Utility Billing Issues
Sid Hemsley
MTAS, 2001
Differential water and sewer rates
The overwhelming weight of authority in the U.S. is that utilities can charge differential
rates, provide the difference is reasonable. [4 ALR2d 595] Under Parsons v. Perryville Utility
District, 594 S.W.2d 401 (1980), that weight of authority includes Tennessee. That case points
the statutory rate-making powers of municipal water and sewer systems: Tennessee Code
Annotated, '' 6-604 [now 7-51-401], 6-1408 thorough 6-1439 [now 7-35-401 et seq.], especially
6-1421 [now 7-35-414], and cites with approval 945 C.J.S. Waters, ' 297, which says, among
other things, that:
Where water furnished is all supplied from the same sources, and
is supplied to several contiguous communities embraced in one
general district,, with no unreasonable extensions to serve lean
territory or other elements creating material differences in cost, a
uniform rate for the entire territory is indicated and ordinary
justified; but it is not essential that all rates throughout a large
territory served from a single water system be the same, and rates
in each part of such territory may be fixed at a level which is fair
and reasonable in view of the existing conditions...
A classification must, however, in order to be valid, comport with
the rule or principle of sound legislative classification, in that there
must be some actual difference of situation and condition, bearing
a reasonable and just relation to the matter of rates; and an
arbitrary or unreasonable classification amounts to unjust
discrimination. Likewise, it is unjust discrimination to differential
between different services by charging rates for one which are out
of all proportion as compared with the rates charged for another,
or to impose on one consumer, or class of consumer, losses
caused by charging inadequate rates to another consumer or
class. [At 406] [Court=s emphasis]
The court=s emphasized language supports the proposition that indicates that where it
costs more to serve a certain class of customers it is rate discrimination not to charge them that
cost.
Tennessee Code Annotated, ' 7-51-401, authorizes various utilities to extend water and
sewer service outside their municipal boundaries, and declares that, AAny such county, utility
district, municipality or public utility agency shall establish proper charges for the services so
rendered so that any such outside service is self-supporting.@ [Emphasis is mine]
Tennessee Code Annotated, ' 7-35-401, provides that cities acquiring and operating
waterworks and sewer systems under that statue, Ahas the power, and it is its duty, by
ordinance, to establish and maintain just and equitable rates and charges for the use of and the
service rendered by such waterworks and/or sewer system, to be paid by the beneficiary of the
service. [Emphasis is mine]
The right to charge differential rates under the above guidelines applies to both inside
and outside rates.
Reduced utility rates for charitable organizations
It appears to be clearly the law in Tennessee that municipal utility systems cannot give
charitable organizations discounts on utility rates. The reasons are outlined above under
Differential water and sewer rates. [See OAG 99-026]
Utility Underbillings and Overbillings
Tennessee Code Annotated, title 18, chapter 3, part 3 contains a statute of limitations for
utility underbillings and overbillings; however, with respect to water and sewer services it
provides that:
Notwithstanding any other provision of law to the contrary, if
gallonage for water or sewer service or both is inaccurately
recorded or registered due to equipment failure [emphasis is mine]
and results in the customer being undercharged or overcharged,
and the customer is unaware of the error, defect or failure, no
utility district, municipality, or water or sewer system or company
shall be authorized to collect or assess a charge for the unpaid
gallonage or to reimburse the customer for overpayment of such
usage, prior to thirty-six (36) months from the date the error is
discovered or billed; provided, that if a date certain can be
established for such error, which is less than thirty-six (36) months,
no utility district, municipality, or water or sewer system or
company shall be authorized to collect or assess a charge for such
usage, or to reimburse the customer for overpayment of such
usage, beyond such date. [Tennessee Code Annotated, ' 28-3302].
There is no state statute governing underbillings and overbillings in cases where
equipment failure is not involved. However, several Tennessee cases address the recovery of
utilities arising from such underbillings: Memphis Light, Gas & Water v. Auburndale School, 705
S.W.2d 652 (1986) and Clarksville Department of Electricity v. Mathews Nissan, Inc., 15 TAM
52-6 (Tn. Ct. App., MS). In the former case, the City of Memphis was allowed to recover a
$32,300 utility underbilling for the period July, 1976-January, 1981, and, in the latter, the City of
Clarksville was allowed to recover $17,200 underbilling for an unknown period, arising from their
own mistakes. The Court based its decision on two closely related grounds:
- Tennessee and federal statutes prohibit public utilities from creating preferences in rate
or discriminating among users of like utility services.
- "The policy that all consumers of publicly provided utilities must pay for what they
receive at the same rate charged others for a like service is paramount to any equitable
considerations advanced by the customer."
There are no cases in Tennessee on overbillings. However, if a city can prevail against a
customer in an underbilling case on the rate discrimination ground, it's a short step for the courts
to permit a customer to prevail against a city in an overbilling case on the same grounds--sort of
a, "What's good for the goose is good for the gander" theory. That would be a simple way for
the courts to resolve such cases.
But Auburndale School and Matthews Nissan cannot necessarily be read that way in light
of cases on overbillings in other jurisdictions. The heavy weight of authority is that an overbilled
utility customer is entitled to a refund if the amount claimed to be overbilled was paid under
duress. [See 34 ALR 185, and B & B Amusement Enterprises, Inc. v. City of Boston, 8 N.E.2d
799 (1937), Oliver v. Iowa Power & Light Company, 183 N.E.2d 687 (1971), and the cases cited
below]. It's clear from those cases that if the city says, "If you don't pay your water (or electricity,
etc.) bill, I will shut off your water (or electricity, etc.)@ there is duress.
But Texas Power & Light Co. v. Doering Hotel Co., 147 S.W.2d 897 (1941) is important
because the Court of Civil Appeals of Texas weighed the effect of a rate nondiscrimination
statute in allowing the plaintiff's to recover overbilled electrical services in the amount of $14,
500 for the period 1928-1938. On that point it said,
Decisions are legion involving rate charges made by public service
corporations of consumers of electric current. It is a universal rule
that a public utility cannot discriminate in its rates or charges
between consumers similarly situated. [Case and statutory
citations omitted]. In view of the statute and of this universal rule,
a written contract with a consumer requiring him to pay a higher
rate or charge than the corporation collects from others similarly
situated is of no avail to the corporation, if in fact and in law such
contractual rate or charge is discriminatory.
The rate discrimination in Texas Power & Light occurred in both the highly technical
metering system used to supply the plaintiff with power and in the contract between the plaintiff
and TP&L. It also involved fraud on the part of the TP&L. If Auburndale School and Mathews
Nissan works in favor of customers in overbilling cases as it works in favor of for cities in
underbilling cases, it probably doesn't matter whether the overbilling was the product of accident
or design.
The Court also rejected TP&L's claim that the plaintiff wasn't entitled to recovery of
excess charges for a part of the overbilling period because during that period the plaintiff knew
the charges were discriminatory and continued to voluntarily pay them. After dryly observing that
TP&L's claim on that ground was an admission of rate discrimination, it concluded that TP&L
had misled the plaintiff by repeatedly telling him that he was receiving the best rate available to
him.
Texas Power & Light also had something to say about what constitutes duress that might
be pertinent to the City of Martin:
It may be doubted whether the issue of duress is here involved.
The payments made appear either to have been made under a
mistake of fact rather than under a mistake of law; or to have been
induced under the representations of appellant's officers and
agents amounting in law to a fraud upon the consumer. But if
duress be involved, it would appear that Doering paid under
implied, if not express, duress. Generally one paying money
where the payee would be compelled to resort to the courts to
collect cannot defend on the ground of duress in such payment.
[Citation omitted]. But where the payee has the power to enforce
such payment, or on failure to pay, to work great financial loss,
business disadvantage, or irreparable injury to the payor, duress
occurs, even though it be not actually attempted to be exercised.
[Emphasis is mine]. Appellant had the power, under its contract
with Doering, to cut off his service for nonpayment of its demand,
and thus paralyze his business. Nonpayment by him necessarily
invoked that potential hazard. In such case, the Supreme Court
[of Texas] has held [citation omitted] that in the face of such
existing power, payments so made are under implied duress even
though the payor did not make them under protest. [Citations
omitted] And this rule has been held to be applicable to public
utility corporation in illegal exactions against their consumers.
The Supreme Court of Michigan reached a similar result in Theatre Control Corporation
v. City of Detroit, 121 N.W.2d 828 (1963). There the City of Detroit claimed the plaintiffs were
not entitled to recovery of water charges the Court had found unreasonable and arbitrary
because the charges were voluntarily paid. But the failure to pay the charges might have
resulted in the discontinuance of water service, said the Court. Furthermore, continued the
Court, payment of the charges under protest wasn't a condition precedent to recovery. The
Court rejected the city's reference to the requirement under Michigan statute that taxes be paid
under protest as a condition precedent to their recovery because "we are not dealing with a tax,
or a special assessment levied on the basis of benefits received, but with a charge made for the
furnishing of utility services."
National Enameling & Stamping Co v. City of St. Louis, 40 S.W.2d 593 (1931) takes a
tougher view of a customer who should have discovered the overbilling. There the plaintiff, a
manufacturer, claimed to have been billed for water at the general meter rate from June, 1917 to
December, 1920 when he should have been billed at the manufacturer's rate. The plaintiff
produced only one witness at the trial, his master mechanic. The master mechanic testified that
he knew nothing about how the city's water rates were calculated, that he didn't know the city
had a cut-off policy for nonpayment of bills, and that he never contacted any city officials about
the water bills until he was told to do so by the plaintiff sometime in 1921.
The Missouri Supreme Court denied the plaintiff recovery of the overbilled amount. If the
plaintiff had paid the overbilling under compulsion "from the necessity of the situation and in
order to be permitted to continue its business, it would have been involuntary, and plaintiff would
be entitled to recover the excess sued for," said the Court. However, continued the Court,
...it is well established that payments to which the payee was not
entitled, but which were made by the payor under a mistake of law
or in ignorance of the law, are not considered as made under
duress and are not recoverable. [Citations omitted]. The rule is
thus stated in C.J. p. 755, ' 312. "except where it is otherwise
provided by statute it is held by the great preponderance of
adjudged cases, that where one under a mistake or law, or in
ignorance or law, but with full knowledge of all the facts, and in the
absence of fraud, or improper conduct upon the part of the payee,
voluntarily and without compulsion pays money on a demand not
legally enforceable against him, he cannot recover it back."
Under the facts here, the payment was voluntary, concluded the Court. In response to
the plaintiff's argument that the bill contained a cut-off notice for nonpayment of bill, the Court
said,
To render a payment recoverable as having been made under
duress, there must have been something more than the mere
existence of a potential power in the payee to compel payment.
The existence or exercise or the threatened exercise of such
power must have operated on the mind of the payor to induce
payment. "Duress" connotes the condition of the mind of the
wronged person at the time of the act sought to be avoided.
The plaintiff didn't meet that test because it "knew the facts." The city's bills showed the
quantity of water consumed the sum charged, and the general meter rate and the
manufacturer's rate. Mathematical computation on the part of the manufacturer would have
shown the rate charged was the general meter rate. Moreover, the manufacturer didn't contend
that it paid under mistake as to the facts. Finally, there was no contention on the part of the
manufacturer that the city was guilty of any fraud, improper conduct, or concealment because
the overbilling was spread on the face of the utility bill.
How the Tennessee Courts would handle overbillings is an open question. However,
Aburndale School and Matthews Nissan suggest that the Tennessee courts might be bothered
by the inequity of a city being able to recover an erroneous underbilling, but a customer not
being able to recover an erroneous overbilling, where in both cases the overbilling arose from
the city's error.
The statute of limitations for underbillings and overbillings not involving equipment failure
appears to be six years under Tennessee Code Annotated, ' 28-3-109(g).
Continuing duty to revise ratesBlimitations
Generally, a municipality has the continuing duty to revise utility rates to insure that the
utility system is self-supporting, and cannot contract away its duty. However, this general
proposition is subject to considerable limits.
In City of Parsons v. Perryville Utility District, 594 S.W.2d 401 (Tenn. App. 1980), the City
of Parsons entered into a 45 year contract to sell water to the Perryville utility District. A
provision of the contract provided that the water rates could be modified every five years, but
that, AAny increase or decrease in rates shall be based on a demonstrable increase in the cost
of performance hereunder, but such costs shall not include increased capitalization of the City
system.@ The Court struck down that part of the contract. Citing the various rate-making
powers of municipal water and sewer works under Tennessee Code Annotated, ' 7-35-401 et
seq., it declared that, A ...the city had no power to bind itself to a rate for forty-five years which
was not subject to increase to reflect the costs of increased capitalization of the system.@ The
Court upheld the remainder of the contract.
In Mary County Board of Public Utilities v. City of Columbia, 854 S.W.2d 890 ((Ct. App.
1993), the City of Columbia Water System provided water at three rates: urban (inside the city),
suburban (outside the city), and private fire protection. Under contracts between the Columbia
Water System and Maury Count Board of Public Utilities and the cities of Mount Pleasant and
Spring Hill, the former provided water to the latter for 40 years at the Aprevailing rate@ for
Asuburban@ water service. For 20 years, rate changes were made, but the uniform rate was
applied to all Asuburban customers. After experiencing an operating loss the City of Columbia
itself changed the rate classifications. There was a classification and a rate for urban area
customers outside the city limits, and a suburban area classification carrying a substantially
higher rate. However, the only customers in that latter classification were Maury County Board
of Public Utilities, and the cities of Mount Pleasant and Spring Hill.
In striking down the City of Columbia=s changes in the contract, the Court declared that:
In this case, the plaintiff=s contracts with the City of Columbia do
not prevent the City from raising water rates, as it has already
done twice in the last decade. The contractual provisions merely
ensure that the plaintiffs= increases will be at the >prevailing rate@
for out-of-city users. Those provisions are enforceable. The law
clothes te Board with the power to execute such contracts, and
their terms do not prohibit rate increases, but only prevents the city
from varying the terms of the contract to change rates other than in
the manner provided in the contracts. [At 892]
The Court also cited for support two other Tennessee cases involving changes to utility
contracts on the part of the utility system. In Bybees Branch Water Association v. Town of
McMinnville, 333 S.W.2d 815 (1960), the City of McMinnville contacted with Bybees and others
to furnish water to them at the same rate it was furnishing users of water within the limits of the
city. A new McMinnville Board of Mayor and Aldermen raised their water rates 50% more than
the contracted rate. The Court overturned that increase. In Batson v Pleasant View Utility
District, 592 S.W.2d 578 (Tenn. App. 1979), the Court struck down a $500 tap fee imposed by
the utility district on each residence in a development, when the contract between the utility
district and the developer provided for the developer=s costs and did not include a tap fee. The
Court concluded that:
By acting in its proprietary capacity, the defendant [utility district]
has obligated itself by contract to provide Atapping on@ without
charge. This is not in abrogation of its statutory authority to fix or
revise rates or charges in its legislative or governmental capacity.
The addition of Atapping on@ charge constitutes a unilateral
modification of the contracts. Modification requires the mutual
assent and meeting of the minds required to contract. [At 582]
Charging landlords for tenants= unpaid utility bills
The U.S. Sixth Circuit Court of Appeals (which includes Tennessee) in Mansfield
Apartment Owners Association v. City of Mansfield, 988 F.2d 1969 (6th Cir. 1993), that the
ordinance of the City of Mansfield, Ohio, which made landlords responsible for the unpaid water
bills of their tenants, and which as applied apparently made the landlord=s payment of the bills a
condition of service on the property, was not unconstitutional. However, that case does not
supercede state law on that issue.
In Tennessee, J.W. Farmer v. Mayor and City Council of Nashville, 127 Tenn. 509
(1912), in a left-handed manner appears to prohibit holding landlords responsible for the
payment of their tenants unpaid water bills. There Mrs. Young owned a house in Nashville,
occupied by Ms. Vaughn. Ms. Vaughn did not pay a water bill of $4. The city by ordinance
provided that unpaid water bills would be assessed against the owner of property. The city gave
notice of the delinquent water bill to Ms. Young, who refused to pay it. J.W. Farmer then rented
the property from Ms. Young, and tendered to the city the proper amount of money to secure
water services. The city refused his tender, and cut off the water. The question in this case,
said the Court, was whether tenants of property belonging could be required to pay the
delinquent water bills of the owners as a condition of receiving water service. Such a rule,
concluded the court, Awas Aunjust, unreasonable, and unauthorized by the defendant=s charter,
and is therefore void,@ on two grounds:
(1) Under the common law the landlord has no duty to furnish water to his tenant, and the
tenant has no duty to pay the landlord=s debts. The effect of the ordinance had the effect of
enlarging the obligation to the extent of requiring him to furnish water and pay the water
assessments, in order to rent the premises, and of requiring the tenant to pay the landlord=s
debts. In that respect, the ordinance was a plain violation of the city=s charter obligation to
furnish water to all its inhabitants.
(2) It was an Aarbitrary discrimination@ between those inhabitants of the city who own
property and those who do not.
If a rule requiring tenants to pay delinquent water bills of the landlord, (actually of former
occupants of the property) as a condition of service is unjust and unreasonable on those two
grounds, it is difficult to see why a rule requiring landlords to pay the delinquent water bills of
their tenants would not also be unjust and unreasonable.
Refusing utility service for unpaid utility bills at other addresses
Under an old, but apparently still good, Tennessee case, the provision of utility service at
two different addresses at different times probably constitutes two separate transactions, each of
which stands on its own. That case has been followed in a number of other jurisdictions. In
addition, a number of other Tennessee cases and a United States Supreme Court case have
declared that utility services cannot be terminated for the failure to pay disputed bills. The same
cases would undoubtedly apply to the denial of utility
service for the failure to pay disputed bills. Finally, at least one jurisdiction has held that under
the service contract between the utility and the customer, service at two separate addresses at
different times did not constitute independent transactions, but that the utility's lengthy
delay (16 months) in trying to collect an overdue utility bill at the first address foreclosed it from
using that debt as a ground to deny service to the same customer at the second address.
In Crumley v. Watauga Water Co, 41 S.W. 1058 (Tenn. 1897) Crumley owed Watauga
Water Company in Johnson City $11 for water piping and $4 for water bills. He gave the water
company his "duebill" for $15, and for several months thereafter he continued to receive, and
regularly paid for, water service. Then for a few months he discontinued the water service,
following which he applied to take it again, tendering the required water deposit. The water
company refused to provide him water service until he paid the whole, or at least one-third of his
duebill.
The Tennessee Supreme Court held that Crumley was entitled to the water service
without his payment of the $15 duebill, citing a number of cases in other states for the general
proposition that water utilities (private or public) have a "duty to furnish water at reasonable rates
to all the inhabitants of the municipal corporation, and to charge each inhabitant for water
service the same price it charges every other inhabitant for the same service, under the same or
similar conditions." On its face, that proposition does not appear to prohibit a utility from
denying service for the failure or refusal to pay for previous service. However, the Court did not
stop there:
The defendant [Watauga Water Company] in the present case
cannot justify its declination to furnish water to the plaintiff by the
fact of his failure to pay the whole or a part of his outstanding
duebill, given for water and piping furnished a year or two before.
Upon the tender of the regular rates he was entitled to the water
like other persons, and without reference to his past-due
obligation. The company had given him credit for the matters
covered by the duebill, and could not therefore coerce payment by
denying him a present legal right. [1060]
It is not clear what would have happened in that case had Crumley not given the water
company, and had not the water company given Crumley credit for, his duebill. However,
Crumley has been cited far and wide across the United States as a case holding that a utility
service cannot be denied one who refuses to pay a disputed or past due utility bill at a
previous address.
But let us stay in Tennessee for a moment. In Memphis Light, Gas & Water Division v.
Craft, 98 S. Ct. 1544 (1978), the United States Supreme Court held that utility services could not
be denied or terminated without notice and opportunity for a hearing. The issue in that case
was
a disputed utility bill. The Court spent considerable time discussing Tennessee cases holding
that a utility company could not terminate utility services for a disputed bill. Among those cases
was Trigg v. Middle Tennessee Electric Membership Corp, 533 S.W.2d 730 (Tenn. Ct. App.
1975). There an electric customer disputed $1.51 of his electric bill, which represented the
discount he would have received on the bill had it been paid by a certain date. The customer
claimed he had not gotten the bill until after the penalty date. Twice the customer tendered to
the utility the amount of his electric bill, less the $1.51; both times the utility refused to accept it.
While the customer was on vacation the utility terminated the electricity, causing damage to the
customer's property. Said the Court with respect to the right of utilities to terminate service
over a disputed bill:
A company supplying electricity to the public has a right to cut off
service to a customer for nonpayment of a just service bill and the
company may adopt a rule to that effect. [Citation omitted.] An
exception to the general rule exists when a customer has a bona
fide dispute concerning the correctness of the bill. [Citations
omitted.] If the public utility discontinues service for nonpayment
of a disputed amount it does so at its peril and if the public utility
was wrong (e.g., customer overcharged), it is liable for damages.
[733]
There is probably no reason Trigg would not apply to the denial, as well as to the
termination, of utility service. For that reason, even in the absence of Crumley, it is likely under
Trigg that a utility could deny utility service to a customer over a disputed utility bill only at
its peril.
As pointed out above, Crumley has been cited far and wide for the proposition that utility
service cannot be denied one who refuses to pay a disputed or past due utility bill. Craft itself is
due warning that a municipality ought not to deny utility service to a customer who disputes a
utility bill at a previous address without providing the customer all the due process mandated by
that case (notice and hearing). Even then, whether or not the dispute was a just dispute is
probably a jury question, in which case litigation on the dispute could be costly. [Trigg.]
Several other cases are generally in accord with Crumley, and go so far as to declare
that the utility must collect the overdue debt from the first address in the same way that other
debts are collected. In Ewell v. Atlanta Gas Light Co., 181 S.E.599 (1935) a customer owed a
$25.75 gas bill at his first address. He moved to a second address, paid a $5 meter deposit for
gas service at that address, and the gas utility furnished him service for roughly a month. The
customer filed bankruptcy, and included on his list of liabilities the $25.75 overdue bill he owed
for gas service at his first address. The utility terminated the gas service and refused to
reinstate it until he paid a new $25 meter deposit. The Court held that he was entitled to gas
service at his second address without paying the new meter deposit, declaring that
It seems to be quite generally held by the authorities that such a
company may not refuse to supply the water to a consumer upon
payment of rents in advance as required by the rules and
regulations of the company merely because he declines and
refuses to pay a disputed bill or to pay past water rents for some
other and independent use, or at some other place or residence,
or for a separate or distinct transaction from that for which he is
claiming and demanding a water supply. [Citations omitted, except
that Crumley is among them.] [601]
So, concluded the Court,
If in the case at bar the former claim was a past-due indebtedness
and was incurred at some other place of residence and was a
wholly separate transaction, it must be collected in the usual way
in which debts are collectable, and the defendant cannot force
from the plaintiff his present right, under the contract, to the gas
service which is a necessity, so long as the plaintiff will promptly
pay current installments and otherwise conform to the reasonable
rules governing the supply of gas.... If the defendant wishes to
collect the old bill, it should resort to the usual judicial process in
like manner as other creditors are required to do, and not coerce
the plaintiff into paying the old bill by denying him gas. [601]
[Also see Hatch v. Consumer's Co, 17 Idaho 204, 104 P. 670, affd 224 U.S. 148, 56 L.Ed. 703,
32 S. Ct 465 (1909), and Merrill v. Livermore Falls Light & Power Co, 117 Me 523, 105 A. 120
(1918).]
Some cases have held that a utility is entitled to deny utility service at a second address
for failure to pay a utility bill at the first address, particularly where the denial is supported by a
statute or provision in the utility service contract. [See 73 A.L.R.3d 1292] Among those cases
is one from Alabama. In Water Supply Board of City of Arab v. Williams, 302 So. 534 (Ct. Civ.
App. Ala. 1974) Williams contracted with the utility for water service at Location A. In 1972 he
contracted with the utility for water service at Location B. However, Williams leased
location A to a third party, but the water service there continued in his name. The third party left
Location A and the utility held Williams in default of water payments and terminated the service
at location A. The utility then added the amount in default to the water bill for Location B.
Williams refused to pay the bill for water service at Location A, but continued to pay the bill for
water service at Location B. The utility then terminated water service at Location B. Williams
sued for breach of contract and for negligence on the part of the water utility in cutting off his
service.
On the question of whether the utility was entitled to terminate Williams' water service at
Location B for the water bill in default at location A, the Court declared that:
The appellate courts of Alabama have long recognized the right of
a water company to discontinue its service in order to coerce out of
unwilling or laggard debtors the payment of its just demands.
[Citations omitted.] This principle is the generally accepted view in
the majority of jurisdictions. See annotation at 28 A.L.R. 472.
This right, however, is not without some qualification, which
appears to be that such action by the water works may not be
arbitrary, unjust, or without legal right. Put another way, the
service (supply of water) may not be discontinued arbitrarily,
unjustly, inequitably, or without legal right. [Citation omitted] And
this question would be for the trier of fact [the jury].
As the appellant concedes in brief, there appears to be no
Alabama cases holding whether the water works can cut off the
water from a consumer at one place to which it was supplied,
under contract, for refusal of such customer to pay a bill for water
furnished him at another time and place under another contract.
However, we can see no reason why such action could not be
maintained and other jurisdictions so hold. [Citing 28 ALR 472,
sec. e.] [536-37]
Even if Williams were the law in Tennessee, there would be some problems with
applying it to the overdue utility bill in Tennessee:
First, 28 ALR 472, which is cited by the Court for support, says in the first paragraph
that:
It is universally conceded by the courts that either a municipality or
private concern supplying water to the public may prescribe and
enforce a rule or regulation which provides for shutting off the
water supply from a customer who has defaulted in payment for
same; at least where there is no dispute as to the amount owing
or the justness of the charge, and the water was not furnished for
some other place or person, or for a separate and distinct
transaction from that for which a right to a continuance of the
supply is claimed. [472] [Emphasis is mine.]
That annotation then goes on to cite a number of cases holding that a past due utility bill
at a first address cannot be used to deny utility service at a subsequent address, on the grounds
that the service involves two entirely separate and independent transactions. Among those
cases is Crumble.
Second, Williams appears to be in the minority among the modern cases on the subject.
[See 73 A.L.R.3d 1292]
Third, it contains plenty of loopholes for "arbitrary, unjust and inequitable" actions on the
part of the utility company in denying the utility service. A denial of utility service for an Aold@ bill
where the utility has taken no legal action to collect the bill could fit into any of those categories.
The age of the utility bill was an issue in Dips v. Broad River Power Co., 173 S.C. 3897,
176 SE 325 (S.C. 1934). There a customer demanded gas and electric service at his residence.
The utility company refused to provide him with the service until he paid an overdue utility bill at
his previous residences. The utility company billed him monthly for the overdue bill for 16
months at interim residences he had occupied. He had paid only a part of the overdue bill
during that period. The utility contract between the customer and the utility company provided
that the failure of the consumer to pay his bills "either under this contract or any other," permitted
the utility to discontinue the service.
Under the contract, the utility did have the right to deny the customer gas service, held
the Court. But there was one catch, continued the Court: the overdue utility bill had to be
"recent." Relying on an earlier case the Court declared that:
While a public service water company has the right to cut-off a
customer's water supply for non-payment of recent and just bills
for water rents, and may refuse to engage to furnish further water
supply until said bills are paid, the right cannot be exercised so as
to coerce the customer into paying a bill which is unjust, or which
the customer in good faith and with show of reason disputes, by
denying him such a prime necessity of life as water, when he
offers to comply with the reasonable rules of the company as to
such supply for the current term. [Emphasis is the court's.] [327]
Sixteen months was not "recent," within the meaning of that language, concluded the
Court. The rule, continued the Court, was:
That if a customer fails or refuses to pay a just bill due and owing
by him for services furnished him by a utility company, when such
bill is duly presented for payment, and the company thereafter
practically abandons the collection of such claim and permits it to
become stale without exercising its right to discontinue service to
the customer unless and until the bill is paid, such company will be
estopped to discontinue the service, or to refuse to furnish the
customer additional service, merely because of his refusal to pay
such bill after it has become old and stale, and any discontinuance
or refusal of such service by the company in such case will be at
its own peril. [328]
Under Crumble such a rule is technically not at issue, but the "stale" date of a utility bill
would give the court another reason for compelling a Tennessee utility to provide utility service to
the customer in question. Presumably, the customer's remedy would be an injunction, and
injunctions are equitable remedies. Generally, equity does not reward those who sit on their
rights. In this case if a city "sat on its rights" for a long period ten years by failing to judicially
attempt to collect the bill, it might not be entitled to refuse the customer utility service. .
Cities might consider insuring that its utility services contract contains a provision similar
to the one in De Pass: Utility services may be denied or terminated for unpaid utility bills under
this or any previous utility contract. That may not get the city past Crumble, but if the utility bill is
large enough the city could have a contractual basis to allege that Crumble does not apply to
cases where there is such a provision in the utility contract. In addition, cities might consider
taking swift legal action to collect all unpaid utility bills. Needless to say, such action puts cities
between a rock and a hard place. They are forced to attempt to collect utility bills because under
Crumble they may not be able to use the denial of future utility service as a means to coerce
the payment of either disputed or overdue bills from a previous address. However, many utility
bills are so small that the cost of their collection would exceed the amount recovered.
Authority to charge water and sewer tap fees
Tennessee Code Annotated, section 7-34-104(5) authorizes municipalities to "Prescribe
and collect rates, fees, and charges for the services, facilities and commodities furnished by
such
public works [water and sewer systems], and Tennessee Code Annotated,
section 7-34-114(a) further provides that
The governing body of a municipality issuing bonds pursuant to
this chapter shall prescribe and collect reasonable rates, fees or
charges for the services, facilities and commodities of such public
works [water and sewer systems], and shall revise such rates, fees
or charges from time to time whenever necessary so that such
public works shall be and always remain self-supporting.
The same statute goes on to provide that the rates, fees or charges shall be sufficient to provide
revenue to pay for bonds and for the cost of the operation of the system.
Tennessee Attorney General's Opinion 91-17 opines that that statute is effective even if
the bonds a municipality has issued have been retired. That opinion also appears
correct.
Tennessee Code Annotated, section 68-221-210(a)--(b) also provides with respect to
municipalities that have obtained grants under Tennessee Code Annotated, title 68, chapter
221, to construct wastewater treatment facilities, that:
The municipality collecting the user's fee shall have in addition the
authority to fix, levy and collect fees, rents, tolls or other changes
in an amount necessary to provide for the maintenance and
operation of sewage treatment works and payment of any
indebtedness.
(b) This authority shall be in addition to other authority to set like
fees or to levy taxes pursuant to any other authority granted by the
state of Tennessee.
All of the above statutes appear broad enough to permit municipalities to impose tap fees
without express legislative authority. In addition, Patterson v. City of Chattanooga, 192 Tenn.
267, 241 S.W.2d 291 (1951) declares that general law authorizing cities to construct
public works should be liberally interpreted.
As far as I can determine, there are no Tennessee cases on the specific question of
whether a municipality can impose a tap fee absent express specific legislative authority.
However, several cases in other jurisdictions have upheld such fees on the basis of the
municipal
utility's general rate-making power. The most recent of those is Bertone v. Department of Public
Utilities, 583 N.E.2d 829 (Mass. 1992). There the court pointed to a Massachusetts statute that
read only that the electric utility in question was empowered to "'maintain and operate' a light
plant [statutory citation omitted], and to have 'full charge of the ... distribution of ... electricity ...
[and] the method, time, price quantity and quality of supply'" [statutory citation omitted].
AConsistent with those statutes@ declared the Court,
HMLP has broad discretion to expend money and to set rates, and
to determine rate practices. [citations omitted] We have
recognized the authority of municipal utilities to establish terms
and conditions for service to prospective customers [citations
omitted], and we have inferred that a municipal facility, as part of
its rate-making function, may impose a hook-up charge to deal
with the increasing cumulative demands of new development.
[citations omitted]
Clearly, the statutory authority upon which the Bertone court relied to give the
municipality to authority to impose a tap fee was even more general than the authority given to
Tennessee municipalities under the statutes cited above. In addition Bertone points to several
other cases in which the courts in other states have upheld tap fees, relying upon statutes
similar to those at issue in Bertone. [Hillis Homes, Inc. v. Public Utility. Dist No. 1 of Snohomish
County, 105 Wash.2d 288, 298, 714 P.2d 1163 (1986); Contractors & Builders Ass'n of Pinellas
County v. Dunedin, 329 So.2d 314, 318-321 (Fla.), cert. denied, 444 U.S 867, 100
S.Ct. 140, 62 L.Ed.2d 91 (1976)]
However, as the language of Bertone indicates, the tap on fee was charges have to be
reasonably related to the cost of adding new customers. Other cases have made the same
point. [City of Pontiac v. Mason 50 Ill. App.3d 102 (4th Dist. 1977); Tidewater Ass'n of
Homebuilders
v. City of Virginia Beach, 400 S.E.2d 523 (Va. 1991)].
Tennessee Code Annotated, section 7-35-414 provides that it is the duty of the
municipality "by ordinance to establish and maintain just and equitable rates and charges for the
use of and the service rendered by such waterworks and/or sewer system." Presumably, that
provision applies to charges and rates of every kind, including tap fees. In any event, the
Tennessee courts have said the same thing. [City of Parsons v. Perryville Utility District, 594
S.W.2d 401, 406 (Tenn. App. 2979) cert. denied].
So too the court in other jurisdictions. However, it has also been held that, "A
presumption of validity is accorded rates enacted by municipal ordinance and plaintiffs bear a
heavy burden of proving that the rates charged are unjustly discriminatory and unreasonable."
[Inland Real Estate Corp. v. Palatine, 146 Ill. Alp.3d 92, 99(1st Dist.1986). Also see Village of
Nile v. City of Chicago, 101 Ill. Alp. 3d 651 (1st Dist. 1990)] In Handy v. City of Rutland, 598
A.2d 114 (Vt. 1990) that the plaintiffs could not prove a $10,000 sewer connection charge
unreasonable; they could produce no cost analysis to that effect. However, I am not
sure the Tennessee courts would generally approve tap fees in that amount.
Authority to charge fire hydrant maintenance fees
In OAG U94-002 the question of whether the Newport Utilities Board was authorized to
bill Cocke County for upkeep and maintenance of fire hydrants within the county limits. It
pointed to Tennessee Code Annotated, ' 7-51-401, which authorizes municipalities to provide
outside utility services to customers desiring such service, and also provides that, AAny
such...municipality shall establish proper charges for the service so rendered so that nay such
outside service is self -supporting.@ The Opinion did not directly answer the question,
essentially declaring that without additional facts, it could not determine who was the customer
and what, if any, contractual obligations and limitations may have arisen between the Newport
Utilities Board and any such customer.
Tennessee Code Annotated, ' 7-34-115, which is part of the Revenue Bond Law, but
which probably applies to all municipal utility systems, requires as a matter of public policy that
all Amunicipal utility systems shall be operated on sound business principles as self-sufficient
entities.@ Tennessee Code Annotated, ' 7-35-401 et seq., under which many municipal water
systems are operated, also contains several similar provisions:
- Tennessee Code Annotated, ' 7-35-414 requires municipalities operating waterworks
or sewer system under that statute Ato establish and maintain just and equitable rates and
charges for the use of and the service rendered by such waterworks and/or sewerage system,
to be paid by the beneficiary of the service.@
- Tennessee Code Annotated, ' 7-35-415, further provides that AThe reasonable cost
and value of any service rendered to such city or town by such waterworks and/or sewage
system shall be charged against the city or town, and shall be paid when due as the service
accrues form the current funds or proceeds of taxes which the city or town is authorized and
required to levy an amount sufficient for the purposes....@
- Tennessee Code Annotated, ' 7-35-416 authorizes any city or town operating a
waterworks and/or sewerage system under this statute to enter into contracts with one or more
cities and towns to furnish services, Aand are authorized to establish, charge, and adjust by
ordinance, rates and charges for the service rendered by such system or systems.
All of those statutes indicate a public policy that municipal utility providers must recover
the cost of service. It appears reasonable that rates and charges related to Afire@ water
services are within the contemplation of those statutes. The fact that fire hydrant maintenance
fees have not been charged in the past does not necessarily foreclose a municipality from
charging them in the future. However, there are important limitation on this right. [See
Continuing duty to revise rateBlimitations, above as well as OAG U94-002].