The ruling marks an important victory for rural telecommunications service providers who have argued the PUC acted beyond its authority by reducing payments from the Texas Universal Service Fund.


The Texas Public Utility Commission must properly disburse its Texas Universal Service Fund obligations — estimated at $200 million and growing — under a ruling by the state Third Court of Appeals.

Issued June 30, the ruling marks an important victory for rural telecommunications service providers that have argued the PUC acted beyond its authority in December 2020 by ordering contract amendments that reduced payments from the phone service subsidy program.

Under the TUSF, rural telecommunications companies receive payments that allow them to provide phone service in sparsely populated areas. The TUSF operates through a 3.3 percent telephone surcharge. However, that surcharge has failed to keep pace with TUSF obligations.

The Texas Telephone Association during a June 21 legislative hearing put the TUSF shortfall at $200 million and projected it to grow by another $100 million by January. Separately, the PUC executive director has said the TUSF fund deficit grows by $10 million to $11 million each month.


In response to the growing shortfall, PUC staff in 2020 issued a recommendation to increase the TUSF assessment rate and customer surcharge. However, the Commission, during a June 2020 meeting, declined to adopt the recommendation, and instead, during a December 2020 meeting, ordered a contract amendment changing the pay hierarchy whereby some providers received priority over others and that reduced payments overall.

The Texas Telephone Association, the Texas Statewide Telephone Cooperative, and other rural providers sued, alleging that the Commission’s actions caused a 70 percent reduction to the rural providers’ support payments and that the agency broke the Texas Administrative Procedure Act by adopting the new policy without following the proper rulemaking process. The PUC countered that the December 2020 contract amendment wasn’t a rule and that the companies failed to exhaust their administrative remedies.

The court has now sided with the plaintiffs, declaring that the Commissioners were acting ultra vires — that is, outside their lawful authority — by not fully funding the TUSF, by implementing a hierarchy of funding among TUSF programs and by failing to fully pay all disbursements required by the Public Utility Regulatory Act and the Commission’s existing TUSF orders.

Pursuant to the Texas Administrative Procedures Act — particularly Tex. Gov’t Code § 2001.038(a) — the Court declared as void the Commission’s June 2020 decision to not fully fund TUSF and to initiate the creation of a hierarchy of funding among TUSF programs. It also declared the December 2020 contract amendment as void.

“When the statute is read as a whole, the legislature’s intent, as further embodied in the Commission’s rules, is clear: while the commission has discretion to decide how to fund TUSF, it lacks the discretion to underfund TUSF and to fail to make payments owed to the rural providers under its own orders,” Justice Gisela D. Triana wrote in the opinion.

The case is Tex. Tel. Ass’n v. Pub. Util. Comm’n of Tex. , Tex. App., 3d Dist., No. 03-21-00294-CV, 6/30/22.

— R.A. Dyer