Request By:
Mr. Kenneth Isaacs
P.O. Box 201
McKee, Kentucky 40447
Opinion
Opinion By: David L. Armstrong, Attorney General; Walter C. Herdman, Asst. Deputy Attorney General
This is in response to your letter of May 23 in which you raise a number of questions relating to water and sewer rates that may be imposed by the City of McKee which apparently operates its own municipal water works. Your initial question is as follows:
". . . Are the municipal waterworks system and the municipal sewer system in a 5th class city, such as McKee, governed or regulated by any State or Federal agency, commission, etc., in regard to rate increases or does the Mayor and Council have the exclusive right to make rate increases as they see fit to do so? This situation is, as most others are no doubt, that the only source of public water supply to the City is provided through our own municipal waterworks system."
In response to the above question, all municipally owned water systems are exclusively controlled by the city and this of course includes the fixing of reasonable rates and increasing same from time to time because of economic necessity. In the case of
McClellan v. Louisville Water Co., Ky., 351 S.W.2d 197 (1961), the Court held that the state Public Service Commission has no jurisdiction or control over the operation or management of a municipally owned water system, whether it be operated inside or outside the city limits. We also refer you to the more recent case of
City of Georgetown v. Public Service Commission, Ky., 516 S.W.2d 842 (1974), and of course KRS 278.010(3), a part of Chapter 278 KRS governing the Public Service Commission, which declares that the term "utility" does not include a city which owns, controls and operates its own public utility.
In 12 McQuillin, Mun. Corps., § 35.37a, it is written that "The rates charged by a municipally owned utility must be fair, reasonable, just, uniform and nondiscriminatory . . ." (Emphasis added.) It is true that "a municipality has the right to classify consumers under reasonable classifications based upon such factors as the cost of service, the purpose for which the service or product is received, the quantity or the amount received, the different character of the service furnished, the time of its use or any other matter which presents a substantial difference as a ground of distinction." Ibid., § 35.37b, p.p. 485-486. See also, as to reasonable classifications, the following cases:
Gillam v. City of Fort Worth, Tex., 287 S.W.2d 494 (1956) 497;
City of Malvern v. Young, Ark., 171 S.W.2d 470 (1943) 474; and
Morse v. Wise, Wash., 226 P.2d 214 (1951) 217.
With respect to your second question you relate the following facts and questions:
". . . We have, in the City limits of McKee, three apartment complexes. Two of these are multi-buildings and the other is one building. These complexes were hooked to the City water system each on one master meter. Each of these complexes has been billed the minimum monthly charge set for the size master meter each has plus the set rate for gallons used. No separate billing was ever made for each unit within the complexes, occupied or not.
I have two questions: 1) Does the City have the right to make such a policy change especially in light of the fact that they allowed the hook-ups on one master meter with one billing (as described above)? 2) Does the City have the right to make such a policy change in light of these two facts: a) the complex managers will have no way of knowing how many gallons of water are being used per each occupied (billed) unit (with one billing it would not matter - with multi-billing it could matter); b) in the event that this cost should be passed to the complex residents sometime in the future some units would use much much more water per month (1 bedroom apts. versus 4 bedroom units)?"
The proposed change in the rate policy appears to be reasonable from the bare facts presented, particularly since the owner and operator of the apartment complexes are one and the same individual. On the other hand, if each resident must pay for the water he consumes, separate meters should be installed for each apartment since each individual consumer uses a different amount of water for which he is responsible for paying. To do otherwise would be unreasonable and discriminatory. Enclosed is a copy of OAG 72-790 relating to this subject.
As pointed out in our response to your initial question, water and sewer rates must be fair, reasonable, just and nondiscriminatory, and when there exists a serious question concerning this, only the court can finally determine the matter.