Original Author: Leydorf, Donna
Date of Material: 04/02/2001
MTAS was asked whether or not the City may merge the two utility boards currently in existence.
Re: Merger of Utility Boards
You have asked MTAS whether or not the City may merge the two utility boards currently in existence. The first is the municipal electric board which was created by resolution dated December 6, 1937, and the second is the Board of Public Utilities, apparently created on the same date. [Note there is a discrepancy in the date; your minutes reflect an original date of Dec. 6, 1938, but the eight has been marked over manually to be a seven. There is also a reference in the City Code to the date of enactment of this resolution, and it states “December 6, 1938. When you have your Code updated, you may want to correct this mistake.]
It is my opinion that the City can merge the two boards, under the authority of § 7-52-111, Tennessee Code Annotated, also called the Municipal Electric Plants Act, which states:
(A) 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 now or hereafter vested in any other board, commission, or in the governing body of such municipalities.
(B) If the board is given jurisdiction over such works, it shall keep separate accounts for the electric plant and each works, making due and proper allocation of all joint expenses, revenues and property valuations.
The “board” referred to in Section A is the municipal electric board, so the functions of the board which governs gas, sewer and water would have to be transferred to the electric board. I see no parallet provision to transfer the electric board’s function to the board that runs the sewer, water, and gas.
Note that the statute cited above requires that separate accounts be kept for each type of utility, including “all joint expenses, revenues, and property valuations.”
The Municipal Electric Plants Act has been discussed in State ex rel. Patton v. Mayor & Board of City of Lexington, 626 S.W.2d 5 (Tenn. 1981). The Supreme Court of Tennessee found that a city has the power to appoint a board of public utilities, and by implication, also the right to repeal the ordinance or resolution which created the board. The Court said:
Implicit in the granting of the option is the authority to make changes in the supervising body, when the governing body of the municipality deems a change to be in the manifest best interest of the municipality and in keeping with the “pubc purpose of promoting the increased use of electricity. . . .to this end every municipality shall have the power to do all things necessary or convenient to carry out the purposes hereof in addition to the powers expressly conferred . . .” P. 6.
An earlier case, Tennessee Electric Power Co. v. Mayor and Aldermen of Town of Lafayette, 114 S.W.2d 811, (Tenn. 1938) was found to be constitutional just three years after it was written. In discussing the section of the statute that allowed an electric board also to manage the sewer, water, and gas utilities of a city, the Court held:
. . .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.” P. 813 (Emphasis added.)
Keeping in mind the need for separate accounting procedures, then, the case law has interpreted §7-52-111, Tennessee Code Annotated as allowing the merger of two utility boards of a city, just as you propose to do.
One other thing needs to be checked. Sometimes, perhaps usually, there are outstanding bonds for utilities. If there is an outstanding obligation, the merger of the boards may not be possible until the indebtedness is repaid. Barr v. Town of Selmer, 417 S.W.2d 532 (Tenn. 1967). You’ll need to find the bond covenants and review them, to see if this issue presents what could be an insurmountable obstacle to the merger of the boards.
Call me if you have further questions.
Donna M. Leydorf