TREPLITORNE=YGENERAL 

OF TEXAS 

AWES-. -a 78711 

The Honorable Jon Newton 

Chairman, 

Opinion No. H- 417 

House Energy Crisis Committee 

House of Representatives 

Austin, Texas 

Dear Representative Newton: 

Re: Legality of city’s waiver 

of revenues to which it is 

entitled from city utility 

company. 

You a,sk whether a city may lawfully waive the portion of revenues 

from a city operated utility company to which it is entitled under the terms 

of a trust indenture. 

In 1942 the City of San Antonio purchased its light and gas distribution system from the San Antonio Public Service Company, a private 

corporation. The purchase was effected by means of a trust indenture 

which established the City Public Service Board to operate the utility 

system for the benefit of both the bondholders and the city. Under the 

terms of the trust indenture the city is entitled to receive from the 

Board’s gross revenues certain payments which when totaled will equal 

fourteen percent of those revenues. 

You have, told us that in 1974 because of a large increase in the price 

of gas, the city decided to take action to soften the blow that would have 

fallen on its consumers, many of whom are residents of satellite towns 

and military bases and accordingly pay no ad valorem taxes. The city 

advised the B,oard to delete from its billings to consumers fourteen 

percent of the billings att~ributable to increases in gas costs in excess of 

the costs for October 1973. The city in effect intended to waive some of 

the revenues it ‘was entitled to receive under the terms of the trust indenture. If Ihe propose,d waiver had ever been put into effect, it would have 

caused a de,crease in the city’s total revenues. When the validity of the 

waiver was questioned. it was rescinded. You ask whether such a waiver 

would be legal. 

p. 1944 
The Honorable Jon Newton page 2 (H-417) 

Particularly relevant to the question you have asked is San Antonio 

Independent School District v. Board of Trustees of the San Antonio Electric 

and Gas System, 204 S. W. 2d 22 (Tex. Civ. App. --El Paso 1947, writ 

ref., n. r. e.) in which the court held to be invalid payments to a l.ocal school 

district out of utility revenues. In passing on this question, the court 

characterized the City Public Service Board as an agency of the city: 

It can make 210 difference in principle. that the city 

elected to have the utilities operated by a board of trustees. 

This is but an agency by which the city may have the 

utilities operated; thus operating,they are operated by 

the city. 204 S. IV. 2d at 26. 

If the City Public Service Board is, legally s.peaking, an arm ,of the 

city, then the city can forego the payments to which it is entitled from the 

Board without making a gift in violation of Article 3, 5 52 of the Texas 

Constitution. Waiver of these payments in effect constitutes a reduction 

in the rate the city is charging for utilities. To our knowledge there is 

no constitutional provision or statute which requires a city to charge a 

certain rate or make a certain amount of profit fkom a utility system it 

operates. See Articles 1123 and 1175 (14), V. T. C. S., the statutory provisions which authorize municipalities to regulate the rate to be charged 

the public for gas and electricity. Assuming that the waiver does not 

result in the sale of utilities at less than cost to other political entities, 

it is our opinion that waiver of the revenues to which it is entitled is 

merely a reduction in rate by the city and not an unconstitutional gift. 

SUMMARY 

Where a city owned utility is obligated to make 

payments to the city, waiver of those payments by 

the city is not unconstitutional under Article 3, $ 52 

of the Texas Constitution. 

hVery truly yours, 

v Attorney General of Texas 

p. 1945 
The Honorable Jon Newton page 3 (H-417) 

APPROV#D: 

DAVID M. KENDALL, Chairman 

Opinion Committee 

p* 1946