February 25, 1992
During our meeting several weeks ago you asked several questions about the structure and powers of the City's utility board. Since then I have come up with answers for your questions. The Municipal Electric Plant Law of 1935 is the basic law governing municipal utility boards. This is found in Tennessee Code Annotated section 7-52-101 etseq. This Act gives municipalities the power to set up, operate and issue bonds for electric plants. §7-52-111 allows the transfer of jurisdiction over gas, water and sewer systems to electric boards established under the law. The establishment of a board is permitted under §7-52-107 but is not mandatory. If a board is not established, the system must be run by the municipal governing body pursuant to §7-52-114. The only control the mayor has over the board is the appointment of members with the consent of the governing body in accordance with §7-52-107(b). §7-52-114 points out that all powers to run the system are in the hands of the board or if there is no board then in the governing body of the municipality, it is a either/or proposition.
In State ex rel. Patton v. Mayor of Lexington, 626 S.W.2d 5 (Tenn.1981) the Tennessee Supreme Court made clear the power of the governing body of a municipality to abolish a board of public utilities created under this law. The Court noted the wide scope of power granted a municipality in the act in order to best carry it out and further pointed out that since the board must be created by resolution or ordinance then by implication it can be dissolved the same way. It was also pointed out that there are limitations to the power to undo what has been done. This arises when the resolution or ordinance in question involves contractual rights. This scenario is found in State ex rel. Barr v. Town of Selmer, 417 S.W.2d 532 (Tenn.1967). In that case the Board of Mayor and Aldermen revoked the authority of the board of water and sewer commissioners to run the gas system. One of the gas system bondholders filed suit to have this action overturned. The bond issue resolution the city had passed to fund the gas system contained a section avowing that the operation of the system would be under the board of water and sewer commissioners. The Tennessee Supreme Court held that the city did have the statutory power to remove the operating authority however the resolution created a contract with the bondholders that the board of Mayor and aldermen would violate by removing the commissioners. The Court pointed out that once the bonds were retired the Board would have the power to remove the commissioners but only after that. The trial court had divested the Board of all authority over water, sewer and gas, but the Supreme Court overruled this. It pointed out that the contract only existed under the resolutions on the gas bonds, not water and sewer, thus the city could properly run those systems.
While Patton shows that operating boards may be removed Barr underscores the care that must be taken when doing so. Any governing body contemplating dissolution of a operational board must carefully examine the bond resolutions of all systems operating under the board and if any of the resolutions decree the board shall operate that system then it may not be divested of that power until the bonds are retired.
T.C.A. 7-52-112 allows for the removal of board members however this can only occur after the preferment of formal charges by resolution before the municipal governing body and passage of such removal by three fourths vote of the governing body. The statute also specifies such removal shall only be for cause. Legally this denotes some form of malfeasance in office, not simple disagreement.
As you can see the mayor is really limited in his power over a utility board. He can either dissolve it, try and control it though appointments or leave it alone. Each course had its own problems. Though the Barr and Patton cases involve different type operating boards set up under different statutes, I strongly believe that a court would apply Barr to a utility board organized under the Municipal Electric Law. The principles of Barr are those of contract law which would apply equally to any operating authority. Patton itself infers that contract law would apply to any ordinance that would effect contractual rights.
I have enclosed the cases and statutes cited herein. Please feel free to contact me if I may be of any further assistance on this or any other matter.