Untitled Texas Attorney General Opinion ( 1975 )


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  •                                      November     20, 1975           53s Bw Zd 671 Ct. Civ. *gpuli
    111 Paso, 1976
    550 SW 2d 262,266 (TQx.  1976)        !
    The Honorable  Ron Glower, Chairman
    Texas   Supreme      court
    Senate Subcommittee on Consumer  Affairs                                                              1
    I
    Texas State Senate                                        Opinion No.     H- 741
    Austin, Texas 78711                                                                                   i
    Re:      Whether a municipality
    !
    may grant automatic
    rate adjustments to a              !
    Dear Senator   Glower:                                             public utility.                        I
    !
    You have requested  our opinion        regarding  the authority       of a municipality
    to grant automatic rate adjustments        to a public utility.
    The authority to regulate public utilities in Texas is delegated by the
    Legislature to general law cities pursuant to article 1119, V. T, C. S. , which
    provides in part:
    The governing body of all incorporated     cities
    and towns in this State incorporated     under the                                             i
    General   Laws thereof shall have the power to                                                 ,
    regulate,  by ordinance,    the rates and compen-                                              I
    sation to be charged by all persons,      companies,
    1
    or corporations    using the streets and public
    grounds of said city or town, and engaged in
    furnishing water,    gas, telephone,  light, power,
    or sewerage    service to the public,   . . .
    Similar authority is’ granted    to home    rule cities    by article    1175 (U),     V. T. C. S.,
    which permits   such cities:
    %.
    . . . To determine,    fix and regulate the charges,                                          I
    fares or rates of any person,    firm or corporation                                          /
    I
    enjoying or that may enjoy the franchise      or exer-
    /
    cising any other public privilege    in said city and                                         /
    to prescribe  the kind of service to be furnished by
    such person,   firm or corporation,    and the manner                                         1
    in which it shall be rendered,    and from time to
    !
    time alter or change such rules,      regulations  and
    compensation;    . . .                                                                        I
    3
    p.   3150
    I
    ,
    !
    The Honorable    Ron Glower,     Page        Two     ‘H-741)
    You ask whether a municipality’s   grant of automatic rate ?djustmenta
    to a public utility contravenes the Supreme Court’s Texas Power & Light
    Co. V. City of Garland decision,   
    431 S.W.2d 511
    (Tex. Sup. 1968). wMch
    you advise “holds that a city cannot surrender   or contract away its
    bargaining pmer.     ”
    The specific issue of Garland (whether an ordinance enacted subsequent
    to the award of a franchise to a utility operated as an unconstitutional  depriva-
    tion of the property rights vested by the origihal grant) is not relevant to the
    present inquiry.    But the authorities cite& in Garland bear on the question of
    a municipality’s   authority to permit automatic rate adjustments.
    When a municipality   regulates    rates charged by a public utility,   it is
    performing   a governmental    function not delegable by the municipality.       Kousal
    V. Texas Power & Light Co.,       
    179 S.W.2d 283
    (Tex. Sup. 1944).    The Supreme
    Court has most recently reaffirmed       this poeition in City of Galveston   V. Hill,
    S. W. 2d 103 (Tex. Sup. 1975):
    The management     of income and revenue from
    the Galveston Wharves,      the setting of rates and
    the determination   of policies,   being governmental
    functions,  . . . cannot be surrendered,      delegated
    or bartered away.     
    Id. - at
     105.
    A reserved   power of regulation is implied in every franchise notwithstanding
    the specific  terms of the agreement.    Dallas Railway Co. V. Geller.  271
    S. W, 1~106(Tex. Sup. 1925).
    An automatic    rate adjustment    is a device by which the municipality       allows
    a public utility to increase    or decrease   utility rates automatically    without
    a formal hearing so long as the increase        or decrease   corresponds     in a desig-
    nated manner with an identified operating expense.          Automatic    rate adjust-
    ments,    whether authorized by ordinance or by franchise,         are generally
    grouped according     to the character   of the operating expense that triggers
    the rate change.     The most common include adjustments          based upon the cost
    of purchased gas, cost of fuel, and cost of service.         See Foy. Cost Adjustment
    in Utility Rate Schedules,     13 Vand. L. Rev. 663 (1960).       You have presented
    no specific examples     of contracts,   but we assume the fuel adjustment        clauses
    in which you are intereeted      conform to this definition and are based on costs
    which are controlled     by the impersonal    forces of the marketplace      rather than
    by the discretion   of the utility.
    p.    3151
    The Honorable   Ron Clower,Page        Three         (H-741)
    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.,    90
    S. E .2d 140 (Vz955);      City of Chicago v. Illinois Commerce     Commission,
    
    150 N.E.2d 776
    (Ill. 1952); Foy, Cost Adjustment     in Utility Rate Schedules,
    13 Vand. L. Rev. 663 (1960).
    SUMMARY
    A municipality   does not necessarily    surrender  its
    governmental    power when it grants an automatic rate
    adjustment   to a public utility pursuant to an adequate
    objective formula if it is based upon re’adily ascertainable
    costs controlled   by the impersonal   forc,es of the market-
    place.
    Very   truly yours,
    v        Attorney    General   of Texas
    APPROVED:
    DAVID   M.   KENDALL,     First   Assistant
    &#&&ggz&;
    C. ROBERT HEATH,        Chairman
    Opinion Committee
    p.   3152
    

Document Info

Docket Number: H-741

Judges: John Hill

Filed Date: 7/2/1975

Precedential Status: Precedential

Modified Date: 2/18/2017