Opinion ID: 2418853
Heading Depth: 1
Heading Rank: 2

Heading: fuel adjustment pass through charges

Text: In 1965 the City Council of San Antonio passed an ordinance setting rates for sale of gas and electricity which permitted the City's Public Service Board to adjust the rates according to a set formula without further action by the City to compensate for increased (or decreased) fuel costs. This device was continued in the June 6, 1974 ordinance which contained the following fuel adjustment clause: Plus or minus 0.00125¢ per KWH for each whole 0.1¢ per million BTU by which the delivered cost of fuel to generate electricity is above or below 24.1¢ per million BTU (as computed from Account No. 501 Fuel in the books of the CPS Electric System) during the calendar month preceding the current meter reading date. The delivered cost of fuel as stated above is defined as the estimated cost of fuel for the calendar month mentioned above plus the difference (actual less estimated) in the cost of fuel for the second calendar month preceding the current meter reading date. Also, plus or minus an adjustment to provide for any increase or decrease, due to the purchase of power or energy from others, above or below the base cost of generation in CPS plants included in these rates. Plus or minus the proportionate part of the increase or decrease in taxes, required payments to governmental entities or for governmental or municipal purposes which may be hereafter assessed, imposed, or otherwise required and which are payable out of or are based upon revenues of the Electric System. This measure was enacted at a time of rapid and enormous increases in the cost of fuel to the City. Automatic rate increases to the consumers resultedwhich carried along an automatic charge for the benefit of the City under the second paragraph quoted above. The City Council reduced the latter portion of the fuel adjustment clause charge by passing an ordinance on December 19, 1974 which provided: SECTION 1. The City Public Service Board is hereby directed to exclude all revenues from gas cost adjustment charges on natural gas delivered directly to customers on the gas distribution system from computation of the 14% payment due to the City General Fund under the Bond Indenture, as amended. SECTION 2. Effective August 1, 1975, the City Public Service Board is hereby directed to exclude all revenues from fuel adjustment charges on electrical generation on the first 300 KWH per month delivered directly to customers from computation of the 14% payment due to the City of San Antonio under the CPSB Bond Indenture. SECTION 3. Effective August 1, 1975, the CPSB is hereby directed to exclude all revenues from fuel adjustment charges for electrical generation on the fuel cost above $1.20 per million BTU delivered directly to the customers from computation of the 14% payment due to the City of San Antonio under the CPSB Bond Indenture. Petitioners attack the fuel adjustment charges, which they have been required to pay, on the following grounds: A utility which increases profits by a fuel adjustment clause is gouging its customers ipso facto ; and because this is an unlawful delegation of ratemaking discretion to the City Public Service Board. We disagree with both contentions. A charge by the City equal to 14% of the cost of the fuel may or may not gouge the customers; that depends upon the total revenues or gain by the City, and petitioners make no complaint at that point. Further, no discretion is thereby given the Public Service Board in the setting of rates. If the total return to the utility is not at issue, it is immaterial whether the fuel adjustment clause allows the addition of a fixed return to the City along with the higher cost of fuel to the City. Because petitioners are not complaining of the reasonableness of the rates or of the return to the City, they are in no position to complain of the amount of some component of that rate or return. As for the contention that there is an improper delegation of ratemaking power to the City Public Service Board, nothing is left to the Board or its staff except the computation of charges pursuant to the rate ordinance and according to the cost of fuel. No discretion is left by which this computation may be changed. We agree with the following statement in the Opinion of the Attorney General of Texas No. H-741, dated November 20, 1975: In our opinion a city's enactment of a rate ordinance which includes an automatic adjustment clause based on ascertainable costs controlled by the impersonal forces of the marketplace may be a lawful exercise of the municipality's rate regulation power. Such an ordinance establishes a rate schedule which changes in response to fluctuations in operating costs. It sets current rates and provides an objective formula for computing future rates. See City of Norfolk v. Virginia Electric & Power Co., [197 Va. 505,] 90 S.E.2d 140 (Va.1955); City of Chicago v. Illinois Commerce Commission, [13 Ill.2d 607,] 150 N.E.2d 776 (Ill.1952); Foy, Cost Adjustment in Utility Rate Schedules, 13 Vand.L.Rev. 663 (1960). Automatic fuel adjustment charges are in common use and have been repeatedly upheld against attack on the ground of unlawful delegation of legislative authority over ratemaking. See generally, Fowler, Purchased Gas Adjustment Clauses: An Adjuster's Viewpoint, 6 St. Mary's L.J. 567 (1974). [2] The judgment of the Court of Civil Appeals is affirmed.