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Municipal Technical Advisory Service (MTAS)

Original Author: Bingham, Pamela
Date of Material: 01/13/1999

Utilities--Rates and charges
Utilities--Termination policies

All Consumers of Publicly-Provided Utilities Must Pay for What They Receive at the Same Rate Charged to Others for a Like Service

Reviewed Date: 04/22/2021
MTAS was asked whether the utility is precluded from collecting back charges, even though the failure to collect is due to the utility's inadvertence.

After our telephone conversation, I researched Tennessee case law to see if there were any cases involving the same or similar fact situation you described to me: that of a municipal utility’s failure to shut off service at a residential address upon notification by a prior tenant, who then vacated the premises. In addition, the utility then continued to provide water, gas and sewer service to the present tenant for three months, but not bill the customer for said services or attempt to collect the collect the customary deposit for the past three months. The question is whether the utility is in any way precluded from collecting these back charges, even though the failure to collect is due to the utility’s inadvertence.

I am enclosing for your review the case of Memphis Light, Gas & Water Division v. Auburndale School System, 705 S.W.2d 652 (Tenn. 1986). In that case, an electric utility has underbilled a customer for four and half years, due to an error in the billing department’s method of computing the amount of electricity consumed by the customer. Id. When the error was finally discovered, the utility demanded payment for the back amounts, but the customer refused to pay. Id. The customer claimed that the utility was equitably estopped (i.e., barred because of unfairness) from attempting to collect the debt. The Supreme Court disagreed.

The Court pointed out that there were no reported cases in this jurisdiction that had considered this particular issue, but that the weight of authority in other jurisdictions was that when a public utility negligently under-bills a customer, the defense of equitable estoppel was not available as an argument to prevent the utility from collecting for the amount of services actually consumed. The rationale for this conclusion is as we discussed on the telephone: the general rule is that
all consumers of publicly-provided utilities must pay for what they receive at the same rate charged to others for a like service. 705 S.W.2d at 654. In summary, I believe that the steps that you should take to collect this debt, as we discussed earlier this week, are correct.