ATTORNEY GENERAL OF TEXAS 

GREG ABBOTT 

May 12,2006 

The Honorable John Carona 

Chair, Committee on Transportation 

and Homeland Security 

Texas State Senate 

Post Office Box 12068 

Austin, Texas 7871 l-2068 

Opinion No. GA-0429 

Re: Whether Wells Independent School District is 

subject to the policy of the City of Alto’s natural 

gas company regarding payment deadlines and 

penalty assessments or to the deadlines and late 

charge set forth in Government Code chapter 2251 

(RQ-0411 -GA) 

Dear Senator Carona: 

Your predecessor asked whether the Wells Independent School District (the “School 

District”) is subject to the policy of the City of Alto’s~ natural gas company regarding payment 

deadlines and penalty assessments or to the deadlines and late charge set out in Government Code 

chapter 2251.’ See TEX. GOV’T CODE ANN. § 2251.021 (Vernon Supp. 2005). 

Your predecessor stated that the City of Alto (the “City”) operates the Alto Natural Gas 

Company (the “Company’). See Request Letter, supra note 1, at 1. Under the Company’s payment 

policy, the Company assesses “a 10% late fee beginning the 16th of the month” and proceeds with 

termination “if payment and penalty are not received by the 26th of the month.” Id. In June 2001 

the School District, which purchases natural gas from the Company, “received notice of late 

penalties and intent to terminate” because the School District had not submitted payment by the 16th 

of the month. Id. The School District suggests that it cannot guarantee payment by the 16th of any 

particular month because the board of trustees must approve all bills before payment. See id. The 

school board’s regular monthly meeting date is prescribed by “[Ilong established. policies.” Id. 

“Typically,” once the board approves the payment, the School District mails payment “between the 

11 th and 17th of the month[,] and allowing for mail delivery” the Company should receive payment 

“by the 22nd of the month.” Id. at 1-2. 

Moreover, the School District believes that Government Code chapter 2251, which sets a 

different payment deadline and late charges for governmental entities generally, applies and prevails 

‘See Letter from Honorable Todd Staples, Chair, Committee on Transportation and Homeland Security, Texas 

State Senate, to Honorable Greg Abbott, Attorney General of Texas, at 3 (Nov. 3, 2005) (on file with the Opinion 

Committee, also available at http:iiwww.oag.state.tx.us) [hereinafter Request Letter]. 
The Honorable John Carona - Page 2 (GA-0429) 

over the local policy. See id. at 2; see also TEX. GOV’T CODE ANN. 5 225 1.02 l(a) (Vernon Supp. 

2005). The Company counters that it is “required to treat all customers the same,” and thus if the 

Company sets a payment due date and assesses a late charge after that date, “all [customers] are 

subject to it, or else” no one is subject to it. Request Letter, supru note 1, at 1. Your predecessor 

did not cite a legal basis for the Company’s claim? See id. at 1-3. 

Under Govemment Code section 225 1.021 (a)(3), a governmental entity’s payment on a 

contract executed on or after September 1, 1987 generally is overdue on the 3 1st day after the 

governmental entity receives the invoice: 

(a) Except as provided by Subsection (b), a payment by a 

governmental entity under a contract executed on or after September 

1, 1987, is overdue on the 3 1 st day after the later of: 

(1) the date the governmental entity receives the goods 

under the contract; 

(2) the date the performance of the service under the 

contract is completed; or 

(3) the date the governmental entity receives an invoice 

for the goods or service. 

(b) A payment under a contract executed on or after 

September 1,1993, owed by a political subdivision whose governing 

body meets only once a month or less frequently is overdue on the 

46th day after the later event described by Subsections (a)(l) through 

(3). 

2Yourpredecessor suggestedthatthe Company’s payment policy is consistent with the policy articulated in title 

30, section 2.9 1.87 of the Texas Administrative Code, although he acknowledged that these rules do not apply to natural 

gas companies. See Request Letter, supranote 1, at 1. Section 29 1 .X7 appears to apply only to entities providing potable 

water or sewage disposal services and not to a municipally owned natural gas company. See 30 TEX. ADMIN. CODE 

5 291.87(b) (2006) (Tex. Comm’n on Environmental Quality, Billing); see also id. 9 291.3(50) (Tex. Comm’n on 

Environmental Quality, Definitions of Terms) (defming the term “utility”).~ 

In general, natural gas utility service is subject to the state’s Gas Utility Regulatory Act, title 3, subtitle A of 

the Utilities Code, and rules adopted under that chapter, found in title 16, chapter 7 of the Texas Administrative Code. 

See TEX. UTIL. CODE ANN. 5 101.001 (Vernon 1998); 16 TEX. ADMIN. CODE ch. 7 (West 2005) (R.R. Comm’n ofTex., 

Gas Services Division); see also TEX. UTIL. CODE ANN 5 101.003(7) (Vernon Supp. 2005) (defming “gas utility” 

generally to include an entity that distributes “combustible hydrocarbon natural gas or synthetic natural gas for sale or 

resale”). The Gas Utility Regulatory Act generally does not apply to municipal corporations, however. See TEX. UTIL. 

CODE ANN. 5 101.003(4), (7), (10) (Vernon Supp. 2005) (defining the term “gas utility” to exclude municipal 

corporations except as expressly provided otherwise). Your predecessor indicated that the Company is city-owed; 

consequently, it is generally not subject to the Gas Utility Regulatory Act. 
The Honorable John Carona - Page 3 (GA-0429) 

(c) For a contract executed on or after July 1, 1986, and 

before September 1,1987, a payment by a governmental entity under 

that contract is overdue on the 46th day after the later event described 

by Subsections (a)(l) through (3). 

(d) For purposes of this section, the renewal, amendment, or 

extension of a contract executed on or before September 1, 1993, is 

considered to be the execution of a new contract. 

TEX. GOV’T CODE ANN. 4 2251.021 (Vernon Supp. 2005); see also id. § 2251.001(4) (defining 

“payment” to mean “money owed to a vendor”). See generally 1 TEX. ADMTN. CODEch. 114 (2006) 

(Tex. Building & Procurement Comm’n, Payment for Goods and Services) (regulating payment by 

state agencies, consistent with Government Code section 225 1.021). The term “governmental 

entity” is defined for purposes of section 225 1.021 as “a state agency or political subdivision of this 

state” and includes a public school district, TEX. GOV’T CODE ANN. 5 225 l.OOl(3) (Vernon Supp. 

2005) (defining “governmental entity”); see id. 5 2251.001(6) (defining “political subdivision” to 

include a school district). The statute specifically defines the term “service” to include gas utility 

service. See id. § 225 1.001(7). Section2251,025(a) directsthat anoverduepayment fromapolitical 

subdivision“begins to accrue interest onthe date thepaymentbecomes overdue.” Id. 5 2251.025(a). 

Section 225 1.025(b) sets the rate of interest that accrues on an overdue payment as “the rate in effect 

on September 1 of the fiscal year in which the payment becomes overdue,” and the political 

subdivision must pay the interest at the time it pays the principal. Id. 3 2251.025(b); see also id. 

5 225 1.027(b) (requiring a political subdivision to pay interest “at the time payment is made on the 

principal”). We assume that none of the statutory exceptions set forth in section 225 1.002 apply. 

See id. 5 225 1.002(a) (indicating that section 225 1.021 and other parts of subchapter B do not apply 

where there is a dispute; where federal law or a federal contract applies; or where the invoice was 

not mailed in strict accordance with the purchase order).3 

The Company’s rate policies must be consistent with state statutory requirements, including 

Government Code section 225 1.021. As a division of the City of Alto, we assume that the city 

council adopts the Company’s rates and policies by ordinance. CJ City of?K Tuwakoni v. Williams, 

742 S.W.2d 489,490,494-95 (Tex. App.-Dallas 1987, writ denied) (stating that the City of West 

Tawakoni, which adopted an ordinance increasing water and sewer rates for the city-owned water 

and wastewater utility, need not tile rates under the Public Utility Regulatory Act but must adopt its 

rate-setting ordinances in compliance with the Open Meetings Act). The City of Alto, a type B 

general-law municipality, may adopt an ordinance “not inconsistent with state law.” TEX. LOC. 

‘We further assume that the Company is not subject to title 15, chapter 15B of the United States Code, 

regulating “the transportation of natural gas in interstate commerce, the sale in interstate canmerce of natural gas 

for resale for ultimate public consumption. , and to natural-gas companies engaged in such transportation or sale[.]” 

15 USC. 5 717(b) (2000); see id. 5 717a(+(7) (defining the terms “natural gas,” “natural-gas comp+ny,” and 

“interstate commerce”). Natural-gas companies subject to title 15, chapter 15B ofthe United States Code must submit 

proposed rates to the Federal Trade Commission for approval. See id. 5 717c(c). 
The Honorable John Carona - Page 4 (GA-0429) 

GOV’T CODE ANN. 5 5 1.032(a) (Vernon 1999). In addition, section 225 1.002(a) outlines only three 

specific circumstances in which section 2251.021 does not apply, and we believe that list 

is exclusive. See TEX. GOV’T CODE ANN. 5 2251.002(a) (Vernon Supp. 2005). Similarly, we 

determined in 2005 that a Texas county could not provide in a contract with a New Jersey vendor 

that New Jersey payment deadlines, rather than those set by section 225 1.021, apply to the Texas 

county. See Tex. Att’y Gen. Op. No. GA-0302 (2005) at 3-4. 

But the City contends that section 2251.021 does not apply because it does not have a 

contract with the School District, and your letter confirms that “no contract for service is on tile.” 

Request Letter, supra note 1, at 2. As your predecessor related, the School District states that it has 

requested a written contract but that none has been executed. See id. 

“A contract is a promise or set of promises with legal consequences.” Turner-Buss Assocs. 

v. Williamson, 932 S.W.2d 219, 222 (Tex. App.-Tyler 1996, writ denied). Two parties form a 

“binding and enforceable contract when, after” one party makes an offer, the second party 

unconditionally accepts it “and valuable consideration passes between the parties.” Id. A contract 

may be express or implied. See Huws & Garrett Gen. Contractors, Inc. v. Gorbett Bras. Welding 

Co., 480 S.W.2d 607,609 (Tex. 1972); Harrison Y. Williams Dental Group, P.C., 140 S.W.3d 912, 

9 16 (Tex. App.-Dallas 2004, no pet.). The parties to an express contract have expressly set out the 

contract’s terms, while an implied contract is inferred from the parties’ acts and conduct. See Haws 

& Garrett Gen. Contractors, Inc., 480 S.W.2d at 609; Harrison, 140 S.W.3d at 916. 

We assume that the Company and the School District do not have an express contract. But 

we also believe that their acts and conduct over the course of many months, most prominently the 

provision of utility services and the pattern of regular billing for that service by the Company and 

payment of those bills by the School District, have created an implied contract.” Thus assuming that 

a contract may be implied in these particular circumstances, the deadlines that Government Code 

section 2251.021 specially sets for payment by a governmental body govern the School District’s 

payment to the Company. 

To specifically answer your first question, whether the School District must comply with the 

Company’s deadlines and late charge policy, we assume that a contract may be implied and conclude 

that the School District need not comply with the Company’s policies in this regard. See Request 

Letter, supra note 1, at 3. Rather, the School District is subject to the payment deadlines set in 

GovermnentCodesection2251.021. SeeT~x. GOV’TCODEANN. 5 2251.021 (Vernon Supp. 2005). 

Payment is considered to be mailed “on the date the payment is postmarked.” Id. § 2251.024 

(Vernon 2000). Late charges are calculated under section 2251.025, Government Code. See id. 

5 2251.025 (Vernon Supp. 2005). 

‘We acknowledge that the existence of an implied contract, “involving as it does an inference from 

circumstantial evidence,” is largely a question of fact that typically would not be answered in the opinion process, 

Double Diamond, Inc. Y. Hilco Eke. Coop., 127 S.W.3d 260, 267 (Tex. App.-Waco 2003, no pet.); see Haws & 

Garreti Gen. Con@mtors, Inc., 480 S.W.Zd at 609 (stating that it is a question of fact whether, in a particular case, a 

contract should be inferred); see also Tex. Att’y Gen. Op. No. GA-0156 (2004) at 10 (stating that fact questions cannot 

be answered in the opinion process), but we rely on the weight ofthe circumstantial evidence in this case. 
The Honorable John Carona - Page 5 (GA-0429) 

In response to your second question, whether a municipally owned utility like the Company 

may “allow for different penalty/assessment criteria for a governmental entity that would not be 

available to” other customers, we conclude.that it not only may but must in these circumstances. See 

Request Letter, supra note 1, at 3. The Company must allow the School District and other political 

subdivisions to pay in accordance with section 225 1.021 and to pay interest on overdue payments 

in accordance with section 2251.025. The different treatment provided by statute for a certain 

class of utility customers, such as political subdivisions, is not without precedent. Municipally 

owned utility companies similarly are required by statute to allow certain elderly customers to delay 

without penalty a bill’s due date to the 25th day after the bill is issued. See TEX. UTIL. CODE ANN. 

5 182.002(a) (Vernon 1998); see also id. § 182.001 (defining “elderly individual” and “utility”). 
The Honorable John Carona - Page 6 (GA-0429) 

SUMMARY 

Section 225 1.02 1 of the Government Code, rather than the 

payment deadlines set by the municipally owned Alto Natural %as 

Company, governs the Wells Independent School District’s payment 

of a bill owed to the municipally owned natural gas company. 

Similarly, section 2251.025 governs the calculation and payment of 

interest on an overdue payment owed by the School District to the 

municipally owned natural gas company. 

BARRY R. MCBEE 

First Assistant Attorney General 

ELLEN L. WITT 

Deputy Attorney General for Legal Counsel 

NANCY S. FULLER 

Chair, Opinion Committee 

Kymberly K. Oltrogge 

Assistant Attorney General, Opinion Committee