                        The Attorney               General of Texas
                                            May 27,      1980

MARK WHITE
Attorney General

                   Honorable George M. Cowden                   Opinion No. MW-18 3
                   Public Utility Commission of Texas
                   7800 Shoal Creek Boulevard                   Re: Validity of section   67A, of
                   Austin, Texas 76757                          art. 1446c, V.T.C.S.

                   Honorable Tom Creighton
                   Chairman
                   Senate Committee on Economic
                   Development
                   Senate Chamber
                   State Capitol
                   Austin, Texss 76711

                   Dear Sirs:

                           Chairman Cowden hs requested our opinion concernhq the constitu-
                   tionality of section 87A of article 1446c, V.T.C.S. He has asked whether
                   these provisions violate article 3, section 56 of the Texas Constitution which
                   prohibits the enactment of certain local and special laws.

                         Section 67A provides as follows:

                                    (a) The provisions of this section apply notwith-
                                standing any other provision of this Act.

                                    (b) Water and sewer utility property in service
                                which was acquired from an affiliate or developer
                                prior to September 1, 1976, included by the utility in
                                its rate base shall be included in all ratemakitg
                                formulae and at the installed cost of the property
                                rather than the price set between the entities.
                                Unless the funds for this property are providsd by
                                explicit customer agreements, the property shall be
                                considered invested capital and shall not be con-
                                sidered contributions   in aid of construction      or
                                customer-contributed  capital.

                                     (c) Depreciation    expense included in cost of
                                service shall include depreciation     on all currently
                                used, depreciable     utility property owned by the
                                utility.




                                                    p.   584
Honorable George M. Cowden d(
Honorable Tom Creighton    - PageTwo                      (MW-183)




       As you state in your request, the intent of the bill appears to be to require the
Commission to include in the invested capital or rate base of water and sewer utilities
all property contributed to the utility by developers or affiliates prior to September 1,
1976 and to allow such utilities a return on this type of property and depreciation
expense for such.

          Senator Creighton asks three       questions    which must be answered     only if the
statute     is found to be constitutional.

        Where the statutory challenge is grounded on special cr local characteristics,   the
Texas courts have developed specific tests to be applied in determining constitu-
tionality.    Classifications appearing to be special or local have been held valid if: (1)
there exists a reasonable relationship between the classification and the object sought
to be classified; (2) the classification is not an arbitrary device to disguise a special or
local law; and (3) the law in question operated equally on all members of the
classification.     Robinson v. Hill, 507 S.W. 2d 521 (Tex.-1974); Smith v. Davis, 426 S.W.
2d 827 (Tex. 1968); County of Cameron v. Wilson, 326 S.W. 2d 162 (Tex. 1959). If the
practical     effect of the classification    is such that others can fall within the
classification,    the statute is not special or local in nature.    City of Fort Worth v.
Bobbit, 41 S.W. 2d 228 (Tex. Comm’n App. 1931); Creps v. Board of Fireman’s Relief and
Retirement Fund Trustees of Amarillo, 456 S.W. 2d 434 (Tex. Civ. App. - Amarillo
1970, writ rePd, n.r.e.).

      However, a recent case involviw the Public Utility Regulatory Act involved a
class closed by dete. There, as here, portions of the Act applied to utilities falling
within a class defined by date. The court concluded:

                    Not only must a classification be broad enough to include a
               stistantial   class   based     on characteristics     legitimately
               distinguishhg that class from others, but the legislation must be
               intended to apply uniformly to all municipalities that may in the
               future come within the classification designated.

Morris v. City of San Antonio, 572 S.W. 2d 831, 833-834 (Tex. Civ. App. - Austin 1978,
no writ). Under section 87A no utilitv can aualifv for the rate treatment afforded bv
the statute after September 1, 1976. It”has b&n urged in briefs sdmitted to this office
that the September 1, 1976 cut-off date established a reasonable classification since
that was the date the rate jurisdiction of the Commission became effective.           It is
difficult to perceive, however, any reasonable basis for treating systems acquired by
utilities before that date differently than systems acquired after that date particularly
when the legislation was enacted more than two years after rate jurisdiction attached.
Accordingly,      we believe section 87A is a local or special law and is thus
unconstitutional.    In light of our determination on the constitutional question, we need
not address Senator Creighton’s questions.




                                               P.   585
Honorable George M. Cowden &
Honorable Tom Creighton    - PegeThree            (Mw-1831




                                    SUMMARY

               Because section 87A of article 1446c, V.T.C.S., creates a
           closed class of water and sewer utilities, it is unconstitutional
           as a special law in violation of article 3, section 56 of the Texas
           Constitution.

                                     AX&

                                            MARK     WHITE
                                            Attorney General of Texas

JOHN W. FAINTER, JR.
First Assistant Attorney General

TED L. HARTLEY
Executive Assistant Attorney General

Prepared by Scott Wilson
Assistant Attorney General

APPROVED:
OPINION COMMITTEE

C. Robert Heath, Chairman
Rick Gilpin
Andy Kever
J. Scott Wilson
Bruce Youngblood




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