August 26, 2009
Dear Utility Manager:
You have the following question: Does the utility board have the right to set water and
wastewater rates?
In my opinion, the answer is yes.
The City is chartered under Private Acts 2003, Chapter 46. Article IX of that Act
contains several sections dealing with the city’s utility system. Section 1 provides that:
The existing Board of Public Utilities is hereby continued in
existence in its present form. Such Board of Public Utilities shall
have responsibility for operation of the waterworks, sewerage
works, and electric system under the provisions of state law.
Section 3 provides that, “Appointees to the Board of Public Utilities shall consist of
members who meet the qualifications as set forth in the Municipal Electric Plant Law, TCA ' 752-101, et seq....”
Section 5 provides that:
All powers, duties, and responsibilities conferred and granted by
state law shall be conferred on the Board of Public Utilities of the
City. Procedural matters, including removal of members not
covered in this charter, shall be followed as outlined by state law.
Frankly, it would have been far better if the 2003 charter’s provisions speaking of the
laws governing the city’s utilities had expressly fleshed out more thoroughly. I have previously
pointed out to many cities, including your City, that there are a number of state laws that can
govern municipal utility operations, including the municipal charter. As it is, the glaring
question raised by the above provisions of the 2003 city charter is what do those provisions mean
with respect to which law or laws generally govern the operation of the city’s utility system, and
specifically which law or laws govern the setting of the utility’s water and wastewater rates.
Article IX, Section 1 of the charter does not, by itself, indicate what laws govern the
utility system. We know from that provision that “The existing Board... is hereby continued in
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existence in its present form,” and that it will “have responsibility for the operation of the
waterworks , sewerage works, and electric system under the state law.” With respect to the
organizational aspects of its “present form,” we are aided by Article IX, Section 3 which says that
the members of the board shall “meet the qualifications as set forth in the Municipal Electrical
Plant Law, TCA ' 7-52-101 et seq.” But the language in Article IX, Section 1 that the utility
board operates all the city’s utilities under state law, and the language in Article IX, Section 5,
that, “All powers, duties and responsibilities conferred and granted by state law shall be
conferred on the Board of Public Utilities....,” generates the obvious question of whether
“continued existence in its present form” refers to the state laws that applied to the operation of
the utilities at the time the 2003 city charter was adopted. If that connection is not made, the
utility board would appear to be left in the dark about precisely which state laws govern the
utilities it operates after the 2003 charter was adopted.
The state laws under which the utility board operated before the adoption of Private Acts
2003, Chapter 46 [See Private Acts 1987, Chapter 161, ' 31] were relatively clear. The city
had the right to turn over the operation of the waterworks to the Board of Public Utilities [Private
Acts 1987, Chapter 161, ' 28] Apparently, pursuant to this provision in the charter, the city turned
over the operation of the waterworks to the utility board by unnumbered ordinance dated January 7,
1948, which was codified as Section 2-101 of the Municipal Code. The utility board operated the
electric system [Private Acts 1987, Chapter 161, ' 31.]
Several provisions of that charter covered the organization of the board: membership, terms,
powers and duties, compensation, meetings, and rules governing membership and service, removal
from office, etc. But the key section with respect to the power of the board was found in Sections 38
and 39:
- The Board of Public Utilities shall have complete control over the
operation and conduct of the Electric System of the City which is
herein placed under the supervision of said Board, and said Electric
System shall be operated by the Board of Public Utilities
independently and free from supervision or control of any kind by the
City Council. In this connection the Board of Public Utilities shall
have right and duty to employ and fix the compensation of such
agents, clerks, employees, engineers, attorney, et cetera, as it may
consider necessary and proper to the efficient conduct and operation
of said Electric system an may fix his compensation. [Section 38]
- In addition to the power and duties herein specifically set out said
Board of Public Utilities shall have all rights, powers and duties
provided by Chapter 32 of the Public Acts of Tennessee, 1935, for
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similar boards created and operating under authority of Sections 13
and 14 of said chapter.[Section 39]
It appears to me that municipal charter scheme is the “present form” of which the 2003 city
charter, Article IX, Section 1 speaks is the form found in the 1987 charter. When a statute is
ambiguous, a word that undoubtedly applies to both Article IX, Sections 1 and 5, the rules of
statutory construction are applied to ascertain the meaning of the statute. The cardinal rule of
statutory construction is the intention of the General Assembly. It is said in Richardson v. Fentress
County School Board, 840 S.W.2d 940 (Tenn.Ct.App.1992) (Permission to appeal denied by Tenn.
Supreme Ct., October 26, 1992), that:
Our role in construing statutes is to give effect to the General
Assembly’s intentions. [Citations omitted by me.] We must consider
statutes as a whole in light of their general purpose, [Citations
omitted by me.], and we must take care not to unduly restrict their
coverage or extend them beyond where the General Assembly
intended them to stop. [Citation omitted by me.] [At 942]
The general purpose of Article IX of Private Acts 2003, Chapter 46 was to continue the city’s
utility functions as they were established under the city’s 1987 charter. Again, it would have been
preferable if the 2003 charter had made expressly clear the state laws under which they would
operate. Article IX, Section 3 does make that clear as to the organizational form of the utility board
(membership, term, etc.). But it is difficult for me to believe that, considering Article IX as a whole,
the General Assembly intended anything but to make sure that the footprint of the Municipal Electric
Plant Law of 1935 was stamped on Article IX of the 2003 Charter. Having expressly spoken of the
continuation of the utility board under Tenn. Code Ann., Title 7, Chapter 52, Part 1, the reference to
the operation of the board “under the provisions of state law,” in Article IX, Section 1, it is logical
that utility board meant that it would continue to be operated under the Municipal Electric Plant Law
of 1935.
If that were not so, we would be left to guess whether the city’s governing body or the utility
board sets the utility rates. Another rule of statutory construction is that, “A construction will be
avoided, if possible, that would render one section of the act repugnant to the other. Or one that
would produce an absurd result.” See In re Estate of Frank Soard, 173 S.W.3d 22 (Tenn. Ct. App.
2008) (Permission to appeal denied by Tennessee Supreme Court, August 29, 2005). It appears to
me that interpreting Article IX in a way that leaves the City wandering in the wilderness on the
question of which municipal entity has the authority to set water and wastewater rates produces an
absurd result. Under Article IX, Section 1 of the city’s charter, the utility board operates all those
systems “Aunder the provisions of state law.” Before the 2003 city charter was adopted the utility
board had total operational control of those utility systems, and under Article IX of the 2003 city
charter, “All powers, duties, and responsibilities conferred and granted by state law shall be
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conferred on the Board of Public Utilities of the City.” There is nothing in the 2003 charter that
indicates the General Assembly contemplated any different operational scheme for the city’s utilities.
Under the Municipal Electric Plant Law of 1935, specifically Tenn. Code Ann., ' 7-52-111,
municipalities are authorized to turn over the operation of their water and sewer works to the electric
utility board, but if it does so it must “keep separate accounts for the electric plant and each works,
making due and proper allocation of all joint expenses, revenues and property valuations.” In
Tennessee Electric Power Co. v. Mayor and Aldermen of Fayetteville, 114 S.W.2d 811 (1938), the
Tennessee Supreme Court declared that:
It will be observed that in the above-quoted portion of section 13 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.” [At 814]
Technically under its 1987 charter, the City operated its utilities under its charter rather than
the Municipal Electric Plant Law of 1935, but under that charter the city had the authority to transfer
its water and sewer works to the utility board, which, under that charter was expressly organized and
operated along the lines of the Municipal Electric Plant Law of 1935. For that reason, the utility
board’s takeover of the water sewer systems appears to be the legislative “assent” to the utility
board’s takeover of those systems of which Mayor and Aldermen of Fayetteville, above spoke. In
any case, the only thing the law Municipal Electric Plant Law of 1935, specifically Tenn. Code Ann.,
' 7-52-111, requires with respect to that “assent” is accounts for the revenues of the utility systems
be kept separate.
But several provisions of the Municipal Electric Plant Law of 1935 make it clear that a utility
board governed by that law has the authority to set utility rates. Tenn. Code Ann., ' 7-52-111(a)
itself provides that:
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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 nor or
hereafter vested in any other board, commission, or in the governing
body of such municipalities.
But Tenn. Code Ann., ' 6-52-115(a) makes it clear that the board’s “jurisdiction” includes
setting rates:
Subject to the provisions of applicable bonds or contracts, the
supervisory body shall determine programs and make all plans for the
acquisition of the electric plant, shall make determinations as to
improvements, rates and financial practices....
There is nothing in the Municipal Electric Plant Law that suggests that when the operation of
a city’s water and wastewater systems are transferred to the utility board, that its “jurisdiction” over
those systems falls short of setting their rates.
If there is or remains a dispute about who sets the water and wastewater rates in the City, the
city can ask for an amendment to its private act making it expressly clear where that authority lies. I
would certainly encourage the city to do that; otherwise, it may be that the dispute goes on.
Sincerely,
Sidney D. Hemsley
Senior Law Consultant
SDH/