Brazos River Authority v. Brazos Electric Power Cooperative, Inc.

• Court: Court of Appeals of Texas
• Decided: June 23, 2010
• Docket: 10-09-00403-CV
• Status: Published

Opinion

IN THE TENTH COURT OF APPEALS

No. 10-09-00403-CV

BRAZOS RIVER AUTHORITY, Appellant v.

BRAZOS ELECTRIC POWER COOPERATIVE, INC., Appellee

From the 414th District Court McLennan County, Texas Trial Court No. 2009-2364-5

MEMORANDUM OPINION

The Morris Sheppard Dam on Possum Kingdom Lake has a hydroelectric

generation facility (the Facility) that is owned and operated by the Brazos River

Authority (the Authority), a political subdivision of Texas and a local governmental

entity. See TEX. LOC. GOV’T CODE ANN. § 271.151(3) (Vernon 2005). Since 1941, the

Authority has sold all of the hydroelectric power produced by the Facility’s two

generators to Brazos Electric Power Cooperative, Inc. (Brazos Electric) or its

predecessor. According to Brazos Electric’s live pleading, in 1991, the Authority and Brazos

Electric entered into a new Power Supply Contract (the PSC) that provided for the sale

of all hydroelectric power produced at the Facility to Brazos Electric at a favorable rate

and based on the Facility’s capacity and hours of operation. The PSC is in effect until

2019. Until the Facility ceased producing hydroelectric power in 2007 because of an

alleged need of repairs, Brazos Electric was buying power from the Authority at the

favorable 1991 rate.

In 2003, the Authority claimed that the Facility’s maintenance costs were

excessive and too large in comparison to the anticipated revenue from the PSC and

engaged Brazos Electric in negotiations over an amendment to the PSC to repair the

Facility and to adjust the rate to pay for the repairs. Brazos Electric alleges that the

negotiations changed when the Authority said that it no longer desired to operate the

Facility and instead proposed that Brazos Electric enter into a new agreement for Brazos

Electric to operate and manage the Facility for thirty years.

In 2007, the Authority and Brazos Electric entered into two related agreements as

a result of the negotiations. The Facilities Use Agreement (the FUA) was a long-term

agreement under which Brazos Electric would possess, operate, and maintain the

Facility in exchange for the right to receive the power produced by the Facility. The

FUA would commence upon its approvals by the Federal Energy Regulatory

Commission (as to the Authority) and the Rural Utilities Service (as to Brazos Electric).

When the approvals were obtained and the FUA became effective, the PSC would be

superseded. The other agreement was the Facility Cost Agreement (the FCA). It was a

“bridge” or interim agreement between the parties in which Brazos Electric agreed to be

responsible for the Facility’s cost until the regulatory approvals were obtained and the

FUA commenced. Because the FUA never commenced (in part because the approvals

were not obtained), the FCA expired by its own terms on April 30, 2009. The

underlying lawsuit then commenced.

Brazos Electric sued the Authority for breach of contract and for a declaratory

judgment that the Authority breached the contracts and that Brazos Electric is

discharged from its contractual obligations. Brazos Electric seeks to recover damages

“in the many millions of dollars” for the lost energy during the remaining term of the

PSC and for the “cover” cost for replacement power that Brazos Electric has had to

purchase at a substantially higher cost. The Authority filed a plea to the jurisdiction,

asserting its governmental immunity from suit and that Brazos Electric had failed to

establish a legislative waiver of immunity. The trial court held an evidentiary hearing

on the plea to the jurisdiction, after which the trial court signed an order denying the

plea. This interlocutory appeal followed.

Whether the trial court had subject-matter jurisdiction is a question of law that

we review de novo. Tex. Natural Res. Conservation Comm’n v. IT-Davy, 74 S.W.3d 849,

855 (Tex. 2002); see also Houston Mun. Employees Pension Sys. v. Ferrell, 248 S.W.3d 151,

156 (Tex. 2007). In reviewing the trial court’s ruling on a plea to the jurisdiction, we

consider the facts alleged by the plaintiff and, to the extent it is relevant to the

jurisdictional issue, the evidence submitted by the parties. Ferrell, 248 S.W.3d at 156.

Brazos River Authority v. Brazos Electric Power Cooperative, Inc. Page 3 Governmental immunity from suit defeats a trial court’s subject-matter

jurisdiction; thus, it is properly asserted in a plea to the jurisdiction. See Tex. Dep’t of

Parks & Wildlife v. Miranda, 133 S.W.3d 217, 225-26 (Tex. 2004); see also Ben Bolt-Palito

Blanco Consol. ISD v. Tex. Political Subdivisions Prop./Cas. Joint Self-Ins. Fund, 212 S.W.3d

320, 323 (Tex. 2006). This immunity protects political subdivisions like the Authority

from lawsuits except when that immunity has been waived by the Legislature. Ben Bolt,

212 S.W.3d at 324.

Section 271.152 waives immunity from suit for breach-of-contract claims arising

from “a contract subject to [chapter 271, subchapter I]” of the Local Government Code.

TEX. LOC. GOV’T CODE ANN. § 271.152; see Ben Bolt, 212 S.W.3d at 327. A contract subject

to this subchapter is statutorily defined as “a written contract stating the essential terms

of the agreement for providing goods or services to the local governmental entity that is

properly executed on behalf of the local governmental entity.” TEX. LOC. GOV’T CODE

ANN. § 271.151(2). Brazos Electric contends that the section 271.152 waiver applies

because Brazos Electric adequately pleaded that it provides services to the Authority

under the PSC, the FCA, and the FUA or that the trial court properly denied the plea

because fact issues exist on whether it provides services under those contracts based on

the evidentiary record.

We recently addressed this statutory waiver and, after analyzing competing

strict and broad applications of the statute and distinguishing Ben Bolt, adopted the

Houston First court’s strict application. See Berkman v. City of Keene, --- S.W.3d ---, ---,

2009 WL 3646011, at *1-3 (Tex. App.—Waco Nov. 4, 2009, pet. denied) (op. on reh’g).

Brazos River Authority v. Brazos Electric Power Cooperative, Inc. Page 4 We thus will apply Berkman to this case.

Our first step in addressing the waiver’s application is to determine whether the

parties’ contracts (the PSC, FCA, and FUA) state “the essential terms of the agreement”

for the goods and services that Brazos Electric claims it provides to the Authority.

Learners Online, Inc. v. Dallas ISD, --- S.W.3d ---, ---, 2009 WL 2138974, at *6 (Tex. App.—

Dallas July 20, 2009, no pet.). We therefore consider the relevant jurisdictional evidence

before us—the contracts between the parties. Neither party contends that the contracts

at issue are ambiguous. Construction of an unambiguous contract is a question of law

for the court. MCI Telecomms. Corp. v. Tex. Utils. Elect. Co., 995 S.W.2d 647, 650 (Tex.

1999).

We first address the FUA. Brazos Electric pleads that because, under the FUA, it

will operate, maintain, and repair the Facility and supply the Facility with electricity,

the FUA provides the essential terms of an agreement for providing goods or services to

the Authority. The FUA is in essence a lease of the Facility—the FUA describes the

Facility as the “Leased Facility.” Brazos Electric’s lease of the Facility is not the

provision of goods or services to the Authority, and Brazos Electric does not attempt to

argue otherwise in this appeal. We thus hold that a claim for breach of the FUA does

not come within section 271.152’s waiver.

Brazos Electric contends that, under the PSC (and the FCA, which incorporates

the PSC), it provides electricity to the Authority’s Facility under the PSC’s “Station Use”

provision and that it also provides transmission, distribution, transformer, and

metering services to the Authority under the PSC in connection with the Authority’s

Brazos River Authority v. Brazos Electric Power Cooperative, Inc. Page 5 Station Use.

The PSC (section 2.19) defines “Station Use” as “Consumption of electricity

produced by the Project by facilities within the power house and by all ancillary BRA

facilities served from the Brazos Electric/BRA substation.”1 Section 10.6 of the PSC

provides that the Authority will apply a credit on its bills to Brazos Electric for the

power consumed as Station Use. Plainly, this credit is an accounting adjustment so that

the Authority does not bill Brazos Electric for power generated and consumed by the

Authority; rather, Brazos Electric pays the Authority for the net electricity delivered and

sold to it. Also, at the hearing, Brazos Electric’s representative acknowledged that the

Authority, if it chose to or needed to, could have access to the local retail electricity

provider (one of Brazos Electric’s members) if the Authority were not obtaining Station

Use electricity from Brazos Electric’s substation. Finally, the Authority’s bills that are in

the record show that the Station Use electricity amounts to only approximately $200 per

month, which is credited against the Authority’s monthly “firm capacity charge” to

Brazos Electric of $45,600 per month (apparently reduced to $22,800 as of August 2007).

At most, the PSC anticipates that the Authority will consume some of its own

hydroelectrically generated power as Station Use and that this power will be routed to

1 Article 8 of the PSC concerns Brazos Electric’s obligation to furnish, install, and maintain its lines, substation, and electrical facilities on its side of the point of delivery, and it also provides for a lease and easement to Brazos Electric for those lines and substation. The lease itself reserves to the Authority the right to access the substation land to install accessory electrical equipment on the leased premises to take and use power for Station Use. The testimony does show that Brazos Electric provided the lines, transformers, and meters from Brazos Electric’s substation to supply the power for Station Use, but nothing in the PSC contractually obligated Brazos Electric to do so.

Brazos River Authority v. Brazos Electric Power Cooperative, Inc. Page 6 the Facility through Brazos Electric’s substation on the Facility’s premises.2 The PSC

specifically provides that Brazos Electric will be credited for the Station Use power.

When the Facility was not generating hydroelectric power, which the record shows has

been a substantial amount of the time since 1991, Brazos Electric has been allowing the

Authority to use power from the delivery point (as the Authority describes it, “allowing

the Authority to use power that it had originally provided,” and for which the

Authority credits to Brazos Electric). No provision in the PSC contractually requires

Brazos Electric to provide the Facility with power when the Facility is not generating

power. Also, nothing in the PSC requires the Authority to obtain the power it needs for

its Facility from Brazos Electric, and the record shows that the Authority could obtain

retail electricity from the local retail electricity provider.

The PSC’s “central purpose” is indisputably the Authority’s sale of hydroelectric

power to Brazos Electric, not vice-versa. See East Houston Estate Apartments, L.L.C. v.

City of Houston, 294 S.W.3d 723, 736 (Tex. App.—Houston [1st Dist.] 2009, no pet.). The

goods or services for the authority’s Station Use3 are, therefore, at best indirect and

attenuated benefits to the Authority under the PSC that do not result in a section

271.152 waiver of governmental immunity.4 See Berkman, --- S.W.3d at ---, 2009 WL

2Brazos Electric also provides metering and transformers for Station Use power, but nothing in the PSC specifically and contractually obligates it to do so.

3 It is noteworthy that Brazos Electric’s claims have nothing to do with the alleged goods or services that it provides to the Authority.

4 In Berkman, we quoted approvingly from East Houston: If every contract that confers some attenuated benefit on a governmental entity constitutes a contract for a “service,” the limitation of contracts covered by section 271.152 to “contract for goods or services provided to the entity” loses all meaning.

Brazos River Authority v. Brazos Electric Power Cooperative, Inc. Page 7 3646011 at *3; East Houston, 294 S.W.3d at 736. We hold that Brazos Electric’s claims for

breach of the PSC and the FCA do not come within section 271.152’s waiver. The trial

court erred in denying the Authority’s plea to the jurisdiction. We sustain issue (a.) and

need not address the Authority’s other two issues.

We reverse the trial court’s order denying the Authority’s plea to the jurisdiction

and render judgment dismissing Brazos Electric’s action against the Authority for lack

of subject-matter jurisdiction. TEX. R. APP. P. 43.2(c).

REX D. DAVIS Justice

Before Chief Justice Gray, Justice Reyna, and Justice Davis Order reversed and case dismissed Opinion delivered and filed June 23, 2010 [CV06]

Nothing in the statute nor in its legislative history supports such an interpretation. Had the legislature intended to waive immunity from liability for every contract participated in by the State, it could have done so. We must interpret the limitation as having some meaning. Berkman, --- S.W.3d at ---, 2009 WL 3646011, at *3 (quoting East Houston, 294 S.W.3d at 736).

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