Municipal Corner

The common-law reserved powers doctrine could limit whether a home-rule municipality may enter a contract that would prohibit decertification of a special utility district’s certificate of convenience and necessity in the future. Tex. Att’y Gen. Op. KP-0340 (2020).

The Honorable Brian Birdwell, Chair of the Senate Committee on Natural Resources and Economic Development (“Chairman”), requested an opinion by the Attorney General (“AG”) to determine whether a home-rule municipality may enter into a contract with a special utility district that prohibits the city from petitioning for decertification of all or part of the special utility district’s certificate of convenience and necessity (“CCN”) in the future. The AG opined that such questions must be determined on a case-by-case basis, failing to conclude as a matter of law that a city could in all instances agree by contract not to petition to decertify from a special utility district’s CCN.

The AG presumed the Chairman was referencing CCNs for water and sewer service as governed by subchapter G in chapter 13 of the Water Code. Most notably, the AG cited section 13.248 of the Water Code, which provides that agreements designating areas to be served, when approved by the Public Utility Commission, are valid and enforceable and incorporated into the respective CCNs. The Chairman’s request specifically referenced Sections 51.072 and 51.078 of the Texas Local Government Code, along with article XI, section 5 of the Texas Constitution, known as the “home-rule amendment.” The AG noted section 51.072(a) gives a home-rule municipality “full power of local self-government,” which the Texas Supreme Court has found means that home-rule municipalities “look to the Legislature not for grants of authority, but only for limitations on their authority.” BCCA Appeal Grp., Inc. v. City of Houston, 496 S.W.3d 1, 7 (Tex. 2016); TEX. LOC. GOV’T CODE § 51.072(a). The AG further noted the 2018 Texas Supreme Court decision in City of Laredo v. Laredo Merchs. Ass’n, providing that any limitations the Legislature imposes on local authority “must appear with unmistakable clarity.” 550 S.W.3d 586, 593 (Tex. 2018).

The Texas Rural Water Association submitted briefing to the AG arguing that chapter 13 of the Water Code reflects no clear and unmistakable legislative intent to prohibit a home-rule municipality from entering into an agreement that would give away its ability to decertify territory from a neighboring utility’s CCN. Appearing to agree at least in part, the AG made specific reference to the fact that no provision in the Water Code, either in chapter 13 or otherwise, addresses whether a municipality may waive its right to petition for decertification. However, the AG went on to note that a home-rule municipality nevertheless remains a political subdivision of the State, which pursuant to the reserved powers doctrine and the Texas Supreme Court’s decision in Clear Lake City Water Auth. v. Clear Lake Util. Co., may “not, by contract or otherwise, bind itself in such a way as to restrict its free exercise of governmental powers, nor [can] it abdicate its governmental functions, even for a reasonable time.” 549 S.W.2d 385, 391 (Tex. 1977).

The AG determined that the reserved powers doctrine may limit a city’s authority to waive decertification petitioning rights because water and sewer service constitute a municipal government function. Noting that it would depend on such factors as the purpose for seeking decertification and the posture of the city (e.g., as a competing utility or as a landowner), the AG explained that instances may exist where a city’s governmental power could not be exercised without the decertification process, thus making that process ineligible to be bargained away. Accordingly, the AG concluded that even if chapter 13 of the Water Code does not reflect a clear and unmistakable legislative intent to prohibit cities from entering into the type of contracts described, a city’s contracting authority may nevertheless be limited in this regard.
This opinion provides helpful guidance to municipalities regarding the extent of their contracting authority. While generally having full authority within its jurisdiction, a city may nevertheless not enter into a contract that seeks to limit the exercise of the city’s governmental powers.

“Municipal Corner” is prepared by Reid Barnes. Reid is an Associate in the Firm’s Energy and Utility Practice Group. If you would like additional information or have questions related to these or other matters, please contact Reid at 512.322.5811 or rbarnes@lglawfirm.com.