Original Author: Hemsley, Sid
Date of Material: 10/30/1997
Utilities--Contracts and agreements
Reviewed Date: 04/22/2021
MTAS was asked whether a letter from a certain engineering firm constitutes a contract on the part of the utility district to install sewer service.
You have the following question: Does the letter from a certain engineering firm, and that you faxed to me this morning, constitute a contract on the part of your utility district to install sewer service to the areas covered in the latter? The answer is no; the letter is merely an expression of intent on the part of the utility district to install such service. If for any reason the utility district failed or refused to install sewers in those areas within two years, the city would have no legal remedy against the utility district. Needless to say, there could be a multitude of reasons why the installation of the sewers would not come to pass.
You indicated that the letter was the result of negotiations under which the utility district agreed to provide the sewer service in question in exchange for a franchise to provide gas service inside the city and for the city's application for a grant to help finance the service. However, as I pointed out to you on the telephone:
1. While it is true that the utility district is required to have a franchise from the city to provide gas service, that fact represents no great bargaining chip on the part of the city. Based on what you told me, the city is within the utility district's service area, and the city cannot unreasonably withhold a franchise from the utility district. I doubt the city could legally hold the franchise hostage to obtain the utility district's installation of the sewers.
2. Once it granted the utility district a franchise, the city probably could not "revoke" it for failure to provide sewer installations within two years, or for any other reason. Generally, a franchise granted by a city to a utility district is probably in perpetuity.
In other words, if the utility district wants to bulldoze you with respect to the gas franchise, it probably can do so.
It may be possible for the city and the utility district to enter into an enforceable contract for the latter to provide sewer installations in those territories at issue in the former. Utilities, including utility districts, generally operate their systems in their proprietary capacities. For that reason, they can enter into many binding contacts that would not necessarily be binding on governments operating their facilities in their governmental capacities. If the utility district wants the city to obtain for it a grant to finance a gas system, the city might be able to make the grant the consideration for the utility district's agreement to make the sewer installations.
Let me issue two cautionary notes here:
First, the letter indicates that the utility district "may look to the property owners for some Aide to Construction Monies" to help with the sewer installations. If you enter into a contract with the utility district, you might be wise to lock in the formula for the Aide to Construction Monies; otherwise, those monies might be a lot greater than the city or the property owners contemplated. The same thing is true even if you simply rely upon the intent of the utility district to provide the sewer installations within two years.
Second, this letter was prepared on extremely short notice. You called this morning and wanted an answer today for use tomorrow. I have quickly laid down a few general principles that might be important to your relationship to the utility district relative to the sewer installations. Had I time to reflect upon your question I would have more carefully reviewed those principles with particular respect to the city's situation, and may have thought of additional principles that might be pertinent to your question. Ideally, you should not make a decision in this matter by tomorrow if there is any reasonable way to avoid it. If there is to be a contract, or even merely an understanding, between the city and the utility district on the sewer installations, it should receive careful attention.
Sidney D. Hemsley
Senior Law Consultant