TXU Energy Retail Company LLC v. Fort Bend Independent School District

NO. 12-16-00041-CV

IN THE COURT OF APPEALS

TWELFTH COURT OF APPEALS DISTRICT

TYLER, TEXAS

TXU ENERGY RETAIL COMPANY § APPEAL FROM THE 116TH
LLC,
APPELLANT

V. § JUDICIAL DISTRICT COURT

FORT BEND INDEPENDENT
SCHOOL DISTRICT,
APPELLEE § DALLAS COUNTY, TEXAS

MEMORANDUM OPINION
TXU Energy Retail Company sued Fort Bend Independent School District for breach of
contract. The trial court granted the District’s plea to the jurisdiction and motion for summary
judgment. In one issue, TXU challenges the trial court’s rulings. We affirm.

BACKGROUND
In 2010, the District issued a request for qualification (RFQ) to secure an electricity
provider for a two-year competitive procurement period to end on May 31, 2013. The RFQ
sought bids for both a one-year and a two-year term: June 2011 through June 2012 and June
2011 through June 2013. As a result of this competitive bidding process, the District and TXU
entered into an electricity supply contract in May 2010. The contract’s one-year primary term
spanned from June 1, 2011, through May 31, 2012. The contract contained a provision that gave
TXU the unilateral option of extending the contract for another year, to June 1, 2013, provided
that TXU gave the District at least ninety days written notice before the end of the primary term
of its intent to exercise the option. The contract also contained a “blend and extend” provision.
TXU began supplying electricity in June 2011.
 Early into the 2010 contract’s primary term, the parties began discussing a new contract
utilizing the “blend and extend” provision. In September 2011, the parties entered a second
contract with a primary term of June 1, 2012, through May 31, 2014. This contract gave TXU a
unilateral option to extend the contract for another year to June 1, 2015. The contract also
contained a “supercession” clause, which stated that it superseded the contract “dated 05/26/2010
for sales occurring at the Premise(s) on or after the commencement of the Primary Term hereof
for each such Premise(s).”
On January 30, 2013, the District notified TXU that the second contract was void because
it exceeded the “period of time for which approval was authorized[.]” The District explained that
it believed the purchase of electricity from TXU under the second contract, and beyond June
2013, violated statutory competitive bidding requirements. Subsequently, the District issued a
new RFQ to solicit bids for electricity. During this bidding process, TXU continued providing
electricity to the District at the rate specified in the second contract. TXU participated in the new
bidding process, but the District chose to enter into a contract with a provider other than TXU.
On July 31, 2013, TXU discontinued providing electricity to the District.
During the time period that TXU provided electricity under both contracts, it sent the
District periodic invoices, which the District timely paid. On December 23, 2013, TXU sent the
District a final invoice in the amount of $3,169,046.38. This invoice was based on a recalculation
of electricity charges from the beginning of the second contract and in accordance with a
provision in the 2010 contract that authorized TXU to charge for electricity at a standard list
price offer (SLO) rate for power consumed after the termination of the 2010 contract. When the
District refused to pay this invoice, TXU sued the District for anticipatory breach of the second
contract and promissory estoppel. The District filed a plea to the jurisdiction and motion for
summary judgment, after which TXU amended its petition to add a breach of contract allegation
based on section 4.3 of the 2010 contract.
The trial court granted the District’s plea to the jurisdiction and motion for summary
judgment and ordered that TXU’s claims be dismissed, with prejudice, except for the section 4.3
claim. TXU appealed, and the Dallas Court of Appeals affirmed the trial court’s ruling. See
generally TXU Energy Retail Co., L.L.C. v. Fort Bend Indep. Sch. Dist., 472 S.W.3d 462 (Tex.
App.—Dallas 2015, no pet.). The District then filed a second plea to the jurisdiction and motion

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for summary judgment regarding the section 4.3 claim. The trial court granted both in November
2015 and dismissed TXU’s section 4.3 claim with prejudice. This appeal followed.

PLEA TO THE JURISDICTION
In its sole issue, TXU challenges the trial court’s decision to grant the District’s plea to
the jurisdiction and motion for summary judgment. In its first subissue, TXU maintains that the
trial court erred by granting the plea to the jurisdiction because the District’s governmental
immunity has been waived. According to TXU, section 4.3 of the 2010 contract obligated the
District to continue paying for any electricity consumed after the 2010 contract’s expiration date.
Although the record indicates that the District paid TXU’s invoices for electricity used after May
31, 2012, TXU argues that section 4.3 authorized it to charge the District at a higher rate than the
rate that was invoiced. Accordingly, TXU seeks the difference between the amount charged and
that which it contends should have been charged under section 4.3.
Standard of Review
Whether a trial court has subject matter jurisdiction is a legal question that we review de
novo. Tex. Dept. of Parks & Wildlife v. Miranda, 133 S.W.3d 217, 226 (Tex. 2004). When a
plea to the jurisdiction challenges the pleadings, we must determine if the petition alleges facts
that affirmatively demonstrate jurisdiction. Id. at 226. We construe the pleadings liberally in
favor of the plaintiff and look to the pleader’s intent. Id. If the pleadings do not contain
sufficient facts to affirmatively demonstrate jurisdiction, but the defects are not incurable, the
issue is one of pleading sufficiency and the plaintiff should be allowed to amend the pleadings.
Id. at 226-27.
If the pleadings affirmatively negate jurisdiction, the plea to the jurisdiction may be
granted without allowing the plaintiff an opportunity to amend. Id. at 227. When a plea to the
jurisdiction challenges the existence of jurisdictional facts, we consider relevant evidence
submitted by the parties when necessary to resolve the jurisdictional issues. Id. If the pleading
requirement has been met and evidence has been submitted to support the plea that implicates the
merits of the case, we take as true all evidence favorable to the nonmovant. Id. at 228. We
indulge every reasonable inference and resolve any doubts in the nonmovant’s favor. Id.

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Applicable Law
A local governmental entity, including a school district, that is authorized by statute or
the constitution to enter into a contract, and that enters into a contract, waives sovereign
immunity to suit for the purpose of adjudicating a claim for breach of the contract, subject to
certain terms and conditions. TEX. LOC. GOV’T CODE ANN. §§ 271.151(3)(B), 271.152 (West
2016). The statute applies to a “written contract stating the essential terms of the agreement for
providing goods or services to the local governmental entity that is properly executed on behalf
of the local governmental entity[.]” Id. § 271.151(2)(A). A school district contract for the
purchase of goods and services valued at $50,000 or more in the aggregate for each twelve
month period shall be made by the method that provides the best value for the district, including
competitive bidding. TEX. EDUC. CODE ANN. § 44.031(a)(1) (West Supp. 2016). “Compliance
with competitive bidding statutes is mandatory, and if the requirements of the law are not met,
the contract is void.” TXU Energy Retail Co., L.L.C., 472 S.W.3d at 466.
Analysis
In the present case, the parties do not dispute that the 2010 contract was competitively
bid. TXU argues that, after the 2010 contract’s primary term ended, the District’s continued use
of power triggered section 4.3 of the contract, which states as follows:

If, upon expiration or termination of an Agreement for any reason, Buyer fails either to switch to
another retail electric provider or execute a replacement agreement with Seller, then, until Buyer
either executes a replacement agreement with Seller or switches to another provider for the
applicable Premise(s), Seller may charge Buyer, as the Contract Price for Power utilized at such
Premises after expiration or termination of the Agreement, a price per kWh equivalent to Seller’s
then current “standard list price offer.” Provided further, however, in the event that after such
termination or expiration Buyer shall fail to make payment due to Seller or provide security after
notice and opportunity to pay/provide, Seller, in its sole discretion and at whatever time chosen by
Seller, may (as a result of [the Public Utility Commission of Texas] rules that forbid a [Retail
Electric Provider] from switching a customer to the [Provider of Last Resort]) direct the
[Transmission and/or Distribution Provider (“TDSP”)] to disconnect electric service to the
Premise(s) under such Agreement, except as may be prohibited by law; however, Seller shall not
have the right to direct the TDSP to disconnect electric service for the non-payment of amounts
that are subject to a bona fide dispute.

TXU contends that section 4.3 authorized it to recalculate amounts that had already been
invoiced and paid at the rate specified in the second contract, and to charge the District in
accordance with the SLO rate for electricity used after May 31, 2012. The District argues that
TXU was not authorized to recalculate the charges under section 4.3 and that, even if TXU was

4
so authorized, governmental immunity bars it from being sued under any provision of the 2010
contract because that contract was not valid after May 31, 2012.
The Dallas Court of Appeals previously determined that the 2011 contract is void. In its
opinion, the court recognized that the 2010 contract was competitively bid. Id. at 466. TXU
argued that, because the 2010 contract was competitively bid, any extension made pursuant to
the contract’s “blend and extend” provision was necessarily competitively bid. Id. The court
disagreed and explained its reasoning as follows:

[T]he dispositive issue is whether the 2011 agreement negotiated pursuant to a blend and extend
provision is valid and enforceable when it clearly exceeds the contract term period applicable to
the original competitive procurement period.

Taking TXU’s argument to its logical extreme, the blend and extend provision would permit the
parties to extend their agreement for a duration many multiples of the two-year maximum contract
period in the bid information, such as for fifty years. Such a result would circumvent the purpose
of the competitive bidding statute. We conclude that section 44.031(a) does not authorize the 2011
agreement because it extends the contract term beyond that identified in the 2010 competitive
procurement period. Compliance with competitive bidding statutes is mandatory, and if the
requirements of the law are not met, the contract is void.

Id. (emphasis added). The court also rejected TXU’s contention that “an implied contract
between TXU and the District exists such that the District has waived governmental immunity
through its conduct.” Id. at 466-67. The court explained that the Texas Supreme Court and other
appellate courts had declined to “recognize a waiver-by-conduct exception in breach of contract
suits against governmental entities.” Id. at 467.
As the transferee appellate court, we are required to decide this case in accordance with
the Dallas court’s previous opinion. See TEX. R. APP. P. 41.3. Although the validity of section
4.3 was not before the Dallas court, our sister court’s opinion provides guidance with respect to
our analysis of that provision as it applies to the relief that TXU is now seeking. Given the Dallas
court’s holding that the second contract is void, TXU now seeks to use section 4.3 to revive and
extend the 2010 contract after its primary term ended on May 31, 2012. Whether section 4.3
does so requires us to first examine whether that section could impermissibly allow the parties to
extend the 2010 contract beyond the competitively procured period.
A school district’s contract cannot exceed the contractual term applicable to the original
competitive procurement period. See TXU Energy Retail Co., L.L.C., 472 S.W.3d at 466. Like
the “blend and extend” provision, section 4.3 could potentially allow the parties to extend the

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contract beyond the RFQ’s two-year procurement period. See id. There is no final contract
termination date in section 4.3. The only limitation on the time for which the District would be
obligated to purchase electricity under the SLO rate is when the District executes a replacement
agreement with TXU or switches to another provider. Accordingly, it is conceivable that TXU
could provide electricity under the SLO rate for an indefinite period of time under section 4.3.
As was the case with the “blend and extend” provision, section 4.3 cannot be used to
extend the contract term beyond that identified in the 2010 competitive procurement period. See
id. A contrary holding would be inconsistent with the purpose of competitive bidding
requirements, i.e., to “stimulate competition, prevent favoritism and secure the best work and
materials at the lowest practicable price, for the best interests and benefit of the taxpayers and
property owners.” Tex. Highway Comm’n v. Tex. Ass’n of Steel Importers, Inc., 372 S.W.2d
525, 527 (Tex. 1963) (quoting Sterrett v. Bell, 240 S.W.2d 516, 520 (Tex. App.—Dallas 1951,
no pet.)); see TXU Energy Retail Co., L.L.C., 472 S.W.3d at 466.
Moreover, a governmental entity is immune from suit as to any claim that is not based on
a valid contract. TEX. LOC. GOV’T CODE ANN. §§ 271.151-.152. A governmental entity can
waive governmental immunity only if there is a written contact. Id. TXU argues that, because
the second contract was declared void, the 2010 contract was never legally superseded, replaced,
or nullified by the second contact and, consequently, remained in full force and effect. TXU
correctly states that a void contract is a mere nullity. See Watts v. Pilgrim’s Pride Corp., No.
12-04-00082-CV, 2005 WL 2404111, at *3 (Tex. App.—Tyler Sept. 30, 2005, no pet.) (mem.
op.). However, we disagree with TXU’s position that voidance of the second contract in any way
affected the date on which the 2010 contract terminated.
Even if section 4.3 authorized TXU to charge the SLO rate after termination of the 2010
contract’s primary term, TXU could sue the District to recover the difference between the SLO
rate and the rate actually charged only if the 2010 contract remained valid after May 31, 2012.
But it did not. In clear and unambiguous language, the 2010 contract provides that its primary
term spanned from June 1, 2011, to May 31, 2012. In equally clear and unambiguous language,
TXU had the unilateral option to extend the contract for another year. TXU was required to give
the District at least ninety days written notice of its intent to exercise the option before the end of
the primary term. The record does not indicate that TXU ever sent such a notice, and TXU does
not dispute that the 2010 contract ended on May 31, 2012. Because TXU chose not to exercise

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its unilateral option to extend the contract for a second year, the 2010 contract terminated on
May 31, 2012, before the period for which TXU seeks to re-bill.
As set forth in the Dallas court’s opinion, two years was the longest possible term for
which the District could enter into a contract per the RFQ’s procurement period. Although the
parties sought to replace the 2010 contract with a second contract for a longer term, the second
contract violated competitive bidding statutes and was declared void. The legal effect of this
voidance is that from June 1, 2012 through July 31, 2013, the parties were not operating under a
valid written contract. Absent a valid written contract, the District could not waive governmental
immunity and it is immune from suit. See TEX. LOC. GOV’T CODE ANN. §§ 271.151-.152.
Under the circumstances of this case, we conclude that the trial court did not err by
granting the District’s plea to the jurisdiction. See id. § 271.152. For this reason, we need not
address TXU’s summary judgment challenge. See TEX. R. APP. 47.1. We overrule TXU’s sole
issue.1

DISPOSITION
Having overruled TXU’s sole issue, we affirm the trial court’s judgment.

GREG NEELEY
Justice

Opinion delivered October 31, 2016.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.

(PUBLISH)

1
Because we have determined that the 2010 contract terminated on May 31, 2012, and was not valid for
purposes of waiving governmental immunity, we do not address whether section 4.3 (1) violated the District’s RFQ
requiring fixed pricing, and (2) is void for failure to include a material term when the SLO rate was not specified.
See TEX. R. APP. 47.1.

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 COURT OF APPEALS

TWELFTH COURT OF APPEALS DISTRICT OF TEXAS

JUDGMENT

OCTOBER 31, 2016

NO. 12-16-00041-CV

TXU ENERGY RETAIL COMPANY LLC,
Appellant
V.
FORT BEND INDEPENDENT SCHOOL DISTRICT,
Appellee

Appeal from the 116th District Court
of Dallas County, Texas (Tr.Ct.No. DC-13-14961)

THIS CAUSE came to be heard on the oral arguments, appellate record
and briefs filed herein, and the same being considered, it is the opinion of this court that there
was no error in the judgment.
It is therefore ORDERED, ADJUDGED and DECREED that the judgment
of the court below be in all things affirmed, and that all costs of this appeal are hereby adjudged
against the Appellant, TXU ENERGY RETAIL COMPANY LLC, for which execution may
issue, and that this decision be certified to the court below for observance.
Greg Neeley, Justice.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.