Houston Lighting & Power Co. v. Tenn-Tex Alloy & Chemical Corp.

• Court: Texas Supreme Court
• Writing for the Court: SMITH
• Citation: Houston Lighting & Power Co. v. Tenn-Tex Alloy & Chemical Corp., 400 S.W.2d 296 (Tex. 1966)
• Decision Date: 02 March 1966
• Docket Number: TENN-TEX,No. A-10868,A-10868
• Parties: HOUSTON LIGHTING & POWER COMPANY, Petitioner, v.ALLOY & CHEMICAL CORPORATION, Respondent.

Page 296

400 S.W.2d 296

HOUSTON LIGHTING & POWER COMPANY, Petitioner, v. TENN-TEX ALLOY & CHEMICAL CORPORATION, Respondent.

No. A-10868.

Supreme Court of Texas.

March 2, 1966.

Rehearing Denied March 30, 1966.

Baker, Botts, Shepherd & Coates, Wm. R. Brown and Alvin Owsley, Jr., Houston, for petitioner.

Butler, Binion, Rice, Cook & Knapp, John L. McConn, Jr., Houston, for respondent.

SMITH, Justice.

Plaintiff Tenn-Tex Alloy & Chemical Corporation, hereinafter referred to as Tenn-Tex, brought this suit against defendant Houston Lighting & Power Company, hereinafter referred to as the electric company, to recover the amount of $26,143.00 in alleged overcharges for electric power furnished by the electric company to Tenn-Tex. The cause was tried before the trial court sitting without a jury, and judgment was rendered in Tenn-Tex's favor for the full amount plus interest. This judgment was affirmed by the Court of Civil Appeals. 390 S.W.2d 328. We reverse the judgments of the trial court and the Court of Civil Appeals and render judgment that Tenn-Tex take nothing by its suit.

The controversy between the parties arises out of conflicting interpretations of a written contract dated August 31, 1956, under which the electric company agreed to furnish high voltage electricity to Tenn-Tex. Although the electric company has provided Tenn-Tex with power continuously since the date of the contract, and all bills have been paid as rendered, only the amounts of the charges for the months of August and December, 1960, and January, February and March, 1961, are in dispute. The sole question before this court is the proper interpretation of the provisions of this contract prescribing the method for calculating the minimum monthly charge for electric service.

This is a unique case in that neither party cites cases or authorities which analyze a contract similar to the one we have before us, nor have we found any by our independent search. Therefore, since there are no precedents on this precise question, we have been compelled to rely, in the main, on general principles of contract interpretation in reaching our decision.

General Background

By way of assistance to the Court the electric company, in its brief, discusses some of the underlying principles of supply and demand in the electrical industry. Although this information was not introduced in evidence in the trial court and has no effect on an interpretation of the contract before us, Tenn-Tex does not challenge its accuracy; therefore, since it appears to us that this background information is helpful to an understanding of the contractual relationship created between the parties, we include it herein. The electric company states that due to the fact that electricity cannot be stored, different considerations of supply and demand are involved in its production and sale as distinguished from the production and sale of water or gas. Since an electric company cannot run the generators of its plant at times when there is a relatively small demand from its customers so as to produce and retain a reserve of power which could then be released during a period when demand exceeds the full generating capacity of the plant, it must take into account the generating capacity each customer requires and then pre-empt and hold available a certain portion of the company's generating capacity so as to provide for that customer's future need. In effect, the customer is renting generating capacity. This demand factor, the customer's requirement of generating capacity, is incorporated into the rate charged the customer for the service and is measured in kilovolt amperes (kva). One kva is roughly the equivalent of one horsepower.

Another factor which the electric company must consider in making its charges for service is the extent to which a customer actually makes use of the generating capacity available. If one customer uses the generation for only one hour per day and another uses the generation for twenty-four hours per day, obviously the latter will be and should be charged more. This usage factor is also incorporated into the rate and is measured in kilowatt hours (kwh). When the customer receives its electric bill, it is a combination of both the kva and kwh factors. ¹

Thus, it is seen that in the electric business a company must have available at all times sufficient generating capacity to meet the maximum load which may be imposed on its system at any time. Otherwise, if the demand at times of peak load exceeds the available generating capacity, the company would have to terminate service to some customers until the load was reduced to a size commensurate with available generating capacity. This demonstrates the importance of the demand factor (kva) whereby a customer will be charged for that portion of the generation capacity preempted by past usage, subject to adjustment as the usage increases or decreases in future months. Therefore, under a provision in the contract, the customer sets its own minimum charge by the maximum load it imposes on the company's system. This maximum load is to be carried forward as a minimum charge for the ensuing eleven months so as to assure to the company a return on the generating capacity pre-empted by the customer's demand. It follows that this minimum charge would serve to deter the customer from imposing an infrequent and extraordinarily high demand on the generating facilities since to do so would raise its minimum monthly charge to a level considerably higher than the charge for the power which would actually be used each month during the next eleven months. This leveling of demand serves to minimize the reserve generating capacity which the company must have available for peak periods and which would be idle much of the time.

The electric company points out that in this area of the country an electric utility experiences its heaviest demand during the summer months because of air conditioning, and the peak load on the system comes during the daylight hours. The contract between the electric company and Tenn-Tex designates all twenty-four hours of the day during the period from October 15 to May 15 and the hours from 10 p. m. to 8 a. m. during the remaining portion of the year as 'OFF PEAK' periods. Conversely, any usage of the generating facilities of the company between 8 a. m. and 10 p. m. during the period from May 15 to October 15 is designated as 'ON PEAK.' The contract contains benefits to the customer which seek to induce use of electricity during the 'OFF PEAK' periods, and the purpose of this encouragement is to promote more efficient full-time employment of the company's facilities.

Pertinent Contractual Provisions

With this background information in mind, we now turn to a consideration of those portions of the contract which are relevant to the dispute between the parties:

'NET MONTHLY BILL

'D. The amount of the net monthly bill shall be whichever is higher of the amounts determined under (i) and (ii) below subject in each case to the applicable adjustments stated under (iii) below:

'(i) Rate: (Not in dispute)

Kva Charge

$900.00 first 1,000 kva or less

.80 per kva next 1,000 kva

.60 per kva all additional kva, plus

Kwh Charge

5.5 mills per kwh first 200,000 kwh

4.5 mills per kwh next 200 kwh per kva

3.5 mills per kwh next 200 kwh per kva

3.0 mills per kwh all additional kwh

'(ii) Minimum: (Not in dispute)

The sum of (a) the kva charge applicable to the highest kva established during the 12 months ending with the current month and (b) the kwh charge applicable to 200 kwh for each kva of said highest kva and (c) the adjustments stated below. In no event shall the sum of (a) and (b) be less than $2,000.00.

'(iii) Adjustments: (Not in dispute)

'KVA USED IN CALCULATING THE NET MONTHLY BILL

'H. The KVA charge to be used in calculating the net monthly bill shall be determined in accordance with the following provisions:

'(1) If the highest KVA established in any month, whether it is the highest ON PEAK KVA or the highest OFF PEAK KVA, is equal to or less than the highest ON PEAK KVA established in any of the twelve months ending with and including the current month, such highest KVA for the current month shall be deemed to be the KVA for billing purposes.

'(2) If the highest OFF PEAK KVA established in the current month exceeds 100% but not 150% of the highest ON PEAK KVA established in the twelve months ending with and including the current month, the customer shall be billed only for such highest ON PEAK KVA so established during said period.

'(3) Should the highest OFF PEAK KVA established in any month exceed 150% of the highest ON PEAK KVA established in the twelve months ending with and including the current month, then the excess above 150% shall be deemed for billing purposes to have been taken as addition ON PEAK KVA and shall be added to the highest ON PEAK KVA established in said twelve months period, which highest ON PEAK KVA, as increased by such excess, shall be the KVA for billing purposes for the current month. Such KVA so established for billing purposes shall also be deemed, for future billing purposes, as the highest ON PEAK KVA established in such current month.'

The real controversy here is over the amount to which the...