TO THE HONORABLE JUDGE OF SAID COURT: Comes now the Lower Colorado River Authority, Plaintiff, (hereinafter referred to as

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1 CAUSE NO. LOWER COLORADO IN THE DISTRICT COURT RIVER AUTHORITY v. CITY OF GEORGETOWN, TEXAS; CITY OF BOERNE, TEXAS; CITY OF TRAVIS COUNTY, TEXAS SEGUIN, TEXAS; CITY OF KERRVILLE, TEXAS, ACTING BY AND THROUGH KERRVILLE PUBLIC UTILITY BOARD; CENTRAL TEXAS ELECTRIC COOPERATIVE, INC.; FAYETTE ELECTRIC COOPERATIVE, INC.; AND, SAN BERNARD ELECTRIC COOPERATIVE, INC. JUDICIAL DISTRICT PLAINTIFF S ORIGINAL PETITION FOR DECLARATORY JUDGMENT AND APPLICATION FOR TEMPORARY AND ANCILLARY INJUNCTIVE RELIEF TO THE HONORABLE JUDGE OF SAID COURT: Comes now the Lower Colorado River Authority, Plaintiff, (hereinafter referred to as LCRA ), complaining of the City of Georgetown. Texas; the City of Boerne, Texas; the City of Seguin, Texas; the City of Kerrville, Texas, acting by and through Kerrville Public Utility Board; Central Texas Electric Cooperative, Inc.; Fayette Electric Cooperative, Inc.; and San Bernard Electric Cooperative, Inc. (collectively referred to as Defendants ), and for cause of action would show the Court as follows: Discovery 1. Discovery should be conducted pursuant to Level 3, Texas Rules of Civil Procedure 190.4, and LCRA moves that discovery be conducted in accordance with a discovery control plan tailored to the specific circumstances of this suit.

2 2, Chapter 7, thereof, as amended, now codified in Chapter 8503 of the Texas Special District created by an Act passed by the Forty-third Legislature, Fourth Called Session of 1934, Section 2. LCRA is a political subdivision of the State of Texas and a legal entity, having been 3. Defendants are: a. City of Georgetown, Texas (Georgetown), a home rule city, that may be served with b. City of Boerne, Texas (Boerne), a home rule city, that may be served with citation by c. City of Seguin, Texas (Seguin), a home rule city, that may be served with citation by d. City of Kerrville, Texas (Kerrville), a home rule city, acting by and through Kerrville Page 2 Texas 78155; serving its mayor, Hon. Betty Ann Matthies at 210 E. Gonzales, Seguin, in Guadalupe County, 78006; serving its mayor, Hon. Mike Schultz, at 402 E. Blanco Rd., Boerne, in Kendall County, Texas Williamson County, Texas 78626; citation by serving its mayor, Hon. George Garver, at 113 E. 8th Street, Georgetown, in Defendants 3700 Lake Austin Boulevard, in Austin, Travis County, Texas water power and electric energy. LCRA s principal office and place of business is located at Constitution of the State of Texas, including the rights to develop, generate, distribute, and sell conferred by general law upon any district created pursuant to Article XVI, Section 59 of the conservation and reclamation district, having all powers, rights, privileges and functions Local Laws Code (referred to herein as the LCRA Act ). The LCRA was duly created as a Plaintiff

3 Public Utility Board (KPUB), that may be served with citation by serving its General Manager and CEO, Tracy L. McCuan. at 2250 Memorial Blvd., Kerrville, in Kerr County, Texas 78028; e. Central Texas Electric Cooperative, Inc. (CTEC), a Texas corporation and rural electric cooperative, that may be served with citation by serving its Registered Agent, Robert A. Loth III, at 386 Friendship Lane, Fredericksburg, in Gillespie County, Texas 78624; f. Fayette Electric Cooperative, Inc. (Fayette), a Texas corporation and rural electric cooperative, that may be served with citation by serving its Registered Agent, Gary Don Nietsche, at 357 N. Washington St., La Grange, in Fayette County, Texas 78945; and g. San Bernard Electric Cooperative, Inc. (San Bernard), a Texas corporation and rural electric cooperative, that may be served with citation by serving its Registered Agent, Billy Marricle, at 309 W. Main, Beilville, in Austin County, Texas Jurisdiction and Venue 4. This Court has jurisdiction over this case pursuant to Tex. Const. art. V, 8; Tex. Gov t Code ; Chapter 37 of the Texas Civil Practice and Remedies Code (Uniform Declaratory Judgment Act); and because the amount in controversy exceeds the minimum jurisdictional requirements, excluding interest and costs of court. This Court has jurisdiction over Defendants because they are either Texas corporations or Texas cities existing and doing business in this state such that the necessary minimum contacts with the State of Texas exist and thus general jurisdiction is consistent with the principles of due process and fair play and substantial justice in accordance with the United States Constitution. Furthermore, jurisdiction is not affected by any claim of governmental or sovereign immunity because this case arises from the exercise or proprietary functions. In addition or in the alternative, any alleged immunity is Lower Colorado River Authority v, City of Georgetown, et al. Page 3

4 irrelevant to this declaratory-judgment action that seeks no actual damages. In addition or in the alternative, any alleged immunity has been waived, including but not limited to by reason of Tex. Local Gov t Code Venue is proper in Travis County pursuant to Texas Civil Practice and Remedies Code section (because all or a substantial part of the events or omissions giving rise to those claims occurred in Travis County) and section (establishing that proper venue against one defendant results in the court having proper venue against all other defendants in claims/actions arising out of the same transaction, occurrence, or series of transaction or occurrences). All conditions precedent to LCRA s right to file this suit and to have and recover judgment against Defendants have been performed, have occurred, or have been waived or excused. Factual Background The Wholesale Power Agreements 5. LCRA, pursuant to statutory authority, generates and sells electric power and energy to the Defendants at wholesale. The Defendants, in turn, resell power and energy purchased from LCRA to their retail, or end-use, customers. The Defendant municipalities (Georgetown, Boerne, Seguin, and Kerrville) each operate and maintain a municipal electric, public utility as a proprietary function for the benefit of their inhabitants and retail customers. The Defendant electric cooperatives (CTEC, Fayette, and San Bernard) each operate an electric distribution system for the benefit of their members and retail customers. All of the Defendants have entered into long term contracts for the purchase and payment of wholesale electric power and energy from LCRA. These contracts and the amendments thereto are generically referred to as the Wholesale Power Agreement or WPA, although certain terms and conditions of the WPA vary between the different Defendants. The WPAs are agreements for LCRA to furnish 100 percent Page 4

5 There is also a provision that the Defendants shall not, without LCRA s consent, obtain their arrangements are known in the electric industry as all-requirements wholesale contracts. energy requirements covered by the V/PA from sources other than LCRA. 6. LCRA and Defendants originally entered into the WPA in 1974 for a 25 year term that 7. LCRA has wholesale power contracts with thirty-six (36) other cities/municipal Page 5 supply options when they chose to terminate their existing WPAs in Defendants waived their opportunity to avail themselves of new terms, conditions, arid power those terms, including the extension until 2041, were offered to all of LCRA s customers. The to The Defendants existing WPA contracts do not contain the same provisions, although agreed upon between LCRA and the wholesale customers who extended their WPAs with LCRA power and energy requirements supplied by LCRA. Those provisions were negotiated and and terms of service, including the customers valuable option to reduce the total amount of sometimes abbreviated as ARWPA ). The ARWPAs contain substantially different conditions 2041 are generically referred to as the Amended and Restated Wholesale Power Agreements, in 2016 and extended the terms to the year (Those contracts with terms extending until other customers have agreed to amended and restated WPAs which waived the right to terminate utilities and electric cooperatives which are not named as defendants in this case. Some of those LCRA of their intent to terminate the WPA in the WPAs were extended until June 25, All of the Defendants have already given notice to WPAs were amended to add language significant to this controversy, including that the terms of renewed for subsequent 25 year terms unless terminated. In the late 1 980s and early I 990s, the of the electric power and energy requirements of the Defendants. These contractual

6 8. The existing WPAs with the Defendants contain a schedule of rates identified as the Wholesale Power Rate schedule WP-l (Exhibit C to the WPA). The rate charged under the WP- 1 varies from time to time in accordance with the rates set by the Board of Directors of the LCRA. The LCRA Board of Directors adopted the most recent rate for all of its wholesale energy customers effective June 25, The rate was intended to be in effect until the end of LCRA s fiscal year in June 2013 but may be amended at any time. The WPA provides in pertinent part: In the event of any dispute arising under... the WPA with respect to the rates and charges then in effect, the wholesale customer shall, during the pendency of the dispute, pay LCRA in accordance with those rates and charges. 9. Among other terms and conditions of the WPAs with the Defendants is a clause denominated as the Uniform Rate Clause. That clause generally provides that, should LCRA supply electricity to any other customer at a lower rate than set forth in the Wholesale Power Rate schedule WP-1, then the lower rate shall also be made available to the WPA customer. However, the Uniform Rate Clause is subject to other conditions, such as equal demand and consumption, substantially the same period of time covered by the term of the contract, and other conditions of service being equal. LCRA offers the same rate to all of the wholesale power customers. That rate is applied to each customer s energy requirements, which vary. The contracts with customers with ARV*/PAs extending until 2041 contain provisions giving them the option of reducing their wholesale electric requirements, or load, but they are offered the same rate as all of the customers for their respective requirements. Factual Background Customers with Contract Loads 10. LCRA and many of its customers executed an amendment to the WPA in the time Lower Colorado River Authority v. City of Georgetown, et at Page 6

7 period between 1987 and 1992 (the Amendment) that allows a customer to establish a Contract Load when LCRA seeks certification of a baseload generation unit (that is, an electric generating plant designed to meet a continuous energy demand and produce energy at a constant rate) and the customer opposes it. Under this provision, the customer may opt out of the new unit by limiting the total amount of energy requirements at a level or Cap designed to exclude the costs and output of the new baseload generating unit (the Contract Load ). In that case, the customer would be entitled to purchase energy in excess of the Cap from sources other than LCRA. 11. When LCRA announced that it would participate in constructing a new generating unit (i.e., the Sandy Creek Power Plant), Georgetown and CTEC availed themselves of this option and established their Contract Load level. Georgetown and CTEC each executed a Memorandum of Understanding with LCRA on May 21, 2009, that contains the same language (together referred to as the MOU ). In each MOU, the parties agreed to the establishment of the Contract Load level or Cap and how and when it would be implemented. The MOU was intended to address certain aspects of the sales of energy to Georgetown and CTEC (i.e., the customer ) and the implementation of the Contract Load rather than amend or modify the WPA. In the MOU, the Contract Load was set at a fixed monthly amount of the customer s energy requirements. LCRA agreed to serve the energy below the amount of the Cap and the customer would seek supply for the energy above the Cap. The parties agreed that pricing for the energy below the Cap would exclude the costs and revenues associated with the new generating resource and future baseload resources, which is consistent with the Customers stated intent not to participate in the Sandy Creek Power Plant. This MOU Cap is also applicable Lower Colorado River A uthorth v. City of Georgeioit n, et a!. Plaintiffs Original Petition Page 7

8 services, and other applicable ERCOT costs. associated with Customer s load above the Cap including, but not limited to, energy, ancillary of the MOU specifically provides that the Customer shall be obligated to pay all costs Page 8 be entitled under the Uniform Rate Clause. LCRA has adopted the same rate for all customers, customers is not valid. First, LCRA has not adopted another rate to which the Defendants could 14. Defendants claims that they are entitled to a different rate that is offered to other with the Defendants interpretations and statutory construction. the Uniform Rate Clause and statutory construction as it applies to the WPAs. LCRA disagrees 13. The assertions of a breach of contract are based on the Defendants interpretation of LCRA. with 30 days notice, a right which is not even contained in the terms of its particular WPA with has not taken or have not yet occurred. San Bernard has asserted an alleged right to terminate breach, as well as asserting three bases for alleging an anticipatory breach for actions that LCRA Georgetown has asserted the same three and has added three other bases for declaring a material of the Defendants have asserted three bases for their declaration of a material breach. in any respect and that Defendants are not justified in their attempt to terminate the WPAs. Six petition as Exhibit A ). LCRA s position is that there has been no material breach of the WPAs LCRA cures their alleged breaches of contract. (Copies of those letters are attached to this and announced their intent to unilaterally terminate their respective WPAs within 30 days unless 12. By letters dated June 28, 2012, the Defendants have declared a breach of the WPAs The Controversy to the claims of Georgetown concerning the replacement of the Ferguson Power Plant. Section 3

9 and that rate is applied to each individual customer s energy requirements, which vary. Second, Defendants assert that they should be entitled to alternatives that allow them to reduce the amount of power purchased from LCRA. The new terms, conditions, and power supply options they seek are the product of negotiation between LCRA and the wholesale customers that chose to extend their WPAs until The Defendants chose not to extend their WPAs, but rather, to terminate their existing WPAs in 2016, as is their prerogative. Third, the Uniform Rate Clause does not in and of itself entitle Defendants to other customers contract provisions or rights to reduce their requirements. The Uniform Rate Clause only entitles Defendants to another rate if a lower rate is offered and certain conditions are met. 15. The Board of Directors of LCRA has set its current wholesale energy rate in compliance with statutory authority, which grants the LCRA Board the discretion and authority to establish and collect rates sufficient to produce revenues adequate to: pay all expenses necessary to the operation and maintenance of the properties and facilities of LCRA and to pay principal and interest of all bonds or legal debt as it becomes due and payable. LCRA has not violated the statutory grants of authority and, contrary to the Defendants assertions, nothing in the relevant statutes prohibits LCRA from paying off or defeasing bonds and including such legitimate costs in the rates charged to its customers. 16. Defendants complain that they have been denied the flexibility to reduce the reliance upon LCRA s power and that the LCRA Act mandates that this constitutes illegal discrimination under LCRA s enabling legislation authorizing LCRA to collect rates. Nothing in the LCRA Act can be read to state that LCRA must allow the Defendants such an option. In fact, as recognized by the Defendants in the existing all-requirements WPAs the contracts that Lower Colorado River A uthorilj v. Plaintiffs Original Petition Page 9 City of Georgetown, et a!.

10 the Defendants have been operating with for over 37 years factors such as unequal demand and consumption of energy, different periods of time covered by the contracts, and different conditions of service would permit different rates. 17. Georgetown now complains that LCRA is in breach of the WPA for taking actions which are in accordance with and specifically agreed to in the WPA. Specifically, Georgetown states that LCRA has breached section 3 of the WPA Amendment by failing to calculate a reduction of Georgetown s Contract Load. The WPA does not expressly provide for an automatic reduction of a Contract Load and Georgetown is otherwise not entitled to such a reduction. The WPA allows the Contract Load to be modified, provided such modification is determined to have a system-wide benefit. LCRA did not find that a reduction in Georgetown s Contract Load would provide a system-wide benefit. 18. Georgetown s complaint that LCRA has not operated the Resource Planning Task Force so as to efficiently and economically satisfy its customers needs for reliable electric service does not create a cause of action or a material breach of contract. In the full statement of its intended purpose in Section 2 of the Amendment to the WPA (not the excerpt quoted by Georgetown), the purpose of the Task Force is to maximize customer involvement with LCRA s system planning to efficiently and economically satisfy its customers needs for reliable electric service. As an advisory and consulting-type body, the Task Force is not required to act under any particular process, and, simply because Georgetown disagrees with the actions of LCRA in acquiring alternate bids for construction of a replacement generating unit, this process cannot be used as the basis to maintain a breach of contract. Page 10

11 contract. In particular, Georgetown s assertion that it is entitled to a refund of operational reserves at some point in the future has no basis in the contracts or in the law. Simply because a not occurred and may never occur. They certainly are not ripe for adjudication as breaches of Page 11 and has not illegally discriminated against the Defendants in denial of the flexibility to reduce b. That LCRA has not breached the WPA contract nor violated the LCRA Act accepted in the Amended and Restated Wholesale Power Agreements. contract terms as may be exercised by other wholesale customers with terms negotiated and WPAs by failing to decrease the amount of power purchased from LCRA under the same a. That LCRA has not breached the Uniform Rate Clause of the Defendants 21. LCRA requests that the Court declare the following: contracts entered into with other customers with terms ending in Rate Clause and their claimed right to unilaterally terminate the contracts based on the terms of to the Defendants assertion of a breach of contract based on the construction of the Uniform obtain a declaration of the rights, status, and legal relations of the parties, particularly in regard determination of the questions of construction arising under the statutes and contracts and to status, and legal relations are affected by state statutes and the contracts at issue. LCRA seeks a 20. LCRA and Defendants are persons interested under written contracts whose rights, Requests for Declaratory Relief of the utility. does not entitle that customer to claim a legal or equitable interest in those funds or the property customer pays a certain utility rate which includes, as a rate component, operational reserves 19. Other assertions of Georgetown for its claimed anticipatory breaches of contract have

12 the reliance upon LCRA s power. c. That, in setting rates to include amounts necessary to pay the principal and interest on debt and to retire, by purchase or cancellation or redemption, bonds issued by LCRA, the LCRA was acting within its discretion and has not thereby violated any requirements of the LCRA Act. d. That LCRA does not have any obligation to pay for costs incurred by Georgetown as a result of implementing the contract load, as stated and agreed upon in the MOU. e. That LCRA is not required under Section 3 of the WPA to calculate a reduction of Georgetown s contract load based on the replacement of the Ferguson Power Plant. f. That LCRA has not committed any acts that would justify a claim of a breach of Section 2 of the WPA based on Georgetown s claims that LCRA failed to operate the Resource Planning Task Force, an advisory committee to LCRA in preparation of its ten-year forecast, to efficiently and economically satisfy its customers needs for reliable electric service. g. That LCRA has not committed any acts that would justify a claim of an anticipatory breach of the Uniform Rate Clause of the WPA based on LCRA s intention not to include revenue from sales of energy produced by the Ferguson or Sandy Creek units in calculating the fuel factor for Georgetown, because that issue is specifically addressed in the MOU. h. That LCRA has not committed any acts that would justify a claim of an anticipatory breach of Section 2 of the WPA based on Georgetown s claims that LCRA intends Lower Colorado River Authority v. City of Georgetown, et at. Page 12

13 to charge Georgetown for certain market energy prices. i. That LCRA has not committed any acts that would justify a claim of an anticipatory breach of the WPA based on Georgetown s claims that it would be entitled to a reimbursement or refund for operational reserves collected by LCRA as a component of past rates. j. That LCRA has not otherwise committed a material breach of the contracts with Defendants. k. That the Defendants are not justified in unilaterally terminating the WPA contract. 22. A justiciable controversy exists as to the rights and status of the parties in regard to the contracts and agreements with Defendants. which would he resolved by the declarations sought. in addition, the declarations requested would avoid future conflicts on these issues in the continued contractual relationship and would resolve any financial uncertainty created by the Defendants claims. Necessity for Temporary and Ancillary Injunctive Relief 23. Based upon the cause of action for declaratory relief and probable right to the relief sought as set out above, LCRA requests that a temporary restraining order issue immediately without notice to Defendants, to continue in force until a day to be fixed by this court for hearing on LCRA s application for a temporary injunction, restraining the Defendants from taking any further action to prematurely terminate the WPA; that the court fix a day and time for hearing the temporary injunction sought. and that the Defendants be cited and notified to appear at such day and time and show cause why. if any. a temporary injunction should not issue. LCRA further Lower Colorado River Authority v. City of Georgetown, et a!. Page 13

14 requests that, at the appointed time. the court issue a temporary injunction, commanding the Defendants to desist and refrain from taking any further action to prematurely terminate the WPA, and tolling all relevant time periods under the WPA, pending further orders of this court. 24. LCRA does not seek a permanent injunction through this suit. An injunction is not the primary and principal relief sought in this lawsuit. LCRA does request temporary and ancillary injunctive relief in order to maintain the status quo until the declaratory judgment action can be decided. There is a probable, imminent, and irreparable injury that will be suffered in the interim if temporary injunctive relief is not granted. This injury stems from the threat of the Defendants to unilaterally and prematurely terminate the WPA upon short notice. LCRA s financial planning for its current fiscal year and beyond and the viability of bonds issued to purchase assets used to service the loads of all 43 of its wholesale power customers (including the Defendants), are based upon the existence of these long term contracts and the Defendants proposed actions are not in the public interest. LCRA provides energy services to 36 other municipalities and cooperatives in central Texas, who in turn provide retail service to hundreds of thousands of end-use customers. LCRA bases its rates and makes financial decisions in reliance on the number of wholesale customers (billing units) under its contracts. If these seven customers unilaterally and prematurely terminate their WPAs now, then LCRA s other wholesale customers, and their retail customers, will bear significant costs. LCRA is a political subdivision of the state and does not operate for a profit. The losses of revenue that LCRA will experience as a result of Defendants unilateral threatened action cannot be recovered by any other means except by charging higher rates to LCRA s remaining customers. LCRA and its other customers have not planned for these seven customers to terminate their agreements prior to 2016 and to Page 14

15 discontinue paying for the costs reasonably allocated to them by LCRA. The retail ratepayers of all the remaining 36 wholesale customers will have to pay for the costs LCRA has reasonably anticipated to be required for providing the electric services to seven customers if the Defendants are allowed to unilaterally terminate the WPAs before the 2016 date previously communicated to LCRA. 25. In addition, LCRA purchased power earlier in the year to serve all of its customers, including the Defendants, during the peak energy months in reliance on the WPAs. LCRA has made purchases to ensure reliable and economic energy supply for Defendants, and the Defendants have collected some of those costs from their own ratepayers and paid some of those costs to LCRA. If Defendants are allowed to prematurely terminate their WPAs now, that purchased energy will no longer be needed. LCRA may be able to sell this energy but there is no assurance of the price offered in the current market, and LCRA, or its remaining customers, will bear the burden of any losses in the value of this purchased power. 26. Further, the present risk to the continuous supply of affordable and reliable electric power to those members of the public served by the Defendants cannot be overstated. By threatening an immediate termination of a long-standing and predictable source of supply of public power, the Defendants are intending to throw their customers into a volatile power market in the middle of the summer, at a time of reduced supplies. If Defendants are allowed to terminate and such termination is later proven wrongful, the harm and disruption caused by their actions could not be calculated in damages. LCRA requests that this court preserve the status quo until final hearing, and asserts that it has no adequate remedy at law, or otherwise, to provide LCRA with complete, final relief for the damage or harm that would be caused by the threatened Page 15

16 actions of the Defendants. Prayer WHEREFORE, PREMISES CONSIDERED, Plaintiff LCRA requests and prays that: 1. Defendants be cited to appear and answer herein; 2. A temporary restraining order issue without notice to Defendants prohibiting each of the Defendants, their officers, agents, governing bodies, employees, and attorneys from taking any further action to terminate the contracts between Defendants and LCRA; 3. After notice and hearing, a temporary injunction be issued (without bond or other undertaking, pursuant to Section (f) of the Texas Water Code) enjoining and prohibiting Defendants, their oiflcers. agents, governing bodies, employees, and attorneys from taking any further action directly or indirectly to terminate the contracts between Defendants and LCRA; 4. The court make the declarations set out in this petition; 5. Plaintiff have and recover from Defendants reasonable attorneys fees and expert witness fees incurred in the prosecution of this case; 6. Costs of Court; and 7. Such other and further general relief, at law or in equity, to which Plaintiff may be entitled. Page 16

17 Respectfully submitted, JOHN W. RUBOTTOM General Counsel State Bar No JAMES N. RADER Associate General Counsel State Bar No Attorneys for Plaintiff Lower Colorado River Authority Post Office Box 220 Austin, Texas (512) Fax No. (512) iarnes.raderlcra.org SCOTT, DOUGLASS & McCONNICO, L.L.P. 600 Congress Avenue, Suite 1500 Austin, Texas (512) (512) Fax By: r c Steve McConnico State Bar No smcconnicoscottdoug. com Ryan Sellars Squires State Bar No rsquires@scottdoug.com ATTORNEYS FOR PLAINTIFF LOWER COLORADO RIVER AUTHORITY Page 17

18 COUNTY OF TRAVIS Jenuy2O.2O14 11 J Notary Public in and for the State of Texas IUELDAG.*J.iFcIOG 2012, to certify which witness my hand and official seal. SUBSCRIBED AND SWORN TO BEFORE ME on the j day of Affiant: and correct. and that every statement of fact contained therein is within his personal knowledge and is true BEFORE ME, the undersigned Notary Public, on this day personally appeared Richard Ramirez, who, being by me duly sworn on oath deposed and said that he is the Manager, Energy Authority, Plaintiff in the above styled and numbered cause; that he has read the above and foregoing Plaintiffs Original Petition for Declaratory Judgment and Application for Injunction; Services, Customer & Energy Services and duly authorized agent for the Lower Colorado River STATE OF TEXAS VERIFICATION