Request By:
Mr. Al C. Rutland, Jr.
Mayor, City of Hopkinsville
City Hall
Hopkinsville, Kentucky 42240
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Thomas R. Emerson, Assistant Attorney General
This is in reply to your letter raising several questions relating to city utilities. Your first group of questions is as follows:
"In what chapter of the KRS is the Hopkinsville Sewerage and Water Works covered? Could the Hopkinsville City Council adopt an ordinance changing the number of Commissioners we now have under present state law?"
Hopkinsville, of course, is a city of the third class, KRS 81.010(3). KRS 96.350 authorizes cities of the third class to acquire and operate waterworks and sewer systems jointly. KRS 96.170 authorizes the legislative body of any city of the third class, by ordinance, to provide the city with utility services, either by contract or by works of its own. Neither of these statutes makes any provision for creating a utility commission to operate such utilities.
The Kentucky Court of Appeals, however, in the case of
Keathley v. Town of Martin, Ky., 246 S.W.2d 152 (1951), concluded that even though there is no statutory provision for the creation of a governing board for utility services, a city has legal authority to set up an administrative board in connection with their operation. At page 155 of its opinion in the Keathley case, supra, the Court stated:
". . . It is true that the Water System Act makes no provision as to the creation of a governing body for the utility, but we are of the opinion that in the acquisition and operation of a water plant, a municipality acts in a proprietary capacity and has full right to set up an administrative board in connection with its operation. . . ."
A city may not only create a utility commission but it may, at its discretion, abolish the commission it has created provided its existence was not made a part of the contract between the city and the utility bond holders. The power to abolish a utility commission was also created by judicial decision rather than legislative enactment. See
City of Elizabethtown v. Cralle, Ky., 317 S.W.2d 184 (1958) and OAG's 77-694, 77-716, 74-83 and 70-407, copies enclosed, all of which deal with the creation and abolishment of city utility commissions.
Since a city may create an administrative board to administer the city's water and sewer services, the city can by ordinance provide the manner whereby members of the utility commission are to be appointed, the number of such commissioners and the power they may exercise. Before the city amends any existing ordinance dealing with the composition of the utility commission, we would suggest that it be determined whether not only the existence of the board but the manner in which it functions was made part of a contract between the city and the utility bond holders. The city must adhere to the terms and provisions of any contract which might still be in existence.
Your last question asks:
"Under the present stawte law, is it legal for the Hopkinsville Electric Plant Board, purchasing power from TVA, to return surplus revenue to the City of Hopkinsville?"
We assume that the city is operating its electric distribution system pursuant to the terms and provisions of KRS 96.550 to 96.900, the Kentucky "T.V.A. Act." Under this assumption Under this assumption we direct your attention to KRS 96.810 pertaining to the disposition of revenues derived from the operation of the utility.
As indicated in OAG 63-1120, copy enclosed, under KRS 96.810(1) the board must devote all moneys derived from any source other than the issuance of bonds to specifically enumerated purposes. It is further provided in subsection (1) for the payment of an amount to the general fund of the municipality not to exceed a cumulative return of six percent per annum of the equity, if any, of the municipality.
Under KRS 96.810(2), it is further provided that after the establishment of proper reserves, if any, and after complying with the provisions of subsection (1), any surplus of proceeds shall be devoted solely to the reduction of rates. The method of determining the equity of the municipality referred to in KRS 96.810(1) is set forth in KRS 96.810(2).
Assuming that the city contracts with T.V.A. for its electrical energy, the amount payable into the city's general fund may not exceed an accumulation of six percent per annum of equity, if any, of the municipality. After this amount has been determined, the balance of the surplus, if any, after the city has complied with the other payments set forth in KRS 96.810(1), shall be devoted solely to the reduction of rates.