8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K
CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date earliest event reported) November 6, 2009

Commission File Number	Registrant, State of Incorporation, Address of Principal Executive Offices, Telephone Number, and IRS Employer Identification No.	Commission File Number	Registrant, State of Incorporation, Address of Principal Executive Offices, Telephone Number, and IRS Employer Identification No.
333-161911	ENTERGY TEXAS, INC. (a Texas corporation) 350 Pine Street Beaumont, Texas 77701 Telephone (409) 838-6631 61-1435798	333-161911-01	ENTERGY TEXAS RESTORATION FUNDING, LLC (a Delaware limited liability company) Capital Center 919 Congress Avenue, Suite 840-C Austin, Texas 78701 (512) 487-3982 27-0727900

________________________________________________________________________

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 9.01. Financial Statements and Exhibits

(d) Exhibits.

Exhibit No.	Description
5.1	Opinion of Sidley Austin LLP with respect to legality.
8.1	Opinion of Sidley Austin LLP with respect to federal tax matters.
23.1	Consent of Sidley Austin LLP (included in its opinions filed as Exhibits 5.1, 8.1 and 99.5).
23.2	Consent of Clark, Thomas & Winters, a Professional Corporation (included in its opinion filed as Exhibit 99.6).
99.5	Opinion of Sidley Austin llp with respect to federal constitutional matters.
99.6	Opinion of Clark, Thomas & Winters, a Professional Corporation, with respect to Texas constitutional matters.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

ENTERGY TEXAS, INC.

By:/s/ Steven C. McNeal
Name: Steven C. McNeal
Title: Vice President and Treasurer

Date: November 6, 2009

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

ENTERGY TEXAS RESTORATION FUNDING, LLC

By: /s/ Steven C. McNeal
Steven C. McNeal
Vice President and Treasurer

Date: November 6, 2009

INDEX TO EXHIBITS

Exhibit No.	Description
5.1	Opinion of Sidley Austin LLP with respect to legality
8.1	Opinion of Sidley Austin LLP with respect to federal tax matters
23.1	Consent of Sidley Austin LLP (included in its opinions filed as Exhibits 5.1, 8.1 and 99.5).
23.2	Consent of Clark, Thomas & Winters, a Professional Corporation (included in its opinion filed as Exhibit 99.6).
99.5	Opinion of Sidley Austin llp with respect to federal constitutional matters.
99.6	Opinion of Clark, Thomas & Winters, a Professional Corporation, with respect to Texas constitutional matters.

EX-5.1

SIDLEY AUSTIN LLP 787 SEVENTH AVENUE NEW YORK, NY  10019 (212) 839 5300 (212) 839 5599 FAX	BEIJING BRUSSELS CHICAGO DALLAS FRANKFURT GENEVA HONG KONG LONDON	LOS ANGELES NEW YORK SAN FRANCISCO SHANGHAI SINGAPORE SYDNEY TOKYO WASHINGTON, D.C.
	FOUNDED 1866

November 6, 2009

Exhibit 5.1

Entergy Texas, Inc.

350 Pine Street

Beaumont, Texas 77701

Entergy Texas Restoration Funding, LLC

Capital Center

919 Congress Avenue, Suite 840-C

Austin, Texas 78701

Re: Entergy Texas Restoration Funding, LLC

Ladies and Gentlemen:

We have acted as special counsel to Entergy Texas Restoration Funding, LLC, a Delaware limited liability company (the "Company"), in connection with the preparation of the Registration Statement filed on Form S-3 (Registration No 333-161911) filed on September 15, 2009 and as amended by Amendment No. 1 filed on October 20, 2009 (collectively, the "Registration Statement") with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), relating to the registration of transition bonds (the "Transition Bonds") of the Company to be offered in such manner as described in the form of the prospectus (the "Prospectus") included as part of the Registration Statement.  The Transition Bonds are to be issued in an aggregate amount of $545,900,000 under an Indenture (the "Indenture") dated November 6, 2009 between the Company and The Bank of New York Mellon, a New York banking corporation, as indenture trustee (the "Indenture Trustee").

We are familiar with the proceedings taken and proposed to be taken by the Company in connection with the proposed authorization, issuance and sale of the Transition Bonds.  We have examined and relied upon originals, or copies of originals, certified or otherwise identified to our satisfaction of such records of the Company and such agreements, certificates of public officials, certificates of officers or other representatives of the Company and other instruments, and examined such questions of law and satisfied ourselves to such matters of fact as we deemed relevant or necessary as a basis for this letter.  In rendering the opinions expressed in this letter, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity with the original documents of any copies thereof submitted to us for examination.  As to any facts material to the opinions expressed herein which we have not independently established or verified, we have relied upon statements and representations of officers and other representatives of the Company or others.

Based upon the foregoing, we are of the opinion that:

1.           The Company is a limited liability company validly existing and in good standing under the laws of the State of Delaware.

2.           The Company has limited liability company power and authority to execute and deliver the Indenture and to authorize and issue the Transition Bonds and to perform its obligations under the Indenture and the Transition Bonds.

3.           The Transition Bonds will be legally issued and binding obligations of the Company, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or similar laws affecting creditors' and contracting parties rights generally or general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) when such Transition Bonds shall have been duly executed and authenticated as provided in the Indenture and shall have been duly delivered to the purchasers thereof against payment of the agreed consideration therefor.

For the purposes of this letter, we have assumed that there will be no changes in the laws currently applicable to the Company and the validity, legally binding character or enforceability of the Transition Bonds, and that such laws will be the only laws applicable to the Company and the Transition Bonds.

This letter is limited to the Limited Liability Company Act of the State of Delaware, the laws of the State of New York and the federal laws of the United States of America. We do not find it necessary for the purposes of this letter to cover, and accordingly we express no opinion as to, the application of the securities or blue sky laws of the various states to sales of the Transition Bonds.

We hereby consent to the filing of this letter as an exhibit to the report on Form 8-K on November 6, 2009 with respect to the above-referenced Registration Statement and to all references to our firm included in or made a part of the Registration Statement. In giving the foregoing consents, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the related rules and regulations of the Commission.  Except as stated above, without our prior written consent, this letter may not be furnished or quoted to, or relied upon by, any other person for any purpose.

Very truly yours,

/s/ Sidley Austin LLP

Sidley Austin LLP is a limited liability partnership practicing in affiliation with other Sidley Austin partnerships

EX-8.1

SIDLEY AUSTIN LLP 787 SEVENTH AVENUE NEW YORK, NY  10019 (212) 839 5300 (212) 839 5599 FAX	BEIJING BRUSSELS CHICAGO DALLAS FRANKFURT GENEVA HONG KONG LONDON	LOS ANGELES NEW YORK SAN FRANCISCO SHANGHAI SINGAPORE SYDNEY TOKYO WASHINGTON, D.C.
	FOUNDED 1866

November 6, 2009

Exhibit 8.1

Entergy Texas, Inc.

350 Pine Street

Beaumont, Texas 77701

Entergy Texas Restoration Funding, LLC

Capital Center

919 Congress Avenue, Suite 840-C

Austin, Texas 78701

Re: Entergy Texas Restoration Funding, LLC

Ladies and Gentlemen:

We have acted as special counsel to Entergy Texas, Inc., a Texas corporation ("ETI") and Entergy Texas Restoration Funding, LLC, a Delaware limited liability company (the "Company"), in connection with the preparation of the Registration Statement filed on Form S-3 (the "Registration Statement") with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), relating to the proposed issuance of up to $545,900,000 of transition bonds (the "Transition Bonds") of the Company to be offered in such manner as described in the form of the prospectus (the "Prospectus") and the form of prospectus supplement (the "Prospectus Supplement") included as part of the Registration Statement.  The Transition Bonds are to be issued under an Indenture (the "Indenture") between the Company and The Bank of New York Mellon, a New York banking corporation, as indenture trustee (the "Indenture Trustee").

We are familiar with the proceedings taken and proposed to be taken by the Company in connection with the proposed authorization, issuance and sale of the Transition Bonds.  We have examined and relied upon originals, or copies of originals, certified or otherwise identified to our satisfaction of such records of the Company and such agreements, certificates of public officials, certificates of officers or other representatives of the Company and other instruments, and examined such questions of law and satisfied ourselves to such matters of fact as we deemed relevant or necessary as a basis for this letter.  In rendering the opinions expressed in this letter, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals and the conformity with the original documents of any copies thereof submitted to us for examination.  As to any facts material to the opinions expressed herein that we have not independently established or verified, we have relied upon statements and representations of officers and other representatives of the Company or others.

Based upon the foregoing, it is our opinion that for U.S. federal income tax purposes, (1) the Company will not be treated as a taxable entity separate and apart from ETI and (2) the Transition Bonds will be treated as debt of ETI.

Our opinion is limited to the United States federal income tax matters specifically covered hereby, and we have neither been asked to address, nor have we addressed, any other tax consequences regarding the transaction referred to above or any other transaction. This opinion is based on the current provisions of the Internal Revenue Code and the Treasury Regulations issued or proposed thereunder, revenue rulings, revenue procedures and other published releases of the Internal Revenue Service and current case law, any of which can change at any time.  Any change could apply retroactively and modify the legal conclusions upon which our opinions are based.  This opinion is rendered as of the date hereof and we do not undertake, and hereby disclaim, any obligation to advise you of any changes in law or fact, whether or not material, that may be brought to our attention at a later date.

We are furnishing this opinion to you solely in connection with the issuance of the Transition Bonds described above, and this opinion is not to be relied on, circulated, quoted or otherwise referred to for any other purpose. However, we hereby consent to the filing of this opinion as an exhibit to the report on From 8-K filed on November 6, 2009 with respect to the above-referenced Registration Statement and to the references to this Firm in the Prospectus under the section captioned "Prospectus Summary – U.S. Federal Income Tax Status," the Prospectus under the section captioned "Material U.S. Federal Income Tax Consequences," the Prospectus under the section captioned "Legal Matters", and the Prospectus Supplement under the section captioned "Material U.S. Federal Income Tax Consequences." In giving such consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act, or the rules and regulations of the Commission thereunder.

Very truly yours,

/s/ Sidley Austin LLP

Sidley Austin LLP is a limited liability partnership practicing in affiliation with other Sidley Austin partnerships

EX-99.5

SIDLEY AUSTIN LLP 787 SEVENTH AVENUE NEW YORK, NY  10019 (212) 839 5300 (212) 839 5599 FAX	BEIJING BRUSSELS CHICAGO DALLAS FRANKFURT GENEVA HONG KONG LONDON	LOS ANGELES NEW YORK SAN FRANCISCO SHANGHAI SINGAPORE SYDNEY TOKYO WASHINGTON, D.C.
	FOUNDED 1866

Exhibit 99.5 Opinion

November 6, 2009

To Each of the Persons Listed

on Schedule A Attached Hereto

Re: Entergy Texas Restoration Funding, LLC

Senior Secured Transition Bonds - Federal Constitution Issues

Ladies and Gentlemen:

We have served as special counsel to Entergy Texas, Inc., a Texas corporation ("ETI"), in connection with the issuance and sale on the date hereof by Entergy Texas Restoration Funding, LLC, a Delaware limited liability company (the "Issuer"), of $545,900,000 aggregate principal amount of the Issuer's Senior Secured Transition Bonds (the "Bonds"), which are more fully described in the Prospectus Supplement dated October 29, 2009.  The Bonds are being sold pursuant to the provisions of the Underwriting Agreement dated October 29, 2009 (the "Underwriting Agreement") among ETI, the Issuer and the underwriters named in Schedule I to such Underwriting Agreement.  The Bonds are being issued pursuant to the provisions of the Indenture dated as of November 6, 2009 (the "Indenture"), as supplemented by the Series Supplement dated as of November 6, 2009 (together with the Indenture, the "Indenture"), between the Issuer and The Bank of New York Mellon, a New York banking corporation, as indenture trustee (the "Indenture Trustee").  Under the Indenture, the Indenture Trustee holds, among other things, transition property as described below (the "Transition Property") as collateral security for the payment of the Bonds.  This opinion is being delivered pursuant to Section 9(m) of the Underwriting Agreement.

"Transition property" is defined in the applicable provisions of Chapter 36, Subchapter I of the Texas Utility Code and Chapter 39, Subchapter G of the Texas Utility Code (collectively, the "Securitization Law") each being part of the Texas Public Utility Regulatory Act ("PURA")1  The Transition Property was created in favor of ETI, pursuant to a financing order issued by the Public Utility Commission of Texas (the "PUCT") on September 11, 2009, in Docket No. 37247 (the "Order"); and the Transition Property was assigned to the Issuer pursuant to the provisions of the Transition Property Purchase and Sale Agreement dated as of November 6, 2009 between ETI and the Issuer in consideration for the payment by the Issuer to ETI of the proceeds of the sale of the Bonds, net of certain issuance costs.  The Transition Property includes the right to impose and receive certain "non-bypassable" charges described in the Order (the "Charges").  The Charges constitute "transition charges" as defined in the Securitization Law and may be periodically adjusted, in the manner authorized in the Order, in order to enhance the probability that the revenues received by the Issuer from the Charges are sufficient to (i) amortize the Bonds pursuant to the amortization schedule to be followed in accordance with the provisions of the Bonds and the Indenture, (ii) pay interest thereon and related fees and expenses and (iii) maintain the required reserves for the payment of the Bonds.

The Order was issued in response to an application for its issuance that was filed by ETI with the PUCT pursuant to the provisions of PURA.  The Order became final and not subject to further appeal on September 28, 2009.  ETI filed its Issuance Advice Letter with the PUCT on October 30, 2009, as required by the Order, and its Schedule SRC- Tariff relating to the Charges on November 3, 2009.

Questions Presented and Opinions

Legislative Repeal, Amendment or Revocation

You have requested our opinion as to:

(a)           whether the State Pledge creates a contractual relationship between the State of Texas (the "State") and the holders of the Bonds (the "Bondholders");

(b)           whether the Bondholders could challenge successfully under the "contract clause" of the United States Constitution (Article I, Section 10 (the "Federal Contract Clause")) the constitutionality of any legislation passed by the Texas legislature (the "Legislature") which becomes law or any action of the PUCT exercising legislative powers ("Legislative Action") that in either case limits, alters, impairs or reduces the value of the Transition Property or the Charges so as to impair (i) the terms of the Indenture or the Bonds or (ii) the rights and remedies of the Bondholders (or the Indenture Trustee acting on their behalf) (any impairment described in clause (i) or (ii) being referred to herein as an "Impairment") prior to the time that the Bonds are fully paid and discharged2;

(c)           whether preliminary injunctive relief would be available under federal law to delay implementation of Legislative Action that limits, alters, impairs or reduces the value of the Transition Property or the Charges so as to cause an Impairment pending final adjudication of a claim challenging such Legislative Action under the Federal Contract Clause and, assuming a favorable final adjudication of such claim, whether relief would be available to prevent permanently the implementation of the challenged Legislative Action; and

(d)  whether, under the Fifth Amendment to the United States Constitution (made applicable to the State by the Fourteenth Amendment to the United States Constitution), which provides in part "nor shall private property be taken for public use, without just compensation" (the "Federal Takings Clause"), the State could repeal or amend PURA or take any other action in contravention of the State Pledge without paying just compensation to the Bondholders, as determined by a court of competent jurisdiction, if doing so (a) constituted a permanent appropriation of a substantial property interest of the Bondholders in the Transition Property or denied all economically productive use of the Transition Property; (b) destroyed the Transition Property other than in response to emergency conditions; or (c) substantially reduced, altered or impaired the value of the Transition Property so as to unduly interfere with the reasonable expectations of the Bondholders arising from their investments in the Bonds (a "Taking").

Based upon our review of relevant judicial authority, as set forth in this letter, but subject to the qualifications, limitations and assumptions (including the assumption that any Impairment would be "substantial") set forth in this letter, it is our opinion that a reviewing court  of competent jurisdiction, in a properly prepared and presented case:

(i)           would conclude that the State Pledge constitutes a contractual relationship between the Bondholders and the State;

(ii)           would conclude that, absent a demonstration by the State that an Impairment is necessary to further a significant and legitimate public purpose, the Bondholders (or the Indenture Trustee acting on their behalf) could successfully challenge under the Federal Contract Clause the constitutionality of any Legislative Action determined by such court to limit, alter, impair or reduce the value of the Transition Property or the Charges so as to cause an Impairment prior to the time that the Bonds are fully paid and discharged;

(iii)           should conclude that permanent injunctive relief is available under federal law to prevent implementation of Legislative Action hereafter taken and determined by such court to limit, alter, impair or reduce the value of the Transition Property or the Charges so as to cause an Impairment in violation of the Federal Contract Clause; and although sound and substantial arguments support the granting of preliminary injunctive relief, the decision to do so will be in the discretion of the court requested to take such action, which will be exercised on the basis of the considerations discussed in subpart B of Part II below; and

(iv)           would conclude that the State would be required to pay just compensation to Bondholders if the State's repeal or amendment of the Securitization Law or taking of any other action in contravention of the State Pledge (a) constituted a permanent appropriation of a substantial property interest of the Bondholders in the Transition Property or denied all economically productive use of the Transition Property; (b) destroyed the Transition Property other than in response to emergency conditions; or (c) substantially reduced, altered or impaired the value of the Transition Property so as to unduly interfere with the reasonable expectations of the Bondholders arising from their investments in the Bonds.

Our opinion in the immediately preceding paragraph (i) is based upon our evaluation of existing judicial decisions and arguments related to the factual circumstances likely to exist at the time of a Federal Contract Clause challenge to Legislative Action; such precedents and such circumstances could change materially from those discussed below in this letter.  Accordingly, such opinion is intended to express our belief as to the result that should be obtainable through the proper application of existing judicial decisions in a properly prepared and presented case.

We also note, with respect to such opinion, that existing case law indicates that the State would have to establish that any Impairment is necessary and reasonably tailored to address a significant public purpose, such as remedying or providing relief for a broad, widespread economic or social problem.  The cases also indicate that the State's justification would be subjected to a higher degree of scrutiny, and that the State would bear a more substantial burden, if the Legislative Action impairs a contract to which the State is a party (which we believe to be the case here), as contrasted to a contract solely between private parties.

We note that our work in connection with the preparation of this opinion and the issuance of the Bonds did not bring to our attention any reported judicial decision which we believe would provide a basis on which a court would declare the provisions of the Securitization  Law to be invalid under the United States Constitution and it is our opinion that the Securitization Law is constitutional in all material respects under the United States Constitution.  As discussed in our opinion delivered to you of even date herewith concerning certain bankruptcy matters, however, there is some judicial authority providing a basis for an argument that certain provisions of the Securitization Law with respect to the commingling of funds may be preempted by the United States Bankruptcy Code under the Supremacy Clause (Article VI) of the United States Constitution.  Our analysis as to the merits of such an argument is set forth in that other opinion.  If such provisions of the Securitization Law were so preempted by the Bankruptcy Code and declared invalid, such preemption would not, in our view, provide a grounds for changing the opinions otherwise set forth herein,

Discussion

I.           Protection of State Pledge Under the Federal Contract Clause

Section 39.310 of PURA provides:

Transition bonds are not a debt or obligation of the state and are not a charge on its full faith and credit or taxing power.  The state pledges, however, for the benefit and protection of financing parties and the electric utility, that it will not take or permit any action that would impair the value of transition property, or, except as permitted by Section 39.307 [regarding true-ups], reduce, alter, or impair the transition charges to be imposed, collected, and remitted to financing parties, until the principal, interest and premium, and any other charges incurred and contracts to be performed in connection with the related transition bonds have been paid and performed in full.  Any party issuing transition bonds is authorized to include this pledge in any documentation relating to those bonds.

PURA § 39.310.  As authorized by the foregoing statutory provision and the Order, the language of the State Pledge has been included in the Indenture and in the Bonds.  Based on our analysis of relevant judicial authority, as set forth below, it is our opinion, subject to all of the qualifications, limitations and assumptions (including the assumption that any Impairment would be "substantial") set forth in this letter, that, absent a demonstration by the State that an Impairment is necessary to further a significant and legitimate public purpose, a reviewing court would conclude that the State Pledge provides a basis upon which the Bondholders (or the Indenture Trustee acting on their behalf) could challenge successfully, under the Federal Contract Clause, the constitutionality of any Legislative Action determined by such court to reduce, alter, or impair the value of the Transition Property or the Charges so as to cause an Impairment prior to the time that the Bonds are fully paid and discharged.

Article I, Section 10 of the United States Constitution prohibits any state from impairing the "obligation of contracts," whether among private parties or among such state and private parties.3  The general purpose of the Federal Contract Clause is "to encourage trade and credit by promoting confidence in the stability of contractual obligations."4 The law is well-settled that "the [Federal] Contract Clause limits the power of the States to modify their own contracts as well as to regulate those between private parties."5  Although the Federal Contract Clause appears literally to proscribe any impairment, the United States Supreme Court has made it clear that the proscription is not absolute:  "Although the language of the Federal Contract Clause is facially absolute, its prohibition must be accommodated to the inherent police power of the State ‘to safeguard the vital interests of its people.'"6

In recent cases, the United States Supreme Court has applied a three-part analysis to determine whether a particular legislative action violates the Federal Contract Clause:7

(1) whether the legislative action operates as a substantial impairment of a contractual relationship;

(2) assuming such an impairment, whether the legislative action is justified by a significant and legitimate public purpose; and

(3) whether the adjustment of the rights and responsibilities of the contracting parties is reasonable and appropriate given the public purpose behind the legislative action.

The first inquiry contains three components:8

(1) does a contractual relationship exist;

(2) does the change in law impair that contractual relationship; and

(3) is the impairment substantial.

In addition, to succeed with a claim under the Federal Contract Clause, a party must show that the contractual relationship is not an invalid attempt to restrict or limit a state's "reserved powers."9

The following three subparts address:  (i) whether a contract exists between the State and the holders of the Bonds; (ii) if so, whether such contract violates the "reserved powers" doctrine, which would render such contract unenforceable; and (iii) the State's burden in justifying an impairment.  The determination of whether particular Legislative Action constitutes a substantial impairment of a particular contract is a fact-specific analysis, and nothing in this letter expresses any opinion as to how a court would resolve the issue of "substantial impairment" with respect to the Order, the Transition Property or the Bonds vis-a-vis a particular Legislative Action.  Therefore, we have assumed for purposes of this letter that any Impairment resulting from the Legislative Action being challenged under the Federal Contract Clause would be substantial.10  In the final subpart of this Part I, we address what relief would be likely to be granted if a Federal Contract Clause challenge were successfully asserted.

A.           Existence of a Contractual Relationship

The courts have recognized the general presumption that, absent some clear indication that a legislature intends to bind itself contractually, "a law is not intended to create private contractual or vested rights but merely declares a policy to be pursued until the legislature shall ordain otherwise."11  This presumption is based on the fact that the legislature's principal function is not to make contracts, but to make laws that establish the policy of the state.  Thus, a person asserting the creation of a contract with the State must overcome this presumption.

This general presumption can be overcome where the language of the statute indicates an intention to create contractual rights.  In determining whether a contract has been created by statute, "it is of first importance to examine the language of the statute."12    The courts have ruled that a statute creates a contractual relationship between a state and private parties if the statutory language contains sufficient words of contractual undertaking.13  The United States Supreme Court has stated that a contract is created "when the language and circumstances evince a legislative intent to create private rights of a contractual nature enforceable against the State."14

In U.S. Trust, the United States Supreme Court affirmed the trial court's finding, which was not contested on appeal, that a statutory covenant of two states for the benefit of the holders of certain bonds gave rise to a contractual obligation between such states and the bondholders.15  The covenant at issue limited the ability of the Port Authority of New York and New Jersey to subsidize rail passenger transportation from revenues and reserves pledged as security for such bonds.  In finding the existence of a contract between such states and bondholders, the Court stated "[t]he intent to make a contract is clear from the statutory language:  ‘The two States covenant and agree with each other and with the holders of any affected bonds. . .. . ‘"16  Later, in Nat'l R.R., the Court discussed the U.S. Trust covenant and noted: "[r]esort need not be had to a dictionary or case law to recognize the language of contract" in such covenant.17

Similarly, in Brand, the United States Supreme Court determined that the Indiana Teachers' Tenure Act created a contract between the state and specified teachers because the statutory language demonstrated a clear legislative intent to contract.  The Court based its decision, in part, on the legislature's use of the word "contract" throughout the statute to describe the legal relationship between the state and such teachers.18

Like the language of the covenant considered in U.S. Trust, the language of the State Pledge plainly manifests the Legislature's intent to bind the State.19  Indeed, the biggest difference between such language and the U.S. Trust statute is the use of the verb "pledge," rather than "covenant," but that difference is not, in our view, material.  The definition of the Legislature's term - -- "pledge" -- is "to bind by a promise."20  Accordingly, this slight variation between the State Pledge and the language contained in the U.S. Trust statute appears inconsequential and not to provide a basis for distinguishing the wording of the two statutes. Unlike the statute construed in Nat'l R.R., PURA expressly includes language indicating the State's obligation with respect to transition bond transactions.  See PURA § 39.310 ("The State pledges . . . that it will not take or permit any action that would impair the value of transition property . . . until the principal, interest and premium . . .. and contracts to be performed in connection with the related transition bonds have been paid and performed in full.").  Id.  (emphasis added).  Moreover, it is important to note that the State also authorizes an issuer of transition bonds to include the State Pledge in contracts with the holders of transition bonds (such as the Bonds).  Id.

In summary, the language of the State Pledge supports the conclusion that it constitutes a contractual relationship between the State and the Bondholders.  We are not aware of any circumstances surrounding enactment of the Securitization Law that suggests that the Legislature did not intend to bind the State contractually by the State Pledge.21

B.           Reserved Powers Doctrine

The "reserved powers" doctrine limits the State's ability to bind itself contractually in a manner which surrenders an essential attribute of its sovereignty.22  Under this doctrine, if a contract limits a state's "reserved powers" -- powers that cannot be contracted away -- such contract is void.23  Although the scope of these "reserved powers" has not been precisely defined by the courts, case law has established that a state cannot contract away its police powers24 or its power of eminent domain.25  In contrast, the United States Supreme Court has stated that a state's "power to enter into effective financial contracts cannot be questioned."26

Under existing case law, the State Pledge does not, in our view, limit any "reserved powers" of the State.  The State Pledge does not purport to contract away, or constitute a waiver of, the State's power of eminent domain or otherwise restrict the State's ability to legislate for the public welfare or to exercise its police powers.  Through "financing orders" (such as the Order), the State will authorize electric utilities to issue "transition bonds" (such as the Bonds) and pledges not to impair the value of the "transition property" (such as the Transition Property) securing such instruments.  In other words, the State Pledge constitutes an agreement made by the State not to impair the financial security for transition bonds in order to foster the capital markets' acceptance of such bonds, which are expressly authorized and will be issued as part of the transition to a new electric utility industry structure.  The State Pledge is clearly an inducement offered by the State to investors to purchase the Bonds.  As such, we believe that the State Pledge is akin to the type of "financial contract" involved in U.S. Trust, a promise that revenues and reserves securing the bonds at issue there would not be depleted beyond a certain level.27

C.           State's Burden to Justify an Impairment

Any substantial impairment by a state of contractual rights which cannot be upheld under the "reserved powers" doctrine must be justified as a legitimate exercise of the state's police powers in order to be successfully defended against a challenge pursuant to the Federal Contract Clause.28  In Blaisdell29, referred to by the United States Supreme Court in U.S. Trust as "the leading case in the modern era of [Federal] Contract Clause interpretation,"30 the Court found that the economic exigencies of the time (the Depression) justified a Minnesota law which (i) authorized county courts to extend the period of redemption from foreclosure sales on mortgages previously made "for such additional time as the court may deem to be just and equitable," subject to certain limitations, and (ii) limited actions for deficiency judgments.31  The Court stated that the "reserved powers" doctrine could not be construed "to permit the state to adopt as its policy the repudiation of debts or the destruction of contracts or the denial of means to enforce them."  On the other hand, the Court also indicated that the Federal Contract Clause could not be construed32

to prevent limited and temporary interpositions with respect to the enforcements [of contracts] if made necessary by a great public calamity such as fire, flood, or earthquake.  [citation omitted]  The reservation of state power appropriate to such extraordinary conditions may be deemed to be as much a part of all contracts, as is the reservation of state power to protect the public interest in other situations to which we have referred.  And if state power exists to give temporary relief from the enforcement of contracts in the presence of disasters due to physical causes such as fire, flood or earthquake, that power cannot be said to be non-existent when the urgent public need demanding such relief is produced by other and economic causes.

In upholding the Minnesota law, the Court relied on the following:  (1) an economic emergency existed which threatened the loss of homes and lands which furnish those persons in possession with necessary shelter and means of subsistence; (2) the law was not enacted for the benefit of particular individuals but for the protection of a basic interest of society; (3) the relief provided by the law was appropriate to the emergency, and could only be granted upon reasonable conditions; (4) the conditions on which the period of redemption was extended by the law did not appear to be unreasonable; and (5) the law was temporary in operation and limited to the emergency on which it was based.33  In 1983, the United States Supreme Court stated in its Energy Reserves opinion that "a significant and legitimate public purpose" is required to justify a substantial impairment of contract.34  Similarly, the Court had earlier stated that, to be justifiable, an impairment must deal with "a broad, generalized economic or social problem."35

The deference to be given by a court to a legislature's determination of the need for a particular impairment depends on whether the contract is purely private or the state is a contracting party.  In a 1987 decision evaluating a state statute under the Federal Contract Clause, the United States Supreme Court noted that it has repeatedly held that, unless a state is a contracting party (which we believe to be the case here), courts should defer to legislative judgment as to the necessity and reasonableness of a particular action.36  Both the Energy Reserves and Spannaus opinions noted, however, that when a state is a contracting party the "stricter standard" of justification set forth in the U.S. Trust opinion is applicable.37  The Energy Reserves Court also noted that "[i]n almost every case, the Court has held a governmental unit to its contractual obligations when it enters financial or other markets."38

In U.S. Trust, the United States Supreme Court stated that an impairment of a contract with a state "may be constitutional if it is reasonable and necessary to serve an important public purpose."39  The Court further stated, however, that "complete deference to a legislative assessment of reasonableness and necessity is not appropriate."40  The "public purposes" advanced as justifications for the contractual impairment were the promotion of mass transportation, energy conservation and environmental protection, and encouragement of the use of public transportation rather than private automobiles.41  The Court rejected those justifications because repeal of the covenant was "neither necessary to achievement of the plan nor reasonable in light of the circumstances."42  The Court stated that a modification less drastic than total repeal would have permitted the states to achieve their plan to improve commuter rail service, and, in fact, the states could have achieved that goal without modifying the covenant at all.43   For example, the states "could discourage automobile use through taxes on gasoline or parking . . .. and use the revenues to subsidize mass transit projects."44

The U.S. Trust Court contrasted the legislation under consideration with the statute challenged in El Paso v. Simmons,45 which limited to five years the reinstatement rights of defaulting purchasers of land from the state.  For many years prior to the enactment of this statute, defaulting purchasers had been allowed to reinstate their claims upon written request and payment of delinquent interest, unless the rights of third parties had intervened.  In the judgment of the U.S. Trust Court, this older (19th century) statute "had effects that were unforeseen and unintended by the legislature when originally adopted," i.e., "speculators were placed in a position to obtain windfall benefits," and therefore adoption of a statute of limitations was reasonable to restrict parties to gains reasonably expected from the contract when the original statute was adopted.46  In contrast, the U.S. Trust Court stated that the need for mass transportation was not a new development and the likelihood that publicly owned commuter railroads would produce substantial deficits was well known when the covenant was adopted.47  Although, the Court noted, public perception of the importance of mass transit undoubtedly grew between 1962, when the covenant was adopted, and 1974, when it was repealed, "these concerns were not unknown in 1962, and the subsequent changes were of degree and not of kind . . . . and [did not] cause the covenant to have a substantially different impact in 1974 than when it was adopted in 1962."48

The U.S. Trust Court also distinguished its earlier decision in Faitoute Iron & Steel Co. v. City of Asbury Park,49 which, according to the Court, was the "only time in this century that alteration of a municipal bond contract has been sustained."50  Faitoute involved a state municipal reorganization act under which bankrupt local governments could be placed in receivership by a state agency.  Pursuant to that act, the holders of certain municipal revenue bonds received new securities bearing lower interest rates and later maturities.  According to the Court in U.S. Trust, the earlier decision rejected the dissenting bondholders' Federal Contract Clause claims on the theory that the "old bonds represented only theoretical rights; as a practical matter the city could not raise its taxes enough to pay off its creditors under the old contract terms," and thus the plan "enabled the city to meet its financial obligations more effectively."51  The U.S. Trust Court further quoted Faitoute to the effect that the obligation in that case was "discharged, not impaired" by the plan.52

The Court's opinion in Winstar, even though not a Federal Contract Clause case, is consistent with U.S. Trust in imposing a more rigorous standard of justification where the government is a contracting party.  One issue in Winstar was whether the contract claim was barred by the "sovereign acts" doctrine, i.e., the government's "public and general" acts cannot amount to a breach of contract.  Although the legislation alleged to constitute a contractual breach had as its purposes "preventing the collapse of the [thrift] industry, attacking the root causes of the crisis, and restoring public confidence",53 the Court held a "sovereign acts" defense was unavailable:  "[w]hile our limited enquiry into the background and evolution of the thrift crisis leaves us with the understanding that Congress acted to protect the public in the FIRREA legislation, the extent to which this reform relieved the Government of its own contractual obligations precludes a finding that the statute is a ‘public and general' act for purposes of the sovereign acts defense."54

Thus, the relevant case law demonstrates that a state bears a substantial burden  when attempting to justify an impairment of a contract to which it is a party.  A mere recitation that the impairment is in the public interest is insufficient.  Instead, a specific and significant state interest must be established, and the impairment must be necessary to further that interest.  Furthermore, "a state is not free to impose a drastic impairment when an evident and more moderate course would serve its purposes equally well."55

II.           Relief Granted in a Federal Contract Clause Challenge

A.           Permanent Injunctive Relief

In a Federal Contract Clause challenge to Legislative Action alleged to cause an Impairment, the remedies which the plaintiff would be expected to seek are (i) a declaration of the invalidity of such Legislative Action and (ii) an order permanently enjoining State officials from enforcing the provisions of such Legislative Action; a claim for money damages against the State would appear less likely.  Whether such a declaration of invalidity could be obtained will depend on application of the principles discussed in Part I, as well as a demonstration that such law effected a substantial impairment.  If such a declaration were obtained, the plaintiff would then have to meet several requirements in order to obtain a permanent injunction.  Texas law would govern the requirements for issuance of a permanent injunction if the case were brought in State court,56 while federal law would govern those requirements if the case were brought in federal court.57 The following discussion relates to federal law only.

Federal case law applies the following test in determining whether to grant permanent injunctive relief: (i) success on the merits of the claim;58  (ii) a demonstration of irreparable harm; (iii) a showing of the inadequacy of legal remedies; and (iv) a determination that granting the injunction will not disserve the public interest.59  The first requirement, a showing of likely success on the merits of the claim, will have been satisfied by obtaining the aforementioned declaration of the invalidity of such Legislative Action.60  The party seeking a permanent injunction must also establish that it has no adequate remedy at law, for example, money damages.  It seems doubtful that the Bondholders (or the Indenture Trustee acting on their behalf) could obtain adequate money damages from the State or its officials.61  Such party must further show that without permanent injunctive relief, it would suffer irreparable harm.  The "irreparable harm" and "inadequate legal remedies" tests are closely related.  However, one way to distinguish the two tests is to interpret the "irreparable harm" requirement to mean that the wrongful act be of a continuing nature, as opposed to a one-time denial of rights.62  It appears to us that any substantial Impairment would, in all likelihood, constitute a transgression of a continuing nature supporting the grant of permanent injunctive relief.  For example, the Fifth Circuit has acknowledged that a federal court may enjoin state officials from enforcing an unconstitutional statute under certain "unusual" circumstances that require equitable relief.  In Let's Help Florida v. McCrary,63 the Fifth Circuit upheld the issuance of an injunction against enforcement of two statutes limiting political contributions because the timing of the next election, which was to be held a few weeks later, meant that the plaintiffs would suffer an irreparable loss of their First Amendment rights if they were barred from making contributions that they were constitutionally permitted to make.  Had the court refused to provide equitable relief while awaiting a trial on the merits, the plaintiffs would have permanently lost their opportunity to affect the outcome of that election through their contributions.  The court ruled that such a situation constituted the necessary unusual circumstances that could justify equitable relief.  For the reasons stated above, we believe that a substantial Impairment in this case would constitute the unusual circumstances that are required for the grant of permanent injunctive relief from a court sitting in the Fifth Circuit.

B.           Preliminary Injunctive Relief

Whether a preliminary injunction delaying implementation of Legislative Action being challenged under the Federal Contract Clause as a substantial Impairment could be obtained by the Bondholders (or the Indenture Trustee acting on their behalf) pending an adjudication on the merits of such claim will depend on several considerations.  As noted in subpart B of this Part II with respect to the availability of permanent injunctive relief, an action challenging such Legislative Action, and therefore an accompanying request for preliminary injunctive relief, could be brought in either a Texas court or a federal court, and Texas law or federal law, respectively, would provide the basis for determining whether such relief should be granted.64  The following discussion relates to federal law only.

The function of preliminary injunctive relief is to preserve the latest uncontested status quo prior to the action which is the subject of the legal challenge.65  The latest uncontested status quo with respect to the Bonds prior to the challenged Legislative Action would appear to be the continued effectiveness of the Order and the validity of the Transition Property and Charges.  The factors considered by federal courts in ruling on a request for preliminary injunctive relief are: (i) the party seeking relief must show a substantial likelihood of success on the merits; (ii) such party will suffer a substantial threat of irreparable injury if the preliminary injunction is not granted; (iii) the threatened injury to the plaintiff outweighs the injury the injunction would cause to the defendant; and (iv) the injunction must not be adverse to the public interest.66  The third part of the test, the balancing of hardships, is often done on a "sliding scale" basis:  the showing of hardship required by a party seeking relief is inversely related to the strength on the merits of such party's claims.67

Assuming that the injunction is not adverse to the public interest, that the Federal Contract Clause claim appears to the court to be meritorious (based on the application of the principles discussed in Part I), and further assuming that the challenged Legislative Action effects a substantial Impairment, the requirement of likelihood of success on the merits should be met.  However, decisions in several federal courts have found that a delay in the scheduled receipt of payments until final judgment is not the type of "irreparable harm" which a preliminary injunction seeks to prevent, absent countervailing circumstances -- such as the possibility that such delay could result in the insolvency or the destruction of the business of the party seeking the preliminary injunction or could result in the other party's insolvency (thereby rendering a judgment worthless).68  Notwithstanding these decisions, there are arguments why payment delays on the Bonds should be accepted as "irreparable harm," and why the Bondholders would experience greater harm if preliminary injunctive relief were denied than any other party would suffer if it were granted.  For example, if imposition and collection of the Charges, and accordingly payments to the Issuer, were stopped or reduced, the ratings on the Bonds would likely be downgraded, causing a loss of value in the Bonds and possibly causing institutional Bondholders to sell their Bonds at depressed market prices, and Bondholders could experience delays or omissions in the receipt of payments of interest or principal on their Bonds.  In addition, any such loss on sale or additional interest due the Bondholders as the result of the payment interruption probably could not be recovered from the likely defendant (the State) in the proceeding on the merits.

III.           Federal Takings Clause

A.           Analysis

The Federal Takings Clause --- "nor shall private property be taken for public use, without just compensation."  --- is made applicable to state action via the Fourteenth Amendment.69    The Federal Takings Clause covers both tangible and intangible property.70   Rights under contracts can be property for purposes of the Federal Takings Clause71, but legislation that "disregards or destroys" contract rights does not always constitute a taking.72    Where intangible property is at issue, state law will determine whether a property right exists.  Based on the opinion of Clark, Thomas & Winters, a Professional Corporation of even date herewith with respect to constitutional issues under the "takings" clause of the Texas State Constitution, it is our understanding that the Transition Property would be treated as a property interest under Texas law, and it is therefore our belief that the Transition Property would constitute a cognizable property interest for purposes of the Federal Takings Clause.  If a court determines that an intangible asset is property, a court will next look to whether the owner of the property interest had a "reasonable investment-backed expectation" that the property right would be protected.73

The United States Supreme Court has suggested that the Federal Takings Clause may be implicated by a diverse range of government actions, including when the government (a) permanently appropriates or denies all economically productive use of property74; (b) destroys property other than in response to emergency conditions75; or (c) reduces, alters or impairs the value of property so as to unduly interfere with reasonable investment-backed expectations.76  In determining what is an undue interference, a court would consider the nature of the governmental action and weigh the public purpose served thereby against the degree to which it interferes with legitimate property interests and distinct investment-backed expectations of the Bondholders.

In Lingle,77 the Supreme Court identified two categories where regulatory action constitutes per se takings – regulations that involve a permanent physical invasion of property and regulations that deprive the owner of all economically beneficial use of the property – plus a third category of other regulatory takings.  In cases in this third category, the Supreme Court has eschewed any set formula and has relied instead on "ad hoc, factual inquiries into the circumstances of each particular case."78  According to the Connolly decision, a regulation constitutes a taking if it denies a property owner "economically viable use" of that property, which is determined by three factors:  (i) the character of the governmental action; (ii) the economic impact of the regulation on the claimant; and (iii) the extent to which the regulation has interfered with distinct investment-backed expectations.79

The first factor described above requires the court to examine "the purpose and importance of the public interest reflected in the regulatory imposition" and "to balance the liberty interest of the private property owner against the Government's need to protect the public interest through imposition of the restraint."80

The second factor described above incorporates the principle enunciated by Justice Holmes:  "Government hardly could go on if to some extent values incident to property could not be diminished without paying for every such change in the general law."81  "Not every destruction of injury to property by governmental action has been held to be a ‘taking' in the constitutional sense."82  Diminution in property value alone, thus, does not constitute a taking; there must be serious economic harm.

The third factor described above is "a way of limiting recovery under the Federal Takings Clause to owners who could demonstrate that they bought their property in reliance on a state of affairs that did not include the challenged regulatory regime."83    The burden of showing such interference is a heavy one.84    Thus, a reasonable investment-backed expectation "must be more than a ‘unilateral expectation or an abstract need."85 Further, "[l]egislation adjusting rights and burdens is not unlawful solely because it upsets otherwise settled expectations."86   "[T]he fact that legislation disregards or destroys existing contractual rights does not always transform the regulation into an illegal taking….  This is not to say that contractual rights are never property rights or that the Government may always take them for its own benefit without compensation."87  In order to sustain a claim under the Federal Takings Clause, the private party must show that it had a "reasonable expectation" at the time the contract was entered that it "would proceed without possible hindrance" arising from changes in government policy.88    With respect to this third factor, we note that the Securitization Law expressly provides for the creation of transition property in connection with the issuance of the Bonds, and further provides that the Order, once final, is irrevocable.  Moreover, through the State Pledge, the State has pledged, "for the benefit and protection of financing parties" not to impair the value of such Transition Property.  Given the foregoing, we believe it would be hard to dispute that Bondholders have reasonable investment expectations with respect to their investments in the Bonds.

We are not aware of any case law which addresses the applicability of the Federal Takings Clause in the context of the proper exercise by a state of its police power to abrogate or impair contracts otherwise binding on the state.  The outcome of any claim that interference by the State with the value of the Transition Property without compensation is unconstitutional, would likely depend on factors such as the State interest furthered by that interference and the extent of financial loss to Bondholders caused by that interference, as well as the extent to which courts would consider that Bondholders had a reasonable expectation that changes in government policy and regulation would not interfere with their investment.

B.           Conclusion

Based on our analysis of relevant judicial authority, as set forth above, it is our opinion, subject to all of the qualifications, limitations and assumptions set forth in this letter, that, under the Federal Takings Clause, a reviewing court would hold that the State would be required to pay just compensation to Bondholders if the State's repeal or amendment of the Securitization Law or taking of any other action by the State in contravention of the State Pledge (a) constituted a permanent appropriation of a substantial property interest of the Bondholders in the Transition Property or denied all economically productive use of the Transition Property; (b) destroyed the Transition Property other than in response to emergency conditions; or (c) substantially reduced, altered or impaired the value of the Transition Property so as to unduly interfere with the reasonable expectations of the Bondholders arising from their investments in the Bonds.  As noted earlier, in determining what is an undue interference, a court would consider the nature of the governmental action and weigh the public purpose served thereby against the degree to which it interferes with the legitimate property interests and distinct investment-backed expectations of the Bondholders.  There can be no assurance, however, that any such award of just compensation would be sufficient to pay the full amount of principal of and interest on the Bonds.89

* * * * *

We note that judicial analysis of issues relating to the Federal Contract Clause and the retroactive effect to be given to judicial decisions has typically proceeded on a case-by-case basis and that the court's determination, in most instances, is usually strongly influenced by the facts and circumstances of the particular case.  We further note that there are no reported controlling judicial precedents of which we are aware directly on point. Our analysis is necessarily a reasoned application of judicial decisions involving similar or analogous circumstances.  Moreover, the application of equitable principles (including the availability of injunctive relief or the issuance of a stay pending appeal) is subject to the discretion of the court which is asked to apply them.  We cannot predict the facts and circumstances which will be present in the future and may be relevant to the exercise of such discretion.  Consequently, there can be no assurance that a court will follow our reasoning or reach the conclusions which we believe current judicial precedent supports.  It is our and your understanding that none of the foregoing opinions is intended to be a guaranty as to what a particular court would actually hold; rather each such opinion is only an expression as to the decision a court ought to reach if the issue were properly prepared and presented to it and the court followed what we believe to be the applicable legal principles under existing judicial precedent. The recipients of this letter should take these considerations into account in analyzing the risks associated with the subject transaction.

Any opinion expressed herein with respect to enforceability is subject to the qualifications, limitations and assumptions set forth in the Bankruptcy Opinion.

This letter is limited to the federal laws of the United States of America.

This letter is being delivered solely for the benefit of the persons to whom it is addressed; accordingly, it may not be quoted, filed with any governmental authority or other regulatory agency or otherwise circulated or utilized for any other purpose without our prior written consent.  We hereby consent to the filing of this letter as an exhibit to the Form 8-K filed on November 6, 2009 with respect to the above-referenced Registration Statement filed on Form S-3 with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), relating to the registration of the Bonds and to all references to our firm included in or made a part of the Registration Statement.  In giving the foregoing consents, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the related rules and regulations of the Commission.  We assume no obligation to update or supplement this letter to reflect any facts or circumstances which may hereafter come to our attention with respect to the opinions or statements expressed above, including any changes in applicable law which may hereafter occur.

Very truly yours,

/s/ Sidley Austin LLP

 

1 Public Utility Regulatory Act, Tex. Util. Code Ann. §§ 11.001-66.016 (Vernon 2007 & Supp. 2008).

 

2 As discussed in more detail in the opinion of Clark, Thomas & Winters, a Professional Corporation of even date herewith, the PUCT has acknowledged that it is bound by the State Pledge.  Assuming that the PUCT is bound by the State Pledge as a matter of Texas law, a breach of the State Pledge by the PUCT exercising legislative powers would be treated the same as a breach of the State Pledge by the Legislature under the Federal Contract Clause.

3 Article I, Section 10, provides, in relevant part, “No State shall . . . pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, . . . .”  U.S. Const. art. I,  10.  Please see opinion of Clark, Thomas & Winters, a Professional Corporation, of even date herewith, with respect to the Contract Clause in the Texas Constitution.

4 See United States Trust Co. of New York v. New Jersey, 431 U.S. 1, 15 (1977) (cited in the text as “U.S. Trust”).

5 Id. at 17 (citations omitted).

6 Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 410 (1983) (cited in the text as “Energy Reserves”) (citing Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398, 434 (1934) (cited in the text as “Blaisdell”)).

7 Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 411-12 (1983).  See also Toledo Area AFL-CIO Council v. Pizza, 154 F.3d 307, 323 (6th Cir. 1998) (stating the three-part analysis).

8 General Motors Corp. v. Romein, 503 U.S. 181, 186 (1991).

9 See discussion under subpart B of this Part I.

10 We note, however, that in U.S. Trust the United States Supreme Court found a substantial impairment where the States of New York and New Jersey repealed outright an ”important security provision” securing repayment of bonds without any form of compensation to the bondholders, even in the absence of a finding of the extent of financial loss suffered by the bondholders as a result of the repeal.  431 U.S. 1, 19 (1977).  See also Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398, 429-35  (1934).

11 National R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry. Co., 470 U.S. 451, 466 (1985) (cited in the text as “Nat'l R.R.”)  (quoting Dodge v. Board of Educ., 302 U.S. 74, 78 (1937) (cited in the text as “Dodge”)).

12 Dodge v. Board of Educ., 302 U.S. 74, 78 (1937).

13 See Indiana ex rel. Anderson v. Brand, 303 U.S. 95, 104-05 (1938) (cited in the text as “Brand”) (noting “the cardinal inquiry is as to the terms of the statute supposed to create such a contract”); United States Trust Co. of New York v. New Jersey, 431 U.S. 1, 18 (1977).

14 United States Trust Co. of New York v. New Jersey, 431 U.S. 1, 17 n.14 (1977).

15 Id. at 18.

16 Id. at 17.  Although the issue of whether a contract existed between such states and the bondholders was never disputed on appeal, the Court reviewed the language of the covenant and the circumstances surrounding the covenant, and stated, “We therefore have no doubt that the 1962 covenant has been properly characterized as a contractual obligation of the two States.”  Id. at 18.

17 See National R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry. Co., 470 U.S. 451, 470 (1985).

18 Indiana ex rel. Anderson v. Brand, 303 U.S. 95, 105 (1938).   However, the mere use of the word “contract” in a statute will not necessarily evince the requisite legislative intent.  As the Court cautioned in Nat'l R.R., the use of the word “contract” alone would not signify the existence of a contract with the government.  National R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry. Co., 470 U.S. 451,  470 (1985).  In Nat'l R.R., the Court found that use of the word “contract” in the Rail Passenger Service Act defined only the relationship between the newly-created nongovernmental corporation (Amtrak) and the railroads, not the relationship between the United States and the railroads. The Court determined that “[l]egislation outlining the terms on which private parties may execute contracts does not on its own constitute a statutory contract.”  Id.,  at 467.

19 It could be contended that the factual situation in the U.S. Trust case is distinguishable from the factual situation surrounding the issuance of the Bonds.  In U.S. Trust, the bonds were issued by the Port Authority -- a governmental agency -- while the Bonds are being issued by a private entity.  However, PURA dictates that a utility must obtain a financing order before any “transition bonds” such as the Bonds are issued.  The authority to issue such an order rests with the State, acting through the PUCT, and therefore the issuance of the Bonds is state-sanctioned in a manner closely analogous to the situation in U.S. Trust.

20 Webster's New World Dictionary 573 (2d ed. 1982).

21 In addition to the State Pledge, the PUCT's financing order contains the following language: “The Commission guarantees that it will act pursuant to this Financing Order as expressly authorized by PURA to ensure that expected transition charge revenues are sufficient to pay on a timely basis scheduled principal and interest on the transition bonds issued pursuant to this Financing Order and other costs, including fees and expenses, in connection with the transition bonds.”  We refer you to the opinion with respect to constitutional law issues of Clark, Thomas & Winters, a Professional Corporation of even date herewith for a discussion of this language.

22 United States Trust Co. of New York v. New Jersey, 431 U.S. 1, 23 (1977).

23 Id.  See generally United States v. Winstar Corp., 518 U.S. 839, 888-90 (1996) (cited in the text as “Winstar”).

24 Stone v. Mississippi, 101 U.S. 814, 817 (1880).

25 West River Bridge Co. v. Dix, 47 U.S. 507, 525-26 (1848).

26 United States Trust Co. of New York v. New Jersey, 431 U.S. 1, 24 (1977).

27 Id. at 25.

28 Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 411-12 (1983).

29 Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. 398 (1934).

30 United States Trust Co. of New York v. New Jersey, 431 U.S. 1, 15 (1977).

31 The mortgagor was required to continue to pay the reasonable income or rental value of the property, as determined by the court, toward payment of taxes, insurance, interest and principal.  The law stated that it was to remain in effect only during the current emergency and no later than May 1, 1935; no redemption period could be extended beyond the expiration of the law.  Home Bldg. & Loan Ass'n v. Blaisdell, 290 U.S. at 415-18.

32 Id. at 439-40.

33 Id. at 444-47.  Contemporaneous cases in which the United States Supreme Court struck down laws passed in response to an economic emergency reinforce the notion that, to be justified, the impairment must be a reasonable and specific response to the conditions.  See  Treigle v. Acme Homestead Ass'n, 297 U.S. 189 (1936); W.B. Worthen Co. v. Kavanaugh, 295 U.S. 56 (1935) (cited in the text as “Worthen”); W.B. Worthen Co. v. Thomas, 292 U.S. 426 (1934).

34 Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 411 (1983).

35 Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 250 (1978) (cited in the text as “Spannaus”).

36 Keystone Bituminous Coat Ass'n v. DeBenedictis,  480 U.S. 470 (1987) (cited in the text as “DeBenedictis”).  The decision involved a 1966 Pennsylvania law which authorized a state agency to revoke a coal mine operator's mining permit if removal of the coal caused damage to a structure or area protected by the law and the operator had not within six months taken certain remedial action.  Several mine operators claimed that the law impaired their rights to enforce contractual waivers by  the owners of the affected surface rights of any claims for liability due to surface damage.  While agreeing that the 1966 law operated as a substantial impairment of the operators' contracts, the Court held that the state had a strong public interest in preventing the damage caused by underground mining, “the environmental effect of which transcends any private agreement between contracting parties.”  480 U.S. at 505.  Since 1966, the operators had conducted mining operations under approximately 14,000 structures protected by the law.  The Court noted the “devastating effects” of subsidence caused by underground mining, including substantial damage to foundations, walls and other structural members, and the integrity of houses and buildings; sinkholes which made land difficult or impossible to develop or farm; and loss of groundwater and surface ponds.  Id. at 475.  The Court concluded that the law “plainly survives scrutiny under our standards for evaluating impairments of private contracts.”  Id. at 505-06.

37 Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 412-13 n.14 (1983); Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244 n.15 (1978).  See also United States v. Winstar Corp., 518 U.S. 839, 876 (1996) (noting “heightened Contract Clause scrutiny when States abrogate their own contractual obligations”).

38 Energy Reserves Group, Inc. v. Kansas Power & Light Co., 459 U.S. 400, 412 n.14 (1983) (citing United States Trust Co. of New York v. New Jersey, 431 U.S. 1 (1977); W.B. Worthen Co. v. Kavanaugh, 295 U.S. 56 (1935); and Murray v. Charleston, 96 U.S. 432 (1878) (cited in the text as “Murray”)).  In Worthen, the United States Supreme Court reversed a decision of the Arkansas Supreme Court upholding the validity of legislative enactments which, in the words of the former, take “from [the] mortgage [securing bonds issued by municipal improvement districts pursuant to state law] the quality of an acceptable investment for a rational investor” by making it much more difficult and time consuming to foreclose upon the collateral posted as security for the mortgage.  295 U.S. at 60.  Such enactments were accompanied by a legislative “declaration of an emergency, which was stated to endanger the peace, health and safety of a multitude of citizens.”  In Murray, the United States Supreme Court reversed a judgment of the Supreme Court of South Carolina upholding an ordinance of the City of Charleston which permitted the City to withhold, as a tax, a portion of the interest that was otherwise payable with respect to bonds issued by the City.  This “tax” was held to violate the Federal Contract Clause:  “no municipality of a State can, by its own ordinances, under the guise of taxation, relieve itself from performing to the letter all that it has expressly promised to its creditors.”  96 U.S. at 448.

39 United States Trust Co. of New York v. New Jersey, 431 U.S. 1, 25 (1977).

40 Id. at 26.

41 Id. at 28-29.  The Court noted that when the bills to repeal the covenant were pending “a national energy crisis was developing.”  Id. at 13-14.

42 Id. at 29.

43 Id. at 30.

44 Id. at 30 n.29.

45 El Paso v. Simmons, 379 U.S. 497 (1965).

46 United States Trust Co. of New York v. New Jersey, 431 U.S. 1, 31 (1977).

47 Id. at 31-32.

48 Id. at 32.

49 Faitoute Iron & Steel Co. v. City of Asbury Park, 316 U.S. 502 (1942) (cited in the text as “Faitoute”).

50 United States Trust Co. of New York v. New Jersey, 431 U.S. 1, 27 (1977).

51 Id. at 28.

52 Id. (quoting 316 U.S. at 511).

53 United States v. Winstar Corp., 518 U.S. 839, 856 (1996).

54 Id. at  903.

55 United States Trust Co. of New York v. New Jersey, 431 U.S. 1,  31 (1977).

56 Please see the Clark, Thomas & Winters, a Professional Corporation opinion, of even date herewith, for an analysis of Texas law and permanent injunctive relief.

57 However, if the case is brought to federal court via diversity jurisdiction, it is possible that the federal court  would use state law in deciding whether or not to issue an injunction.

58 Sierra Club, Lone Star Chapter v. FDIC, 992 F.2d 545, 551 (5th Cir.), reh'g denied, 3 F.3d 441 (5th Cir. 1993).

59 Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 506-07 (1959); Calmes v. United States, 926 F. Supp. 582, 591 (N.D. Tex. 1996); Wenner v. Texas Lottery Comm'n, 123 F.3d 321, 325  (5th Cir. 1997).

 

60 Calmes, 926 F. Supp. at 591.

61 Examples of hurdles to the receipt of such damages might include, but are not limited to, State sovereign immunity to suit in a particular forum, State administrative procedures for filing claims, legislative refusal to appropriate funds to pay a damages award, and the limited funds available to State officials.

62 United States v. W.T. Grant Co., 345 U.S. 629, 633 (1953); Posada v. Lamb County, Texas, 716 F.2d 1066, 1070 (5th Cir. 1983) (“. . . to win [a permanent injunction], a petitioner must show a clear threat of continuing illegality portending immediate harmful consequences irreparable in any other manner”) (emphasis added); Shanks v. City of Dallas, 752 F.2d 1092, 1097 (5th Cir. 1985).

63 61 F.2d 195, 199 (5th Cir. 1980) (“A federal court may enjoin state officials from enforcing an unconstitutional statute.  . . . An injunction is proper in this case because no legal remedy could correct the irreparable injury to plaintiffs' first amendment rights, important for an election only weeks away.”); but see Wightman v. Texas Supreme Court, 84 F.3d 188, 191 (5th Cir. 1996) (“The possible unconstitutionality of a statute ‘on its face' does not in itself justify an injunction against good faith attempts to enforce it,” especially absent “any showing of bad faith, harassment, or any other unusual circumstance that would call for equitable relief.”) (quoting Younger v. Harris, 401 U.S. 37, 53-54 (1971)).

64 Once again, if the case enters federal court via diversity jurisdiction, the federal court may use Texas law in deciding whether to issue an injunction.

65 Univ. of Texas v. Camenisch, 451 U.S. 390, 395 (1981) (“The purpose of a preliminary injunction is merely to preserve the relative positions of the parties until a trial on the merits can be held.”); Wenner, 123 F.3d at 326 (“Preliminary injunctions commonly favor the status quo and seek to maintain things in their initial condition so far as possible until after a full hearing permits final relief to be fashioned.”).

66 Sierra Club v. Fed. Deposit Ins. Corp., 992 F.2d 545, 551 (5th Cir. 1993); DFW Vending, Inc. v. Jefferson County, Texas, 991 F. Supp. 578, 587 (E.D. Tex. 1998).

67 Texas v. Seatrain Int'l, S.A., 518 F.2d 175, 180 (5th Cir. 1975) (“[the inability to prove with certainty eventual success on the merits] does not foreclose the possibility that temporary restraint may be appropriate.  . . .  the importance and nature of the requirement can vary significantly, depending upon the magnitude of the injury which would be suffered . . . and the relative balance of the threatened hardship faced by each of the parties.  . . . [N]one of the four prerequisites has a fixed quantitative value.  Rather, a sliding scale is utilized, which takes into account the intensity of each in a given calculus.”); Hunt v. Commodity Futures Trading Comm'n, 93 B.R. 484, 492 (N.D. Tex 1988); Apple Barrel Productions, Inc. v. Beard, 730 F.2d 384, 398, n.11 (5th Cir. 1984).

68 See, e.g.,  Centurion Reinsurance Co. v. Singer, 810 F.2d 140 (7th Cir. 1987);  Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 386 and n.1 (7th Cir. 1984).  Federal courts with jurisdiction over Texas have similar, if less explicit, case law.  See also, Federal Savings & Loan Insurance Corp. v. Dixon, 835 F.2d 554, 560 (5th Cir. 1987) (holding that while, generally, injunctions are not permissible to secure post-judgment damages, because such an injunction would be acting as a prejudgment attachment, which is subject to state law under Fed. R. Civ. P. 64, equitable powers are “extremely flexible” and an injunction may issue under some circumstances in order to prevent difficulty in collecting a damage judgment, such as an injunction preventing a corporate defendant from selling its assets in such a way that it could be impossible for a winning plaintiff to subsequently collect those assets).

69 Webb's Fabulous Pharmacies v. Beckwith, 449 U.S. 155, 160 (1980).

70 Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1003 (1984). The Monsanto case involved a federal law requiring disclosure of certain data related to Monsanto products.  The Supreme Court was asked to determine whether Monsanto had a property interest in this information as a trade secret and whether that property interest was protected under the Federal Takings Clause.  One focus of the Supreme Court's analysis was whether Monsanto had a reasonable investment-backed expectation in the privacy of this property.  The Court concluded that at most times prior to the enactment of the law and at all times after the enactment of the law, Monsanto did not have and would not have a reasonable expectation that its information would be kept private.  However, the Court noted for a six year period from 1972 to 1978, federal law had provided that an entity submitting information to the government could designate such information as a trade secret and that federal law guaranteed such information would be kept a secret.  Accordingly, the Court concluded that with respect to such information designated as a trade secret from 1972 to 1978, Monsanto had a property interest that was protected by the Federal Takings Clause.

71 Lynch v. United States, 292 U.S. 571, 577 (1934).

72 Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 224 (1986).

73 2 Rotunda and Nowack, Treatise on Constitutional Law: Substance and Procedure 702 (3d ed. 1999).

74 Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 225 (1986) (noting that in that case the government did not “permanently appropriate” any of the employer's assets for its own use) (cited in the text as “Connolly”); Palazzolo v. Rhode Island, 533 U.S. 606, 617 (2001)(“regulation which ‘denies all economically beneficial or productive use of land' will require compensation under the Takings Clause”) (citing Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1015 (1992), which notes that for personal property, however, some regulations that limit use of personal property may not be compensable takings given the state's “traditionally high degree of economic control over commercial dealings”); United States v. Security Indus. Bank, 459 U.S. 70, 77 (1982) (citing Armstrong v. United States, 364 U.S. 40, 48 (1960) (“The total destruction by the Government of all values of these liens, which constitute compensable property, has every possible element of a Fifth Amendment ‘taking' and is not a mere ‘consequential incidence' of a valid regulatory measure”));   See also Lingle v. Chevron USA, 544 U.S. 528, 538 (2005) (noting that regulatory action will be deemed a per se taking of property if it requires an owner to suffer a “permanent” physical invasion of property or completely deprives the owner of all economically beneficial use of such property) (cited in the text as “Lingle”).   The Supreme Court has also held that legislation that terminates a property interest can be considered a taking for which compensation is due.  Hodel v. Irving, 481 U.S. 704 (federal law escheating certain fractional interests in tribal property to an Indian tribe was a compensable taking).  See also 2 Rotunda and Nowack, Treatise on Constitutional Law: Substance and Procedure 746 (3d ed. 1999).

75 The emergency exception to the just compensation requirement of the Federal Takings Clause appears in several Supreme Court decisions.  See generally Rotunda and Novack Volume 2 at 738.  Several of these decisions involve the government's activities during military hostilities.  See, e.g., United States v. Caltex, Inc., 344 U.S. 149 (1952) (no compensable taking when Army destroys property to prevent enemy forces from obtaining it); United States v. Cent. Eureka Mining Co., 357 U.S. 155 (1958) (no compensable taking when government forces gold mines to cease operations to conserve resources for war effort); Nat'l Bd. of Young Men's Christian Ass'ns v. United States, 395 U.S. 85 (1969) (no compensable taking where private property destroyed when US troops take shelter there).  Compare United States v. Pewee Coal Co., 341 U.S. 114 (1951)(compensable taking when occupation is physical rather than regulatory, emergency notwithstanding).  The emergency exception is not limited to wartime activities, however.  See, e.g., Miller v. Schoene, 276 U.S. 272 (1928)(no compensable taking where trees destroyed to prevent disease from spreading to other trees); Dames & Moore v. Regan, 453 U.S. 654 (1981) (no compensable taking resulting from executive order nullifying attachments on Iranian assets and permitting those assets to be transferred out of the country).  The emergency exception is not limited to the physical destruction of property by the government, see Cent. Eureka Mining, 357 U.S. at 168, but the Supreme Court has suggested it does not apply to physical occupation of property, see Pewee, 341 U.S. at 116-17, or permanent appropriation, see Lingle, 544 U.S. at 538, both of which constitute a per se taking.  Moreover, we believe that a permanent appropriation of property by the government would be generally inconsistent with the concept of an “emergency”.  See Cent. Eureka Mining, 357 U.S. at 168 (describing wartime restrictions as “temporary in character”).

76 Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 225 (1986)(nothing that one point of Federal Takings Clause analysis is “the extent to which the regulation has interfered with distinct investment-backed expectations”)) (citing Penn Cent. Transp. Co. v. New York, 438 U.S. 104, 124 (1978)); United States v. Cent. Eureka Mining Co., 357 U.S. 155 (1958), rehearing denied 358 U.S. 858 (1958) (no compensable taking when government forces gold mines to cease operations to conserve resources for war effort).

 

77 Lingle v. Chevron USA, 544 U.S. 528 (2005).

 

78 Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 224 (1986); Penn Central Transp. Co. v. City of New York, 438 U.S. 104, 124 (1978).

79 Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 224 (1986)  (citing Penn Central Transp. Co. v. New York, 438 U.S. 104, 124 (1978)).

80 Loveladies Harbor, Inc. v. United States, 28 F.3d 1171, 1176 (Fed. Cir. 1994); see Keystone Bituminous Coal Ass'n v. DeBenedictis, 480 U.S. 470 (1987).

81 Penn Coal Co. v. Mahon, 260 U.S. 393 (1922); Loveladies Harbor, Inc. v. United States, 28 F.3d 1171, 1176-77 (Fed. Cir. 1994).

82 Armstrong v. United States, 364 U.S. 40, 48 (1960)

      

83 Loveladies Harbor, Inc. v. United States, 28 F.3d 1171, 1177 (Fed. Cir. 1994).

84 Keystone Bituminous Coal Ass'n v. DeBenedictis, 480 U.S. 470, 493 (1987).

 

85 Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1005 (1984) (Internal Citations Omitted)

86 Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 16 (1976).

87 Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211, 224 (1986).

 

88 Chang v. United States, 859 F. 2d 893, 897 (Fed Cir. 1988).

 

89 We express no opinion as to whether any court would have or exercise jurisdiction to hear such a Federal Taking Clause challenge, when such a challenge would be ripe, or whether the State would be entitled to assert sovereign immunity in a particular forum.  As to the question of sovereign immunity, to the extent that there is a taking without just compensation and just compensation is unavailable through State or federal procedures, Bondholders (or the Indenture Trustee on their behalf) or the Issuer could seek to enjoin enforcement of the State action by suing individual officers under Ex Parte Young, 209 U.S 123 (1908) and 42 U.S.C. §1983.

Sidley Austin LLP is a limited liability partnership practicing in affiliation with other Sidley Austin partnerships

SCHEDULE A

The Bank of New York Mellon

101 Barclay Street, Floor 4W

New York, New York  10286

Moody's Investors Service, Inc.

7 World Trade Center at 250 Greenwich Street

New York, New York 10007

Standard & Poor's Ratings Services,

 a Standard & Poor's Financial Services LLC business

55 Water Street, 41st Floor

New York, New York  10041

Fitch Ratings

One State Street Plaza

New York, New York  10004

Morgan Stanley & Co. Incorporated

1585 Broadway

New York, New York 10036

Citigroup Global Markets Inc.

388 Greenwich Street

New York, New York 10013

Goldman, Sachs & Co.

1 New York Plaza

New York, New York 10004

RBS Securities Inc.

600 Washington Boulevard

Stamford, Connecticut 06901

Loop Capital Markets, LLC

200 West Jackson

Chicago, Illinois  60606

EX-99.6

Exhibit 99.6

Clark, Thomas & Winters

A PROFESSIONAL CORPORATION

TELEPHONE (512) 472-8800                                                                POST OFFICE BOX 1148                                                                       FAX (512) 474-1129

AUSTIN, TEXAS  78767

300 WEST 6th STREET, 15TH FLOOR

AUSTIN, TEXAS  78701

November 6, 2009

Each of the Addressees Listed on

Schedule I Attached Hereto

Re: Entergy Texas Restoration Funding, LLC Senior Secured Transition Bonds

Ladies and Gentlemen:

We have acted as local Texas counsel to Entergy Texas, Inc., a Texas corporation ("ETI"), and Entergy Texas Restoration Funding, LLC, a Delaware limited liability company (the "Issuer"), in connection with ETI's transfer of the rights and interests of ETI under the Financing Order, including the right to impose, collect, and receive transition charges, to the Issuer pursuant to that certain Transition Property Purchase and Sale Agreement, dated as of November 6, 2009 (the "Sale Agreement"), between ETI and the Issuer and the related Bill of Sale dated as of November 6, 2009 (the "Bill of Sale").  Unless the context clearly indicates otherwise, capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Indenture dated as of November 6, 2009 as supplemented by the Series Supplement dated as of November 6, 2009 (as so supplemented, the "Indenture"), between the Issuer and The Bank of New York Mellon, as Indenture Trustee (the "Indenture Trustee"), including Appendix A attached thereto.  This opinion is being delivered pursuant to Section 9(i) of the Underwriting Agreement dated October 29, 2009 among ETI, Issuer and the Underwriters named therein.

We have reviewed the following documents and any exhibits thereto for purposes of this opinion (collectively, the "Relevant Documents"):

1. the Sale Agreement and the Bill of Sale;

2.the Servicing Agreement;

3.the Indenture;

4.the Underwriting Agreement;

5.the Certificate of Formation;

6.the Limited Liability Company ("LLC") Agreement;

7.the Application;

8. the September 11, 2009, Financing Order of the Public Utility Commission of Texas ("PUCT") in Docket No. 37247 ("the Financing Order"); and

9. that certain Issuance Advice Letter (the "Issuance Advice Letter") filed with the PUCT on October 30, 2009.

In connection with the issuance of certain "transition bonds" within the meaning of Chapter 36, Subchapter I and Chapter 39, Subchapter G of the Texas Public Utility Regulatory Act ("PURA"),1 ETI has requested that we deliver certain opinions regarding potential challenges to PURA Chapter 36, Subchapter I and Chapter 39, Subchapter G under the Texas Constitution.

I.           STATUTORY FRAMEWORK

The Texas Legislature ("Legislature") enacted Senate Bill 7, effective September 1, 1999, for the purpose of protecting "the public interest during the transition to and in the establishment of a fully competitive electric power industry."2  This legislative effort is primarily reflected in Chapter 39 of PURA.  PURA § 39.001(b) states, in pertinent part,

The legislature finds that it is in the public interest to:

(1) implement on January 1, 2002, a competitive retail electric market that allows each retail customer to choose the customer's provider of electricity and that encourages full and fair competition among all providers of electricity;

(2) allow utilities with uneconomic generation-related assets and purchased power contracts to recover the reasonable excess costs over market of those assets and purchased power contracts….

The utility assets as to which the Legislature believed the public interest requires recovery include both "stranded costs" ("the positive excess of the net book value of generation assets over the market value of the assets")3 and "regulatory assets" (as reported by the utility in its 1998 annual report on Securities and Exchange Commission Form 10-K).4  The Legislature provided several means for recovery of these assets, including "securitization financing" per the requirements and procedures of PURA Chapter 39, Subchapter G.

In September 2005, Hurricane Rita struck the coastal areas of the region causing catastrophic damage to ETI's (then Entergy Gulf States, Inc.) electric utility system and leaving thousands of Texans without electricity.  ETI incurred substantial costs to repair and rebuild its utility infrastructure and restore service.  In response to concerns regarding the long-term stability and reliability of electric service due to the reconstruction expense ensuing from the disaster, the Legislature amended Chapter 39 of PURA during the 3rd Called Session of the 79th Legislature by enacting House Bill 163 providing for the "securitization" of hurricane reconstruction costs and their recovery through the sale of bonds per the requirements and procedures of Subchapter G.  Securitization was "expected to result in significant savings to customers, compared to the rates customers would pay if the Hurricane Rita costs were recovered through conventional means, such as their inclusion in a base rate proceeding."5

The 81st Legislature generalized this approach to storm cost recovery when it enacted Senate Bill 769 in 2009. Senate Bill 769 added Subchapter I to Chapter 36 of PURA to enable any electric utility "to obtain timely recovery of system restoration costs and to use securitization financing to recover these costs."6 In its analysis of the bill, the House Research Organization discussed the efficiencies and cost savings Senate Bill 769 was intended to provide:

The conventional method of recovering storm costs is for a utility to go through a base rate proceeding at the PUC, which takes 185 days to complete and often is costly due to litigation. Base rate proceedings cause significant delays in the recovery of storm costs and place additional costs on the affected utilities, which are passed on to customers, including both the cost of the proceeding and high interest and finance charges. Currently, a utility must receive approval from the Legislature through special legislation in order to recover system restoration costs through securitization. For example, HB 163 by P. King, enacted by 79th Legislature during its 2006 third called session, allowed Entergy to use securitization to recover costs resulting from Hurricane Rita in 2005. CSHB 13787 would authorize the PUC to approve the use of securitization without the utility having to wait for a legislative session to do so.8

Thus, Senate Bill 769 declared its intent that "securitization of system restoration costs will be accomplished using the same procedures, standards, and protections for securitization authorized under Subchapter G, Chapter 39."9  It defined "system restoration costs" as:

reasonable and necessary costs, including costs expensed, charged to self-insurance reserves, deferred, capitalized, or otherwise financed, that are incurred by an electric utility due to any activity or activities conducted by or on behalf of the electric utility in connection with the restoration of service and infrastructure associated with electric power outages affecting customers of the electric utility as the result of any tropical storm or hurricane, ice or snow storm, flood, or other weather-related event or natural disaster that occurred in calendar year 2008 or thereafter.  System restoration costs include mobilization, staging, and construction, reconstruction, replacement, or repair of electric generation, transmission, distribution, or general plant facilities.  System restoration costs shall include reasonable estimates of the costs of an activity or activities conducted or expected to be conducted by or on behalf of the electric utility in connection with the restoration of service or infrastructure associated with electric power outages, but such estimates shall be subject to true-up and reconciliation after the actual costs are known.10

Senate Bill 769 also enacted a new Section 36.403 that incorporates the procedures and standards of PURA Chapter 39, Subchapter G. Section 36.403(d) amends the definition of "qualified costs" to include "system restoration costs," as follows:

(d)  For purposes of this subchapter, "qualified costs," as defined by Section 39.302 and as used in Subchapter G, Chapter 39, includes 100 percent of the electric utility's system restoration costs, net of any insurance proceeds, governmental grants, or other source of funding that compensate the utility for system restoration costs, received by the utility at the time it files an application for a financing order.  Qualified costs also include the costs of issuing, supporting, and servicing transition bonds and any costs of retiring and refunding existing debt and equity securities of an electric utility subject to this subchapter in connection with the issuance of transition bonds.  For purposes of this subchapter, the term qualified costs also includes:

(1)  the costs to the commission of acquiring professional services for the purpose of evaluating proposed transactions under this subchapter; and

(2)  costs associated with ancillary agreements such as any bond insurance policy, letter of credit, reserve account, surety bond, swap arrangement, hedging arrangement, liquidity or credit support arrangement, or other financial arrangement entered into in connection with the issuance or payment of transition bonds.

Section 36.403(e) amends the definition of "transition bonds" in PURA § 39.302 to include "transition bonds issued in association with the recovery of system restoration costs" and states that "[t]ransition bonds issued to securitize system restoration costs may be called "system restoration bonds."

Section 36.403(f) amends the definition of "transition charges" in PURA § 39.302 to include:

nonbypassable amounts to be charged for the use of electric services, approved by the commission under a financing order to recover system restoration costs, that shall be collected by an electric utility, its successors, an assignee, or other collection agents as provided for in the financing order.  Transition charges approved by the commission under a financing order to recover system restoration costs may be called "system restoration charges" or may be called by any other name acceptable to the issuer and the underwriters of the transition bonds.

PURA § 39.306 provides that "[a] financing order shall include terms ensuring that the imposition and collection of transition charges authorized in the order shall be nonbypassable." PURA § 36.404, added by Senate Bill 769, dovetails with this requirement and states:

The commission shall include terms in the financing order to ensure that the imposition and collection of transition charges associated with the recovery of system restoration costs are nonbypassable by imposing restrictions on bypassability of the type provided for in Chapter 39 or by alternative means of ensuring nonbypassability, as the commission considers appropriate, consistent with the purposes of securitization.

The rights and interests of a utility to receive transition charges become "transition property" when "they are first transferred to an assignee or pledged in connection with the issuance of transition bonds."11  Section 39.304 further provides:

(b) Transition property shall constitute a present property right for purposes of contracts concerning the sale or pledge of property, even though the imposition and collection of transition charges depends on further acts of the utility or others that have not yet occurred.  The financing order shall remain in effect and the property shall continue to exist for the same period as the pledge of the state described in Section 39.310.

(c) All revenues and collections resulting from transition charges shall constitute proceeds only of the transition property arising from the financing order.12

(emphasis added).  The State Pledge referenced above is set forth in PURA § 39.310 and provides as follows:

PLEDGE OF STATE.  Transition bonds are not a debt or obligation of the state and are not a charge on its full faith and credit or taxing power.  The state pledges, however, for the benefit and protection of financing parties and the electric utility, that it will not take or permit any action that would impair the value of transition property, or, except as permitted by Section 39.307 [relating to true-up], reduce, alter, or impair the transition charges to be imposed, collected, and remitted to financing parties, until the principal, interest and premium, and any other charges incurred and contracts to be performed in connection with the related transition bonds have been paid and performed in full.  Any party issuing transition bonds is authorized to include this pledge in any documentation relating to those bonds.

As authorized by Section 39.310 and the Financing Order, the language of the State Pledge has been included in the Transition Bonds and in the Indenture.  The Financing Order also explicitly provides that "the State of Texas has pledged for the benefit and protection of all financing parties and ETI, that it (including the Commission) will not take or permit any action that would impair the value of transition property, or, except as permitted by PURA § 39.307, reduce, alter or impair the transition charges to be imposed, collected, and remitted to any financing parties, until the principal, interest and premium, and any other charges incurred and contracts to be performed in connection with the transition bonds have been paid and performed in full."13

The Transition Property at issue was created in favor of ETI, pursuant to the Financing Order issued by the PUCT on September 11, 2009, in Docket No. 37247; and the Transition Property was assigned to the Bond Issuer pursuant to the provisions of the Sale Agreement in consideration for the payment by the Issuer to ETI of the proceeds of the sale of the Transition Bonds, net of certain issuance costs.  The Transition Property includes the right to impose and receive certain "non-bypassable" transition charges described in the Financing Order (the "Transition Charges").  The Financing Order provides that "this Financing Order, together with the transition charges authorized by this Financing Order, is irrevocable and not subject to reduction, impairment, or adjustment by further act of the Commission, except for the true-up procedures approved in this Financing Order, as required by PURA § 39.307."14  It further provides that "[t]ransition property will constitute a present property right for purposes of contracts concerning the sale or pledge of property, even though the imposition and collection of the transition charges depend on further acts by ETI or others that have not yet occurred, as provided by PURA § 39.304(b)"15 and "[u]pon the transfer by ETI of the transition property to BondCo, BondCo will have all of the rights, title and interest of ETI with respect to such transition property including the right to impose, collect and receive the transition charges authorized by the Financing Order."16  It also requires that Transition Charges be adjusted at least annually to correct any overcollections or undercollections in the preceding 12 months and that the servicer make mandatory interim true-up adjustments semi-annually (or quarterly during the period between the expected final maturity and the legal final maturity of the last bond tranche or class) if the servicer forecasts that Transition Charge collections will be insufficient to make all scheduled payments of principal, interest and other amounts in respect of the transition bonds during the current or next succeeding semi-annual or quarterly period (as applicable) and to replenish any draws upon the capital subaccount.  These adjustments are intended to ensure the expected recovery of amounts sufficient to timely provide all payments of debt service and other required amounts and charges in connection with the transition bonds.  Finally, the Financing Order states that "[t]he Commission guarantees that it will act pursuant to this Financing Order as expressly authorized by PURA to ensure that expected transition charge revenues are sufficient to pay on a timely basis scheduled principal and interest on the transition bonds issued pursuant to this Financing Order and other costs, including fees and expenses, in connection with the transition bonds."17

The Financing Order was issued in response to an application for its issuance that was filed by ETI with the PUCT pursuant to the provisions of PURA.  The Financing Order became final and not subject to further appeal on September 28, 2009.  ETI filed its Issuance Advice Letter with the PUCT on October 30, 2009, as required by the Financing Order, and Schedule SRC relating to the Transition Charges on November 3, 2009.

II.           OPINIONS REQUESTED

You have requested our opinion on the following issues:

1.           whether Texas courts would uphold the validity of the State Pledge;

2.           whether the Texas Constitution permits Subchapter I of Chapter 36 and Subchapter G of Chapter 39 of PURA to be amended or repealed by citizen initiative or referendum;

3.           (a) whether the holders of the Bonds (the "Bondholders") or the Indenture Trustee acting on their behalf could successfully challenge under the Texas Contract Clause (as described below) the constitutionality of any legislation passed by the Texas Legislature that repeals the State Pledge or limits, alters, impairs, or reduces the value of the Transition Property or Transition Charges so as to cause a substantial impairment of the terms of the Bond Indenture or the Bonds or the rights and remedies of the Bondholders (or the Trustee acting on their behalf) prior to the time that the Bonds are fully paid and discharged ("State Impairment Legislation"); (b) whether Texas courts would conclude that a substantial impairment of a legislative character by the PUCT ("PUCT Impairment Action") would be treated in the same manner as State Impairment Legislation under the Texas Contract Clause; and (c) whether preliminary and permanent injunctive relief would be available under Texas law to the Bondholders to delay or enjoin implementation of State Impairment Legislation or PUCT Impairment Action; and

4.           whether a court applying Texas law would find a compensable taking under the Texas Takings Clause (as described below) if the State, including its agencies and instrumentalities, including the PUCT, takes action in violation of the State Pledge that, without paying just compensation to the Bondholders, (i) permanently appropriates the Transition Property or denies all economically productive use of the Transition Property; (ii) destroys the Transition Property, other than in response to emergency conditions; or (iii) substantially reduces, alters or impairs the value of the Transition Property, if the action unduly interferes with the Bondholders' reasonable investment-backed expectations.

Based upon our review of relevant judicial authority, as set forth in this letter, but subject to the qualifications, limitations and assumptions set forth in this letter, it is our opinion that a reviewing court, in a properly-prepared and presented case:

1. would uphold the validity of the State Pledge;

2. would conclude that the Texas Constitution does not provide for the amendment or repeal of Subchapter I of Chapter 36 and Subchapter G of Chapter 39 of PURA by citizen initiative or referendum;

3. (a) would conclude that the Bondholders (or the Indenture Trustee acting on their behalf) could successfully challenge under the Texas Contract Clause the constitutionality of State Impairment Legislation (other than a law passed by the Legislature in the valid exercise of the State's police power necessary to safeguard the public safety and welfare);

(b) would conclude that PUCT Impairment Action would be treated in the same manner as State Impairment Legislation under the Texas Takings Clause; and

(c) should conclude that Bondholders are entitled to permanent injunctive relief under state law to prevent implementation of State Impairment Legislation or PUCT Impairment Action hereafter passed by the Legislature or otherwise taken in violation of the Texas Contract Clause; and although sound and substantial arguments support the granting of preliminary injunctive relief, the decision to do so will be in the discretion of the court requested to take such action, which will be exercised on the basis of the considerations discussed in subpart (5) of Part III below; and

4. would find a compensable taking under the Texas Takings Clause if (a) it concludes that the Transition Property is property of a type protected by the Texas Takings Clause and (b) the State takes action that, without paying just compensation to the Bondholders (i) permanently appropriates the Transition Property or denies all economically productive use of the Transition Property; (ii) destroys the Transition Property, other than in response to emergency conditions; or (iii) substantially reduces, alters or impairs the value of the Transition Property, if the action unduly interferes with the Bondholders' reasonable investment-backed expectations; provided that, the court's conclusion that a compensable taking had occurred would depend upon its resolution of the issues discussed in Part III below.

Our opinion in the immediately preceding subparagraphs 1, 2, 3 and 4 and in our discussion below is based upon our evaluation of existing judicial decisions and arguments related to the factual circumstances likely to exist at the time of a Texas Contract Clause or Texas Takings Clause challenge to State Impairment Legislation, or to PUCT Impairment Action, or to other State action claimed to be a taking of the Bondholders' property and is intended to express our belief as to the result that should be obtainable through the proper application of existing judicial decisions in a properly-prepared and presented case.  Such precedents and such circumstances could change materially from those discussed below in this letter.

In addition, our opinion assumes that any State Impairment Legislation or PUCT Impairment Action effects a substantial impairment of (i) the terms of the Bond Indenture or the Bonds or (ii) the rights and remedies of the Bondholders (or the Indenture Trustee acting on their behalf)prior to the time that the Bonds are fully paid and discharged (or such payment is provided for), if it prevents payment of the Bonds or significantly affects the security for the Bonds.  The determination of whether particular legislative action constitutes a substantial impairment of a particular contract is a fact-specific analysis, and nothing in this letter expresses any opinion as to how a court would resolve the issue of "substantial impairment" with respect to the Financing Order, the Charges, the Transition Property, the Bond Indenture or the Bonds vis-a-vis a particular legislative action.

III.           CHALLENGES TO THE CONSTITUTIONALITY OF SUBCHAPTER I OF CHAPTER 36 AND SUBCHAPTER G OF CHAPTER 39

A.           Validity of the State Pledge

While the Texas Supreme Court upheld the constitutionality of Subchapter G of Chapter 39 of PURA in City of Corpus Christi v. Public Utility Commission, 51 S.W.3d 231 (Tex. 2001), against various arguments under Article I, Section 17 of the Texas Constitution (the "Texas Takings Clause") and against a challenge under Article III, Section 51 of the Texas Constitution (prohibiting grants of public money to individuals), we are not aware of any case law ruling on the validity of the State Pledge found in Subchapter G of Chapter 39 of PURA § 39.310.

The Texas Supreme Court upheld the validity of a similar pledge in Lower Colorado River Authority v. McGraw, 125 Tex. 268, 83 S.W.2d 629 (1935).  The court rejected several challenges directed at the constitutionality of legislation creating the Lower Colorado River Authority ("LCRA") and, more importantly, also rejected a claim that the Legislature's pledge not to impair LCRA's ability to recover revenue sufficient to pay the bondholders was an unconstitutional delegation of legislative authority.  The provision at issue stated, in pertinent part:

Nothing herein shall be construed as depriving the State of Texas of its power to regulate and control fees and/or charges to be collected for the use of water, water connections, power, electric energy, or other service provided that the State of Texas does hereby pledge to and agree with the purchasers and successive holders of the bonds issued hereunder that the State will not limit or alter the power hereby vested in the District to establish and collect such fees and charges as will produce revenues sufficient to pay the items specified in subparagraphs (a), (b), (c) and (d) of this Section 8, or in any way to impair the rights or remedies of the holders of the bonds, or of any person in their behalf, until the bonds, together with the interest thereon, with interest on unpaid installments of interest and all costs and expenses in connection with any action or proceedings by or on behalf of the bondholders and all other obligations of the District in connection with such bonds are fully met and discharged.18

The court found that the Legislature had the authority to confer on the LCRA the right to establish rates for its services and "had the power to guarantee the continuation of such rates as long as the lawful obligations of the district are outstanding."19  As the court observed, "[i]f this were not so, bonds of the district, based on income, would be idle and vain things."20

In a more recent case concerning the scope of a city's regulatory authority over the LCRA, the Texas Supreme Court reaffirmed its holding in McGraw concerning the validity and efficacy of the State's pledge to not impair the rights of bondholders to full recovery.21  The court stated:

In our opinion the statute means precisely what it says, i.e., that the LCRA Board will establish rates and charges in the first instance, that its action in that respect is subject at all times to the power of regulation reserved to the State, and that this reserved power will not be exercised in a manner that will prejudice bondholders or prevent the collection of revenues required for the purposes designated in the four subparagraphs.22

Based on these authorities, we believe that courts applying Texas law would uphold the validity of the state pledge in PURA § 39.310.

B.           Amendment or Repeal of Legislation by Citizen Initiative or Referendum

The Texas Constitution does not provide for citizen initiative or proposal of statewide legislation leading to a popular referendum adopting such legislation.23  The Legislature has not provided for citizen initiative and referendum in PURA with respect to the matters governed therein.24  The Texas Constitution provides that:  "The Legislative power of this State shall be vested in a Senate and House of Representatives, which together shall be styled ‘The Legislature of the State of Texas.'"25  With the exception of the specific delegations of authority noted in the footnotes, the Texas Legislature exercises exclusive authority in the field of legislation in Texas.  We are of the opinion that Texas courts would conclude that Texas law does not provide for citizen initiative or referendum with respect to Subchapter I of Chapter 36 or Subchapter G of Chapter 39 of PURA.

C.           Legislative or Regulatory Impairment of Bondholders' Rights

It is our opinion that Bondholders or the Indenture Trustee on their behalf could successfully challenge under the Texas Contract Clause the constitutionality of any legislation passed by the Texas Legislature or PUCT action that repeals the State Pledge or limits, alters, impairs, or reduces the value of the transition property, unless the law at issue was passed by the Legislature in the valid exercise of the State's police power and is necessary to safeguard the public safety and welfare.

(1)           Impairment Legislation

Article I, Section 16 of the Texas Constitution (the "Texas Contract Clause") states, in pertinent part: "No . . .. law impairing the obligation of contracts, shall be made."  In City of Aransas Pass v. Keeling, 112 Tex. 339, 247 S.W. 818 (1923), the City of Aransas Pass sued to compel the Texas Attorney General to approve bonds that had been issued by the city pursuant to legislation that donatedto the city for twenty years eight-ninths of the net amount of the state ad valorem taxes due upon property in San Patricio County, authorized the issuance of bonds by the city to procure money to be used exclusively to construct and maintain sea walls, breakwaters, and shore protections, and declared that the eight-ninths of the state taxes donated to the city should be held in trust and applied to create a sinking fund for the redemption of the bonds and to pay the interest thereon.  The Attorney General argued, among other things, "that reasonable provision is wanting to redeem the bonds because the Legislature, after the sale of the bonds, can repeal the donation of state taxes for 20 years."26  The court rejected this argument, stating:

State and federal authorities are uniform that, when an act of a state Legislature, authorizing a bond issue, creates, or authorizes the creation of, a certain fund for the bond's payment, such provision of the act enters into the contract between the debtor and the holders of the bonds, so that it cannot be repealed by subsequent legislation without the substitution of something of equal efficacy. The subsequent legislation would impair the obligation of the contract, and therefore come under constitutional condemnation.27

In City of Austin v. Cahill, 99 Tex. 172, 88 S.W. 542 (1905), the Texas Supreme Court had previously drawn the same conclusion under the contract clause of the U.S. Constitution.  In that case, the City of Austin argued that the Legislature had amended the Charter of the City of Austin by withdrawing its taxing power to repay certain previously issued or unrefunded bonds.  The court held that the adversely affected bondholders had a contractual right to compel by mandamus a tax levy which related back to the time when such taxes should have been levied in order for the city to be able to meet its financial obligations under the bonds.  The court stated:

Much strength is also imparted to this view by the consideration that the Legislature must be presumed to have known that it was not within its constitutional power to impair the contract with the holders of the unrefunded bonds by withdrawing the taxing power which was a part of the obligation of the contract.28

These precedents, while quite old, have continuing vitality with respect to the principle that, when the state makes provision for and assurances of a revenue source for the repayment of bonds, such assurances enter into the contract and cannot later be impaired by legislative action.

In a different context, the Texas Supreme Court later ruled that a Moratorium Law enacted during the Great Depression to forestall suits to foreclose liens on real property deprived lienholders "of the rights and remedies for which [they] contracted."29  The court rejected the property owner's argument that the state's police power authorized the Moratorium legislation.  Though it noted the similarities between the contract clauses in the Texas Constitution and the United States Constitution,30 the court reasoned that Section 29 of the Texas Constitution's Bill of Rights, which excepts from the general powers of government all rights guaranteed by the Bill of Rights, "is an express limitation on the police power which . . . plainly prohibits the enactment of legislation the effect of which is to impair the obligation of contracts."31

More recently, the court began to develop a more flexible approach to this analysis.  In Edgewood Independent School District v. Meno, 917 S.W.2d 717 (Tex. 1995), the court affirmed the vitality of the holding in Keeling that, when the Legislature provides for the creation of a certain fund for the payment of a bond issue, the provision "cannot be repealed by subsequent legislation without the substitution of something of equal efficacy," but found that the rule "does not prohibit every act affecting a bond-issuing entity's ability to repay its obligations; rather, it proscribes the unmitigated repeal of a funding source."32  The Edgewood case challenged the school funding legislation that came to be known as Robin Hood.  Under that law, when a property-rich district failed to reduce its taxable property to $280,000 per student, the Commissioner of Education was required to detach property from the district and annex it to another district.  The school districts that challenged the law argued that "the threat of this procedure creates a danger that insufficient funds will be available to meet the district's outstanding bonded indebtedness.  . . .. [and] impairs the district's ability to repay its obligations, in violation of the Texas and United States Constitutions." Citing two earlier decisions of the Texas Commission on Appeals, the court stated:

As long as the entity is clearly able to repay its obligations within statutory and constitutional limitations, legislation reducing the entity's tax base does not impair the obligation of contracts.33

The court also noted that, in Determan v. City of Irving, 609 S.W.2d 565 (Tex. Civ. App.—Dallas 1980, no writ), the court of appeals had struck down "a six-percent limitation on a city's annual tax increases, because such a limitation increased the likelihood that the city's tax rate would be insufficient to meet its debt service requirements."34  The court disapproved any suggestion in Determan inconsistent with its holding.

The following year, in Barshop v. Medina County Underground Water Conservation District, 925 S.W.2d 618 (Tex. 1996), the court considered a facial challenge to the constitutionality of the Edwards Aquifer Act.  The Act created the Edwards Aquifer Authority to regulate groundwater withdrawals by well from the aquifer.  It placed certain limitations on withdrawals and, thus, clashed with the common law rule of capture that a landowner's "right to withdraw underground percolating water is not correlative, ‘but is absolute.'"35  The plaintiffs who brought the case, two county underground water conservation districts and three private landowners, claimed that the Act, among other constitutional violations, unconstitutionally impaired the obligation of contract.

Noting that it had not considered the scope of the contract clause since its opinion in Travelers' Ins. Co. v. Marshall, supra,where it determined that the state's police power could never be used to justify an impairment of contract, the court summarized developments in federal and Texas case law inconsistent with the rule in Travelers'.  The court observed that two years after the Travelers' decision, the U.S. Supreme Court ruled that Travelers' "only applied to statutes specifically directed against the terms of a contract."36  The U.S. Supreme Court had concluded that, under Texas law, police power regulations dealing with physical things such as land or natural resources could have incidental effects on contracts if the power was exercised in the interest of the public welfare.37  The Texas Supreme Court also cited several Texas cases that "have likewise concluded that the contract clause may yield to statutes which are necessary to safeguard the public safety and welfare."38  Based on these authorities, the court departed from the rule of Travelers' and upheld the Edwards Aquifer Act and the restrictions it placed on groundwater withdrawals from the aquifer, stating:

Accordingly, we determine that the Act is not invalid under the contract clause because it is a valid exercise of the police power necessary to safeguard the public safety and welfare.39

There are a number of earlier Texas court of appeals decisions finding that the Legislature was justified in impairing contractual rights when it exercised the police power to protect the public safety and welfare.  However, none of the cases involved bondholders.40

In Trail Enterprises, Inc. v. City of Houston, supra, a city ordinance restricted drilling within 100 feet of Lake Houston, a man-made lake developed on land acquired by the city subject to the mineral rights owner's pre-existing mineral leases.  Although the court found that the prohibition on drilling was a valid exercise of the city's police power that justified the impairment of the contract, it also noted that "the City has not acted in derogation of its contract with Wilson or the mineral reservation in its deed.  Both permitted drilling only if there was no pollution of the Lake."41

Both Texas State Teachers Association v. State, supra, and Dovalina v. Albert, supra, involved claims that legislation instituting testing requirements for teacher certification, in the former, and polygraph examiner licensing, in the latter, violated the contract clause.  In Texas State Teachers Association v. State, the court registered its doubt "that teachers' certificates are the type of protected rights that fall within the meaning of Article I, Section 16" of the Texas Constitution but assumed that they did for purposes of the opinion.42  After examining the legislative duty to regulate public schools, the court upheld the statute, reasoning as follows:

Because regulation of the teaching profession and of the public education system is a valid exercise of the police power, this Court has concluded that any impairment of appellants' rights which has occurred is justified as an incident to the valid exercise of the police power.43

In Dovalina v. Albert, an individual who failed a newly enacted minimum standards test required for all operators of polygraph equipment argued that the Act instituting the testing requirement violated the contract clause.  The court rejected the claim, noting that "[h]ere as in Henderson [i.e., Henderson Co. v. Thompson, supra] the statute challenged is not directed against any term of any contract and its effect upon contracts is only incidental."44

Under these authorities, we are of the opinion that in a properly-presented and argued challenge by the Bondholders (or the Indenture Trustee acting on their behalf) a reviewing court would rule that legislation impairing the rights of the Bondholders violates the Texas Contract Clause.  Legislation that repealed or significantly modified the State Pledge in Section 39.310 of PURA or directly limited, altered, impaired, or reduced the value of the Transition Property or the charges at issue would not be considered "incidental," and would be held to be an unconstitutional violation of the Texas Contract Clause unless the state could show that the impairment was justified on the basis of a legitimate exercise of its police powers necessary to safeguard the public safety and welfare.

(2)           Impairment by PUCT

The Texas cases cited above have addressed impairments of contractual obligations by the Legislature or a local governmental body.  Nevertheless, if the PUCT were to take action that limits, alters, impairs, or reduces the value of the Transition Property or the Transition Charges, the Bondholders could also challenge the PUCT under the Texas Contract Clause. Ratemaking by a regulatory agency, such as the PUCT, has been characterized as being a legislative activity.45 In addition, in reviewing regulatory actions by the PUCT, Texas courts have applied the constitutional prohibitions against ex post facto and retroactive laws.46  These prohibitions, like the constitutional prohibition on impairment of contracts, are found in Article I, § 16 of the Texas Constitution.

Thus, if the PUCT were to exercise ratemaking or other legislative powers that substantially impaired the Transition Property or Transition Charges created under the Financing Order, such action would give rise to state claims, similar to actions of the Legislature taken in derogation of the State Pledge. Section 39.304(b) of PURA states: "The financing order shall remain in effect and the property shall continue to exist for the same period as the pledge of the state described in Section 39.310."  This statutory provision and the terms of the Financing Order providing that the State of Texas and the PUCT "will not take or permit any action that would impair the value of transition property, or, except as permitted by PURA § 39.307, reduce, alter or impair the transition charges to be imposed, collected, and remitted to any financing parties, until the principal, interest and premium, and any other charges incurred and contracts to be performed in connection with the transition bonds have been paid and performed in full"47 support the conclusion that a reviewing Texas state court likely would treat action by the PUCT repudiating the pledge in the Financing Order not to impair the Transition Charges in a manner similar to a repeal of the State Pledge by the Legislature.48  Texas state courts have enjoined unconstitutional action by members of a state agency, as discussed below.49

In Conclusion of Law No. 40 of the Financing Order, the PUCT acknowledges that it is bound by the State Pledge:

Pursuant to PURA § 39.310, the State of Texas has pledged for the benefit and protection of all financing parties and ETI, that it (including the Commission) will not take or permit any action that would impair the value of transition property, or, except as permitted by PURA § 39.307, reduce, alter or impair the transition charges to be imposed, collected, and remitted to any financing parties, until the principal, interest and premium, and any other charges incurred and contracts to be performed in connection with the transition bonds have been paid and performed in full.  BondCo, in issuing transition bonds, is authorized pursuant to PURA § 39.310 and this Financing Order to include this pledge in any documentation relating to the transition bonds.

The statute and the Financing Order also contain language prohibiting the PUCT from impairing the Financing Order and the Charges. Section 39.303(d) of PURA states:

A financing order shall become effective in accordance with its terms, and the financing order, together with the transition charges authorized in the order, shall thereafter be irrevocable and not subject to reduction, impairment, or adjustment by further action of the commission, except as permitted by Section 39.307 [relating to true ups].

This statement is reiterated in Conclusion of Law No. 20 of the Financing Order.  In addition, Ordering Paragraph 54 of the Financing Order states:

Further Commission Action. The Commission guarantees that it will act pursuant to this Financing Order as expressly authorized by PURA to ensure that expected transition charge revenues are sufficient to pay on a timely basis scheduled principal and interest on the transition bonds issued pursuant to this Financing Order and other costs, including fees and expenses, in connection with the transition bonds.

Therefore, we are of the opinion that in a properly-presented and argued challenge by the Bondholders (or the Indenture Trustee acting on their behalf), a reviewing court applying Texas law would treat a substantial impairment of the Financing Order or PURA by the PUCT in the same manner as, and subject to the same qualifications as, State Impairment Legislation.

(3)           Declaratory Relief

Texas law provides that "a person . . . whose rights . . . are affected by a statute . . . may have determined any question of construction or validity arising under the . . . statute . . . and obtain a declaration of rights . . . thereunder."50  The constitutionality of legislation is a suitable matter for declaratory relief.51  If a statute is alleged to be unconstitutional, the attorney general of the State must also be served with a copy of the proceeding and is entitled to be heard.52

A declaration that legislation impairing the obligation of contract is unconstitutional will depend on the matters discussed previously in this opinion.  It would have to be established that such legislation caused a substantive impairment that significantly affects the security for the Bonds or prevents payments of the Bonds and such impairment could not be justified by the State on the basis of a legitimate exercise of its police powers to safeguard the public safety and welfare.

(4)           Permanent Injunctive Relief

Texas law provides that a "writ of injunction may be granted if: (1) the applicant is entitled to the relief demanded and all or part of the relief requires the restraint of some act prejudicial to the applicant . . . (3) the applicant is entitled to a writ of injunction under the principles of equity and the statutes of this state relating to injunctions . . . or (5) irreparable injury to real or personal property is threatened, irrespective of any remedy at law."53

Generally, a party requesting injunctive relief must show "the existence of a wrongful act, the existence of imminent harm, the existence of irreparable injury, and the absence of an adequate remedy at law."54

If legislation were found to unconstitutionally impair the obligation of contracts, then the Bondholders could likely obtain an injunction prohibiting state officers from enforcing such legislation.55  This is likely also true if the PUCT were to take action found to impair the obligation of contracts in a manner inconsistent with current statutory authorization.  Texas courts will grant injunctive relief when a government official acts in a way that exceeds constitutional or statutory authority.56  "[A]n entity or person whose rights have been violated by the unlawful action of a State official, may bring suit to remedy the violation or prevent its occurrence, and such suit is not a suit against the State requiring legislative or statutory authorization."57

(a)           Existence of wrongful act

Texas courts would likely find that unconstitutional legislation or governmental action that exceeds constitutional or statutory authority would satisfy the requirement that a party seeking injunctive relief demonstrate the existence of a wrongful act.58

(b)           Existence of imminent harm

Texas courts would also likely find that unconstitutional legislation or governmental action, including the threat of action, that exceeds constitutional or statutory authority would satisfy the requirement that a party seeking injunctive relief demonstrate the existence of imminent harm.59

(c)           Existence of irreparable harm

A showing of irreparable harm is a prerequisite for one seeking injunctive relief.60  "An injury is irreparable if the injured party cannot be adequately compensated in damages or if the damages cannot be measured by any certain pecuniary standard."61  There is authority for the contention that harm or injury caused by the violation of a constitutional right is, as a matter of law, irreparable.62  This proposition was echoed by the court in Operation Rescue-National v. Planned Parenthood of Houston and Southeast Texas, Inc., 937 S.W.2d 60 (Tex. App.—Houston [14th Dist] 1996), aff'd as modified on other grounds, 975 S.W.2d 546 (Tex. 1998), in which the court recognized that "[u]nder Texas law, a violation of a constitutionally guaranteed right inflicts irreparable injury warranting injunctive relief."63  Of course, various other types of injuries may be deemed irreparable.  Disruption of business, for instance, may constitute the type of harm for which an injunction may issue.64

Based on these precedents, we are of the opinion that an action by the government—either by (1) legislation repealing the State pledge or (2) legislation or PUCT action reducing or eliminating the recovery of Transition Property or Transition Charges—would probably cause the type of injury required to support a finding of irreparable harm.  This is buttressed by the fact that such action would produce an ongoing injury.  The Transition Property at issue is limited in time, and diverted funds may not be replaced.  The continued existence or enforcement of legislationor regulation that effectuates diminution of the bonds' value is not a one-time occurrence but a persistent threat to the Bondholders' rights. In State v. Texas Pet Foods, Inc., 591 S.W.2d 800, 804 (Tex. 1979), the court held that when a defendant has engaged in a settled course of conduct, a court may assume that the conduct will continue, absent clear proof to the contrary, and exercise its equitable powers to issue an injunction, even if the defendant promises to cease and desist.65

(d)           No adequate remedy

A party requesting injunctive relief must also show that it has no adequate remedy at law."It is a settled principle that an "injured party is entitled to relief by injunction when there is not clear, full and adequate relief at law."67  "A party has no adequate remedy at law when damages are incapable of calculation or the party to be enjoined is incapable of responding in damages."68  At least one Texas court has held that "an act in violation of a statute may be enjoined without a showing that the legal remedy is inadequate."69

In this instance, it may be possible that the Bondholders would not be able to quantify their losses or the diminution in value of the bonds.  In a similar situation, the United States Supreme Court recognized the difficulty in assessing damages to bondholders stemming from a repeal of a statutory pledge in U.S. Trust Co. of New York v. New Jersey, 431 U.S. 1 (1977).  In U.S. Trust Co., the states of New York and New Jersey entered into a legislative compact with each other and with holders of bonds that were issued by the Port Authority of New York and New Jersey to finance the construction of the World Trade Center and the acquisition of the Hudson & Manhattan Railroad.70  This compact included a covenant that, so long as any bonds remained outstanding and unpaid, neither the states nor the Port Authority would apply any of the revenues or reserves that were then or would be in the future pledged as security for the bonds to any railroad purposes other than certain enumerated purposes.71  The governors of both states subsequently signed legislation effectively repealing the covenant, in response to a national energy crisis.72  The Supreme Court held that the repeals violated the contract clause of the Federal Constitution, finding that the repeals impaired valid contracts between the states and the bondholders.73

The Supreme Court found significant evidence that the market price for the Port Authority Bonds was adversely affected immediately after the covenant was repealed.74  After establishing that it could not ascertain with certainty that the fluctuations in market price were caused by the repeal of the covenant, the court simply determined that "no one can be sure precisely how much financial loss the bondholders suffered."75

Thus, U.S. Trust Co. , involving the repeal of a covenant analogous to the State Pledge, illustrates the potential difficulty of ascertaining damages in this case.  Even if such damages could be assessed with certainty, the Bondholders may not have an adequate state law vehicle to effectuate recovery.  As a result, there may well be no adequate remedy at law for the Bondholders, and it is likely that a substantial impairment in this case would justify the granting of permanent injunctive relief.

(5)           Temporary Injunctive Relief

Temporary injunctive relief is warranted when an applicant shows that it is entitled to preserve the latest uncontested status quo of the subject matter of the suit pending trial on the merits.76A court "may restrain the enforcement of administrative orders of State Boards and agencies for the purpose of preserving the status quo pending trial on the merits of a suit to set aside such order."77  To be entitled to temporary injunctive relief, the Bondholders would be required to prove "(1) a cause of action against the defendant; (2) a probable right to the relief sought; and (3) a probable, imminent, and irreparable injury in the interim."In the case of regulation affecting the Transition Bonds, Bondholders may be required to show that available administrative remedies, if any, would be an inadequate means of redress.79

The Texas Supreme Court has stated that to show entitlement to a temporary injunction, a litigant "needs only to plead a cause of action," not prove that he will prevail.80The requirement to show a probable right to recovery could be satisfied by demonstrating that the legislative or administrative action was unconstitutional.  The Bondholders would not be required to establish that they would ultimately prevail but only that they are entitled to preservation of the status quo pending trial on the merits.81

To satisfy the requirement to show that they will suffer imminent and irreparable harm and an absence of any adequate remedy at law in the interim period, Bondholders would need to establish the possibility of harm such as suspended payments, reduction in the market price of the Transition Bonds, and a possible default by the Issuer of the Transition Bonds.  Bondholders could proffer a colorable argument that they would suffer irreparable harm if state legislative or administrative action caused delays in payment and threats of default on the Transition Bonds.  For example, if the Transition Charges or payments to the Issuer were halted or reduced, this could result in a downgrade of the Transition Bond's ratings.  This downgrade would likely produce a loss of value in the Transition Bonds and could cause Bondholders to sell their Transition Bonds at prices lower than they could have sold them prior to any repeal.  Delays in payment or non-payment of interest or principal on the Transition Bonds could also result. Regardless, as noted by the U.S. Supreme Court in U.S. Trust Co., it would be very difficult to place a monetary valuation on any such damages.82  Further, any monetary loss due the Bondholders because of a ratings downgrade and the resulting decrease in market value of the Transition Bonds could probably not be recovered from the State of Texas in a proceeding at law.  "Our State does not recognize a common law cause of action for damages to enforce constitutional rights."83

Texas courts might find that a delay of payments or non-payment until final judgment is not the type of "irreparable harm" that a temporary injunction seeks to prevent pending resolution of the matter, unless the delay resulted in the insolvency of either party or in the destruction of a party's business.  For instance, in LeFaucheur v. Williams, 807 S.W.2d 20 (Tex. App.—Austin 1991, no writ), the court refused to issue a temporary injunction in part because the plaintiff failed to allege or prove that the defendant could not satisfy a money judgment.  A court's determination of the appropriateness of a temporary injunction in this case will depend on the facts and evidence presented to the court. If the court finds that the Bondholders have demonstrated a probable right to recovery, as well as imminent and irreparable harm for which there is no adequate remedy at law, the court will issue a temporary injunction, restoring the status quo immediately preceding any contested legislation or regulation.

Assuming that the injunction is not adverse to the public interest,84 we are of the opinion that the Bondholders would likely be entitled to temporary injunctive relief, pending the outcome of a trial for declaratory or permanent injunctive relief.  As noted above, the Bondholders would not be required to prove that they would prevail.  Rather, they would be held to the burden of demonstrating a meritorious, bona fide complaint and entitlement to preservation of the status quo.85

D.           State Action and the Takings Clause

Alternatively, impairment of bondholders' value could also be construed as a compensable taking.  Article I, Section 17 of the The Texas Constitution (the "Texas Takings Clause") requires that no "person's property shall be taken, damaged or destroyed for or applied to public use without adequate compensation being made."  The Texas Takings Clause does "not limit the government's power to take private property for public use but instead require[s] that a taking be compensated."86  Governmental action or restriction that deprives the owner of "all economically viable use of the property totally destroys the value of the property" and is a taking that must be compensated.87Texas courts also recognize that, where governmental action falls short of a total taking or complete destruction of the value of property, a claim for a "regulatory taking" can be asserted where the government action has unreasonably interfered with an owner's right to use and enjoy property.88

Furthermore, the Texas Supreme Court has interpreted the Texas Takings Clause as providing greater protection to owners of private property than the federal takings clause because, unlike the language of the federal takings clause that refers only to "taking," the Texas Takings Clause applies more broadly to "taking, ... damaging," or "destroying" private property.89 Thus, the language of the Texas Takings Clause would enable a court to determine that "damage" to the Transition Property, short of a complete taking resulting in non-payment of the Transition Bonds, constituted a violation of the Texas Takings Clause. In Steele v. City of Houston, 603 S.W.2d 786, 790 (Tex. 1980), the Texas Supreme Court noted:

The government's duty to compensate for damaging property for public use after 1876 was not dependent upon the transfer of property rights....  To entitle the party to compensation under our present constitution, it is not necessary that his property shall be destroyed, nor is it necessary that it shall be even taken. It is sufficient to entitle him to compensation that his property has been damaged.

The Texas Supreme Court stated that the purpose of the word "damage" was to prevent a narrow construction of the word "taking."90  If a reviewing Texas state court were willing to apply the Texas Takings Clause to the Transition Property, governmental action that diminished but did not completely eliminate the value of the Transition Property might also be found to violate the Texas Takings Clause.  For example, any legislation passed by the Texas Legislature or PUCT action that repeals the State Pledge or limits, alters, impairs, or reduces the value of the Transition Property or Transition Charges and affects the market value of the Transition Bonds might constitute "damaging" of property under the Texas Takings Clause, even if it does not rise to the level of a "taking" under the federal takings clause.

To establish a takings claim under the Texas Takings Clause, the Texas Supreme Court has held that a plaintiff must demonstrate that: (i) the State intentionally performed certain acts (ii) that took, damaged or destroyed protected property (iii) for public use.91

1.           Intentional Act

The State will be liable to compensate a private party for a taking of property only if the State intended to perform the act that caused the taking.92 On the other hand, when the taking or damage is merely the unintended result of the government's act, the act does not provide any public benefit, and the property cannot be said to have been "taken or damaged for public use."93  Thus, negligence on the part of the State or its agents that contributes to the destruction of private property cannot support a taking claim and would be subject to a sovereign immunity defense.94

The State Pledge, the related provisions of Subchapter G of Chapter 39 of PURA, and the Financing Order creating the Transition Property and Transition Charges are intended to protect the Bondholders' interests.  The purpose of the statutory provisions and the Financing Order is to reduce costs to electricity consumers in Texas of recovering stranded costs and regulatory assets, because securitization financing will result in lower financing costs.95  The Legislature intentionally enacted the State Pledge and the other provisions of Subchapter G of Chapter 39 of PURA under which the issuance of the Transition Bonds has been authorized.

While it is not possible to anticipate the particular form that State action might take, legislation enacted by the Legislature or an order adopted by the PUCT the purpose of which would be to specifically limit, impair, or reduce the value of the Transition Property and Transition Charges would be intentional acts of the State. Therefore, a reviewing Texas state court likely would find the element of intentional action by the State involved in connection with any State Impairment Legislation or PUCT Impairment Action.

2.           Protected Property Interest

A valid claim under the Texas Takings Clause requires proof of a taking, damage, or destruction of a protected property interest.96  In this context, the issue is whether the State Pledge, the Financing Order, and/or the Indenture create a protected property interest.

The Legislature plainly provided that the right to impose, collect, and receive transition charges is a property right when pledged or assigned in connection with the issuance of transition bonds.

(a) The rights and interests of an electric utility or successor under a financing order, including the right to impose, collect, and receive transition charges authorized in the order shall be only contract rights until they are first transferred to an assignee or pledged in connection with the issuance of transition bonds, at which time they become "transition property."

(b) Transition property shall constitute a present property right for purposes of contracts concerning the sale or pledge of property, even though the imposition and collection of transition charges depends on further acts of the utility or others that have not yet occurred.97

Accordingly, as a matter of law, the right of the electric utility to impose, collect, and receive transition charges, as authorized in the Financing Order, that is sold by the electric utility to the Issuer becomes a property interest, as opposed to a contractual right, when it is sold.

No Texas court has considered whether the Transition Property at issue is protected by the Takings Clause.  While a few Texas court of appeals decisions have suggested that the Takings Clause is limited to takings of real property or property attendant thereto,98 the weight of authority has recognized that the clause is not limited in application to real property.

In a case finding that a municipality's requirement that a developer construct and pay for offsite public improvements as a condition to plat approval for subdivision development constituted a compensable taking under the Texas Constitution, the court stated:

The Fifth Amendment of the United States Constitution and article I, section 17 of the Texas Constitution prohibit the taking of private property—both real and personal, and including money—for public use without just compensation.99

Texas courts have found that a lender's perfected security interest is a protected property interest under the Texas Takings Clause.100  In MidFirst Bank, the Texas Workforce Commission ("TWC") attempted to use a corporation's receivables to satisfy statutory liens arising from the corporation's failure to pay former employees' wage claims and unemployment taxes.101  However, the Austin Court of Appeals concluded that the TWC's action, which deprived MidFirst Bank of its security interest in the receivables, constituted a taking in violation of the Texas Takings Clause.  In so doing, the Austin Court of Appeals expressly rejected TWC's argument that takings claims under the Texas Constitution are confined to the taking of real property by eminent domain.102  Similarly, other courts of appeals have extended the protections of the Texas Takings Clause to the rights of secured lienholders in manufactured housing,103 to the property rights of patent holders,104 and to the property rights of franchisees.105

Based on the foregoing, it is our opinion that it is likely that a Texas court would conclude that the Transition Property, if "taken, damaged or destroyed for or applied to public use" by an act of the Legislature or the PUCT, is a "cognizable property interest" entitled to protection under the Takings Clause of the Texas Constitution.

3.           Property Taken for Public Use

The Texas Takings Clause provides private citizens with compensation only if property is "taken... for or applied to public use."106  The State is without authority to take private property except for a public use.  A court will enjoin action by governmental officials to take property that benefits only private individuals.107  The public use requirement serves two objectives: (1) to ensure that, when the State must compensate a private person for a taking, the public has received some benefit; and (2) to distinguish a taking, which is the act of the sovereign,from those actions, such as tortious acts or takings for a private purpose, which are the acts of individuals acting outside of their official capacities.108  When faced with a takings claim,a reviewing Texas state court must therefore analyze whether or not the state action was for a public use.  A reviewing Texas state court's analysis of any state action would obviously depend upon the particular facts involved.

While it is not possible to anticipate what particular form state action might take, presumably such action would be taken to provide relief to ratepayers subject to the Transition Charges.  However, the fact that the state action is likely to be directed at protecting particular consumers of electricity should not lead a reviewing Texas state court to decide the state action is not for a public use or purpose.  Texas judicial decisions indicate that a state action that provides a direct benefit to only a select group of persons can nevertheless be related to furtherance of a public purpose.109  In MidFirst Bank, the TWC was seeking to collect from funds being held at MidFirst Bank, receivables of a health care facility to satisfy tax liens and wage claims against the health care facility.  The money recovered for the wage claims would have gone directly to individual claimants.110  In defending against a takings claim by MidFirst Bank (which held a superior lien on the funds and was attempting to collect the funds for itself), the TWC argued its actions in attempting to collect the wage claims were not subject to the Texas Takings Clause because those actions were not for a public purpose.111  The Austin Court of Appeals held that the TWC, in enforcing the Texas Labor Code and obtaining funds that were rightfully the property of MidFirst, was "acting in furtherance of a public purpose" for purposes of a takings claim.112  The Austin Court of Appeals stated "the fact that the benefit inures to a specific group of people does not lessen the importance of enforcement of the labor code to the public at large."113

Assuming that the Legislature or the PUCT were to reduce the amount of Transition Charges allowed in the Financing Order or similarly impair the Transition Property, the purpose would likely be to protect the interests of electric consumers.  We believe it is likely that a reviewing Texas state court would find that the public use requirement under the Texas Takings Clause would be satisfied.

4.           Valid Exercise of Police Power

All private property is held subject to the valid exercise of the State's police power.114  The government will not be required to make compensation "for losses occasioned by the proper and reasonable exercise of its police power."115  Nonetheless, the State may not defend its actions merely by labeling them as an exercise of its police power.  As the Texas Supreme Court has stated: "Recognizing the illusory nature of the problem, we have previously refused to establish a bright line for distinguishing between an exercise of the police power which does constitute a taking and one which does not."116

In order for a governmental action to be a valid exercise of the state's police power, not considered a taking, there are two requirements:

First, the regulation must be adopted to accomplish a legitimate goal; it must be "substantially related" to the health, safety, or general welfare of the people.  Second, the regulation must be reasonable; it cannot be arbitrary.117

This analysis, of necessity, is fact-intensive and each case stands on its own.118  As the court stated in Sheffield:

[W]hether regulation has gone "too far" and become too much like a physical taking for which the constitution requires compensation requires a careful analysis of how the regulation affects the balance between the public's interest and that of private landowners.119

Factors that are relevant in evaluating this balance between the public's interest and the interest of private citizens are:"(1) ‘the economic impact of the regulation on the claimant'; (2) ‘the extent to which the regulation has interfered with distinct investment-backed expectations'; and (3) ‘the character of the governmental action.'"120

Unlike more typical takings cases dealing with issues such as zoning restrictions or land use exactions, a claim in this case would arise from state action that would be extraordinary and unusual.  A repeal of the State Pledge or an impairment of the Transition Property that the State has vowed not to impair should trigger close scrutiny by a court of the state's justification for such action under the police power.  Moreover, such action, if significant, would negatively impact a substantial investment-backed securitization financing arrangement that has been sanctioned by the Legislature and specifically found by the Legislature to provide "greater tangible and quantifiable benefits to ratepayers than would have been achieved without the issuance of transition bonds."121  Moreover, impairment of the Transition Property would ironically harm Bondholders who by their investment have, in the Legislature's view, provided "tangible and quantifiable benefits" to the public.

Accordingly, based on the above, we are of the opinion that a reviewing Texas state court would find a compensable taking under the Texas Takings Clause if (a) it concludes that the Transition Property is property of a type protected by the Texas Takings Clause and (b) the State takes action that, without paying just compensation to the Bondholders, (i) permanently appropriates the Transition Property or denies all economically productive use of the Transition Property; or (ii) destroys the Transition Property, other than in response to emergency conditions; or (iii) substantially reduces, alters or impairs the value of the Transition Property, if the action unduly interferes with the Bondholders' reasonable investment-backed expectations.

IV.           QUALIFICATIONS

Our opinion is subject to the qualifications set forth herein and, with respect to the claims discussed herein, to the condition that such claims are properly-presented and argued, and that the law is properly applied. We wish to note that we are not aware of any decisions interpreting PURA Chapter 39, Subchapter G concerning the vesting, creation or transfer of any transition property thereunder except for the City of Corpus Christi decision or TXU Electric Co. v. Public Utility Commission, 51 S.W.3d 275 (Tex. 2001).

All of the foregoing analyses and the conclusions set forth herein are premised upon, and limited to, the documents evidencing, and the law governing, the transactions described herein in effect as of the date of this letter.  Furthermore, we note that a court's decision regarding matters upon which we opine herein will be based on the court's own analysis and interpretation of the factual evidence before the court and of applicable legal principles.

Our opinion is subject to the effect of general principles of equity, including, without limitation, limitations on the availability of equitable remedies and concepts of materiality, reasonableness, good faith and fair dealing, and other similar doctrines affecting the enforceability of agreements generally (regardless of whether considered in a proceeding in equity or at law).

Our opinion is limited to the specific opinion requested in Section II of this letter and is limited in all respects to laws and facts existing on the date of this letter.  We express no opinions implicitly herein, and we assume no obligation to advise you with respect to any issues not specifically addressed herein.  The opinion set forth above is given as of the date hereof and we disavow any undertaking or obligation to advise you of any changes in law or any facts or circumstances that may hereafter occur or come to our attention that could affect such opinion.  Furthermore, it is our and your understanding that the foregoing opinion is not intended to be a guaranty as to what a particular court would actually hold, but an opinion as to the decision a court would reach if the issue were properly-presented to it and the court followed what we believe to be the applicable legal principles.

This opinion is solely for your benefit in connection with the transactions described above and may not be relied upon or used by, circulated, quoted or referred to, nor may copies hereof be delivered to, any other person for any purpose without our prior written approval.  We hereby consent to the filing of this letter as an exhibit to the Securities and Exchange Commission Form 8-K and to all references to our firm included in or made a part of the Form 8-K.  In giving the foregoing consents, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the related rules and regulations of the Securities and Exchange Commission.

We have assumed throughout this opinion (i) that there has been no (and will not be any) fraud in connection with the transactions described herein, and (ii) (a) the accuracy of the representations and warranties set forth in the Relevant Documents as to factual matters and (b) that the transactions contemplated by the Relevant Documents will not be subject to avoidance as a fraudulent transfer.  Our opinion is limited to the presently effective laws of the State of Texas.

Very truly yours,

/s/ Clark Thomas & Winters

Schedule I:  Addressees of Opinion

 

1 Public Utility Regulatory Act, Tex. Util. Code Ann.  §§ 11.001-66.016 (Vernon 2007 & Supp. 2009).

 

2           PURA § 39.001(a).

 

3           PURA § 39.251(7); § 39.252(a).

 

4           PURA § 39.301; § 39.302(5).

5 Senate Comm. on Business & Commerce, Bill Analysis, Tex. H.B. 163, 79th Leg., 3d C.S. (2006).

 

6           PURA § 36.401(a).

 

7           CSHB 1378 was ultimately passed as Senate Bill 769.

 

8           House Comm. on State Affairs, Bill Analysis, Tex. S.B. 769, 81st Leg., R.S. (2009).

 

9           PURA § 36.401(b).

 

10          PURA § 36.402(a).

 

11          PURA § 39.304(a).

 

12          PURA § 39.304(b) and (c) (emphasis added).

 

13 Application of Entergy Texas, Inc. for a Financing Order, Docket No. 37247, Financing Order at Conclusion of Law No. 40.

 

14           Id. at Conclusion of Law No. 20.

 

15           Id. at Conclusion of Law No. 23.

 

16           Id. at Conclusion of Law No. 25.

 

17           Id. at Ordering Paragraph No. 54.

 

18           McGraw, 83 S.W.2d at 637 (emphasis added).

 

19           Id. at 638.

 

20           Id.

 

21           Lower Colo. River Auth. v. City of San Marcos, 523 S.W.2d 641 (Tex. 1975).

 

22           Id. at 645.

 

23 The Constitution does provide for popular referendum in certain specific circumstances: (1) it authorizes elections on local option laws regarding the sale of alcoholic beverages, Tex. Const. art. XVI, § 20; (2) it requires submission to the voters of salary recommendations for certain elected officials, Tex. Const. art. III, § 24; (3) it requires that constitutional amendments be adopted by popular referendum, Tex Const. art. XVII, § 1; and (4) it requires a statewide referendum on the question of imposing an income tax on natural persons, Tex. Const. art. VIII, § 24.

 

24 The Legislature has made popular referendum, but not citizen initiative, part of the adoption of certain local option laws in other instances, including: local adoption by popular referendum is required for the property tax exemption for organizations primarily engaged in charitable activities, Tex. Tax Code Ann. § 11.184 (Supp. 2006), and local adoption by popular referendum is required to impose municipal sales and use taxes, Tex. Tax Code Ann. § 321.101 (Vernon 2008).

 

25           Tex. Const. art. III, § 1.

 

26           City of Aransas Pass v. Keeling, 112 Tex. 339, 347-48, 247 S.W. 818, 821 (1923).

 

27 Id. (citing City of Austin v. Cahill, 99 Tex. 172, 88 S.W. 542 (1905); Bassett v. City of El Paso, 88 Tex. 168, 30 S.W. 893 (1895); Morris & Cummings v. State, 62 Tex. 745 (1884); Fletcher v. Peck, 10 U.S. 87 (1810); and Seibert v. United States, 122 U.S. 284 (1887)).

 

28           Cahill, 88 S.W. at 546 (citing U.S. Const art. 1, § 10).

 

29           Travelers' Ins. Co. v. Marshall, 124 Tex. 45, 76 S.W.2d 1007, 1009 (1934).

 

30 In Travelers' Ins. Co. v. Marshall, the Texas Supreme Court noted that the contract clause in the Texas Constitution adopted in 1876 was “derived from” the contract clause in the U.S. Constitution, which is nearly identical in wording.  Id. at 1012. The court reasoned that the interpretation of the Federal Contract Clause by the federal courts is of critical importance in understanding the meaning of the Texas Contract Clause at the time it was adopted. Thus, in considering challenges to State legislation or action which impairs an existing contract, Texas courts have traditionally looked to and applied federal law developed under the Federal Contract Clause, as well as applying their own analyses of the Texas Contract Clause. Lester v. First Am. Bank, Bryan, Tex., 866 S.W.2d 361, 365-66 (Tex. App.—Waco 1993, writ denied).

 

31           Travelers' Ins. Co., 76 S.W.2d at 1011.

 

32 Edgewood Indep. Sch. Dist v. Meno, 917 S.W.2d 717, 742 (Tex. 1995) (emphasis in original) (quoting City of Aransas Pass v. Keeling, 112 Tex. 339, 347-48, 247 S.W. 818, 821 (1923)).

 

33 Id. (citingLyford Indep. Sch. Dist. v. Willamar Indep. Sch. Dist., 34 S.W.2d 854, 856 (Tex. Comm'n App. 1931, judgm't adopted) and El Dorado Indep. Sch. Dist. v. Tisdale, 3 S.W.2d 420, 422 (Tex. Comm'n App. 1928, judgm't adopted)).

 

34 Id. at 742 (citing Determan v. City of Irving, Tex,609 S.W.2d 565, 570 (Tex. Civ. App.—Dallas 1980, no writ).

 

35 Barshop v. Medina County Underground Water Conservation Dist., 925 S.W.2d618,625 (Tex. 1996) (quoting Houston & T.C. Ry. Co. v. East, 98 Tex. 146, 81 S.W. 279 (1904)).

 

36           Id. at 634 (citing Henderson Co. v. Thompson, 300 U.S. 258 (1937)).

 

37           Henderson Co., 300 U.S. at 266 (1937).

 

38           Barshop, 925 S.W.2d at 635.

 

39           Id.

 

40 See, e.g., Trail Enters., Inc. v. City of Houston, 957 S.W.2d 625 (Tex. App.—Houston [14th Dist.] 1997, pet. denied) (drilling restrictions); Tex. State Teachers Ass'n v. State, 711 S.W.2d 421, 425 (Tex. App.—Austin 1986, writ ref'd n.r.e.) (teacher testing); State Bd. of Registration for Prof'l Eng'rs v. Wichita Eng'g Co., 504 S.W.2d 606, 608 (Tex. Civ. App.—Fort Worth 1973, writ ref'd n.r.e.) (restricting use of the term “engineering” in name of Co.); Dovalina v. Albert, 409S.W.2d 616, 619 (Tex. Civ. App.—Amarillo 1966, writ ref'd n.r.e.) (test for licensing of polygraph operators); Biddle v. Bd. of Adjustment, 316 S.W.2d 437, 440-441 (Tex. Civ. App.—Houston 1958, writ ref'd n.r.e.) (zoning ordinance).

 

41           Trail Enters., Inc., 957 S.W.2d at 633.

 

42           Tex. State Teachers Ass'n, 711 S.W.2d at 424.

 

43           Id. at 425.

 

44 Dovalina, 409S.W.2d at 619; see also Biddle, 316 S.W.2d at 440-441 (concluding that although the zoning ordinance at issue may have incidentally affected appellants' contract, it did not unconstitutionally impair its obligation).

 

45 R.R. Comm'n v. Houston Natural Gas Corp., 289 S.W.2d 559, 562 (Tex. 1956); Cent. Power and Light Co. v. Pub. Util. Comm'n of Tex., 36 S.W.3d 547, 554 (Tex. App.—Austin 2001, pet. denied).

 

46 Southwestern Bell Tel. Co.v. Pub. Util. Comm'n, 615 S.W.2d 947, 956-57 (Tex. Civ. App.—Austin 1981), writ ref. n.r.e. per curiam 622 S.W.2d 82 (Tex. 1981); Cent. Power and Light, 36 S.W.3d at 554.

 

47           Financing Order at Conclusion of Law No. 40.

 

48           See, e.g., Lower Colo. River Auth. v. McGraw, 125 Tex. 268, 83 S.W.2d 629 (1935).

 

49 State Bd. of Ins. v. Prof'l & Bus. Men's Ins. Co., 359 S.W.2d 312, 315 (Tex. Civ. App.—Austin 1962, writ ref'd n.r.e.).

 

50           Tex. Civ. Prac. & Rem. Code Ann. § 37.004(a) (Vernon 2008).

 

51           Dodgen v. Depuglio, 146 Tex. 538, 209 S.W.2d 588, 592 (1948).

 

52           Tex. Civ. Prac. & Rem. Code Ann. § 37.006(b) (Vernon 2008).

 

53           Tex. Civ. Prac. & Rem. Code Ann. § 65.011 (Vernon 2008).

 

54 See Tex. Health Care Info. Council v. Seton Health Plan, Inc., 94 S.W.3d 841, 853 (Tex. App.—Austin 2002, pet. denied).  Additionally, courts generally balance equities to determine whether granting an injunction is proper. Thus, if the public interest is involved, courts will determine whether granting a writ will cause harm to the public disproportionate to the harm to the private litigant seeking protection of the injunction. Storey v. Cent. Hide & Rendering Co., 148 Tex. 509, 226 S.W.2d 615 (1950); Hooks Tel. Co. v. Leafy, 352 S.W.2d 755 (Tex. Civ. App.—Texarkana1961, no writ).  If damage to private individuals outweighs the benefit accruing to the public, the injunction will be granted. Mitchell v. City of Temple, 152 S.W.2d 1116, 1117 (Tex. Civ. App.—Austin 1941, writ ref'd w.o.m.) (discussing a temporary injunction).  Here, for the state officials to claim that the legislative or administrative action is warranted, they will most likely argue that there is a public interest to be protected by such action. In Mitchell, for example, the court held that the harm to the 15,000 residents of Temple by enjoining the operation of a sewage plant outweighed the harm to individual citizens claiming injury from continued operation of the plant. Conversely, in Burrow v. Davis, 226S.W.2d 199 (Tex. Civ. App.—Amarillo 1949, writ ref'd n.r.e.), the court refused to enjoin completion of construction of a building or require that structure to be torn down even though it slightly inconvenienced the public because it encroached upon two public streets, since on balancing the equities, the harm to the individual owners of destroying their property was greater than the harm to the adjacent property owners.

 

55 City of Beaumont v. Bouillion, 896 S.W.2d 143, 148-149 (Tex. 1995) (equitable relief, such as injunction, is available as remedy for violation of constitutional right guaranteed in article I of the Texas Constitution.); State v. Ferguson, 133 Tex. 60, 125 S.W.2d 272 (1939) (“It is a generally accepted rule that injunctive relief may be granted to prevent the enforcement of an unconstitutional statute when its enforcement will result in irreparable injury to property rights.”).

 

56 Bexar County v. North East Indep. Sch. Dist., 802 S.W.2d 854, 860 (Tex. App.—San Antonio 1990, writ denied).

 

57 Dir. of Dept. of Agriculture and Env't v. Printing Indus. Ass'n of Am., 600 S.W.2d 264, 265-266 (Tex. 1980) (citing Tex. Highway Comm'n v. Tex. Ass'n of Steel Importers, Inc., 372 S.W.2d 525 (Tex. 1963); Cobb v. Harrington, 144 Tex. 360, 190 S.W.2d 709 (1945); W. D. Haden Co. v. Dodgen, 158 Tex. 74, 308 S.W.2d 838 (1958); State v. Epperson, 121 Tex. 80, 42 S.W.2d 228 (1931); see also Marshall, 76 S.W.2d at 1008 (enjoining the enforcement of an unconstitutional Moratorium Law passed during the Great Depression); Tex. Workers' Comp. Comm'n v. Horton, 187 S.W.3d 282, 285 (Tex. App.—Beaumont 2006, no pet.) (“[A] suit for injunctive relief against a state agency is maintainable only if the pleadings, together with the relevant evidence, show that the agency's activity is unlawful because it lacks statutory authorization.”).

 

58 Edwards Aquifer Auth. v. Chemical Lime, Ltd., 212 S.W.3d 683, n.12 (Tex. App.—Austin 2006) rev'd on other grounds, 291 S.W.3d 392 (Tex. 2009) (“[T]he district court's final judgment declaring the EAA Act unconstitutional . . . placed outside the powers of government (i.e., rendered void) its enforcement.”); Printing Indus. Ass'n of Am., 600 S.W.2d at 265-266 (finding that printers were able to maintain their suit to enjoin state agencies from engaging in printing activities if such activities were not authorized by the Constitution).

 

59 Mo., K & T. Ry. Co. of Tex. v. Shannon, 100 Tex. 379, 100 S.W. 138 (1907) (“The principle . . . is that the courts have no power to enjoin the officers of a state from taking action under a statute claimed to be unconstitutional and deemed to be prejudicial to the complainants, unless the officers are about to do some act which, if not authorized by a valid law, constitutes an unlawful interference with their rights.”); State v. Morales, 869 S.W.2d 941, 946 (Tex. 1994) (holding that “an injunction will not issue unless it is shown that the respondent will engage in the activity enjoined”); see also Frey v. DeCordova Bend Estates Owners Ass'n, 647 S.W.2d 246, 248 (Tex. 1983) (holding that the fear or apprehension of the possibility of injury is not a basis for injunctive relief).

 

60           Town of Palm Valley v. Johnson, 87 S.W.3d 110, 111 (Tex. 2001).

 

61           Butnaru v. Ford Motor Co., 84 S.W.3d 198 (Tex. 2002).

 

62 See S.W. Newspapers Corp. v. Curtis, 584 S.W.2d 362, 368 (Tex. Civ. App.—Amarillo 1979, no pet.)  (“The publisher has plead [sic] and shown by nonconflicting evidence the denial of a constitutionally guaranteed right which, as a matter of law, inflicts an irreparable injury.”).

 

63 937 S.W.2d at 77 (enjoining the violent protests of anti-abortion advocates).

 

64 Liberty Mut. Ins. Co. v. Mustang Tractor & Equip. Co., 812 S.W.2d 663, 666 (Tex. App.—Houston [14th Dist.] 1991, no writ).

 

65 An unconstitutional government action negatively affecting the value or payment of Transition Bonds would, in all likelihood, amount to the type of ongoing, irreparable harm necessary to support the issuance of a permanent injunction. In many cases, courts have concluded that injunctive relief was appropriate to prevent the improper expenditure of funds by government officials. For example, courts have held that an injunction is appropriate to enjoin government officials from diverting public funds from a statutorily-required use to an unauthorized use. See City of Dallas v. Mosely, 286 S.W. 497, 499 (Tex. Civ. App.—Dallas 1926), aff'd, 17S.W.2d 36 (Tex. Comm'n. App. 1929) (“A writ of injunction will properly issue to restrain the diversion of public funds intrusted to public officers for special use.”). Courts have also enjoined the illegal expenditure of public funds. See Osborne v. Keith, 142 Tex. 262, 177 S.W.2d 198, 200 (1944) (recognizing the right of courts to enjoin public officials to spend funds pursuant to an illegal contract); Bexar County v. Wentworth, 378 S.W.2d 126, 129 (Tex. Civ. App.—San Antonio 1964, writ ref'd. n.r.e.) (upholding the grant of a temporary injunction restraining a government official from spending money on goods for the government under a contract in which he had an interest).  Furthermore, as noted by the Texas Supreme Court in Calvert v. Hull, 475 S.W.2d 907 (Tex. 1972), private citizens may sue public officials (i.e., the comptroller) to enjoin the expenditure of appropriated funds. Id. at 908.

 

66 Tex. Health Care Info. Council v. Seton Health Plan, Inc., 94 S.W.3d 841, 853 (Tex. App.—Austin 2002, pet. denied).

 

67           Brazos River Conservation & Reclamation Dist. v. Allen, 141 Tex. 208, 171 S.W.2d 842, 846 (1943).

 

68 Montfort v. Trek Res., Inc., 198 S.W.3d 344, 353 (Tex. App.—Eastland 2006, no pet.); Synergy Ctr., Ltd. v. Lone Star Franchising, Inc., 63 S.W.3d 561, 567 (Tex. App.—Austin 2001, no pet.); Recon Exploration, Inc. v. Hodges, 798 S.W.2d 848, 851 (Tex. App.—Dallas 1990, no writ); see also Wright v. Sport Supply Group, Inc., 137 S.W.3d 289, 294 (Tex. App.—Beaumont 2004, no pet.) (citing Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002)) (stating that the requirements of “irreparable injury” and “no adequate remedy” are “inextricably intertwined” under Texas law).

 

69 Bexar County v. North East Indep. Sch. Dist., 802 S.W.2d 854 (Tex. App.—San Antonio 1990, writ denied) (citing Furr v. Hall, 553 S.W.2d 666, 672 (Tex. Civ. App.—Amarillo 1977, writ ref'd n.r.e.)).

 

70           U.S. Trust Co. of N.Y. v. New Jersey, 431 U.S. 1, 8-9 (1977).

 

71           Id. at 9-10.

 

72           Id. at 10.

 

73           Id. at 28.

 

74           Id. at 19.

 

75           Id. (emphasis added).

 

76 Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex. 2002); Walling v. Metcalfe, 863 S.W.2d 56, 57 (Tex. 1993).

 

77 State Bd. of Ins. v. Prof'l & Business Men's Ins. Co., 359 S.W.2d 312 (Tex. Civ. App.—Austin 1962, writ ref'd n.r.e.) (citing Tex. R.R. Comm'n v. Shell Oil Co., 146 Tex. 286, 206 S.W.2d 235, 242 (1947)).

 

78           Butnaru, 84 S.W.3d at 204.

 

79 Tex. State Bd. of Pharmacy v. Walgreen Tex. Co., 520 S.W.2d 845 (Tex. Civ. App.—Austin1975, writ ref'dn.r.e.).

 

80           Sun Oil v. Whitaker, 424 S.W.2d 216 (Tex. 1968).

 

81 Universal Health Servs. v. Thompson, 24 S.W.3d 570, 576 (Tex. App.—Austin 2000, no pet.); Walling, 863 S.W.2d at 58.

 

82 U.S. Trust Co., 431 U.S. at 19; Walling v. Metcalfe, 863 S.W.2d 56, 57 (Tex. 1993) (citing Roland Mach. Co. v. Dresser Indus., 749 F.2d. 380, 386 (7th Cir. 1984) where the Seventh Circuit said that temporary injunctive relief was particularly appropriate when “the nature of the plaintiff's loss may make damages very difficult to calculate”).

 

83           Beaumont, 896 S.W.2d at 150.

 

84 As in the case of permanent injunctions, a court considering whether to issue a temporary injunction will balance the equities between the parties to determine whether an injunction should issue. Lower Colo. River Auth. v. McGraw, 125 Tex. 268, 83 S.W.2d 629 (1935).

 

85           Universal Health Servs., 24 S.W.3d at 570.

 

86           Sheffield Dev. Co. v. City of Glenn Heights, 140 S.W.3d 660 (Tex. 2004).

 

87 Mayhew v. Town of Sunnyvale, 964 S.W.2d 922, 935 (Tex. 1998); Sheffield Dev. Co., 140 S.W.3d at 669.

 

88           See Sheffield, 140 S.W.3d at 671-79; Mayhew, 964 S.W.2d at 933-38.

 

89 City of Dallas v. Jennings, 142 S.W.3d 310, 313 (Tex. 2004); Steele, 603 S.W.2d at 790-791.

 

90           Steele, 603 S.W.2d at 790.

 

91 Gen. Servs. Comm'n v. Little-Tex Insulation Co., 39 S.W.3d 591, 598 (Tex. 2001) (“Little-Tex”).

 

92 Little-Tex, 39 S.W.3d at 598; State v. Holland, 161 S.W.3d 227, 232 (Tex. App.—Corpus Christi 2005, no pet.) rev'd on other grounds, 221 S.W.3d 639 (2007).

 

93 City of Dallas v. Jennings, 142 S.W.3dat 313-14 (emphasis in original) (quoting Tex. Highway Dept. v. Weber, 219 S.W.2d 70, 71 (Tex. 1949)).

 

94 City of Tyler v. Likes, 962 S.W.2d 489, 505 (Tex. 1997) (no taking where city action to unclog sewer backup caused a sewage flood that damaged plaintiff's property).  The Texas Supreme Court has ruled that the State does not have the requisite intent when money or property is taken or withheld in the context of a contractual dispute with an entity that has contracted to provide a good or service to the State. Little-Tex, 39 S.W.3d at 598-99. The Court reasoned that, when the State is acting under colorable contractual rights, it does not have the requisite intent to take property under any eminent domain powers. Id. To the extent the State Pledge, the related provisions of Subchapter G of Chapter 39 of PURA, and the Financing Order creating the Transition Property and Transition Charges effectively create a contract between the State and the Bondholders, such a “contract” is distinguishable from a typical goods or services contract with the State. Accordingly, it is not apparent that in enacting State Impairment Legislation or taking PUCT Impairment Action, the State would be “acting within a color of right to take or withhold property in a contractual situation” within the meaning of Little-Tex. Id.

 

95           See PURA § 39.301.

 

96 Hallco Tex., Inc. v. McMullen County, 221 S.W. 3d 50, 56 (Tex. 2006) (“Absent a cognizable property interest, a claimant is not entitled to compensation under article I, section 17.”).

 

97           PURA § 39.304 (emphasis added).

 

98 DeMino v. Sheridan, 176 S.W.3d 359 (Tex. App.—Houston [lst Dist.] 2004, no pet.); City of Houston v. North Mun. Util. Dist. No. 1, 73 S.W.3d 304, 310-11 (Tex. App.—Houston [1st Dist.] 2001, pet. denied); Tex. State Technical Coll., 983 S.W.2d 821, 826 (Tex. App.—Waco 1998, pet. denied).

 

99 Town of Flower Mound v. Stafford Estates Ltd. P'ship, 71 S.W.3d 18, 28 (Tex. App.—Fort Worth 2002), aff'd, 135 S.W.3d 620 (Tex. 2004);see also Lone Star Gas Co. v. City of Fort Worth, 98 S.W.2d 799 (Tex. Comm. App. 1936) (recognizing that where a city acquires a gas distribution system as a going concern through eminent domain, items that enter into arriving at the compensation award include intangible property, such as contract rights).

 

100 Tex. Workforce Comm'n v. MidFirst Bank, 40 S.W.3d 690, 696 (Tex. App.—Austin 2001, pet. denied).

 

101           Id. at 692.

 

102           Id. at 697 (“[W]e will not limit takings-clause actions to situations involving eminent domain.”).

 

103 See County of Burleson v. Gen. Elec. Capital Corp., 831 S.W.2d 54, 60 (Tex. App.—Houston [14th Dist.] 1992, writ denied); Hunt County v. Green Tree Servicing Corp., No. 05-0500940-CV, 2006 WL 242349, at *2 (Tex. App.—Dallas Feb. 2, 2006, no. pet.) (mem. op., not designated for publication).

 

104           State v. Holland, 161 S.W.3d 227, 230-32 (Tex. App.—Corpus Christi 2005, no pet.).

 

105 State/Operating Contractors ABS Emissions, Inc. v. Operating Contractors/State, 985 S.W.2d 646, 653 (Tex. App.—Austin 1999, pet. denied) (“[u]nder Texas case law, a franchise impresses its owner with vested rights” and “generally take[s] the form of utilities, or other monopolies, created to further the public interest”); Brazosport Sav. & Loan Ass'n v. Am. Sav. & Loan Ass'n, 342 S.W.2d 747, 750 (Tex. 1961) (“[i]n character and nature a franchise is essentially in all respects property, and is governed by the same rules as to its enjoyment and protection and is regarded by the law precisely as other property”).

 

106 Tarrant Reg'l Water Dist. v. Gragg, 151 S.W.3d 546, 554-55 (Tex. 2004); Steele v. City of Houston, 603 S.W.2d 786, 790 (Tex. 1980).

 

107 See Maher v. Lasater, 354 S.W.2d 923, 924-25 (Tex. 1962) (enjoining county commissioners court from declaring a private road across claimants' property to be a public highway); Marrs v. R.R. Comm'n, 142 Tex. 293, 177 S.W.2d 941, 948-49 (1944) (enjoining Railroad Commission proration orders where effect of orders would allow oil from petitioner's land to flow onto and accumulate on neighboring land).

 

108           See Sheffield, 140 S.W.3d at 669-70; Tex. Highway Dep't v. Weber, 219 S.W.2d at 71-72.

 

109           See MidFirst Bank, 40 S.W.3d at 696-697.

 

110           Id. at 696.

 

111           Id.

 

112           Id. at 697.

 

113           Id. at 696.

 

114           City of College Station v. Turtle Rock Corp., 680 S.W.2d 802, 803 (Tex. 1984).

 

115           Turtle Rock Corp., 680 S.W.2d at 804.

 

116           Id.

 

117           Id. at 805.

 

118           Sheffield, 140 S.W.3d at 672.

 

119           Id. at 671-672.

 

120 Id. at 672 (citing Connolly v. Pension Benefits Guar. Corp., 475 U.S. 211, 225 (1986) (quoting Penn Cent. Transp. Co. v. City of New York, 438 U.S. 104, 124 (1978)).

 

121           PURA § 36.401(b)(2).

SCHEDULE I

Fitch Ratings

One State Street Plaza

New York, New York 10004

Moody's Investors Service, Inc.

7 World Trade Center at 250 Greenwich Street

New York, New York 10007

Standard & Poor's Ratings Services

a Standard & Poor's Financial Services LLC business

55 Water Street, 41st Floor

New York, New York 10041

Morgan Stanley & Co. Incorporated

1585 Broadway

New York, New York 10036

Citigroup Global Markets Inc.

388 Greenwich Street

New York, New York 10013

Goldman, Sachs & Co.

1 New York Plaza

New York, New York 10004

RBS Securities Inc.

600 Washington Boulevard

Stamford, Connecticut 06901

Loop Capital Markets, LLC

200 West Jackson

Chicago, Illinois  60606

Entergy Texas, Inc.

350 Pine Street

Beaumont, Texas 77701

Entergy Texas Restoration Funding, LLC

Capital Center

919 Congress Avenue, Suite 840-C

Austin, Texas 78701

The Bank of New York Mellon

101 Barclay Street, Floor 4W

New York, New York 10286

Schedule I