The Attorney General of Texas 

December 18, 1978 

JOHN L. HILL 

Attorney General 

Honorable Joe Wyatt, Jr. 

Chairman 

House Committee on Ways & Means 

State Capitol 

Austin, Texas 787ll 

Opinion No. H - 12 8 9 

Re: Whether the State of Texas 

is subject to the provision in the 

City of Austin’s Electric Rate 

Ordinance which provides for a 

five percent (5%) penalty on 

electric bills paid late. 

Dear Representative Wyatt: 

You have requested our opinion regarding whether the State of Texas is 

required to pay a five percent late charge on bills for electric utility service 

supplied by the City of Austin. 

Part 3 of the current rate ordinance for the City of Austin, adopted by 

the City Council on January 19, 1978, provides: 

Bills computed under this ordinance are due when 

rendered. Each bill shall have set forth thereon a date 

falling between twenty-seven and twenty-nine days 

after the date of the bill. Bills paid after the specified 

date shall have added thereto a penalty equal to five 

percent (5%) of the bill. Provided, however, this 

provision shall become effecttve on all bills rendered 

after April 1, 1978. 

It has been suggested that the state is prohibited from paying any portion of 

the referenced ‘penalty” by a number of provisions of the Texas Constitution. 

Under this view, payment of the ‘penalty” would represent “extra compensation,” contrary to article 3, sections 44 and 53, a “grant . . . of public moneys” 

in violation of article 3, section 51, or an “appropriation for private or 

individual purposes,” in contravention of article 16, section 6. Alternatively, 

if the late charge is deemed a form of interest, the state would not be liable 

for its payment absent an express contract or statute so providing. See 

Walker v. State, 103 S.W.2d 404, 407 (Tex. Civ. App. - Waco 1937, no writ). 

The constitutional argument is based upon the well-established principle 

that the state may not expend public funds unless it receives benefit 

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Honorable Joe Wyatt, Jr. - Page 2 (H-1289) 

therefrom or unless the expenditure serves a proper public purpose. Barrington V. 

Cokinos, 338 S.W.2d 133, 140 (Tex. 19601; Byrd v. City of Dallas, 6 S.W.2d 738, 740 

-28). Although no Texas court has ever determined the question, the courts 

of a number of other jurisdictions have held that utility late charges constitute 

“operating expenses” rather than penalty or interest. Jones v. Kansas Gas & 

Electric Co., 565 P.2d 597, 604 (Kan. 1977); State ex rel. Guste v. City of New 

Orleans, 309 So.2d 290, 295 (La. 1975); State ex rel. Utilities Comm’n v. North 

Carolina Consumers Council, Inc., 198 S.E.2d 98, 100 (N.C. App. 1973); see also 

Delich v. Iowa Electric Light & Power Co., 9 P.U.R. (4th) 335, 339 (19751. 

Each of these decisions relies upon the court’s opinion in Coffelt v. Arkansas 

Power h Light Co., 451 S.W.2d 881 (Ark. 19701. In that case, a consumer class 

action suit challenged the legality of a utility late charge on the ground that it 

violated the statute prohibiting usury. The court declared: 

The late charge, far from being an exaction of excessive 

interest for the loan or forebearance of money, is in fact a 

device by which consumers are automatically classified to 

avoid discrimination. Its effect is to require delinquent 

ratepayers to bear, as nearly as can be determined, the 

exact collection costs that result from their tardiness in 

paying their bills. 

Any other result, the court said, would penalize “customers who pay their bills 

promptly” by requiring them to share “the burden of collecting costs not of their 

making.” 451 S.W.2d at 884. 

We believe it is significant that the United States has long recognized the 

right of a utility to impose a late charge on a federal agency if the company’s 

applicable rate schedule provides for such payment. See 51 Comp. Gen. 251, 252 

(1971). The Comptroller General of the United Statexas held that utility late 

charges do not constitute penalty or interest, “since such charges merely recoup 

direct costs incurred by [the? utility incident to late payments.” Comp. Gen., file 

no. B-186494 (1976). See United 412 F. 

Supp. 165 (E.D.N.C. 19m. If in fact a late charge “merely recoups direct costs,” 

the state is not constitutionally prohibited from expending funds in payment 

thereof, since the late charge represents payment for a portion of the service 

provided to the state. 

In view of the virtually unanimous authority from other jurisdictions, we 

believe that utility late charges represent an ordinary cost of doing business, which 

may be passed on to the State of Texas as a utility consumer, so long as the 

applicable rate ordinance provides for such charges, and so long as there is a 

reasonable relationship between the amount of the late charge and the costs it 

purports to recoup. Absent a dispute as to the reasonableness of the amount 

charged, the state ls not prohibited by the Constitution or by any statute from 

paying the assessment. Accordingly, it is our opinion that a delinquent state 

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Honorable Joe Wyatt, Jr. - Rage 3 (H-128g) 

agency is at present required to pay the five percent late charge on bills for 

electric utility service supplied by the City of Austin. 

SUMMARY 

A five percent late charge on bills for electric utility 

service is neither interest nor penalty, but merely a cost of 

doing business assessed against a delinquent consumer, so 

long as there is a reasonable relation between the amount of 

the charge and the costs it purports to recoup. Absent a 

contrary showing, the State of Texas is not prohibited, 

either by the Texas Constitution or by any statute, from 

paying the charge, and it is required to do so if the 

applicable city rate schedule so provides. 

Very truly yours, 

/ /’ Attorney General of Texas 

Opinion Committee 

jsn 

p. 5087