### 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 CODEANN. § 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 11th 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

‘SeeLetterfromHonorable Todd Staples,Chair,CommitteeonTransportationandHomeland Security, Texas State Senate, to HonorableGreg 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

RequestLetter].The Honorable John Carona - Page 2 (GA-0429)

over the local policy. See 

### id. at 2; see also TEX. GOV’ T CODEANN. 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 1st 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 paymentpolicyisconsistentwiththepolicy articulated intitle 30, section2.9

1.87ofthe TexasAdministrative Code, although

he acknowledged

thattheserules do not applyto natural gas companies.See Request Letter,supranote 1,at 1. Section29 1.X7 appears to applyonlyto entities

providingpotable 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 EnvironmentalQuality,Definitions of Terms) (defmingthe term “utility”).~
In general,natural gas utility service is subjectto the state’ sGasUtility RegulatoryAct, title 3, subtitleA of the UtilitiesCode, andrules adoptedunderthat chapter,found in title 16,chapter7 ofthe Texas AdministrativeCode. See TEX. UTIL. CODE ANN. 5 101.001 (Vernon 1998); 16TEX.

ADMIN. CODE ch. 7 (West2005)(R.R.Comm’nofTex., Gas Services Division); see also TEX. UTIL. CODE ANN 5 101.003(7)(Vernon Supp. 2005) (defming “gas utility” generallyto include an entitythat distributes“combustible hydrocarbonnatural gas or syntheticnatural gas for sale or resale”). The GasUtilityRegulatoryActgenerallydoes not applyto municipalcorporations, 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 expresslyprovided otherwise). Your predecessor indicatedthat the Company is city-owed; consequently,it is generallynot subjectto the GasUtilityRegulatoryAct.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 CODEANN. 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. 52251.025(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 “thetransportationofnatural gas in interstatecommerce, the sale in interstatecanmerce of naturalgas for resaleforultimatepublic consumption. , andto natural-gas companiesengagedin suchtransportationor sale[.]” 15 USC. 5 717(b) (2000); see id. 5 717a(+(7) (defining the terms “natural gas,” “natural-gascomp+ny,”and “interstatecommerce”). Natural-gas companiessubjectto title 15,chapter 15Bofthe United StatesCodemust submit proposed rates to the Federal Trade Commissionfor approval. See id. 5 717c(c).The Honorable John Carona - Page 4 (GA-0429)

GOV’ T CODEANN. 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 circumstantialevidence,” is largely a question of fact that typically would not be answeredin 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.Zdat 609 (statingthat it is a question of fact whether,in a particularcase, a contractshouldbe inferred);see also Tex. Att’yGen.Op.No. GA-0156(2004)at 10(statingthat factquestionscannot be answeredin the opinion process), but we rely on the weightofthe 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. CODEANN. 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