Knowledgebase-Utility Board Setting Water and Wastewater Rates


Information Product

Title:Utility Board Setting Water and Wastewater Rates
Summary:MTAS was asked whether the utility board has the right to set water and wastewater rates.
Original Author:Hemsley, Sid
Co-Author:
Product Create Date:08/26/2009
Last Reviewed on::12/05/2016
Subject:Utilities--Boards; Utilities--Rates and charges; Water--Rates and charges; Wastewater--Rates and charges
Type:Legal Opinion
Legal Opinion: Utility Board Setting Water and Wastewater Rates public.doc

Reference Documents:

Text of Document: August 26, 2009

Dear Utility Manager:

You have the following question: Does the utility board have the right to set water and wastewater rates?

In my opinion, the answer is yes.

The City is chartered under Private Acts 2003, Chapter 46. Article IX of that Act contains several sections dealing with the city's utility system. Section 1 provides that:

The existing Board of Public Utilities is hereby continued in existence in its present form. Such Board of Public Utilities shall have responsibility for operation of the waterworks, sewerage works, and electric system under the provisions of state law.

Section 3 provides that, "Appointees to the Board of Public Utilities shall consist of members who meet the qualifications as set forth in the Municipal Electric Plant Law, TCA ' 7- 52-101, et seq...."

Section 5 provides that:

All powers, duties, and responsibilities conferred and granted by state law shall be conferred on the Board of Public Utilities of the City. Procedural matters, including removal of members not covered in this charter, shall be followed as outlined by state law.

Frankly, it would have been far better if the 2003 charter's provisions speaking of the laws governing the city's utilities had expressly fleshed out more thoroughly. I have previously pointed out to many cities, including your City, that there are a number of state laws that can govern municipal utility operations, including the municipal charter. As it is, the glaring question raised by the above provisions of the 2003 city charter is what do those provisions mean with respect to which law or laws generally govern the operation of the city's utility system, and specifically which law or laws govern the setting of the utility's water and wastewater rates.

Article IX, Section 1 of the charter does not, by itself, indicate what laws govern the utility system. We know from that provision that "The existing Board... is hereby continued in existence in its present form," and that it will "have responsibility for the operation of the waterworks , sewerage works, and electric system under the state law." With respect to the organizational aspects of its "present form," we are aided by Article IX, Section 3 which says that the members of the board shall "meet the qualifications as set forth in the Municipal Electrical Plant Law, TCA ' 7-52-101 et seq." But the language in Article IX, Section 1 that the utility board operates all the city's utilities under state law, and the language in Article IX, Section 5, that, "All powers, duties and responsibilities conferred and granted by state law shall be conferred on the Board of Public Utilities....," generates the obvious question of whether "continued existence in its present form" refers to the state laws that applied to the operation of the utilities at the time the 2003 city charter was adopted. If that connection is not made, the utility board would appear to be left in the dark about precisely which state laws govern the utilities it operates after the 2003 charter was adopted.

The state laws under which the utility board operated before the adoption of Private Acts 2003, Chapter 46 [See Private Acts 1987, Chapter 161, ' 31] were relatively clear. The city
had the right to turn over the operation of the waterworks to the Board of Public Utilities [Private Acts 1987, Chapter 161, ' 28] Apparently, pursuant to this provision in the charter, the city turned over the operation of the waterworks to the utility board by unnumbered ordinance dated January 7, 1948, which was codified as Section 2-101 of the Municipal Code. The utility board operated the electric system [Private Acts 1987, Chapter 161, ' 31.]

Several provisions of that charter covered the organization of the board: membership, terms, powers and duties, compensation, meetings, and rules governing membership and service, removal from office, etc. But the key section with respect to the power of the board was found in Sections 38 and 39:

- The Board of Public Utilities shall have complete control over the operation and conduct of the Electric System of the City which is herein placed under the supervision of said Board, and said Electric System shall be operated by the Board of Public Utilities independently and free from supervision or control of any kind by the City Council. In this connection the Board of Public Utilities shall have right and duty to employ and fix the compensation of such agents, clerks, employees, engineers, attorney, et cetera, as it may consider necessary and proper to t he efficient conduct and operation of said Electric system an may fix his compensation. [Section 38]

- In addition to the power and duties herein specifically set out said Board of Public Utilities shall have all rights, powers and duties provided by Chapter 32 of the Public Acts of Tennessee, 1935, for similar boards created and operating under authority of Sections 13 and 14 of said chapter.[Section 39]
It appears to me that municipal charter scheme is the "present form" of which the 2003 city charter, Article IX, Section 1 speaks is the form found in the 1987 charter. When a statute is ambiguous, a word that undoubtedly applies to both Article IX, Sections 1 and 5, the rules of statutory construction are applied to ascertain the meaning of the statute. The cardinal rule of statutory construction is the intention of the General Assembly. It is said in Richardson v. Fentress County School Board, 840 S.W.2d 940 (Tenn.Ct.App.1992) (Permission to appeal denied by Tenn.
Supreme Ct., October 26, 1992), that:

Our role in construing statutes is to give effect to the General Assembly's intentions. [Citations omitted by me.] We must consider statutes as a whole in light of their general purpose, [Citations omitted by me.], and we must take care not to unduly restrict their coverage or extend them beyond where the General Assembly intended them to stop. [Citation omitted by me.] [At 942]

The general purpose of Article IX of Private Acts 2003, Chapter 46 was to continue the city's utility functions as they were established under the city's 1987 charter. Again, it would have been preferable if the 2003 charter had made expressly clear the state laws under which they would operate. Article IX, Section 3 does make that clear as to the organizational form of the utility board (membership, term, etc.). But it is difficult for me to believe that, considering Article IX as a whole, the General Assembly intended anything but to make sure that the footprint of the Municipal Electric Plant Law of 1935 was stamped on Article IX of the 2003 Charter. Having expressly spoken of the continuation of the utility board under Tenn. Code Ann., Title 7, Chapter 52, Part 1, the reference to the operation of the board "under the provisions of state law," in Article IX, Section 1, it is logical that utility board meant that it would continue to be operated under the Municipal Electric Plant Law of 1935.

If that were not so, we would be left to guess whether the city ' s governing body or the utility board sets the utility rates. Another rule of statutory construction is that, "A construction will be avoided, if possible, that would render one section of the act repugnant to the other. Or one that would produce an absurd result." See In re Estate of Frank Soard, 173 S.W.3d 22 (Tenn. Ct. App. 2008) (Permission to appeal denied by Tennessee Supreme Court, August 29, 2005). It appears to me that interpreting Article IX in a way that leaves the City wandering in the wilderness on the question of which municipal entity has the authority to set water and wastewater rates produces an absurd result. Under Article IX, Section 1 of the city's charter, the utility board operates all those systems "under the provisions of state law." Before the 2003 city charter was adopted the utility board had total operational control of those utility systems, and under Article IX of the 2003 city charter, "All powers, duties, and responsibilities conferred and granted by state law shall be conferred on the Board of Public Utilities of the City." There is nothing in the 2003 charter that indicates the General Assembly contemplated any different operational scheme for the city's utilities.
Under the Municipal Electric Plant Law of 1935, specifically Tenn. Code Ann., ' 7-52-111, municipalities are authorized to turn over the operation of their water and sewer works to the electric utility board, but if it does so it must "keep separate accounts for the electric plant and each works, making due and proper allocation of all joint expenses, revenues and property valuations." In Tennessee Electric Power Co. v. Mayor and Aldermen of Fayetteville, 114 S.W.2d 811 (1938), the Tennessee Supreme Court declared that:

It will be observed that in the above-quoted portion of section 13 the Legislature, with regard to the management of sewerage and waterworks, did not confer jurisdiction upon the "board of public utilities," which it could have done. It did say that municipalities operating an electric plant under the act might do so. Such municipalities most likely were already vested with that power. The object of the Legislature was not to confer additional authority upon municipalities, but to require them to keep the revenue derived from their power plant separate from other revenue. The Legislature realized that a municipality, as a matter of convenience and economy, might confer upon the "board of public utilities," the operation or management of its sewerage and waterworks theretofore exercised by some other board or commission, and simply expressed its assent thereto upon condition that "it shall keep separate accounts for the electric plant and each works." [At 814]

Technically under its 1987 charter, the City operated its utilities under its charter rather than the Municipal Electric Plant Law of 1935, but under that charter the city had the authority to transfer its water and sewer works to the utility board, which, under that charter was expressly organized and operated along the lines of the Municipal Electric Plant Law of 1935. For that reason, the utility board's takeover of the water sewer systems appears to be the legislative "assent" to the utility board's takeover of those systems of which Mayor and Aldermen of Fayetteville, above spoke. In any case, the only thing the law Municipal Electric Plant Law of 1935, specifically Tenn. Code Ann., ' 7-52-111, requires with respect to that "assent" is accounts for the revenues of the utility systems be kept separate.

But several provisions of the Municipal Electric Plant Law of 1935 make it clear that a utility board governed by that law has the authority to set utility rates. Tenn. Code Ann., ' 7-52-111(a) itself provides that:

Municipalities now or hereafter owning or operating a waterworks, sewerage works, or gas system have the power and are hereby authorized to transfer to and confer upon the board the jurisdiction over such waterworks, sewerage works, or gas system nor or hereafter vested in any other board, commission, or in the governing body of such municipalities.

But Tenn. Code Ann., ' 6-52-115(a) makes it clear that the board ' s "jurisdiction" includes setting rates:

Subject to the provisions of applicable bonds or contracts, the supervisory body shall determine programs and make all plans for the acquisition of the electric plant, shall make determinations as to improvements, rates and financial practices....

There is nothing in the Municipal Electric Plant Law that suggests that when the operation of a city's water and wastewater systems are transferred to the utility board, that its "jurisdiction" over those systems falls short of setting their rates.

If there is or remains a dispute about who sets the water and wastewater rates in the City, the city can ask for an amendment to its private act making it expressly clear where that authority lies. I would certainly encourage the city to do that; otherwise, it may be that the dispute goes on.

Sincerely,

Sidney D. Hemsley
Senior Law Consultant

SDH/

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