# FILED
August 31, 1998 Cecil W. Crowson Appellate Cou rt Clerk 

### IN THE SUPREME COURT OF T ENNESSEE

AT NASHVILLE

CITY OF SOUTH FULTON, TENN ESSEE ) FOR PUBLICATION CITY OF BRADFORD, TEN NESSEE; and ) WEAKLEY COUNTY, TENNESSEE, for ) Filed: August 31, 1998 the use and benefit of Weakley County ) Municipal Electric S

ystem, ) ) Plaintiff - Respondent, ) Certifie d Questio n of Law ) from the United States ) Court of Appeals for the v. ) Sixth Circuit. (N o. 96-6201) ) HICKMAN-FULTON COU NTIES RURAL ) ELECTRIC COOPERATIVE CORPORATION; ) WALLY BEYER, Administrator, Rural ) No. 01-S-01-9710-FD- 00215 Electrification Administr ation, U.S. Department ) of Agriculture; CHARLES B. GILL, Governor, ) National Rural Utilities Cooperative Finance ) Corporation; NATIONAL BANK FOR ) COOPERATIVES, ) ) Defend ants, (T rial Only) ) ) GIBSON ELECTRIC MEMBERSH IP ) CORPORATION, ) ) Defendant - Petitioner. )

For Plaintiff-Respondent : For Defendant/Petitioner : Frank S. King, Jr., Herbert S. Sanger, Jr. King & Ball ow Charles A. Wagner III Nashville, Tennessee Wagner, Myers & Sanger, P.C. Knoxville, Tennessee G. Griffin Boyte Warmath and Boyte Humboldt, Tennessee1 " The Supreme Court may, at its discretion, answer q uestions of law ce rtified to it

by the Su pr eme Court of the United Stat es, a Court of App eals of the Unite d States, a Distri ct Court of the United States i n Tennessee, or a Unit ed S tates Bankruptcy Court i n Tennessee. This rul e may be invoked when the certi fying co urt determines that, i n a proceeding bef ore it,there are questions oflaw of this state which will be determinative of the cause and as to wh ich it appears to the certifying court there is no contr

olli ng precedent i n the decisions of the Supreme Court of Tennessee. ” Tenn. R. Sup. Ct. 23, § 1. -2- 

### OPINION DROWOTA, J. QUESTIONS CERTIFIED
Pursuantto Rule 2 3 of the Rules of the Supreme Court of Tennessee, 1 this Court accepted certification of the followin g two questions from the United States Court of Appeals for the Sixth Circuit. 1

. Does Ten nessee la w, specif ically the Municipa l Electric Plant Law, Tenn. Code Ann. §§ 7-52-101 -- 7-52-310, the Local Government Public Obligations

Act, Tenn. Code Ann. §§ 9-21- 101 -- 9-21-1016, or the Revenue Bond Law, Tenn. Code Ann. §§ 7-34-101 -- 7-34-11 8, autho rize a city tocondemn the facilities and service areas of an electric coopera tive servingconsumers within the ci ty’s municipal boundari es and to grant to another county’s electric system the right tooperate those facilities and provide service to consumers within those service areas? 2. If Tennessee law does so authorize, does Tennessee Code Annotated Section 6-51-112 nevertheless prohibit the city from altering

any service areas that were outside the city’s municipal boundari es on March 6, 1968?
As more fully explained bel ow, our conclusion w ith respect to the first q uestion is that Tennessee law, specific ally the Revenue Bond Law, a uthoriz es a city to condemn the facilities and servic e areas of an electric cooperative serving consumers within the city’s municipal boundaries and to grant to another county’s electri c system the right to op erate th ose faci lities an d provi de service to consumers within those service areas. With respect to the second certifiedquestion, we conclude that Tenn.-3-

Code Ann. § 6-51-112does not prohibit the city from altering servi ce areas that were outside the city’s munic ipal boundaries on March 6,1968.

BACKGROUND The following summary of facts relevant to the legal q uestions in this appeal
was derived from the certification order of theSixth Circuit. Until 1994 electric service in the City of Bradford, Tennessee w as provided by both

Gibson Electric Membership Corporation (Gibson) and Weakley County Municipal El ectric System (WCMES). In t he City of South Fulton, Tennessee,electric servic e was provided by

three distributors: Gibson, WCMES, and Hickm an- Fulton Counties Rural Electric Coopera tive Corporation (Hickman)

. In April 1994, the mayor of South Fulton noti fied the three distributors that the electric plant franchis e for the city had e

x pired. He explained thatthe Board of Commissioners woul d consider any pertinent information submitted by the distributors r egarding rates

and terms and that the distributors would have an opportu nity to add ress the B oard at a m eeting in May. All three distributors appeared at th is meeting. The Board then determined that WCMES could prov ide the best service at the most reasonab le rates and granted it a twenty -five year exclusive franchise within the cor porate limits of Sout h Fulton. Bradford granted a twenty-year ex

clusive franchise to WCMES within its corporate limit s.

South Fulton and Bradford offered to purchase from Gibson and Hickman the service rights for their consumer s located within the ci ty boundar ies . The cooperatives

refused to sell. South Fult on, Bradford, and Weakley County, for the benefit of WCMES, then filed petitions for condemnationin state court. The cases were removed to federal c ourt pursuant to 28 U.S.C. § 1441.2 Followi ng entry of the finaljudgment, Hickman accepted from the respondents’ the amount specifiedas just co mpe nsation. Thus , the only interes ted parties to this appe al are the re spond ents and Gibson. -4- Thereafter, the federal distri ct court consolidated the cases into a single proceeding. Hickman and Gibson filed motions to dismiss asserting, in pertine nt part, that the respondents do not have authority under T e nnessee law to condemn their property. The federal district court denied the petiti oners’ motions to dismiss. Eventual ly, the parties ent ered an agr eed fin al judgment setting the amount of just compensation due to Hickman and Gibson for their respective property and service rightswithin the municipal bou ndaries of South Fulton and Bradford and preserving Gibson’s right to appeal the question of the respondents’ right to take. 2

Gibson then appealed to the Sixth Ci rcuit Court of Appeals, chal lenging the respondents’ right to condemn Gibso n’s pro perty and service righ ts in the t wo municipalities. Concludi ng that th e appeal involved de termina tive ques tions of Tennessee law, the Sixth Ci rcui t ent ered an o rder certi fying to th is Court th e two questionsset forth above. We accepted certification of the ques tions p osed and address each hereafter.

I. FIRST QUESTION - EMINENT DOMAIN AUTHORITY We begin with the ques tion “[d]oes Tenn essee law, specifically the Municipal ElectricPlant Law, Tenn. Code Ann. §§ 7-52-101 -- 7-52-310 , the Local Government Public Obligations Act, Tenn. Code Ann. §§ 9-21-101 -- 9-21-101 6, or the Revenue Bond Law, Tenn. Cod e Ann. §§ 7-34-101 -- 7-34-118,authorize a city to c

ondemn the facilities and servi ce areas of an electric coo perative s erving consumers within the city’s municipal boundaries and togrant to another county’s electric system the3 The statute de fines the te rm m unicipality to incl ude “any count y, i ncorporated city or town of the state.” T enn. Co de Ann . § 7-34-1 02(2) (1 997 Su pp.).

4 This statut

e was then codif ied at Tenn. Code Ann. § 6-1304. -5- right to operate those facilities and provide service to consumers within those service areas?”

We begin our analysis of this question with the Rev enue Bond Law, Tenn. Code Ann. §§ 7-34-101 to -118. A portion of that statute provides that a municipal ity 3 has the power to: Construct, acquire by

gift, purchase, or the exercise of the right of eminent domain , reconstruct, improve,better or extend any public works , within or without the municipality , or partially w ithin or partially

without the municip ality, and acquire by gift, purchase or the exercis e of the right of eminentdomain, lan ds or rig hts in land or water r ights in connection therewith[.]
Tenn. Code Ann. § 7-34-104(1) (1992 Repl.) (emphasis added ). The term “public works” is defined by the statute to include “electric heat, light or power works, plants and systems . . . together with all parts thereof and appurten ances thereto including, but not limited to, supply and distributi ons systems....” Tenn. Code Ann. § 7-34-102 (1992 Repl. & Supp. 1997).

In Duck River Elec. M embership Corp. v. City of Manchester , 529 S.W.2d 202 (Tenn. 1975), this Court held that Section 104(1) 4 authorized a municipal corporation to condemn the el ectric system of a not-for-profit elec tric membership corporati on located within the city boundaries. Duck River Elect ric Membership Corpora tion had supplied electricity to the C ity of Manchester under a fifteen- year franchise that expired on Ja nuary 8, 1973. The franchise w as not renewed, but Duck R iver-6-

continued to supply electrici ty to the City. Howev

er, in June of 1974, the City of Manchester

adopted an ord inan ce declar ing that it would esta blish a mu nicipall yowned electric distr

ibution system. Thereafter, the City of Manchester broug ht suit seeking to acquire by eminent domai n that portion of Duck Riv er’s electric distr

ibution system loc ated withi n the corp orate lim its of th e city.

On appeal to this Court, Duck River challenged the City’s authority to acquire the property by eminent domain. This Court rejected the chall enge and held that the City was authorized under the Revenue Bond Law to condemn Duck River’s property. In so holding, we stat

ed: In the clear est of la nguage th is statut e empowe rs the cit y to acquire by condemnation, any public works , and land or rights in land, i n connection therewith. This is a clear and complete remedy. It is not necessary to rely upon any other statute

. Duck River , 529 S.W.2d at 205 (emphasis added).

In our view, the holdi ng in D uc k River dictates our response to the question presented in this case. As in that case, the Revenue Bo nd Law here also provi des
a “clear and complete re medy.” U nder the statute as interpret ed in Duck River , Bradford and Sout h F ulton have the authority to condemn Gibson’s faciliti es and service areas with in their re spective municipal boundaries. We need not refer to any other statute.

Gibson asserts tha

t this case is disting uishable fro m Duck River because, unlike the City of Manch ester, Br adford and Sout h Fulton a re not est ablishin g municip allyowned electric distributi on systems. Gibsonasserts that this difference is important-7-

because the Revenue BondLaw only authorizes cond emnation if a city is planni ng to use the property to es tablish , operate, and manage its own municipal electric distribution system. In support of its argument, Gibson cites Tenn. Code Ann. § 7- 34-103 (1992 Repl.), which provides as follows: Declaration of po licy - (a) It is declared to be the policy of this state that any municipality acqui ring, purchasing, c onstructing, rec onstructing, improving, bettering or extendin g any public works . . . shall manage such public works in the

most efficient

manner consi stent with sound economy and public advantage to the end that the services of the

public works shall be furnished to consumers at the lo west possible cost. (b) N o municipality shall operate such public wor ks for gain or prof it o r primarilyas a source of revenue to the municipality, but shall operate such public works for t he use an d benef it of the consume rs served b y s uc h public works and for the promotion of the welfare an d for the improvement of the h ealth an d safety o f the inh abitant s of the m unicipal ity. (Emphasis added.). Contrary to G ibson’s argument, this s tatute does not contain a provision which requires a municipality to itself operate publ ic w orks property acquired by eminen t dom ain. Instead, it simply declares that as a matter of stat e policy, municipalities must “manage” the public works in the manner most efficient and economical to the consumer. To that end, the sta tute prohibits mu nicipalities from operating public works for gain, profit, or pri marily as a source of revenue. Nothing in this statute prohibits Bradford and South Fulton from determini ng that the most economically ef ficient way to man age the distribution of electricity within their corporate limits is thr

ough the grant of an exclus ive franchise to WCMES.

Moreover, Gibson’s argument is under cut by this Court’s decisio n in Duck River

. Although the City

of Manchester

had voted to establish a municipally-owned electric service, in ruling on a petitio n t o rehe ar, this Court discuss ed the options upon remand, stating the City of Manchester, “may proceed with the suit or it may dismiss,-8-

at its option. It may cons truct its o wn syste m or it may fr

anchise a co mpeting sy stem,
or it may exercise numerous other options and alternatives.” Duck River , 529 S.W.2d at 209. Our decision in Duck River clearly did not

turn upon whether or not the City of Manchester established a municipal electric system. Instead, we explicitly recognizedin Duck River the city’s right

to grant a

franchise to a competing system, and we stated that

“a munici pality has the exclus ive power to control dist ribution of electricity

within its boundaries.” Id. at 206-07; see also Franklin Power & Ligh t v. Middle Tenn. Membership Corp. , 222 Ten n. 182, 434 S.W.2d 82 9 (1968). In this case, South Fulton and Bradford have chosen to grant an exclu s ive franchise to WCMES rather than establish their own municipal ele ctr ic systems. Munici palities in Tennessee have the right to gr ant exclusive franchi ses for public utilities and public services, regardless of the form of the municipal govern ment. See Tenn. Code Ann. § 6-2-201(12) (1992 Repl. & 1997 Supp.) (mayor-aldermanic charters); Tenn. Code A nn. § 6-19-101(12) (1992 Repl. & 1997 Supp.) (city-manager-commission charters) ; Tenn. Code Ann. § 6-33-111( 199 2 Repl. & 1997 Supp.)(modified manager-council charters). Our decisi on in Duck River did not in any way

eliminate this right.
Therefore, we conclude that under Tenn. CodeAnn. § 7-34-104, Bradford and South Fulton may

condemn real, personal, or mixed property of Gibson located within theirrespective municipal boundaries, and in accordance with Tennessee l aw, grant
a franchise t o W CMES. Accordingly, this Court affirmatively answers the first question certified by the Sixth Circuit.

II. SECOND QUESTION: IM PACT OF TENN . CODE ANN. § 6-51-112-9- Having decid ed that Tennes see auth orizes the condemn ation, we m ust next determine whether “Tennessee Code Annotated Section 6-51-11 2 nevertheless prohibitsthe city from altering any service areas

that were outside the city’s municipal boundaries on March 6, 1968? “

We begin our analysis of this issue with a brief overview of the statutory section. Title 6, Chapter 51 of the Tennessee Code contains the statut ory provisions that govern municipal annexation. The specific statute at issue in this case, Tenn. Code Ann. § 6-51-112 (1992 Repl.), delineates the options that are a vailable when a
m u nicipality

which owns and operat es its own electric

system annexes an area to which electric servic

e is being provided by

an electric cooperative. Ge nerally, this statute provides

thatthe annexing municipali ty must either purchase the property and service rights of the electric cooperativ e, or, in the alternative, grant the electric coopera tive a franchise to serve the annexed area. Specifically, the statute provides, in pertinent part, as follows: (a) Notwithstanding the p rovisions of any oth er s tatute, if the annexing munici pality

owns and operates its ow n electric system , it shall either offer to purchase any electric distr ibution properties and service rights within th e annexed area owned by any elect ric coope rative, or grant such coopera tive a franchise to serve the annex ed area, as hereinafter prov ided. . . . (Emphasis added). Ifan annex ing munic ipality whic h owns and operate s its own el ectric system chooses to purchase the property and service rights of the electric cooperative, the statute sets forth the formula which must be util ized to determine the fairpurchase price. Tenn. Code Ann.§ 6-51-112(a)(2)(1992 Repl). In the event the annexing municipality

chooses togrant a fr anchise to allow th e electri c coopera tive to continue to serve the area, the st atute sets forth the procedure w hich appliesand providesthat upon expiration of the franchise, the municipality may agai n exerc ise-10-

its option to purchase the property and s ervice rights of the e lectric cooperative. Tenn. Code Ann. § 6-51-112(a)(4) (1992 Repl.). In the ev

ent a municipality

contracts its boundaries to exclude an ar ea previously serv

ed by an electric cooper ati ve, the statute allows the electri c cooperative the opti on of purchasing the property and service rightsto the area it had previo usly served from the munic ipally-owned

electric system. Tenn. Code Ann. §6-51-112(a)(5) (1992 Repl.).

This brief summary reveals that Secti on 112 is designed to gov ern the relationship between electric coope rativ es and an nexing mun icipaliti es which own and operate electric sys tems. Neither Bradford nor South Fulton qualify as an annexing municipality which owns and operates its own elec tric system . Accordin gly, Section 112 simply is not applicable in this appeal.
Contrary to Gib son’s contention, Section 112 doe s not prevent all munici palities , other than those annexing munici palities which ow n and op erate electric systems, from acquiring the proper ty and service ri ghts ofan electric cooperativ e. Section 112 contains no such limitation. It si mply does not apply to an annexing municipalit y which does

not own and operate its own electr

ic system.

Gibson also argues that it has a statutory rig ht to continueto provide electricity to customers that it served on March 6, 1968, even if those customers are now within the boundaries of Bradford and South Fulton . In support of this argument Gibson relies upon Section 112(a)(7) which provides: The territorial areas l ying outside municipal boundaries served by municipal and cooperative electri c systems will remain the same as generall y established by power facilities already in place or legal-11- agreementson March 6, 1968, and new c onsumers locati ng in an y unserved areas between the respecti ve power systems shall be served by the power system whos e facilities were near

est on March 6, 1968, except to the extent that territoria l areas ar e revised in accordanc e with the provisions of this section. Tenn. Code Ann. § 6-51-112(a)(7) (1992 Repl.).

In our view, Gibson fai ls to recognize that, like the other portions of Section 112, subsection (a)(7) simply is not applica b le in this case. As betw een annexing municipalities

which own and operate electric systems and electric cooperatives, this provision appears to establish gener al priorities to new

service areas ly

ing ou ts ide municipal boundaries. This dispute did not arise i n the con text of an annexation proceeding. Bradford and South Fu lton are n ot annexi ng munici palities which own and operate electric s ystems. T his appe al does no t involve new service areas which lie outside municipal boundaries.This statutory pr ovi sion simply has no relevance
o r application in this appeal.Instead it is designed t o govern the relations hi p between electric c

ooperative

s and annexi ng mu nic ipalities which ow n and operate electric systems.

We also reject Gibson’s al te rna tive argument that Tenn. Code Ann. § 65-34-103 (1993 Repl.), ci rcums cribe s the respondents’ right to alter its servi ce area. That statute provides, in per tinent part, that No non-consumer owned electri c system may c onst ruct, acquire, or maintain facilities, lines, poles , or other equipment used or useful for the distribution or sale of electricity outside its current geographic territory , nor may any non-consumer ow ned electric system pr ovide, by sale or otherwise, electrici ty to an y parcel of land located outs ide its current geographic territor

y.5 Tenn . Code A nn. § 65- 34-102 (1) (1993 Repl.). -12- (Emphasis added.) While the statute defines the term “current ge ographic territory” to mean “the parcels of land . . . to which a p ublic electric sy stem was providing electric service on February 16, 1989,” 5 it also d efines th e term “non-consumer
own ed e lectric s

ystem” as “any publi c electric system other than electric and community

service cooperatives and municipal electric systems .” Tenn. Code Ann. § 65-34-102(4) (1993 Repl.) (emphasis added). The term “municipal

electric s

ystem” is defined by the statute to includ e “any electric sy stem owned by an y county , municip ality, power district, or other subdivision

of Tennessee.” Tenn. Code Ann. § 65-34-102(3) (1 993 Repl.). Gibson is an electric cooperative and WCMES is a county-ownedelectric system. N either qualifies as a “non-consumer owned electric system.” Therefore, any limitation contained in Section 103 is no t applicable in the context of this case.

CONCLUSION We answer the questions certified to us by the United States Court of Appeals for the Sixth Circuit as follows: 1. The Revenue Bond Law, Tenn. Code Ann. §§ 7-34-101 -- 7- 34-118, as interpreted by this Court in Duck River Elec. M embership Corp. v. City of Manchester , 529 S.W.2d 202 (Tenn. 1975), author izes a cit y to condemn the facilities and servi ce areas of an electric cooper ative s erving consumers within the city’s municipal boundaries and to grant to another county’s electric system the r ight to operate th o se facilities and provi de service to consumers w ithin those service ar

eas.
2. Tennessee Code Annotated Section 6-51- 112 does not prohibit the city from alteri ng any se rvice areas that w ere outside the city’s

municipal boundaries on March 6, 1968.-13- The clerk will transmitthis opinion in accordance with Rule 23, Section 8 of the Rules of the Supreme Court. The costs in this Court will be tax ed to the petitioner, Gibson Electric Members hip Corporation.

__________________________________ FRANK F. DROWOTA, III, JUSTICE Concur: Anderson, C.J., Birch, Holder, Barker, JJ.