Can a Texas water utility agency make a developer limit impervious cover to get water service?

Plain-English summary

The City of Bee Cave, Hays County, and a municipal utility district jointly created the West Travis County Public Utility Agency to run water and wastewater service in northern Hays and western Travis counties. The agency's board adopted a policy that, for certain new customers, made hooking up to water service conditional on agreeing to limit development to 20 percent impervious cover. (Impervious cover is the share of a lot covered by hard, man-made surfaces that keep rainwater from soaking into the ground.) A House committee chair asked the AG whether requiring that limit, as a price of getting water, goes beyond the agency's statutory authority.

The AG answered the authority question at a general level and then stopped short of the rest. A public utility agency under Local Government Code Chapter 572 is its own political subdivision with no inherent power; it has only the powers the Legislature gave it, plus what is reasonably necessary to carry those out. Chapter 572 lets such an agency contract with private entities for water service "under terms the agency's board of directors considers appropriate," and gives it (other than taxing power) the powers a municipal-owned utility has, including authority to regulate its system to protect its interests and to set terms for outside connections it considers in its best interest. So the agency does have broad discretion over the contract terms on which it extends discretionary service to customers outside its certificated area.

The limit on that discretion is that the agency "may not engage in any utility business other than" water and wastewater work. Whether impervious-cover requirements actually fall within that water mission was disputed. The agency said the limits are capacity-planning tools; the request letter argued impervious cover has nothing to do with conserving or distributing water. The AG said that if the limits in fact further the agency's water conservation, storage, treatment, or distribution, a court would likely find them within the agency's discretion, with factors like the source of the water and whether the development sits in an aquifer recharge zone mattering. But resolving that turns on evidence, and the agency's contract with its creating entities may add obligations the AG does not interpret. Because the office does not decide fact questions or construe contracts, and no court had ruled, the AG could not say whether Chapter 572 lets the agency impose the impervious-cover condition.

Currency note

This opinion was issued in 2018. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion meant for those who asked

The requesting committee chair (as the opinion described it): The opinion confirmed the general contracting authority of a Chapter 572 public utility agency but declined the specific question, explaining that whether the West Travis County agency may impose impervious-cover limits raises fact questions and contract-interpretation issues beyond an AG opinion.

The West Travis County Public Utility Agency (as the opinion described it): The opinion recognized the agency's discretion to set contract terms for discretionary service to outside customers and its power to regulate its system to protect its interests, but tied the validity of the impervious-cover condition to whether it actually furthers the agency's water mission, a factual matter the AG did not resolve.

Developers and new customers outside the agency's certificated area (as the opinion described them): The opinion treated service to these customers as discretionary, governed by contract terms the agency's board considers appropriate, while leaving open whether a specific impervious-cover condition is lawful.

Common questions

Can a Texas public utility agency set conditions on water service to a developer?
Yes in general. The AG concluded a Chapter 572 agency may contract with private entities for water service on terms its board considers appropriate, as long as the terms stay within the agency's water and wastewater authority.

So can the West Travis County agency require a 20 percent impervious-cover cap?
The AG did not decide. Whether that requirement falls within the agency's water mission depends on disputed facts and on reading the agency's contracts, which are outside the scope of an AG opinion.

What would make an impervious-cover limit lawful?
The opinion said that if the limit in fact furthers the agency's conservation, storage, treatment, or distribution of water, a court would likely find it within the agency's discretion. Whether it does is an evidence-based question.

Does the agency owe the same duties to all customers?
No. The opinion distinguished customers inside the agency's certificate of convenience and necessity, who are owed duties including adequate water, from those seeking discretionary service outside the certificate, which is the group the question concerned.

Why won't the AG just answer the question?
Because, the opinion explained, the office does not resolve questions of fact in the opinion process and does not construe contracts, and no Texas court had yet addressed the issue.

Background and statutory framework

Local Government Code Chapter 572 lets certain public entities jointly create a public utility agency to plan, finance, construct, own, operate, or maintain water and wastewater facilities (Tex. Loc. Gov't Code § 572.051(3)). Such an agency is a separate political subdivision (§ 572.052(c)) with no inherent authority; it has only powers conferred by the Legislature and those reasonably necessary to carry them out (Tex. Coast Utils. Coal. v. R.R. Comm'n of Tex.). It does not inherit its creators' authority and "may not engage in any utility business other than" specified water and wastewater functions (§ 572.058(a)). It may adopt rules and perform any act necessary to exercise its powers (§ 572.058(b)(1), (4)), and, except for taxation, has the powers a municipal-owned utility has (§ 572.052(d)).

Governing municipal-owned utilities, Chapter 552 lets a system regulate itself to protect the municipality's interests (§ 552.001(b)) and contract with persons outside its boundaries to connect "on terms the municipality considers to be in its best interest" (§ 552.001(c)). Chapter 572 separately lets the agency contract with private entities for water services "under terms the agency's board of directors considers appropriate" (§ 572.060(2)). So the board has discretion over contract conditions for discretionary outside service (§§ 552.001(c), 572.052(d), 572.060(2)), bounded by the water-and-wastewater limit of § 572.058(a).

Impervious-cover requirements generally cap the share of a lot covered by improvements that impede water infiltration (El Paso Apartment Ass'n v. City of El Paso). The agency described its limits as capacity-planning tools; the requester argued they bear no relation to water conservation or distribution. The AG said that to the extent the limits in fact further the agency's water functions, a court would likely find them within its discretion, with a nexus shown by factors like the water source and whether developments sit in an aquifer recharge zone, but that this is an evidence-based inquiry (Quick v. City of Austin). Because the office does not resolve fact questions (Tex. Att'y Gen. Op. No. GA-0751 (2009)) or construe contracts (Tex. Att'y Gen. Op. No. GA-0810 (2010)), and a certificate of convenience and necessity sets distinct duties inside its boundaries (Tex. Water Code § 13.242; 30 Tex. Admin. Code § 291.114(a)), the AG could not definitively answer. A municipal-owned utility has reasonable discretion over when to extend lines to a developer (Crownhill Homes, Inc. v. City of San Antonio; Tex. Att'y Gen. Op. No. JC-0368 (2001)).

Citations

Statutes and regulations:

• Tex. Loc. Gov't Code §§ 552.001(a), 552.001(b), 552.001(c), 572.051(3), 572.052(c), 572.052(d), 572.058(a), 572.058(b)(1), 572.058(b)(4), 572.060(2)
• Tex. Water Code § 13.242
• 30 Tex. Admin. Code § 291.114(a)
• Tex. Att'y Gen. Op. Nos. GA-0810 (2010), GA-0751 (2009), JC-0368 (2001)

Cases:

• Tex. Coast Utils. Coal. v. R.R. Comm'n of Tex., 423 S.W.3d 355 (Tex. 2014)
• El Paso Apartment Ass'n v. City of El Paso, 415 F. App'x 574 (5th Cir. 2011)
• Quick v. City of Austin, 7 S.W.3d 109 (Tex. 1998)
• Crownhill Homes, Inc. v. City of San Antonio, 433 S.W.2d 448 (Tex. Civ. App.—Corpus Christi 1968, writ ref'd n.r.e.)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0178
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2018/kp0178.pdf

Original opinion text

Best-effort transcription from the official PDF. Minor extraction artifacts were corrected; the linked PDF is authoritative.

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

February 13, 2018

The Honorable Lyle Larson Opinion No. KP-0178
Chair, Committee on Natural Resources
Texas House of Representatives Re: Authority of the West Travis County
Post Office Box 2910 Public Utility Agency to impose impervious
Austin, Texas 78768-2910 cover requirements (RQ-0171-KP)

Dear Representative Larson:

    Local Government Code, chapter 572, authorizes certain public entities to jointly create a "public utility agency" to own and operate facilities providing water and wastewater services for each participating public entity. TEX. LOC. GOV'T CODE § 572.051(3) (defining "public utility agency"); see generally id. §§ 572.001-.064. Pursuant to this authority, the City of Bee Cave, Hays County, and West Travis County Municipal Utility District No. 5 created the West Travis County Public Utility Agency ("Agency") and entered into a contract with the Agency to provide water and wastewater services to customers in northern Hays and western Travis counties. [1] Your question stems from a policy adopted by the Agency's board of directors that you say requires certain new customers to agree to limit development to 20% impervious cover "as a condition to obtaining water service." [2] Impervious cover requirements generally prescribe the percentage of land on which a developer may make man-made improvements that impede the infiltration of water into the soil. See, e.g., El Paso Apartment Ass'n v. City of El Paso, 415 F. App'x 574, 576 (5th Cir. 2011) (per curiam). The Agency tells us it began contractually imposing impervious cover requirements on certain new customers seeking water services as "service level and capacity planning tools," in response to concerns that the demand for water services from these customers would exceed its existing capacity. Agency Brief at 2-3. You question whether requiring new developments to limit impervious cover, as a condition to receiving water service, exceeds the Agency's statutory authority. See Request Letter at 1-7.

  We note at the outset that you state the impervious cover policy applies only to new customers seeking water service outside the service area boundaries of the Agency's certificate of convenience and necessity. [3] Id. at 2. While the Agency owes certain duties to customers living within the certificate's boundaries, including a duty to provide adequate water, we understand your question to pertain to those customers seeking discretionary water services from the Agency outside of its certificate. Additionally, we note that the Agency's contract with its creating entities may create legal obligations pertaining to your question; however, this office does not construe contracts in an attorney general opinion. See Tex. Att'y Gen. Op. No. GA-0810 (2010) at 1. Thus, we cannot fully advise you as to the Agency's legal obligations, particularly with respect to customers seeking water services within the City of Bee Cave, Hays County, and West Travis County Municipal Utility District No. 5. We can, however, provide general guidance regarding whether the Agency's enabling statute, chapter 572, vests it with the authority to require customers to comply with impervious cover limits as a contractual condition to receiving water service.

    We begin with an overview of a public utility agency's authority under chapter 572. Chapter 572 provides that different types of public entities may join to create a public utility agency to "plan, finance, construct, own, operate, or maintain" water and wastewater facilities. TEX. LOC. GOV'T CODE § 572.051(3). While created by other public entities, a public utility agency is itself "a separate agency[,] political subdivision of this state[,] and political entity and corporate body." Id. § 572.052(c). As a statutorily-authorized body, a public utility agency has no inherent authority and may exercise only those powers conferred by the Legislature and by implication those powers "reasonably necessary to carry out the express responsibilities given to it by the Legislature." See Tex. Coast Utils. Coal. v. R.R. Comm'n of Tex., 423 S.W.3d 355, 359 (Tex. 2014).

     While several public entities with varying authority join in its creation, a public utility agency does not inherit the authority of its creating entities. Rather, chapter 572 expressly limits the scope of a public utility agency's authority by providing that the entity "may not engage in any utility business other than the collection, transportation, treatment, or disposal of sewage or the conservation, storage, transportation, treatment, or distribution of water for a participating public entity that owns jointly with the agency a facility in this state." TEX. LOC. GOV'T CODE § 572.058(a). To implement this authority, chapter 572 provides, in part, that a public utility agency may "adopt rules to govern the operation of the agency and its employees, facilities, and service" and "perform any act necessary to the full exercise of the agency's powers." Id. § 572.058(b)(1), (4). Additionally, chapter 572 confers on a public utility agency, except for taxation authority, all other powers "that are related to [water and wastewater] facilities and that are provided by law to a municipality that owns a facility." Id. § 572.052(d). Governing municipal-owned utilities, Local Government Code, chapter 552 confers several powers upon a municipal-owned water utility system, including the authority to "regulate the system in a manner that protects the interests of the municipality." Id. § 552.001(b). Likewise, a public utility agency therefore also has the authority to regulate its water utility system in a manner that protects its interests. See id. §§ 552.001(b), 572.052(d).

   With respect to your question regarding whether a public utility agency may contractually require impervious cover limits, two statutory provisions delineate the entity's contracting authority with respect to private entities seeking water services. First, chapter 572 expressly provides that the Agency may contract with private entities for water services "under terms the agency's board of directors considers appropriate." Id. § 572.060(2) (emphases added). Second, Local Government Code chapter 552 confers similar authority on municipal-owned utilities to "contract with persons outside its boundaries to permit them to connect with [the municipality's water utility system] on terms the municipality considers to be in its best interest." Id. § 552.001(c) (emphases added). [4] Thus, for private entities seeking water service, the Agency's board of directors has discretion in determining the contractual conditions upon which it will extend service. See id. §§ 552.001(c), 572.052(d), 572.060(2). Subsection 572.058(a), however, limits the scope of that discretion by providing that a public utility agency "may not engage in any utility business other than the collection, transportation, treatment, or disposal of sewage or the conservation, storage, transportation, treatment, or distribution of water for a participating public entity." Id. § 572.058(a).

     Turning to whether impervious cover requirements fall within this authority, the Agency tells us it uses these requirements as "planning tools to determine levels of needed capacity" and that the "purpose of applying these limitations to new service requests is to ensure that the demands of new development are not allowed to exceed the capacity of the [Agency's system], or in any way effect the [Agency's] current commitments for service and existing customers." Agency Brief at 3. While the Agency does have authority to "regulate [its] system in a matter that protects [its] interests," a dispute appears to exist as to whether the impervious cover requirements in fact further the Agency's stated goals. See TEX. LOC. GOV'T CODE §§ 552.001(a), 572.052(d); see also Request Letter at 7 ("[T]here is nothing about imposing impervious cover requirements to accomplish the 'conservation, storage, transportation, treatment, or distribution of water.'"). To the extent that the impervious cover requirements do, in fact, further the Agency's "conservation, storage, transportation, treatment, or distribution of water," a court would likely conclude that the Agency is within its discretion to impose the contractual restrictions. See TEX. LOC. GOV'T CODE § 572.058(a). Factors establishing a nexus could include where the public utility agency obtains its water and whether the proposed developments are within an aquifer recharge zone. However, a resolution of these issues necessarily requires a fact and evidence-based query. See, e.g., Quick v. City of Austin, 7 S.W.3d 109, 119 (Tex. 1998) (reviewing parties' evidence, including scientific testimony and nationally-recognized methods, in determining whether impervious cover ordinance was rationally related to its goal of protecting water quality). As this office does not resolve questions of fact in the opinion process and no Texas court has yet addressed this issue, we cannot therefore definitively advise you as to whether chapter 572 permits the Agency to require certain private entities to comply with impervious cover limits as a contractual condition to receiving water services. See Tex. Att'y Gen. Op. No. GA-0751 (2009) at 1 ("This office does not resolve questions of fact in the opinion process.").

                                  SUMMARY

                  A public utility agency has statutory authority to contract with private entities seeking water services under terms its board of directors deems appropriate and that are within the agency's permissible scope of authority.

                  Determining whether the West Travis County Public Utility Agency has authority to impose impervious cover limits on private entities as a contractual condition to extending its water services raises questions of fact and contract interpretation beyond the scope of an attorney general opinion.

                                        Very truly yours,

                                        KEN PAXTON
                                        Attorney General of Texas

JEFFREY C. MATEER
First Assistant Attorney General

BRANTLEY STARR
Deputy First Assistant Attorney General

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

ASHLEY FRANKLIN
Assistant Attorney General, Opinion Committee

[1] See Brief from Stefanie Albright, on behalf of the West Travis Cty. Pub. Util. Agency (Aug. 23, 2017) ("Agency Brief") (on file with the Op. Comm.).

[2] Letter from Honorable Lyle Larson, Chair, House Comm. on Nat. Res., to Honorable Ken Paxton, Tex. Att'y Gen. at 3 (July 21, 2017), http://www.texasattorneygeneral.gov/opinion/requests-for-opinion-rqs ("Request Letter").

[3] A certificate of convenience and necessity gives the holder the exclusive right and obligation to provide adequate retail water and/or sewer utility services within an identified geographic area. See TEX. WATER CODE § 13.242; 30 TEX. ADMIN. CODE § 291.114(a).

[4] This grant of authority is consistent with Texas case law and attorney general opinions that have similarly concluded that a municipal-owned utility has reasonable discretion in determining the circumstances in which it will extend utility lines to a requesting developer. See Crownhill Homes, Inc. v. City of San Antonio, 433 S.W.2d 448, 457-58 (Tex. Civ. App.—Corpus Christi 1968, writ ref'd n.r.e.); Tex. Att'y Gen. Op. No. JC-0368 (2001) at 3.