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TVA Power Contracts

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Reviewed Date: December 05, 2016

Original Author: 
Shechter, Leslie
Date of Material: 
Jun 7, 1991

Utilities--Contracts and agreements
Tennessee Valley Authority
Contracts--Laws and regulations

TVA Power Contracts

MTAS was asked to address several issues related to power contracts with TVA.

Knowledgebase-TVA Power ContractsJune 7, 1991

I must apologize for the delay in this response. I have extensively researched the subject as well as the various legal opinions written in response to the issues you raise. Both your special counsel and your city attorney have given you excellent advice, and this opinion will only attempt to enlarge upon what has already been stated and to fill in some gaps.

My conclusions are that: 1. The power to contract with TVA resides in the municipal governing body and not the supervisory body of the Electric System; 2.The resolution accepting the 1989 amendment to the TVA power contract is probably valid, and its rescission at this late date would probably not be upheld; 3. The provision in the 1989 amendment making the power contract perpetual is not in violation of your charter or state statute or, public policy; 3. The TVA power contract as well as the Municipal Electric Plant Law (MEPL) contain restrictions on the disposition of surplus revenue and, the money the municipality may receive from the Electric System operations; 4. The BTES Board may have the descretion to reimburse the City for the expenditures you submitted, but, the City has no control over this descretion, nor can it override the Electric System's Board's decision on this matter.

1. The City has the authority to contract with TVA under the MEPL.

The Board has plenary authority under the MEPL regarding operation and control of the electric plant. It also appears to have the descretion to dispose of the property and revenues of the system so long is it does so consistent with the MEPL and the TVA power contract. However, contrary to Mr. _____ assertions, State ex rel. Patton v. Mayor and Board of Aldermen, City of Lexington, 626 S.W.2d 5 (1981), does not stand for the proposition that appointment of an electric system board relieves the municipality of all the authority enumerated in T.C.A. §§ 7-52-201 and 7-52-103. The Tennessee Supreme Court held only, that once a board is appointed, it, and not the municipality, becomes the "supervisory body" under T.C.A. § 7-52-114-117. The Board supervises operation of the utility, it does not exercise complete dominion and control over the electric system.

The municipality continues to exercise authority under the MEPL after it appoints a supervisory body. For example, the municipality may dissolve the board, City of Lexington, 626 S.W.2d 5 (Tenn. 1981), as well as sell off substantially all of the assets of the electric system (T.C.A. § 7-52-132). The municipality, not the supervisory board, has the authority to contract with TVA (T.C.A. § 7-52-201), and to make contracts for the purpose of obtaining loans (T.C.A. § 752-103(7).

Generally, the power to enter into a contract on behalf of the municipality resides in the legislative body or council, acting as a body, at a properly noticed regular or special meeting. 3 McQuillen, Municipal Corporations, Vol. 10, §§29.02,29.15.

... [N]o officer or board, other than the common council has power to bind the municipal corporation by contract uless duly empowered by statute, the charter, or authority conferredby the common council ...
[3 McQuillen, Municipal Corporations, Vol.10, §29.15, p. 315.]

The TVA power contract is, by its terms, "by and between" TVA and the City . The Board merely signs off on this contract, it is not specifically mentioned as a party. While the Board has authority under the MEPL to enter into certain contracts in furtherence of their operation of the systerm (T.C.A. §7-52-117(d)), it is not specifically authorized in this section or T.C.A. § 7-52-201 to contract with TVA on behalf of the municipality. There is also no express authority to contract as the municipality's agent granted in the city's charter. Consequently, until the city passed Resolution 90-21, expressly ratif[ying], confim[ing], and approv[ing] the 1989 amendment, it is at least arguable that the city was not bound by the amendment.

2. Can Resolution 90-21 be rescinded?

It is apparent from your memorandum to the Council, as well as the opinion of counsel, that the City Council was not aware of the significant changes being accomplished by the 1989 Amendment when they passed Resolution 90-21, ratifying and approving that Amendment.

The Attorney General has opined that: 1. the municipality, and not the board, may contract debt (OAG 12-16-68); 2. the board is an agent of the city, its employees are city employees, and its revenues are municipal funds (OAG U88-02, / /88, OAG 9-12-83); and 3. operation of the utility is subject to the laws governing municipal corporations (OAG U88-02, / /88).

Leslie Shechter
Legal Consultant

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