Untitled Texas Attorney General Opinion ( 1987 )

THE ATTORNEY GENERAL
OF' TEXAS
August 14, 1987
Dr. Laura F. Cavaaos Opinion No. JM-769
President
Texas Tech University Re: Validity of proposed joint
P. 0. Box 4349 venture agreement between Texas
Lubbock, Texas 79409 Tech University and a private or
municipal utility to construct and
operate a cogeneration facility
Dear Dr. Cavaaos:
Your letter requesting an opinion of this office advises:
Texas Tech is considering the construction of a
cogeneration facility on its campus in Lubbock.
The project has the potential for significant
savings in utility costs. While Texas Tech could
construct the facility through the sale of bonds,
there would be additional financial advantage if
the project could be done through a joint venture
with one of the two local utility companies. This
arrangement would provide most of the thermal
requirements of the campus and for the electrical
needs of Texas Tech and the Health Sciences
Center, and provide electricity for sale by the
joint venture to the utility company.
In that connection you ask several questions, one of which is phrased:
Can Texas Tech enter into a joint venture
arrangement with a municipal or privately-owned
utility company? It is proposed that Texas Tech
would own 51 percent interest in the project with
the utility company owning the remaining 49
percent.
Texas Tech University is an official arm of the state, not a
political subdivision. See Bolen v. Board of Firemen. Policemen, and
Fire Alarm Operators, 308S.W.2d 904 (Tex. Civ. App. - San Antonio
.1957, writ ref'd); Attorney General Opinion H-365 (1974). Cf.
Jagnandan v. Mississippi State University, 373 So. 2d 252 (Miss.
1979). cert. denied, 444 U.S. 1026, reh. denied, 448 U.S. 914 (1980).
The governing bodies of state universities are creatures of statute
and nay constitutionally exercise only powers properly delegated to
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Dr. Laura F. Cavasos - Page 2 (JM-769)
them by the legislature. See Foley v. Benedict, 55 S.W.2d 805 (Tex.
1932); Attorney General Opinion MU-475 (1982).
A "joint venture" is in the nature of a partnership -- an
association of two or more persons to carry on a business limited to
one particular enterprise. State v. Houston Lighting and Power Co.,
609 S.W.2d 263 (Tex. Civ. APP. - Corpus Christ1 1980, writ ref'd
n.r.e.3. It is a contractual arrangement whereby there is a community
of interest in the venture, an agreement to share profits, an agree-
ment to share losses, and a mutual right of control or management of
the enterprise. Ayco Development Corp. v. G.E.T. Service Co., 616
S.W.2d 184 (Tex. 1981).
The law of partnerships is applicable to joint ventures.
Shindler v. Rarris, 673 S.W.2d 600 (Tex. App. - Bouston [lst Dist.]
1984, no writ); Corinth Joint Venture v. Lomas & Nettleton Financial
Corp., 667 S.W.2d 593 (Tex. App. - Dallas 1984, writ d~ism'd). See
Thomas v. American National Bank, 704 S.W.2d 321 (Tex. 1986). In
Texas, partnerships are recognized as legal entities for most
purposes, and a contract made within the scope of a partner's
authoritv for the benefit of the oartnershiu is bindinn on it even
though executed in the name.of one partner only. Cknth Joint
Venture, 667 S.W.2d at 595.
Cogenerating facilities were discussed in Attorney General
Opinion Nos. JM-709 (1987); JM-353 (1985). They are facilities which
produce both electric energy and steam, heat or energy in some other
useful form that the "cogenerator" usas for its own industrial
purposes. 16 U.S.C. 1796(18)(A); Federal Energy Regulatory Commission
v. Mississippi, 456 U.S. 742, 750 n. 11 (1982). If it produces energy
in excess of its needs, and is a qualifying facility, it enjoys
certain regulatory advantages. A gualifying cogenerator is one which
owns a qualifying cogeneration facility -- i.e., one which meets the
rules of the Federal Energy Regulation Comm~on and is owned by an
indlvidual~or corporation [including partnerships or associations, but
not municipalities, political subdivisions or agencies of the state,
see 16 U.S.C. 5796(i), (4). (7)] not otherwise-primarily engaged in
the generation and sale of electric power. 16 U.S.C. 5796(18)(B), (C);
V.T.C.S. art. 1446~. 03(c).'
We need not decide whether the contemplated cogenerating facility
would be a "qualifying" one under the above-cited state and federal
1. Three amended versions of section 3(c) of article 1446~ were
enacted by the 68th Legislature. All define "qualifying cogenerator"
by reference to provisions of the Federal Power Act codified as 16
U.S.C., section 796(18)(C). See Acts 1983, 68th Leg., ch. 99, 69, at
497; ch. 263,121, at 1217; ch.4. Il. at 1260.
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Dr. Lauro P. Cavasos - Page 3 (JM-769)
statutes exempting its owner from the Texas Public Utility Regulatory
Act and bringing it within the field of legislation preempted by
federal law. Cf. Attorney General Opinion m-45 (1979). We need not
do so because wehave concluded that participation by the university
in the proposed joint venture would be unlawful in any event. .
Constitutional provisions prohibiting political corporations or
subdivisions of the state from becoming a "stockholder" in a corpora-
tion, association, or company, see Tex. Const. art. III, 552, or from
becoming a "subscriber to the capital" thereof, see Tex. Const. art.
XI, 53, are not directly applicable to the university. See Attorney
General Opinion H-365 (1974). But other constitutional~rovisions
would be offended by the proposed arrangement.
Because we have concluded that section 50 of article III of the
Constitution of Texas precludes participation of the university in
such a joint venture with either a private entity or a municipal
utility, we will not discuss at length the application of article XVI,
section 6, of the constitution, which provides that no appropriation
for private or individual purposes shall be made unless authorized
by the constitution; the application of article VIII, section 3. which
allows the collection of taxes only for "public purposes"; or the
application of article II. section 1. which states that the powers of
state government shall be divided into three departments, each of
which shall be confided to a separate body of "magistracy." See also
Tex. Const. art. III, $51.
It is not unconstitutional to expend public money for the direct
accomplishment of a proper public purpose even though a privately
owned business may be incidentally benefitted thereby. Barrington v.
Cokinos, 338 S.W.2d 133 (Tex. 1960); State v. City of Austin, 331
S.W.2d 737 (Tex. 1960). Private entities can be used to accomplish
public purposes so long as sufficient controls exist to assure that
proper public ends are achieved; but private entities cannot validly
be given discretionary authority to control public business, nor can
the unconditional use of public credit be granted to them. See
Attorney General Opinion Nos. JM-509 (1986); JM-274 (1984); JM??
(1983); O-690 (1939). Where governmental powers have been properly
delegated to an official board, the powers so delegated cannot be
validly re-delegated by the board to a private entity. city of
Galveston v. Hill. 519 S.W.2d 103 (Tex. 1975).
Article III. section 50. of the Texas Constitution provides:
The Legislature shall have no power to give or
to lend, or to authorize the giving or lending,
of the credit of the State in aid of, or to
any person, association or corporation, whether
municipal or other, or to pledge the credit of the
State in any manner'whatsoever. for the payment of
the liabilities, present or prospective, of any
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Dr. Laura F. Cavasos - Page 4 (JM-769)
individual, association of individuals, municipal
or other corporation whatsoever.
This provision prevents the legislature from authorizing the
university to lend its credit in aid of or to "any person, association
or corporation, whether municipal or other, or to pledge the credit
of the State in any manner . . . for the payment of the liabilities,
present or prospective, of any . . . municipal or other corporation
whatsoever." Inasmuch as the legislature is powerless to give It, the
university does not possess the authority to make such an agreement.
In a joint venture such as the one suggested with a utility, the
utility - along with the university -- would have the discretionary '
power to set and control the policy of the joint venture owning the
cogeneration faciliry, and to unilaterally incur liabilities on. its
behalf for which the credit of the university (&. the state) would
stand bound to answer. See Corinth Joint Venture v. Lomas 6 Nettleton
Financial Corp., =. -
The sharing of mutual losses is an essential element of a joint
venture. Ayco Development Corp. v. G.E.T. Service Co., supra. It
was because no agreement to share mutual losses or gains was evidenced
in State v. Houston Lighting h Power Co., supra, that the court
held a joint venture non-existent there. Cf. Russell v. French 6
Associates. Inc.. 709 S.W.2d 312 (Tex. App- Texarkana 1986, writ
ref'd n, State ex rel. Grimes County Taxpayers Association v.
Texas Municipal Power Agency. 565 S8.1
1.2d 258 (Trx. Civ. App. - Houston
[lst Dist.] 1978, writ dism'd).
We advise that Texas Tech University may not, without violating
article III, section 50, of the Texas Constitution, enter into a joint
venture with a municipal or private utility company. Inasmuch as your
other questions ware grounded in the expectation that the joint
venture arrangement could be entertained, we do not reach them.
SUMMARY
Texas Tech University may not, without vio-
lating article III, section 50, of the Texas
Constitution, enter into a joint venture agreement
with a utility.
Attorney General of Texas
MARY KELLER ?
Executive Assistant Attorney General
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Dr. Laura F. Cavazos - Page 5 (JM-769)
JUDGE ZOLLIE STBAKLEY
Special Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by Bruce Youngblood
Assistant Attorney General
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