2023 Tennessee Code › Title 7 - CONSOLIDATED GOVERNMENTS AND LOCAL GOVERNMENTAL FUNCTIONS AND ENTITIES (§§ 7-1-101 — 7-91-104) › MUNICIPAL FUNCTIONS (§§ 7-31-101 — 7-41-111) › Chapter 34 - REVENUE BOND LAW (§§ 7-34-101 — 7-34-118) › Section 7-34-115 - Operation of utility systems - Disposition of revenue

(a)
(1)
Notwithstanding any other law to the contrary, as a matter of public policy, municipal utility systems shall be operated on sound business principles as self-sufficient entities. User charges, rates and fees shall reflect the actual cost of providing the services rendered. No public works shall operate for gain or profit or as a source of revenue to a governmental entity, but shall operate for the use and benefit of the consumers served by such public works and for the improvement of the health and safety of the inhabitants of the area served. Nothing in this section shall preclude a municipal utility system from operating water and sewer systems as individual or combined entities. Nothing in this section shall preclude a municipal utility system from operating a public works system as a special revenue fund when the governing body of the municipality determines that it is in the best interest of the customers of the public works system and the citizens of the municipality. All water systems and wastewater facilities must utilize an enterprise fund for accounting and reporting its operations. Any water system or wastewater facility currently not operating as an enterprise fund must be doing so by July 1, 2016. To the extent of any conflict between this section and the Wastewater Facilities Act of 1987, compiled in title 68, chapter 221, part 10, the latter statute shall control. Any municipality shall devote all revenues derived from a public works to or for:
(A)
The payment of all operating expenses;
(B)
Bond interest and retirement or sinking fund payments, or both;
(C)
The acquisition and improvement of public works;
(D)
Contingencies;
(E)
The payment of other obligations incurred in the operation and maintenance of the public works and the furnishing of services;
(F)
The redemption and purchase of bonds, in which case such bonds shall be cancelled;
(G)
The creation and maintenance of a cash working fund;
(H)
The payment of an amount to the general fund of the municipality not to exceed a cumulative return of six percent (6%) per annum of any equity invested from the general fund, if any, of the municipality. Equity investment includes any contributions or purchases made by the municipality from the general fund, including, but not limited to, cash contributions, retirement of debt service and purchases of equipment, so long as these contributions are reflected in the utility's financial statement; provided, that such definition of equity investment shall not change the status under this section of any payments made pursuant to any city charter in existence on or before July 1, 1993; and
(I)
If the governing body of the municipality by resolution so requests, payments to the municipality in lieu of ad valorem tax on the property of the public works within the corporate limits of the municipality not to exceed the amount of taxes payable on privately owned property of similar nature.
(2)
(A)
Notwithstanding subdivision (a)(1) or any other law to the contrary, if the municipal utility system is a natural gas utility system, then the municipal utility board with management responsibility for the municipal utility system or, if there is no such board, the municipal governing body, may also devote revenues derived from the system to funding chambers of commerce and economic and community organizations in accordance with an ordinance or resolution adopted by the governing body of the municipality.
(B)
The comptroller of the treasury shall devise standard procedures to assist a municipal utility system whose revenues are devoted pursuant to this subdivision (a)(2) in the disposition of those funds. The municipal utility board with management responsibility for the municipal utility system or, if there is no such board, the municipal governing body, shall devise guidelines directing for what purpose the appropriated money may be spent. These guidelines must provide generally that any funds appropriated must be used to benefit the customers of the municipal utility system. Any funds appropriated under this subdivision (a)(2) must be used and expended under the direction and control of the governing body of a municipality in conjunction with the guidelines and procedures set forth in this subdivision (a)(2)(B).
(C)
A municipal utility system, whose revenues are devoted pursuant to this subdivision (a)(2), shall not raise rates on customers to cover contributions targeted for economic development efforts. The authorization in this subdivision (a)(2) only applies to municipal natural gas utility systems that are located in counties having a population of less than three hundred thirty-six thousand four hundred (336,400), according to the 2010 federal census and any subsequent federal census, and the authorization in this subdivision (a)(2) is in addition to any authorization as may be provided to municipal utility systems under otherwise applicable law.
(3)
Any chamber of commerce, or economic and community organization, that seeks financial assistance from a municipal utility system pursuant to subdivision (a)(2) shall file with the city clerk a copy of an annual report of its business affairs and transactions that includes, but is not limited to:
(A)
Either a copy of the entity's most recently completed annual audit or an annual report detailing all receipts and expenditures relative to the use of funds received from the municipal natural gas utility system in a form prescribed by the comptroller of the treasury and prepared and certified by the chief financial officer of the chamber of commerce or the economic and community organization;
(B)
A description of how the financial assistance serves the municipal utility system and its customers; and
(C)
The proposed use of the municipal utility system's contributions.
(4)
The annual report filed pursuant to subdivision (a)(3) must be open for public inspection during regular business hours at the city clerk's office.
(5)
Financial reports must be available to fiscal officers of the municipality and are subject to audit under §
6-56-105
.
(6)
Appropriations to chambers of commerce, or economic and community organizations, may be made only after notices have been published either on the website of the municipality, if possible, or in a newspaper of general circulation of the intent to make an appropriation to a chamber of commerce, or economic and community organization, specifying the intended amount of the appropriation and the purposes for which the appropriation will be spent.
(b)
Any surplus remaining, after establishment of proper reserves, if any, shall be devoted solely to the reduction of rates.
(c)
In the event a municipality establishes a pension plan for employees of public works, expenditures incident to inaugurating and maintaining such plan shall be deemed an operating expense for purposes of this section.
(d)
In computing the equity investment of the municipality, the value of the public works shall be taken as its historical cost. The payment of bonds or the acquisition or improvement of property from the receipts derived from a public works or any other operation of the public works as such shall not be considered to increase the equity investment of the municipality.
(e)
Nothing in this section shall be construed to limit the power of the municipality to make contracts with the purchasers of bonds:
(1)
As to the use and disposition of the revenues otherwise than as set forth in subsection (a);
(2)
As to the order of application of such revenues; or
(3)
As to limitations on the amount of payments to the municipality either as a return on the equity investment of the municipality, if any, or as a payment in lieu of taxes.
(f)
If a municipality violates this section, it must repay any funds illegally transferred. If the municipality does not have sufficient funds to repay any funds illegally transferred, the municipality is required to submit a plan covering a period not to exceed five (5) years in which to repay the funds. The plan shall be submitted to and approved by the comptroller of the treasury or the comptroller's designee. Upon discovery of such violation through an audit, any city official in violation of this section is subject to ouster under title 8, chapter 47.
(g)
Nothing in this section shall preclude a local government from being entitled to receive from a utility the amount of direct and properly allocated and disclosed indirect operating expenses incurred by the municipality on behalf of the utility.
(h)
To the extent of any conflict between this section and §
7-39-404
, or chapter 52, part 3 of this title, §
7-39-404
, or chapter 52, part 3 of this title shall control.
(i)
(1)
In addition to the authority granted under otherwise applicable law, a municipality operating a municipal utility system may, acting through the authorization of the board or supervisory body having responsibility for the municipal utility system, accept and distribute excess receipts for bona fide charitable purposes pursuant to programs approved by the board or supervisory body, which programs may include, but are not limited to, programs in which utility bills are rounded up to the next dollar when the amount of any excess receipt due to rounding is shown as a separate line on the utility bill.
(2)
Excess receipts accepted by a municipal utility system pursuant to programs authorized by subdivision (i)(1) are not considered revenue to the municipal utility system, and the municipality may only use the excess receipts for charitable purposes.
(3)
For purposes of this subsection (i):
(A)
"Charitable purpose" means a purpose that provides relief to the poor or underprivileged, advances education or science, addresses community deterioration, provides community assistance, assists in economic development, provides for the erection of public buildings, monuments, or works, assists in historic preservation, or promotes social welfare through nonprofit or governmental organizations designed to accomplish any of the purposes listed in this subdivision (i)(3); and
(B)
"Opt-out basis" means automatically enrolling customers in a program and requiring notice from the customer of a desire to be removed from the program in order to cease participation in the program.
(4)
(A)
A municipal utility system that establishes a program authorized by subdivision (i)(1) on or after January 1, 2021, shall not enroll any customer into the program without the express consent of the customer.
(B)
A customer who is enrolled in a program authorized by subdivision (i)(1) may opt out of the program by providing notice to the utility of the customer's desire to cease participation in the program.
(C)
Upon receiving an opt-out notice from a customer, the utility shall remove the customer from enrollment in the program no later than the first day of the customer's next regular billing cycle that begins no fewer than thirty (30) days after the date of the customer's opt-out notice.
(5)
(A)
Any municipal utility system that on June 3, 2019, utilizes a program authorized by subdivision (i)(1) and operates the program on an opt-out basis shall send a written notice to each municipal utility system customer no later than November 1, 2020, that contains, but is not limited to, the following information:
(i)
A statement that the municipal utility system utilizes a program authorized by subdivision (i)(1), the program is operated on an opt-out basis, and a description of the program;
(ii)
Notification that a customer whose bill is currently rounded up by the utility has the right to opt out of participation in the program; and
(iii)
Contact information for the utility and instructions on how the customer may contact the utility to opt out of participation in the program.
(B)
The written notice required by this subdivision (i)(5) may be provided to the customer by electronic means and may accompany a regular billing statement, at the discretion of the municipal utility system.
(C)
A municipal utility system that on June 3, 2019, utilizes a program authorized by subdivision (i)(1) and operates the program on an opt-out basis that fails to send the notice required by this subdivision (i)(5) shall, on and after January 1, 2021, cease operating the program on an opt-out basis and shall not operate a program unless operated in compliance with subdivision (i)(4).
(6)
Any municipal utility system that utilizes a program authorized by subdivision (i)(1) and that maintains a website that is accessible by the general public shall publish in a conspicuous location on the website by November 1, 2020, and throughout the duration of the municipal utility system's utilization of the program, the following information:
(A)
A statement that the municipal utility system utilizes a program authorized by subdivision (i)(1) and a description of the program;
(B)
Notification that a customer whose bill is currently rounded up by the utility has the right to opt out of participation in the program; and
(C)
Contact information for the utility and instructions on how the customer may contact the utility to opt into or out of participation in the program.
(j)
(1)
The governing body of a municipal utility system subject to this section that supervises, controls, or operates a public water or public sewer system, including, but not limited to, those systems using a separate utility board pursuant to any public or private act, must meet the training and continuing education requirements in this subsection (j).
(2)
All members of the municipal utility board of commissioners shall, within one (1) year of initial appointment or election to the board of commissioners or within one (1) year of reappointment or reelection to the board of commissioners, attend a minimum of twelve (12) hours of training and continuing education in one (1) or more of the subjects listed in subdivision (j)(4).
(3)
(A)
In each continuing education period after the initial training and continuing education required by subdivision (j)(2), a municipal utility board commissioner shall attend a minimum of twelve (12) hours of training and continuing education in one (1) or more of the subjects listed in subdivision (j)(4).
(B)
For the purposes of this subsection (j) and subsection (k), "continuing education period" means a period of three (3) years beginning January 1 after the calendar year in which a municipal utility board commissioner completes the training and continuing education requirements set forth in subdivision (j)(2) and each succeeding three-year period thereafter.
(4)
The subjects for the training and continuing education required by this subsection (j) shall include, but not be limited to, board governance, financial oversight, policy-making responsibilities, and other topics reasonably related to the duties of the members of the board of commissioners of a municipal utility.
(5)
Any association or organization with appropriate knowledge and experience may prepare a training and continuing education curriculum for municipal utility board commissioners covering the subjects set forth in subdivision (j)(4) to be submitted to the comptroller of the treasury for review and approval prior to use. The comptroller shall file a copy of approved training and continuing education curriculum with the Tennessee board of utility regulation. Changes and updates to the curriculum must be submitted to the comptroller for approval prior to use. Any training and continuing education curriculum approved by the comptroller must be updated every three (3) years and resubmitted to the comptroller for review and approval.
(6)
For purposes of this subsection (j), a municipal utility board commissioner may request a training and continuing education extension of up to six (6) months from the comptroller of the treasury or the comptroller's designee. The request shall only be granted upon a reasonable showing of substantial compliance with this subsection (j). If the extension is granted, the municipal utility board commissioner must complete any additional required training hours necessary to achieve full compliance for only the relevant continuing education period within the extension period. The municipal utility board commissioner shall file copies of any extension request letters and corresponding comptroller of the treasury determination letters with the Tennessee board of utility regulation.
(7)
(A)
Beginning no later than March 1, 2019, the comptroller of the treasury shall offer online training and continuing education courses for purposes of compliance with this subsection (j).
(B)
Any association or organization with appropriate knowledge and experience may prepare an online training and continuing education curriculum for municipal utility board commissioners covering the subjects set forth in subdivision (j)(4) to be submitted to the comptroller of the treasury for review and approval prior to use.
(C)
The comptroller of the treasury shall file a copy of approved online training and continuing education curriculum with the Tennessee board of utility regulation. Changes and updates to the curriculum must be submitted to the comptroller of the treasury for approval prior to use. Any online training and continuing education curriculum approved by the comptroller of the treasury must be updated every three (3) years and resubmitted to the comptroller of the treasury for review and approval.
(D)
Any person required to complete training and continuing education under this subsection (j) may take one (1) or more of such online courses in lieu of attending training and continuing education courses in person.
(E)
The online training and continuing education provider shall provide a certificate of completion or attendance that shall be submitted by the municipal utility board commissioner to the municipality. Each municipality shall keep the certificate of completion or attendance for six (6) years after the calendar year in which the certificate of completion or attendance is submitted.
(8)
(A)
By January 31 of each year, each municipal utility board commissioner shall file with the municipality an annual written statement on a form developed by the comptroller of the treasury that certifies the training and continuing education courses attended by the commissioner during the prior calendar year.
(B)
The annual written statement must:
(i)
Identify the date of each course attended; the course's subject matter, location, and sponsor; and the hours attended for each course; and
(ii)
Include a certificate of attendance, on a form acceptable to the comptroller of the treasury, for each course listed on the annual written statement that certifies the municipal utility board commissioner attended the course.
(C)
For years in which the municipal utility board commissioner did not attend training or continuing education courses, the commissioner shall file an annual written statement certifying that the commissioner attended no training that year.
(D)
A municipality shall keep a copy of an annual written statement filed pursuant to this subdivision (j)(8) for six (6) years following the calendar year in which the annual written statement was filed.
(k)
If any member of a municipal utility board of commissioners fails to meet the training and continuing education requirements set forth in subsection (j) before the end of the continuing education period or before the end of any extension approved by the comptroller of the treasury or the comptroller's designee, then the Tennessee board of utility regulation shall have full discretion to order reasonable sanctions against the municipality, including, but not limited to, the municipality being ineligible to receive assistance from the Tennessee local development authority under §
68-221-1206(a)(3)
.
(l)
Notwithstanding any other law to the contrary, a municipal utility system providing water, sewer, or natural gas service has the power to enter into agreements with companies to provide water, sewer, or natural gas leak protection bill coverage, insurance, or service agreements for customers and to offer their customers water line, sewer line, or natural gas line damage protection coverage, insurance, or service agreements for customer-owned water, sewer, or natural gas lines. The municipal utility system may include the costs for the coverage, insurance, or service agreements on the monthly utility bills of their customers.
Amended by 2023 Tenn. Acts, ch. 463,s 3, eff. 7/1/2023.
Amended by 2022 Tenn. Acts, ch. 657, s 1, eff. 3/15/2022.
Amended by 2020 Tenn. Acts, ch. 791, s 2, eff. 1/1/2021.
Amended by 2020 Tenn. Acts, ch. 791, s 1, eff. 1/1/2021.
Amended by 2019 Tenn. Acts, ch. 508, s 1, eff. 6/3/2019.
Amended by 2019 Tenn. Acts, ch. 228, s 1, eff. 4/30/2019.
Amended by 2019 Tenn. Acts, ch. 41, s 1, eff. 3/22/2019.
Amended by 2018 Tenn. Acts, ch. 1003, s 1, eff. 5/21/2018.
Amended by 2018 Tenn. Acts, ch. 956, s 1, eff. 5/15/2018.
Amended by 2017 Tenn. Acts, ch. 118, s 1, eff. 4/12/2017.
Amended by 2014 Tenn. Acts, ch. 628, Secs.s 1, s 2, s 3, s 4 eff. 4/4/2014.
Acts 1935 (Ex. Sess.), ch. 33, § 11; 1949, ch. 43, § 1; C. Supp. 1950, § 4406.52 (Williams, § 4406.44); Acts 1969, ch. 335, § 2; T.C.A. (orig. ed.), § 6-1315; Acts 1986, ch. 533, § 1; 1993, ch. 509, § 1; 1998, ch. 763, § 1; 2003 , ch. 181, § 1; 2010 , ch. 868, § 18.