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

Heading: the 14 per cent clause of the trust indenture

Text: The petitioners (San Antonio Independent School District et al.) complain first about the provision listed as number 5 above. It will be seen that, if revenues permit, the City is to receive annually, in services and in money, virtually 14 per cent of the gross revenues of the gas and electric systems. Part of this amount is a sum to reimburse the City in lieu of ad valorem taxes that would be received if the systems were not municipally owned. And part of the amount is reimbursement of the amounts expended by the City for its own electric and gas services and also for traffic and street lighting facilities. Anything further paid under this clause of the Indenture will all be gain to the City. Originally the City could not obtain anything from its own utility, so long as it was encumbered, except free service and payments in lieu of ad valorem taxes. Art. 1113. This was changed by the enactment in 1949 of Art. 1113a. This latter statute, as amended in 1953, provides as follows: Incorporated cities and towns having a population of ten thousand (10,000) or more ... are hereby authorized to transfer to the general fund of the city or town and use for general or special purposes revenues (now on hand or hereafter received) of any municipally-owned utility system in the amount and to the extent as may be authorized or permitted in the indenture, deed of trust, or ordinance providing for and securing payment of revenue bonds ... notwithstanding any prohibition contained in Article 1113 . . .. A city which owns and operates its own public utility does so in its proprietary capacity. Boiles v. City of Abilene, 276 S.W.2d 922 (Tex.Civ.App.1955, writ ref'd). It is apparent from the language of Art. 1113a that the city need not furnish the service at cost. The general rule is that the city is entitled to make a reasonable profit from its own utility system. South Texas Public Service Co. v. Jahn, 7 S.W.2d 942 (Tex.Civ.App.1928, writ ref'd); 12 McQuillin, Municipal Corporations (1970) § 35.37c. Petitioners argue that this rule does not apply where Arts. 1113 and 1113a are applicable. They construe these two statutes, when taken together with the Indenture provision, to rule out a reasonable return based upon the City's investment. Thus, they argue, the City may obtain free service and payment in lieu of ad valorem taxes; the added payments to the City are based upon gross revenues of the systems and are not structured so as to have any relationship to a fair return upon investment. They conclude that any gain beyond free service and payment in lieu of taxes must be either a tax upon the consumer, from the payment of which they claim to be exempt, or a contribution, which may not be exacted from public entities under Art. 3, §§ 51 and 52 of the Texas Constitution. Our construction of the two statutes is quite differentand quite simple. Prior to 1949 the owner of an encumbered municipal utility was restricted to the two specified items; no other benefits were permissible. After the enactment of Art. 1113a, this prohibition of Art. 1113 was removed in the case of cities of the designated population. Since the removal of the restriction, the City of San Antonio has enjoyed the usual right to make a reasonable profit from its gas and electric systems even while they are encumbered. Petitioners make no complaint about the reasonableness of the rates or of City's return from its gas and electric systems. They do complain about the City being paid a percentage of the utilities' gross revenue. If the rate charges are reasonable, it does not matter how the Indenture sets the priority of payment of available revenue. The June 6, 1974 rate ordinance of the City recites that the rates are sufficient to provide only a reasonable and proper return upon the fair value of the Electric and Gas Systems properties dedicated to the furnishing of electric and gas services. [1] Petitioners make no contention or showing to the contrary on that controlling proposition. During the recent period of escalating fuel costs the record suggests the possibility that the City's return may have exceeded the margin of reasonableness. It is stipulated that the full 14% of gross revenues was paid for several years, and the City received almost 23 per cent of its total budget requirement in 1974 from the gas and electric systems. Upon proper pleading and record, if the City's return were proved to be excessive and unreasonable, the courts could grant relief. See State v. Southwestern Bell Tel. Co., 526 S.W.2d 526 (Tex.1975). Courts avoid interfering with rates fixed by an independent legislative authority. See St. Paul Book & Stationery Co. v. St. Paul Gaslight Co., 130 Minn. 71, 153 N.W. 262 (1915); Seaberg v. Raton Public Service Co., 36 N.M. 59, 8 P.2d 100 (1932). The courts should, however, pass upon the unreasonableness of the rates of a municipally owned utility (set by that municipality) in order to protect the utility customers from being unfairly burdened with the costs of city government. See South Texas Public Service Co. v. Jahn, 7 S.W.2d 942, 945 (Tex. Civ.App.1928, writ ref'd); Mitchell v. City of Mobile, 244 Ala. 442, 13 So.2d 664 (1943); 64 Am.Jur.2d Public Utilities § 128. The question of the justiciable interest required for a party to seek judicial intervention against excessive City of San Antonio utility rates was addressed in Schenker v. City of San Antonio, 369 S.W.2d 626 (Tex.Civ.App.1963, writ ref'd n. r. e.). The dismissal of that action brought by customers of the City was upheld by the Court of Civil Appeals on two grounds: because the plaintiffs had not exhausted their administrative remedies through petition to the City Council and because the plaintiffs lacked justiciable interest to bring the suit. The Court there said that no special injury was alleged apart from the injury to the general public and that therefore [o]nly lawfully constituted guardians of the public interest may maintain actions for the redress of such character of injuries. 369 S.W.2d 630. It should be noted that this Court in City of Texarkana v. Wiggins, 151 Tex. 100, 246 S.W.2d 622 (1952), in holding that a city may not discriminate in the rates charged nonresidents, said: It is settled in this state that the petitioner, upon the purchase by it of the property of the privately-owned utility, was subject to this same rule prohibiting unreasonable or unjustified discrimination in rates and service.... The real reason for the rule that, in so far as treatment of consumers is concerned, the municipally-owned utility is no different from the privately-owned utility is that the economic nature of the business has not changed; it remains a monopoly in spite of the change in ownership. 246 S.W.2d 625. Many other jurisdictions have permitted consumer suits attacking excessive charges or discrimination by municipal utilities. E. g., State v. Grant Circuit Court, 239 Ind. 315, 157 N.E.2d 188 (1959); Holton Creamery Co. v. Brown, 137 Kan. 418, 20 P.2d 503 (1933); Twitchell v. City of Spokane, 55 Wash. 86, 104 P. 150 (1909); City of Mt. Vernon v. Banks, 380 S.W.2d 268 (Ky.1964); Erickson v. Metropolitan Utilities Dist., 171 Neb. 654, 107 N.W.2d 324 (1961); Hicks v. City of Monroe Utility Comm., 237 La. 848, 112 So.2d 635 (1959); Chicopee Mfg. Corp. v. Manchester Board of Water Com'rs, 97 N.H. 109, 81 A.2d 837 (1951); Kiefer v. City of Idaho Falls, 49 Idaho 458, 289 P. 81 (1930); Delony v. Rucker, 227 Ark. 869, 302 S.W.2d 287 (1957); 12 McQuillin, Municipal Corporations (1970) § 35.37a; 64 Am.Jur.2d Public Utilities § 131.