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Click here for the full text of this decision FACTS:BSR owns a ranch in northwest San Antonio and holds a Certificate of Convenience and Necessity (CCN) from the state that allows it to operate a potable water system on the ranch. The San Antonio Water System (SAWS) is a public utility that provides services in Bexar County through service areas established by its CCNs. The TCEQ is the state agency that grants CCNs and ensures that all CCN applicants possess the financial, managerial and technical capability to provide continuous and adequate water utility service. Texas Water Code ��13.241, 13.242. In 1998, SAWS filed an application with the TCEQ for a CCN covering several thousand acres west of Highway 281 in northern Bexar County. BSR owns 412 acres west of Highway 281. BSR has the CCN to provide retail water service within its 412 acres, although it has never provided such service to any customer. BSR wanted to expand the area covered by its CCN to include 800 acres of neighboring land surrounding its property (the expansion area). BSR’s expansion area fell within the land covered by SAWS’ application for a CCN. BSR also filed a protest to SAWS’ application with the TCEQ because BSR wanted to expand its CCN to cover the expansion area. The Bexar County Metropolitan Water District (Bexar Met) filed a similar protest with TCEQ. On Feb. 15, 2000, representatives of BSR and SAWS engaged in contract negotiations to resolve their differences, eventually entering into a Water Supply Contract and Service Area Settlement Agreement. Among the obligations assumed by the parties under the agreement are the following: 1. BSR agreed to withdraw its request for a contested hearing on its protest to SAWS’ CCN application and agreed to submit a letter supporting SAWS’ application for an expansion of its CCN in those areas surrounding BSR’s CCN; 2. SAWS agreed to not oppose, and to support any attempt by BSR to expand the area of its CCN provided such expansion is within the limits of the expansion area; 3. SAWS agreed not to oppose, and to support, the transfer to BSR of any portion of SAWS’ CCN located within the expansion area; 4. BSR agreed to sell to SAWS water on a wholesale basis; and 5. BSR granted SAWS the right to produce up to 1,500 acre feet per year of groundwater from wells SAWS agreed to drill on BSR’s land. In compliance with the agreement, BSR withdrew its opposition to SAWS’ CCN application and submitted a letter to TCEQ supporting SAWS’ application. On Sept. 22, 2000, representatives of Bexar Met and SAWS engaged in contract negotiations to resolve their differences, eventually entering into an Interlocal Operational Agreement. Among the obligations assumed by the parties under the agreement are the following: 1. SAWS agreed to withdraw its application for a CCN covering the expansion area, thereby freeing Bexar Met to file an application to include those properties in its application for a CCN; and 2. Bexar Met agreed to withdraw its protest to SAWS’ CCN application on the remaining property. SAWS later amended its CCN application to exclude the expansion area. BSR contends SAWS did not disclose to it the terms of its agreement with Bexar Met. On March 27, 2001, SAWS and BSR amended their contract to provide SAWS with additional time in which to drill and construct the wells on BSR’s property. On Aug. 2, 2001, BSR filed a CCN application to amend its own CCN to include the expansion area. BSR also asked SAWS to submit a letter to TCEQ supporting its application, which SAWS did. On Jan. 15, 2002, Bexar Met and neighbors owning land in the expansion area filed protests to BSR’s CCN application. On April 1, 2002, Bexar Met filed an application for a CCN, which would cover the expansion area. BSR filed a protest. BSR engaged in negotiations with Bexar Met to sell water. In July 2003, BSR withdrew its application to amend its CCN to include the expansion area. SAWS eventually completed construction of the wells on BSR’s property; however, BSR asserted several complaints. BSR alleged SAWS failed to purchase 1,500 acre feet of water from BSR’s land, SAWS has not optimized production on the land and SAWS’ execution of the Interlocal Operational Agreement with Bexar Met and its withdrawal of its application for a CCN over the expansion area breached SAWS’ obligation to BSR under the Water Supply Contract and Service Area Settlement Agreement. In February 2004, BSR sued SAWS for breach of contract, fraud, fraudulent inducement and conversion. The city filed a plea to the jurisdiction, asserting the trial court lacked subject-matter jurisdiction over the contract and tort claims. The trial court denied the plea. HOLDING:The court reverse the trial court’s order to the extent it denies the city’s plea to the jurisdiction on BSR’s tort claims and renders judgment dismissing BSR’s tort claims against the city for lack of subject-matter jurisdiction. The court affirms the trial court’s order in all other respects, and remands. BSR’s claims arise from SAWS’ decisions regarding the drilling of wells, the purchase of water and an application for a CCN over the expansion area. These decisions cannot be distinguished from the city’s governmental function to provide water and sewer service. “The City has discretion to perform or not perform many activities in connection with its government functions.” City of San Antonio v. Butler, 131 S.W.3d 170 (Tex. App. San Antonio 2004, pet. filed Apr. 15, 2004). That discretion does not reclassify one aspect of a government function into a proprietary function. Because SAWS’ actions were encompassed within its governmental function of providing “water and sewer service,” the city is entitled to immunity. Therefore, the trial court erred in denying the city’s plea to the jurisdiction based on its entitlement to immunity on BSR’s tort claims. Citing Butler, the court holds that immunity is not waived by the city’s charter or the Texas Local Government Code. It is not determinative that the TCEQ has not issued a final ruling regarding the CCN application and the court holds that BSR’s breach of contract claim is ripe. The TCEQ has “exclusive original jurisdiction over water and sewer utility rates, operations, and services not within the incorporated limits of a municipality exercising exclusive original jurisdiction over those rates, operations, and services as provided in this chapter.” Texas Water Code �13.042(e). Thus, under �13.042(e), the TCEQ’s exclusive jurisdiction is limited to those “rates, operations, and services” governed by Chapter 13 of the Water Code. the TCEQ is responsible for granting a CCN, and it allows any party affected by a CCN application to intervene at a hearing on the application. However, here, BSR asserts a common law breach of contract claim against SAWS. Chapter 13 does not specify a procedure for resolving such disputes. Also, although the TCEQ has the authority to levy penalties, it does not have the authority to award damages. “The Code’s failure to establish any claims-resolution process through which the TCEQ may resolve contract claims between a utility and a private party, as well as the TCEQ’s inability to award monetary damages, supports our conclusion that the Water Code does not give the TCEQ exclusive jurisdiction to resolve BSR’s contract claim.” The merits of the pending CCN application are not at issue. Instead, the rights and obligations of SAWS and BSR under the Water Supply Contract and Service Area Settlement Agreement are at issue. The court holds the TCEQ does not have primary jurisdiction over BSR’s contract claim. OPINION:Marion, J.; Stone, Marion and Simmons, JJ.

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