 (Tex. 1994)).

Additionally, while Mont Belvieu initially asserted claims for declaratory relief more

broadly challenging the administrative and statutory framework within which TCEQ made this

determination, it ultimately non-suited all of these claims except to the extent they were implicated

16 Although TCEQ advocated a substantial-evidence standard below, at this juncture the parties agree that the arbitrary-and-capricious standard governs review of TCEQ’s order in a non- contested-case proceeding. See City of Waco v. Texas Comm’n on Envtl. Quality, 346 S.W.3d 781, 815–19 (Tex. App.—Austin 2011, pet. denied).

19 in the district court’s summary-judgment rulings. The sole declaratory claim that would appear to

be implicated by the summary-judgment rulings is Mont Belvieu’s claim that TCEQ’s determination

and its rules, including the ECL, are inconsistent with tax code section 11.31.

Summary judgment

On appeal, Mont Belvieu challenges TCEQ’s entitlement to summary judgment on

each of the grounds presented in TCEQ’s motion and urges that it was entitled to summary judgment

on each of the grounds presented in its own motion. In essence, these competing grounds join issue

as to whether the North Storage brine-pond system qualifies as wholly (100%) pollution-control

property under TCEQ’s rules or, if not, nonetheless qualifies under the statutory definitions

such that the rules are inconsistent with the statute and invalid. If the system did not qualify as

100% pollution-control property under either TCEQ’s rules or the underlying statutory definitions,

TCEQ would not, as a matter of law, have acted arbitrarily or capriciously in denying

Mont Belvieu’s application—rather, it would have acted arbitrarily and capriciously if it had

granted it. See Rodriguez v. Service Lloyds Ins. Co., 997 S.W.2d 248, 254–55 (Tex. 1999) (“If the

Commission does not follow the clear, unambiguous language of its own regulation, we reverse its

action as arbitrary and capricious.”).

Standard of review

We review a trial court’s summary-judgment rulings de novo. Valence Operating Co.

v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005); Provident Life & Accident Ins. Co. v. Knott,

128 S.W.3d 211, 215 (Tex. 2003). Summary judgment is proper when there are no disputed issues

of material fact and the movant is entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c).

20 When reviewing a summary judgment, we take as true all evidence favorable to the non-movant, and

we indulge every reasonable inference and resolve any doubts in the non-movant’s favor. Valence

Operating Co., 164 S.W.3d at 661; Knott, 128 S.W.3d at 215. When parties file cross-motions for

summary judgment on overlapping issues and the trial court grants one motion and denies the other,

we review the summary-judgment evidence supporting both motions and determine all questions

presented and preserved. See FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872

(Tex. 2000). We “should render the judgment that the trial court should have rendered.” Id. Where,

as here, the trial court does not specify any particular ground on which it relied when granting the

motion, we will affirm the judgment on any ground presented in the motion that is meritorious and

preserved for our review. State Farm Fire & Cas. Co. v. S.S., 858 S.W.2d 374, 380 (Tex. 1993);

Pickett v. Texas Mut. Ins. Co., 239 S.W.3d 826, 840 (Tex. App.—Austin 2007, no pet.).

To the extent our resolution of these issues turns on construction of the tax code, we

review these questions de novo. State v. Shumake, 199 S.W.3d 279, 284 (Tex. 2006). Our primary

objective in statutory construction is to give effect to the Legislature’s intent. See id. We seek that

intent “first and foremost” in the statutory text. Lexington Ins. Co. v. Strayhorn, 209 S.W.3d 83,

85 (Tex. 2006). “Where text is clear, text is determinative of that intent.” Entergy Gulf States, Inc.

v. Summers, 282 S.W.3d 433, 437 (Tex. 2009) (op. on reh’g) (citing Shumake, 199 S.W.3d at 284;

Alex Sheshunoff Mgmt. Servs. v. Johnson, 209 S.W.3d 644, 651–52 (Tex. 2006)). We consider the

words in context, not in isolation. State v. Gonzalez, 82 S.W.3d 322, 327 (Tex. 2002). We rely on

the plain meaning of the text, unless a different meaning is supplied by legislative definition or is

apparent from context, or unless such a construction leads to absurd results. See Entergy Gulf States,

Inc., 282 S.W.3d at 437; City of Rockwall v. Hughes, 246 S.W.3d 621, 625–26 (Tex. 2008); see also

21 Tex. Gov’t Code Ann. § 311.011 (West 2005) (“Words and phrases shall be read in context and

construed according to the rules of grammar and common usage,” but “[w]ords and phrases that have

acquired a technical or particular meaning, whether by legislative definition or otherwise, shall be

construed accordingly.”). We also presume that the Legislature was aware of the background law

and acted with reference to it. See Acker v. Texas Water Comm’n, 790 S.W.2d 299, 301 (Tex. 1990).

We further presume that the Legislature selected statutory words, phrases, and expressions

deliberately and purposefully. See Texas Lottery Comm’n v. First State Bank of DeQueen,

325 S.W.3d 628, 635 (Tex. 2010); Shook v. Walden, 304 S.W.3d 910, 917 (Tex. App.—Austin 2010,

no pet.). Our analysis of the statutory text may also be informed by the presumptions that “the entire

statute is intended to be effective” and that “a just and reasonable result is intended,” Tex. Gov’t

Code Ann. § 311.021(2), (3) (West 2005), and consideration of such matters as “the object sought

to be attained,” “circumstances under which the statute was enacted,” legislative history, “common

law or former statutory provisions, including laws on the same or similar subjects,” “consequences

of a particular construction,” and the enactment’s “title.” Id. § 311.023(1)-(5), (7) (West 2005).

However, only when the statutory text is ambiguous “do we ‘resort to rules of construction or

extrinsic aids.’” Entergy Gulf States, Inc., 282 S.W.3d at 437 (quoting In re Estate of Nash,

220 S.W.3d 914, 917 (Tex. 2007)).

In addition to these general principles that guide our construction of tax code

section 11.31, “[s]tatutory exemptions from taxation,” like the pollution-control exemption, “are

subject to strict construction because they undermine equality and uniformity by placing a greater

burden on some taxpaying businesses and individuals rather than placing the burden on all taxpayers

equally.” North Alamo Water Supply Corp. v. Willacy Cnty. Appraisal Dist., 804 S.W.2d 894, 899

22 (Tex. 1991) (citing Bullock v. National Bancshares Corp., 584 S.W.2d 268, 271–72 (Tex. 1979)).

All doubts are resolved against the granting of an exemption. See id.; Davies v. Meyer, 541 S.W.2d

827, 830 (Tex. 1976).

Mont Belvieu’s first issue also potentially implicates principles that would require us

to defer to TCEQ’s construction of statutes it administers. See Railroad Comm’n v. Texas Citizens

for a Safe Future & Clean Water, 336 S.W.3d 619, 624–25 (Tex. 2011). But these principles apply

only where the statute in question is ambiguous and only to the extent that the agency’s interpretation

is one of those reasonable interpretations. See id. “Consequently, to determine whether this rule of

deference applies, a reviewing court must first make a threshold determination that the statute is

ambiguous and the agency’s construction is reasonable—questions that turn on statutory construction

and are reviewed de novo.” City of Waco, 346 S.W.3d at 800 (citing Texas Citizens, 336 S.W.3d

at 625). Additionally, this Court has recognized that these principles of deference may be subject

to further qualifications where the subject matter is not within any specialized expertise of

the agency, see id. (citing Texas Citizens, 336 S.W.3d at 630), and where “a nontechnical question

of law” is involved, see Rogers v. Texas Bd. of Architectural Exam’rs, —S.W.3d—,

No. 03–10–00182–CV, 2011 Tex. App. LEXIS 6110, at *15 (Tex. App.—Austin Aug. 3, 2011,

no pet. h.) (citing Rylander v. Fisher Controls Int’l, Inc., 45 S.W.3d 291, 302 (Tex. App.—Austin

2001, no pet.)).

To the extent our analysis turns on TCEQ’s construction of the rules themselves, we

defer to the agency’s interpretation of its own rules unless that interpretation is plainly erroneous or

inconsistent with the text of the rule or underlying statute. See Public Util. Comm’n v. Gulf States

Utils. Co., 809 S.W.2d 201, 207 (Tex. 1991); Tennessee Gas Pipeline Co. v. Rylander, 80 S.W.3d

23 200, 203 (Tex. App.—Austin 2002, pet. denied). We construe administrative rules in the same

manner as statutes because they have the force and effect of statutes. Rodriguez, 997 S.W.2d at 254.

Pollution-control vs. production property

Mont Belvieu’s core assertion on appeal is that its North Storage brine-pond system

qualifies as 100% pollution-control property under the definition in tax code section 11.31 and that

it matters not under that definition whether the facility might also be considered production property.

To the extent TCEQ’s rules would require a contrary conclusion, Mont Belvieu further suggests, they

contradict the statutory definition and are invalid.

Mont Belvieu emphasizes the text of subsections (a) and (b) of tax code section 11.31.

Subsection (a), as previously noted, states that “[a] person is entitled to an exemption from taxation

of all or part of real and personal property that the person owns and that is used wholly or partly as

a facility, device, or method for the control of air, water, or land pollution,” while subsection (b)

defines “facility, device, or method for the control of air, water, or land pollution.” See Tex. Tax

Code Ann. § 11.31(a), (b). With reference to subsection (b), Mont Belvieu argues that its brine-pond

system is (1) an “improvement” to real property, as well as a “structure,” “installation,”

“excavation,” and “device;” (2) that is “used, constructed, acquired, or installed wholly or partly to

meet or exceed [environmental] rules or regulations”—the Railroad Commission’s Rule 8—and

(3) Rule 8 was adopted by the Railroad Commission at least in part “for the prevention, monitoring,

control, or reduction of air, water, or land pollution.” See id. § 11.31(b). And, Mont Belvieu

reasons, because its brine-pond system was thus unquestionably “part of real . . . property that [it]

24 owns and that is used wholly or partly” as such a “facility, device, or method,” subsection (a)

“entitle[s] [it] to an exemption from taxation.” See id. § 11.31(a).

Mont Belvieu acknowledges that its brine-pond system is part of the process by which

it produces its gas-storage services for customers and that other subsections within section 11.31

contemplate—indeed require—that if property is not “wholly” used for pollution control, TCEQ will

limit any positive use determination to the proportion of the property that is. See id. § 11.31(c)(3)

(use-determination applicants must detail “the proportion of the installation that is pollution control

property” and, “[i]f the installation includes property that is not used wholly for the control of air,

water, or land pollution, the [applicant] shall also present such financial or other data as the

executive director requires by rule for the determination of the proportion of the installation that is

pollution control property”), (d) (executive director shall make “determination of whether the

facility, device, or method is used wholly or partly to control pollution and, if applicable, the

proportion of the property that is pollution control property”), (g)(3) (rules must “allow for

determinations that distinguish the proportion of property that is used to control, monitor, prevent,

or reduce pollution from the proportion of property that is used to produce goods and services”).

But, Mont Belvieu insists, its brine-pond system is “wholly” pollution-control property as defined

in subsections (a) and (b) because the system and all of its components collectively enable it to

recycle brine rather than disposing of it, an alternative that also conserves fresh water that

otherwise would be consumed in producing brine anew. In its view, nothing in section 11.31

precludes property from being considered “wholly” pollution-control property while also

concurrently having a role in producing goods and services. “At its logical extreme,” Mont Belvieu

suggests, “all property has a business purpose,” including property like disposal wells that TCEQ

25 considers to be 100% pollution-control property, and that “[i]f the Legislature had intended to define

pollution control property as any method ‘used solely and exclusively for pollution control and not

a concurrent business purpose,’” it would have said so in the statute, yet did not. In imposing such

a limitation here, Mont Belvieu urges, TCEQ has misconstrued and improperly added elements to

the definition of pollution-control property that the Legislature has actually chosen.

Mont Belvieu’s reasoning overlooks the significance of subsection (g)(3)

of section 11.31. That provision, as previously explained, was part of the Legislature’s

2001 amendments mandating that TCEQ promulgate, and comply with, rules imposing greater

clarity and consistency in use determinations. See Act of May 22, 2001, 77th Leg., R.S., ch. 881,

§ 1, 2001 Tex. Gen. Laws 1774, 1775 (codified at Tex. Tax Code Ann. § 11.31(g), (h)). And in

subsection (g)(3), the Legislature in particular mandated that the new rules “allow for determinations

that distinguish the proportion of property that is used to control, monitor, prevent, or reduce

pollution [i.e., pollution-control property] from the proportion of property that is used to produce

goods or services.” Id. § 11.31(g). By requiring that TCEQ “distinguish the proportion of property

that is used to control, monitor, prevent, or reduce pollution [i.e., pollution-control property] from

the proportion of property that is used to produce goods or services,” the Legislature manifested

its understanding and intent that pollution-control property—property qualifying for the tax

exemption—is, by definition, distinct from “property that is used to produce goods and services.”

See id. Further, in the context of a statute addressing an exemption from ad valorem taxation,

subsection (g)(3) means that TCEQ must distinguish the proportion of the property’s value that is

attributable to a pollution-control feature from that attributable to its capacity to produce goods and

services, thereby reflecting legislative intent to limit the pollution-control property exemption solely

26 to capital investment made to comply with state or federal environmental regulations that does not

yield productive benefits and would thus otherwise be irrational economically. See id. § 11.31(g)(3).

In fact, TCEQ refers us to anecdotal legislative history that, while not controlling, tends to confirm

that this was the purpose of the pollution-control property exemption from its inception.17

These limitations and qualifications reflected in subsection (g)(3) in turn inform

our construction of subsections (a) and (b)’s definition of pollution-control property. See State

v. Gonzalez, 82 S.W.3d 322, 327 (Tex. 2002) (noting that courts must consider the words of a statute

in context, not in isolation). And it follows from these limitations and qualifications that property

cannot qualify as 100% pollution-control property if any portion of its value is attributable to its

capacity to produce goods and services. By acknowledging that its North Storage brine-pond system

was part of its production process, Mont Belvieu in essence conceded that at least some portion of

the property’s value was attributable to its productive capacity, and it was not arbitrary or capricious

for TCEQ to determine as much. Consequently, Mont Belvieu’s brine-pond system cannot, by

definition, be wholly (100%) pollution-control property. Thus, TCEQ’s rejection of Mont Belvieu’s

17 See Hearings on H.B. 1920 and H.J.R. 86 Before the House Comm. on Ways & Means, 73d Leg., R.S., (Mar. 24, 1993) (testimony of Harry Whitworth) (testifying that “the equipment that we’re talking about here today does not produce a penny of revenue. It’s in there simply for the welfare[,] as we see it, [of] the general population.”); see id. (statement of Representative Steve Wolens) (explaining that if companies “are going to be forced to buy stuff because the government is insisting that they do it, don’t hit them another time by paying the ad valorems on something they don’t really [] want anyway”); see Hearings on Tex. H.B. 1920 and H.J.R. 86 Before the Senate Comm. on Intergovernmental Relations, 73d Leg., R.S. (Apr. 28, 1993) (testimony of Bill Allaway) (explaining to Senator John Whitmire, in response to concern that a landfill operator would be wholly exempt from property taxation, that property eligible for exemption “is property that prevents the business . . . from polluting, not the property that they use to conduct their business”).

27 Tier I application for a 100% positive use determination was consistent with tax code section 11.31,

as were any rules that required that decision.

Rules

Without textual support for its exemption claim in tax code section 11.31 itself,

Mont Belvieu must retreat to urging that the applicable TCEQ rules nonetheless classified its brine-

pond system as 100% pollution-control property. Bringing forward grounds raised in its summary-

judgment motion and response, Mont Belvieu first seeks to establish that TCEQ could not

validly apply the ECL to its exemption claim but was instead required to use the PDL. Mont Belvieu

suggests that TCEQ acted arbitrarily and capriciously in changing category S-20’s reference to

“brine storage ponds” in the PDL to the ECL’s reference to “brine disposal ponds.” As discussed

previously, however, the tax code reflects the Legislature’s intent that TCEQ distinguish pollution-

control property—property qualifying for the tax exemption—from “property that is used to produce

goods and services.” See Tex. Tax Code Ann. § 11.31(g). Given that statutory directive, a TCEQ

rule that would allow storage-only brine ponds, which Mont Belvieu acknowledges are part of the

production process, to qualify as 100% pollution-control property would exceed the statutory scope

of the exemption. As such, it was not arbitrary or capricious for TCEQ to change its rules to be

consistent with the statute and its legislative intent.

Mont Belvieu also contends that, as a matter of law, its eligibility for the pollution-

control exemption is governed by the facts and law that existed on January 1, 2008, such that TCEQ

was bound to apply the PDL rather than the ECL, which did not take effect until February 7, 2008.

Section 11.42 provides that, as a general rule, “eligibility for and amount of an exemption authorized

28 by this chapter for any tax year are determined by a claimant’s qualifications on January 1.”

Tex. Tax Code Ann. § 11.42(a) (West Supp. 2011). However, while the effect of this requirement

is to “freeze” the material facts as they existed on January 1, 2008, it does not address what

rules may apply to construing those material facts—i.e., to grant or not grant the exemption—or,

in fact, what law may exist to levy such a tax. See Cadena v. State, 185 S.W. 367, 368 (Tex. Civ.

App.—San Antonio 1916, writ ref’d) (holding that taxes on property owned in January may be levied

at any time during the calendar year without violating the prohibition against retroactive laws).

Finally, Mont Belvieu argues that TCEQ’s application of the ECL in lieu of the PDL

was unconstitutionally retroactive. See Tex. Const. art. I, § 16 (“No bill of attainder, ex post facto

law, retroactive law, or any law impairing the obligation of contracts, shall be made.”). We disagree.

Under article I, section 16, retroactive application of a law is unconstitutional only when it destroys

or impairs vested rights. See Subaru of Am., Inc. v. David McDavid Nissan, Inc., 84 S.W.3d

212, 219 (Tex. 2002); Corpus Christi People’s Baptist Church, Inc. v. Nueces Cnty. Appraisal Dist.,

904 S.W.2d 621, 626 (Tex. 1995); General Dynamics Corp. v. Sharp, 919 S.W.2d 861, 866–67

(Tex. App.—Austin 1996, writ denied); see also Grocers Supply Co. v. Sharp, 978 S.W.2d 638,

643 (Tex. App.—Austin 1998, pet. denied) (applying same principle to administrative rules). But

taxpayers do not have a vested interest or right in the method or procedure used to determine the

applicability of a tax exemption. See Ex parte Abell, 613 S.W.2d 255, 261 (Tex. 1981) (noting that

anticipated continuance of present law is not a vested right); City of Dallas v. Trammel, 101 S.W.2d

1009, 1012 (Tex. 1937) (holding that there is no vested right to that which constitutes a mere

expectancy based upon anticipated continuance of existing law); General Dynamics, 919 S.W.2d

at 867 (holding that “no Texas taxpayer has a vested right in the continuation of a particular

29 measurement method for the franchise tax”); see also Ex parte Abell, 613 S.W.2d at 262 (“When

the authority granting the right has the power and discretion to take that right away, it cannot be said

to be a vested right.”). At best, Mont Belvieu had an expectation that its claim for the exemption

might succeed in light of prior TCEQ rules and decisions. Further, it is not clear that TCEQ’s rule

is retroactive. “A statute is retroactive only if it operates before its effective date.” “It is not

retroactive merely because it draws upon antecedent facts for its operation.” General Dynamics,

919 S.W.2d at 866.

In the event it could not avail itself of the PDL, Mont Belvieu has brought forward

two arguments to the effect that it was entitled to the pollution-control exemption even under the

ECL. The first is that the one-word change—i.e., from “brine storage ponds” to “brine disposal

ponds”—in the description of items included in the phrase “surface impoundments” is “substantively

irrelevant” because those terms are indistinguishable as they are used in the industry. Specifically,

Mont Belvieu observes that TCEQ’s use-determination rules require that undefined terms in the

rules be interpreted using “the meanings commonly ascribed to them in the fields of pollution control

or property taxation,” see 30 Tex. Admin. Code § 17.2 (2012) (Tex. Comm’n on Envtl. Quality,

Definitions), and urges that, in those fields, “storage” and “disposal” are used interchangeably when

referring to surface impoundments. They point principally to the Railroad Commission’s rules

governing brine recycling ponds, arguing that those rules show that there is no distinction between

“storage” and “disposal.” See 16 Tex. Admin. Code § 3.8(a)(2) (2012) (Railroad Comm’n, Water

Protection) (defining “brine pit” as a “[p]it used for storage of brine”), (a)(3) (defining “collecting

pit” as a “[p]it used for storage of saltwater prior to disposal”); but see id.§ 3.8(a)(13) (defining

“saltwater disposal pit” as “[p]it used for disposal of produced saltwater”). They also point to the

30 Texas Natural Resource Code’s definition of “saltwater disposal pit” as “a collecting pit on the

surface of the ground used to store or evaporate oil field brines . . . .” See Tex. Nat. Res. Code Ann.

§ 91.451 (West 2011) (emphasis added). However, especially in the context of the underlying

tax code provisions that we have previously construed, we cannot conclude that TCEQ’s

construction of its own rule to conclude that a brine storage pond used to recycle brine in a

production process is not a 100% tax-exempt “brine disposal pond” is plainly erroneous or

inconsistent with the text of the rule or the underlying statute. See Gulf States Utils. Co., 809 S.W.2d

at 207; Tennessee Gas Pipeline Co., 80 S.W.3d at 203. As such, we defer to TCEQ’s interpretation.

See Gulf States Utils. Co., 809 S.W.2d at 207.

Mont Belvieu’s second argument is that the phrase “surface impoundment” under

ECL category S-20 is broad enough to encompass Mont Belvieu’s brine ponds. But even if we

assume this is true, Mont Belvieu’s argument necessarily presumes that its brine storage ponds are

the kind of surface improvements that would be considered wholly (100%) pollution-control

property because of its procedural stance that it is entitled to a 100% positive use determination

rather than a partial determination—i.e., an all-or-nothing claim that the system is wholly pollution-

control property. Stated another way, even if Mont Belvieu’s brine-pond system qualifies as a

surface impoundment under the ECL, Mont Belvieu can only prevail here if that surface

impoundment is wholly pollution-control property that is not used for other purposes. See 33 Tex.

Reg. at 933 (“Simply because a piece of equipment is on the [ECL] . . . does not mean it will receive

a positive use determination.”); 32 Tex. Reg. at 6979 (same). But Mont Belvieu acknowledged that

its brine-pond system was production property and was not exclusively pollution-control property.

Thus, for the reasons stated, we cannot say that TCEQ’s interpretation of its own rules—i.e., that

31 a brine-pond system that is not used wholly (100%) for pollution control is not entitled to a

100% positive use determination—is plainly erroneous or inconsistent with the text of the rule or

the underlying statute, and we must defer to its interpretation. See Gulf States Utils. Co., 809 S.W.2d

at 207; Tennessee Gas Pipeline Co., 80 S.W.3d at 203.

Our resolution of the foregoing summary-judgment grounds establishes that, as a

matter of law, Mont Belvieu’s North Storage brine-pond system did not qualify as 100% pollution-

control property under the applicable TCEQ rules. Although Mont Belvieu also brings forward

complaints relating to TCEQ’s rule requiring applicants to prove environmental benefit at the site

of installation, we need not address this alternative rule-based justification for the agency’s decision.

See Tex. R. App. P. 47.1. The district court properly granted summary judgment for TCEQ. We

overrule Mont Belvieu’s first issue.

Discovery

In its second issue, Mont Belvieu contends that the district court abused its

discretion in denying it discovery concerning the legal and factual bases for TCEQ’s negative use

determination. See In re CSX Corp., 124 S.W.3d 149, 152 (Tex. 2003) (“Generally, the scope of

discovery is within the trial court’s discretion.”). This complaint is without merit. As noted above,

Mont Belvieu’s claims remaining after its nonsuit were its claim for judicial review and its claim

for declaratory judgment that TCEQ’s determination and its rules are inconsistent with tax code

section 11.31. The central issues in both these claims, as set forth in our analysis of Mont Belvieu’s

first issue, turned on questions of law—specifically construction of statutes and rules. There were

no disputed material facts bearing on those inquiries. Thus, discovery would not have aided in the

32 resolution of these claims and, accordingly, we cannot say that the trial court abused its discretion

in denying discovery regarding these claims. See id. at 151–53 (noting that discovery requests must

show a reasonable expectation of obtaining information that will aid in resolution of the dispute).

As to Mont Belvieu’s nonsuited claims, even if we were to assume that the trial court erred in

denying discovery regarding these claims, any such error was rendered harmless by Mont Belvieu’s

subsequent nonsuit of those claims. Accordingly, we overrule Mont Belvieu’s second issue.

CONCLUSION

Having overruled both of Mont Belvieu’s issues on appeal, we affirm the

district court’s judgment.

__________________________________________

Bob Pemberton, Justice

Before Chief Justice Jones, Justices Pemberton and Rose

Affirmed

Filed: August 3, 2012