                              ATTORNEYGENERAL                    OF   TEXAS
                                          GREG        ABBOTT




                                              May 12,2006



The Honorable John Carona                            Opinion No. GA-0429
Chair, Committee on Transportation
   and Homeland Security                             Re: Whether Wells Independent School District is
Texas State Senate                                   subject to the policy of the City of Alto’s natural
Post Office Box 12068                                gas company regarding payment deadlines and
Austin, Texas 7871 l-2068                            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



        ‘SeeLetter from HonorableTodd Staples,Chair, Committeeon TransportationandHomeland 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)[hereinafterRequest 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 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).



         2Yourpredecessorsuggestedthatthe Company’spaymentpolicy is consistentwith the policy articulatedin title
30, section2.91.87 of the Texas AdministrativeCode, althoughhe acknowledgedthat these rules do not applyto natural
gas companies. See RequestLetter,supranote 1,at 1. Section29 1.X7appearsto apply only to entitiesproviding 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
EnvironmentalQuality,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 AdministrativeCode.
See TEX.UTIL.CODEANN.5 101.001(Vernon 1998); 16 TEX.ADMIN.                  CODEch. 7 (West 2005) (R.R. Comm’n ofTex.,
Gas Services Division); see also TEX.UTIL.CODEANN 5 101.003(7)(Vernon Supp. 2005) (defming “gas utility”
generallyto include an entity that distributes“combustiblehydrocarbonnatural gas or synthetic natural gas for sale or
resale”). The Gas Utility RegulatoryAct generallydoes not apply to municipal corporations,however. SeeTEX.UTIL.
CODEANN.5 101.003(4), (7), (10) (Vernon Supp. 2005) (defining the term “gas utility” to exclude municipal
corporations except as expresslyprovided 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-gascompanies engaged in such transportationor sale[.]”
15 USC. 5 717(b) (2000); see id. 5 717a(+(7) (defining the terms “natural gas,” “natural-gas comp+ny,”and
“interstatecommerce”). Natural-gascompaniessubject 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 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 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.Zdat 609 (stating that it is a question of fact whether, in a particular case, a
contract shouldbe inferred);see also Tex. Att’yGen. Op. No. GA-0156(2004) at 10 (statingthat fact questionscannot
be answeredin the opinion process), but we rely on the weight ofthe circumstantialevidence 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
