U.S. 5th Circuit holds utility district’s federal loan could prevent City from expanding its CCN.

Green Valley Special Utility District v. City of Cibolo, TX, No. 16-5182 ( 5th Cir. August 2,2017)

In this case the United States Fifth Circuit Court of Appeals held the Green Valley Special Utility District (“Green Valley”) is entitled to go forward on it injunction to prohibit the City from encroaching on its system.

The Public Utility Commission of Texas (“PUC”) issues certificates of convenience and necessity (“CCNs”), which give holders the exclusive right to provide water or sewer service within particular service areas. Green Valley holds a CCN for water and a CCN for sewer services within a defined area. In 2003, Green Valley obtained a $584,000 loan from the United States to fund its water service. The loan was secured by the property within both Green Valley’s water and sewer systems.   In 2016 the City of Cibolo applied to the PUC for a CCN to provide sewer services to its citizens, which encompasses part of Green Valley’s CCN. To grant it, the PUC would have to strip Green Valley of part of its CCN.  Green Valley opposed the application and sued arguing federal law prohibited an alteration to its CCN due to its loan, specifically 7 U.S.C. § 1926(b). The federal trial court dismissed Green Valley’s suit holding §1926(b) applied only to the system for which the loan was made (water), not the property used to secure the loan (water and sewer system).  Green Valley appealed.

The 5th Circuit noted this “is a tight question of statutory interpretation.”  Section 1926(b) prohibits the curtailment or limitation of “[t]he service provided or made available …” § 1926(b).   The dispute is over the meaning of “service,” which the statute does not define. Green Valley asserts it should apply to its “integrated” water-and-sewer service.  The City argued through the use of grammar aides that service applies only to the service funded. The 5th Circuit disagreed with the City’s arguments. Section 1926(b) has two purposes: “(1) to encourage rural water development by expanding the number of potential users of such systems, thereby decreasing the per-user cost, and (2) to safeguard the viability and financial security of such associations . . . by protecting them from the expansion of nearby cities and towns.” Green Valley’s interpretation is consistent with those purposes and not inconsistent with the wording of the statute. The order granting the City’s Rule 12(b)(6) motion is reversed and the case is remanded.

If you would like to read this opinion click here. The panel includes Circuit Judges Higginbotham, Smith, and Haynes. Circuit Judge Smith delivered the opinion of the court. Attorney listed for Green Valley is Mr. Paul M. Terrill, III. Attorney listed for the City of Cibolo is Mr. Lowell Frank Denton.