

                                                             11th
Court of Appeals
                                                                  Eastland,
Texas
                                                                        Opinion
 
City of Ranger
Appellant
Vs.                   No. 11-01-00091-CV  -- 
Appeal from Eastland County
Morton Valley Water
Supply Corporation and Staff Water Supply Corporation
Appellees
 
The issues in this
case involve contracts for the supply of water from a municipality to nonprofit
rural water supply corporations.  In
separate wholesale water supply contracts, the City of Ranger agreed to sell
limited quantities of its excess water to both Morton Valley Water Supply
Corporation and Staff Water Supply Corporation.[1]  After the City increased the price of the
water, Morton Valley and Staff brought a declaratory judgment action requesting
the district court to declare that the contracts were valid and enforceable and
that the City had breached the contracts. 
The trial court found the rate provisions in the contracts to be valid
and enforceable, construed the contracts to include charges for the City=s debt service obligation as a cost of water, and
found that the City had breached the contract. 
All parties have appealed.  We
affirm. 
We note that both
Morton Valley and Staff have also filed an appeal with the Texas Natural
Resource Conservation Commission (TNRCC) to challenge the wholesale water rates
charged by the City.  TEX. WATER CODE
ANN. ' 13.043 (Vernon 2000).  In a joint pretrial order, the parties stipulated that the
Commission would review the rates established by the declaratory judgment
relief.  We feel obligated to point out
that this court shall not address issues reserved for the TNRCC, such as the
reasonableness of the rates being charged by the City.  The only issues being resolved by this
appeal are those relating to the validity and the construction of the
contracts.  




The City asserts in
its sole issue on appeal that the trial court erred in determining that the
rate provisions in the contracts are valid and enforceable and that they cannot
be modified by the City pursuant to its governmental rate regulation
authority.  Appellees assert two issues
on appeal, arguing that the trial court erred in construing the terms of the
contract with Morton Valley and the contract with Staff to include the City=s debt service obligation.  
The underlying
facts in this case are undisputed, and the case was tried on stipulated facts
filed in a joint pretrial order.  The
City, a municipal corporation and home-rule city, entered into a wholesale
water supply contract with Morton Valley in 1967.  That contract provides that the City will supply and Morton
Valley will purchase water at a rate of cost plus ten percent.  Specifically, the contract provides as
follows:  
The consideration to be paid by [Morton Valley] to the
City shall be City=s cost plus Ten (10%) per cent.  The term ACity=s cost@ as used herein
shall mean and include the following as determined by the City=s independent auditor after the close of each fiscal
year:  (1) Cost of water furnished to
City by Eastland County Water Supply District being the sum of $3743.00 monthly
plus .074 per one thousand gallons.  (2) The amount of the Eastland County Water Supply District taxes
collected within the City of Ranger....The cost shall be computed by City each
year within 90 days after the close of the preceding fiscal year. 
 
                                                          *     *    
*
 
CONSTRUCTION.  It is the intention of the parties that the
City of Ranger shall earn a clear net profit of ten per cent of its actual cost
computed in accordance with paragraph 5(b) above on all water delivered to
[Morton Valley] under the terms of this agreement, and any person or court
shall be guided by this intention in the construction hereof.  
In 1993, the City
entered into a similar contract with Staff. 
The Staff contract provides that Ranger will supply and Staff will
purchase water under the following terms: 

Effective January
1, 1992, Ranger and Staff agree that the price of water to be purchased by
Staff shall be seventy eight (.78) cents per one thousand gallons of water
delivered to Ranger=s Lake Leon master water meter located near the
Eastland County Water Supply District=s
treatment plant and ninety three (.93) cents per one thousand gallons of water
delivered to Staff=s LaCasa master water meter located on Tiffin
Road.  It is understood and agreed that
this price shall remain in effect through...the effective date of any water
price increase from the Eastland County Water Supply District to Ranger.  Thereafter, the price by and between Ranger
and Staff for water sold hereunder shall be determined as follows:
 
(a) The price for
each one thousand (1,000) gallons of water delivered to Staff=s Lake Leon master meter shall be 25% over the actual
price per thousand (1,000) gallons of water charged by Eastland County Water
Supply District to Ranger. 




(b)
The price for each one thousand (1,000) gallons of water delivered to Staff=s LaCasa master meter shall be 50% over the actual
price per one thousand (1,000) gallons of water charged by Eastland County
Water Supply District to Ranger.
The Staff contract further
provides that, in the event a price adjustment is required, the City is to
provide documentation and calculations regarding its Aactual cost of water@ from the Eastland County Water Supply District.  Both Staff and Morton Valley have an
obligation to pay for water actually taken, but neither has an obligation to
take any water under their contract.  
The City receives
its water supply from the Eastland County Water Supply District.  Pursuant to contracts dated 1952 and 1992,
the monthly charge for water sold to the City consists of an operating charge
and a debt service charge.  Both charges
are based upon the amount of water supplied to the City, but the debt service
obligation is effective even if the City receives no water.  Pursuant to their contracts with the
Eastland County Water Supply District, the City of Ranger and the City of
Eastland agreed to pay their proportionate share of the debt service obligation
for water revenue bonds issued by the District to finance the cost of
improvements to the District=s water
system.  Neither Staff nor Morton Valley
participated in the City=s contract with the District.  
The parties in this
case stipulated that the amount of $3,743, which was shown in the Morton Valley
contract as a Acost of water@
furnished to the City, was a fixed charge representing the City=s payment to the Eastland County Water Supply District
for Adebt service.@  The parties also stipulated that the initial
rates of $.78 and $.93 per 1,000 gallons as set out in the Staff contract
represented the City=s actual cost of water per 1,000 gallons plus the
appropriate percentage increases over the actual cost.  The actual cost of water was calculated by
adding the monthly operating charge and the monthly debt service charge.  At some point in time and for an unknown
reason, the City stopped including charges for the debt service in its bills to
Morton Valley and Staff and, therefore, eventually began losing money by
supplying water to Morton Valley and Staff. 
Subsequently, the City adopted a resolution to recoup more than the
contractual rate, and this suit was filed. 




We hold that the
trial court did not err in construing the terms of the contracts.  Neither party contended that the terms of
the contracts were ambiguous.  Courts
must interpret the language of an unambiguous contract as a matter of law.  See DeWitt County Electric Cooperative, Inc.
v. Parks, 1 S.W.3d 96, 100 (Tex.1999); Columbia Gas Transmission Corporation v.
New Ulm Gas, Ltd., 940 S.W.2d 587, 589 (Tex.1996).  The rates initially provided for and agreed to in the contracts
included a charge for the City=s debt service
obligation as part of its cost of water. 
It is clear from the language in the contracts that the intent of the
parties to the contracts was to include the debt service charge when
determining the City=s cost of the water. 
The trial court did not err in interpreting the terms of the contract to
include, as a matter of law, the debt service charge in the City=s cost of water. 
Furthermore, we
hold that the trial court properly ruled that the contracts with Morton Valley
and Staff are valid and enforceable. 
These contracts do not interfere with a governmental or legislative
power to regulate water rates.  The City
correctly points out that a home-rule municipality has the power to regulate
the rates that it charges for water; however, this power applies to the
regulation of rates within the city, not to the rates charged to another
supplier on a wholesale basis outside the boundaries of the municipality.  TEX. WATER CODE ANN. '' 13.042(a), 13.082, & 13.083 (Vernon 2000).  To provide the wholesale supply of water to
a nonresident retail supplier is to provide a proprietary function.  City of Big Spring v. Board of Control, 404
S.W.2d 810, 812 (Tex.1966)(construing former TEX.REV.CIV.STAT. art. 1108
(1937), which is now TEX. LOC. GOV=T
CODE ANN. ' 402.001 (Vernon 1999).  The City=s contracts with Staff and Morton Valley were
structured to allow the City to recompute and alter the amount charged each
fiscal year so that the City continued to make a profit.  The fluctuation in the rates to be charged
under the contracts depended on the cost of water to the City.  The contracts do not bind the City=s governing body to a specific rate, are not ultra
vires, and are lawful.  See TEX. GOV=T CODE ANN. '
791.026 (Vernon Supp. 2002); TEX. LOC. GOV=T
CODE ANN. ' 402.001(c) (Vernon 1999); City of Big Spring v. Board
of Control, supra at 813; see also TEX. WATER CODE ANN. ' 67.010(a) (Vernon Supp. 2002).  All of the issues on appeal are overruled. 
The judgment of the
trial court is affirmed
 
W.G. ARNOT,
III
CHIEF JUSTICE
June 20, 2002
Publish.  See TEX.R.APP.P.
47.3(b).
Panel consists of: 
Arnot, C.J., and 
McCall, J., and Dickenson, S.J.[2] 




     [1]Both Morton Valley and Staff were organized pursuant to
TEX. WATER CODE ANN. ' 67.002 (Vernon Supp. 2002). 


     [2]Bob Dickenson, Retired Justice, Court of Appeals, 11th
District of Texas at Eastland sitting by assignment. 


