# 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 towhich 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 towhich it is entitled under the terms ofa trust indenture. In 1942 the City ofSan Antonio purchased its light and gas distribution system from the SanAntonio Public Service Company, aprivate corporation. The purchase was effected bymeans of atrust indenture which established the City Public Service Board to operate the utility system for the benefit ofboth the bondholders and the city. Under the terms ofthe trust indenture the city is entitled to receive from the Board’s gross revenues certain payments which when totaled will equal fourteen percent ofthose revenues. You have, told us that in 1974 because ofa large increase in the price ofgas, the city decided to take action to soften the blow that would have fallen onits consumers, many ofwhom 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 ofthe billings att~ributable to increases in gas costs in excess of the costs for October 1973. The city in effect intended towaive some of the revenues it ‘was entitled to receive under the terms ofthe trust indenture. IfIhe propose,d waiver had ever been put into effect, itwould 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 it was rescinded.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 awaiver would be legal.

p. 1944The Honorable Jon Newton page 2 (H-417)
Particularly relevant to the question you have asked is SanAntonio Independent School District v. Board of Trustees ofthe SanAntonio Electric and Gas System, 204 S.W. 2d 22 (Tex. Civ. App. --El Paso 1947, writ ref., n.r. e.) inwhich the court held to be invalid payments to al.ocal school district out of utility revenues. Inpassing on this question, the court characterized the City Public Service Board as an agency ofthe city: It can make 210difference in principle. that the city elected tohave the utilities operated bya board oftrustees. This is but an agency bywhich the city may have the utilities operated; thus operating,they are operated by the city. 204 S.IV.2dat 26. Ifthe City Public Service Board is, legally s.peaking, an arm ,ofthe city, then the city can forego the payments to which it is entitled from the Board without making a gift inviolation ofArticle 3, 552 ofthe Texas Constitution. Waiver ofthese 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 ofprofit fkom a utility system it operates. See Articles 1123and 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 ofutilities at less than cost to other political entities, it is our opinion that waiver ofthe revenues towhich 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 ofthose payments by the city is not unconstitutional under Article 3, $52 ofthe Texas Constitution. hVery truly yours,



# v Attorney General of Texas

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

APPROV#D:

DAVID M. KENDALL, Chairman Opinion Committee

p* 1946