All of a sudden, my commissioners are inundated with representatives of power companies wanting contracts today "locking in" electric rates effective mid 2012.

Last time I looked, that type contract was not apporpriate for a commissioners court - - have I missed something?? (I know I do from time to time...!)

Lisa L. Peterson
Nolan County Attorney

I am experiencing the same situation and my commissioners are always looking for ways to save money, including locking in low electric rates for a long period.
My understanding is that one Comm. Ct. cannot bind the budget of a future ct. Of course, commissioners don't appreciate being told what they can't do and the sales reps say "other counties do it".
Would appreciate hearing from counties that are entering into multi-year contracts.

I read an article that this country has over 100 years of proven natural gas reserves. That natural gas runs electric power plants. the cost of natural gas is stagnant. If you take a five year cost projection back you can make an argument that natural gas costs are declining. Why would anyone lock in electric costs for any amount of time given those facts? Well from a salesman perspective I can see locking you into those prices, if you know what I mean.

The argument that they are giving is that the cost of electricity in West Texas is at an all time low. The vendors want the county to a) let them be our "negotiator" (I keep thinking of Wm Shatner...) with power companies that will bid on a long term contract with us for a set rate. Unfortunately, my county judge is a former TXU employee who believes everything these guys are throwing at him.

The attorneys for these yahoos are claiming that I'm completely wrong about the 12 month limitation...am I?

Lisa L. Peterson
Nolan County Attorney

Interested in this answer as well. Our commissioners court is attempting to enter into 10+ year contract with the federal government to house federal prisoners locked in at today's prices. Obviously it a terrible idea for us and interested in the argument of why com court can't legally bind future courts.

It is one of those things that Ray R and company preach about at the civil seminars - just haven't had time to hit the books and find it. Hopefully next week...

Lisa L. Peterson
Nolan County Attorney

We have a similar issue. An asst. AG in the Intergovermental Relations Div. directed us to Articles 5 & 11 of the Texas Const. and cases citing to McNiel v. Waco, 33 S.W. 322 (Tex. 1895).

For example, see Municipal Admin. Servs. v. City of Beaumont, 969 S.W.2d 31, 38-39 (Tex. App. Texarkana 1998):

"Tex. Const. art XI � 5 provides, in part that no debt shall ever be created by any city, unless at the same time provision be made to assess and collect annually a sufficient sum to pay the interest thereon and creating a sinking fund of at least two percent thereon. But Tex. Const. art XI � 7 provides that no debt for any purpose shall ever be incurred in any manner by any city or county unless provision is made, at the time of creating the same, for levying and collecting a sufficient tax to pay the interest thereon and provide at least two per cent (2 percent) as a sinking fund. The framers' intent in creating these provisions was to protect a city's financial standing and its other creditors. They were adopted to limit a city's ability to pledge future revenues for current obligations."

So, I think the issue is whether entering into a long-term fixed rate agreement which locks in future commissioners' courts 'incurs a debt which cannot/may not be satisfied out of the annual budget.'

If the tax revenues that will be used to pay the future years' electrical bills have not yet been collected, wouldn't that be the case?

The short and simple answer I am getting from attorneys who have been representing counties a while seems to be not to enter into *any* contract that locks in a subsequent commissioners' court, whether it incurs a debt or otherwise, unless you provide an opt-out termination proviso or else an annual renewal requirement.

It would seem that qualifying the agreement with an annual renewal term or an opt-out proviso might address the issue. But then would you be 'locking in' anything?

If you enter into a binding agreement, and if that is unconstitutional, would it not be a void agreement which a future commissioner's court could refuse to honor? If that is the case, would immunity be waived with the County then liable for breach?

The Texas Constitution definitely prohibits a contract that pledges tax revenues beyond the current fiscal year. That is the purpose of Section 7 requiring the creation of a sinking fund to pay interest and principal. That is why we have preached for years that a termination clause must exist for each year. On occasion we will agree to a funding out clause that states we may terminate if we decide not to fund this contract in any future fiscal year. Why vendors are comforted by such a clause is beyond me. As for the vendors or yahoos lawyers, they have not researched the issue for counties. Ask them if they know the county has immunity from suit and they will deny that as well.