The utility is obligated under a franchise agreement to pay the city a fee based on its income from gas sales to customers. However, since deregulation those fees have fallen as large customers have migrated to alternative suppliers. The city charged that the utility purposely violated its franchise agreement by allowing large customers to buy gas from other companies (see Daily GPI, July 6, 1998).

However, the court found that contrary to the city’s claims, there was no evidence whatsoever of a “sham” to perpetrate a fraud. The court also held that there was no evidence that Southern Union’s predecessor, Rio Grande Valley Gas Co., acted with the intent to deceive the city or engaged in any conduct involving dishonesty that would cause Southern Union to be liable. As a result, the court found that Southern Union owed no additional franchise taxes to the city.

“Our company stated from the very beginning that this claim was utterly frivolous,” said Dennis K. Morgan, executive vice president of administration and general counsel for Southern Union.

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