              TREPLITORNE=YGENERAL
                      OF TEXAS
                          AWES-.    -a           78711




The Honorable  Jon Newton                 Opinion No.    H- 417
Chairman,
House Energy Crisis Committee             Re:      Legality of city’s waiver
House of Representatives                           of revenues to which it is
Austin, Texas                                      entitled from city utility
                                                   company.
Dear Representative     Newton:

    You a,sk whether    a city may lawfully waive the portion of revenues
from a city operated    utility company to which it is entitled under the terms
of a trust indenture.

    In 1942 the City of San Antonio purchased its light and gas distribu-
tion system   from the San Antonio Public Service Company,     a private
corporation.    The purchase was effected by means of a trust indenture
which established   the City Public Service Board to operate the utility
system for the benefit of both the bondholders   and the city.  Under the
terms of the trust indenture the city is entitled to receive from the
Board’s gross revenues certain payments which when totaled will equal
fourteen percent of those revenues.

     You have, told us that in 1974 because of a large increase   in the price
of gas, the city decided to take action to soften the blow that would have
fallen on its consumers,     many of whom 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 of the billings att~ributable to increases  in gas costs in excess of
the costs for October 1973.     The city in effect intended to waive some of
the revenues it ‘was entitled to receive   under the terms of the trust inden-
ture.   If Ihe propose,d waiver had ever been put into effect, it would 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     it was rescinded.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 a waiver
would be legal.




                                     p.   1944
The Honorable    Jon Newton    page 2     (H-417)




          Particularly    relevant to the question you have asked is San Antonio
Independent School District v. Board of Trustees         of the San Antonio Electric
and Gas System,        204 S. W. 2d 22 (Tex. Civ. App. --El    Paso 1947, writ
ref.,   n. r. e.) in which the court held to be invalid payments to a l.ocal school
district out of utility revenues.      In passing on this question,  the court
characterized      the City Public Service Board as an agency of the city:

                     It can make 210 difference   in principle. that the city
                elected to have the utilities operated by a board of trustees.
                This is but an agency by which the city may have the
                utilities operated; thus operating,they     are operated by
                the city.    204 S. IV. 2d at 26.

         If the City Public Service Board is, legally s.peaking, an arm ,of the
city, then the city can forego the payments to which it is entitled from the
Board without making a gift in violation of Article       3, 5 52 of the Texas
Constitution.     Waiver of these 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 of profit fkom a utility system it
operates.     See Articles  1123 and 1175 (14), V. T. C. S., the statutory pro-
visions 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 of utilities at less than cost to other political entities,
it is our opinion that waiver of the revenues to which 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 of those payments by
                the city is not unconstitutional under Article  3, $ 52
                of the Texas Constitution.

                                                    hVery   truly yours,




                                                v    Attorney   General    of Texas




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




APPROV#D:




DAVID M. KENDALL,       Chairman
Opinion Committee




                                   p* 1946
