Opinion ID: 1254414
Heading Depth: 1
Heading Rank: 8

Heading: the people's utility districts

Text: Like the cities, the people's utility districts claim that they acted ultra vires, that is to say, exceeded their authority, in entering the Participants' Agreements. Of course, the PUDs' authority does not depend on individual charters, and there can be no question of their broad authority to enter into transactions appropriate to the operations of an electric utility; that is their function. Rather, the PUD's contentions, like the cities', also turn on characterizing the agreements as assuming debts or guarantees and not as power purchases. The law governing PUDs is found both in the constitution and in statutes. Article XI, section 12, of the Oregon Constitution, adopted by means of an initiative in 1930, specified certain purposes and powers of such districts and directed the Legislative Assembly to provide any necessary legislation to carry out the provisions of the constitutional amendment. [16] That legislation is found in ORS chapter 261. The constitution includes among the authorized purposes the development of water power and/or electric energy as well as its distribution and sale. It empowers the districts to levy property taxes, to issue, sell and assume bonds or other debt, to make contracts, to acquire property necessary or incident to the PUDs business, and to acquire, develop, or otherwise provide for electric energy for distribution both within and outside their territories. These powers are spelled out in greater detail in ORS 261.305 ÔÇö 261.390. As discussed in Part III of this opinion, additional provisions enacted in 1967 address the participation of PUDs in jointly owned power generating facilities. ORS 261.235 ÔÇö 261.255. A district also may join in the formation of a joint operating agency for the generation and transmission of electric energy under ORS chapter 262. The districts did not use the procedures of these statutes in entering their agreements with WPPSS. The crux of the PUDs' claim that their participation was ultra vires is that the Participants' Agreements created a form of debt that a PUD may incur only after obtaining approval of its qualified voters. ORS 261.305(6) requires such a vote for issuing revenue or general obligation bonds by procedures further specified in ORS 261.355 ÔÇö 261.375. [17] WPPSS responds that the PUDs did not issue bonds but only entered into a long-term contract to buy a share of whatever power WNP 4 and WNP 5 might be capable of delivering, at a price based on the cost of that capability. The PUDs concede that they did not issue bonds; WPPSS did. They argue, however, that the Participants' Agreements shared such essential characteristics of revenue bonds that they were identical in substance to issuing such bonds. The characteristics referred to are that the PUDs obligated themselves to pay a proportionate share of all costs of the projects, including debt service and termination costs, that they would set their own rates high enough to produce the needed revenue, and that the obligation was unconditional, whether or not the projects produced any power or WPPSS breached the agreements. Because the same obligations are typical of revenue bond financing by the PUDs themselves, and because WPPSS offered its prospective bondholders no source of repayment other than these contractual obligations of the participants, the PUDs describe WPPSS and its bonds as a mere conduit for financing the projects with revenues pledged by the participants, relying essentially on the precedent of Martin v. Oregon Building Authority, 276 Or. 135, 554 P.2d 126 (1976). We have reviewed and rejected that analysis in Part IV, above. But the PUDs also point to the sentence in ORS 261.305(6), supra, that allows the directors to borrow from banks and financial institutions on notes payable within 12 months no more than the district's estimated net income for the 12 months following the borrowing. The PUDs contend that this sentence limits their authority to incur indebtedness toward other than banks or financial institutions, if it is not to have a loophole fatal to the apparent legislative purpose. They argue that if the restriction of ORS 261.305(6) applied only to banks or financial institutions, nothing would limit a PUD's authority to borrow from General Motors, the Fred Meyer Trust, an Arab sheik or any other person with money to loan. We may agree with the argument that the statutory limitation might apply to borrowing from any lender, whether or not it is primarily a bank or financial institution in the ordinary usage of those terms. But we need not decide this here, because we do not find any borrowing by the PUDs in this case. The PUDs' brief quotes passages from Fullerton v. Central Lincoln Utility Dist., 185 Or. 28, 201 P.2d 524 (1948), to the effect that the purpose of limiting the amount of borrowing without prior approval of the voters was to require the directors to conduct the affairs of the district upon a pay-as-you-go basis, to require them to carry on their corporate operations upon a cash basis, and to put a brake upon the runaway enthusiasm of the directors. 185 Or. at 36-37, 44, 201 P.2d 524. The first two passages actually quoted books speaking generally about requirements for borrowing, not words of this court interpreting ORS 261.305(6), but they may state the general purpose of such requirements well enough. They were pertinent to Fullerton, which was a borrowing case. In Fullerton, the district actually issued revenue bonds, claiming that no prior approval by the voters was needed because the amount of the bonds did not exceed the ordinary annual income and revenue of the district. The issue was whether these words in what is now ORS 261.305(6) meant gross revenue or net revenue, and the court held that they meant the district's ordinary net annual income for the year in question. 185 Or. at 38, 201 P.2d 524. But Fullerton did not deal with purchases. It did not hold that a PUD might not commit itself to a long-term power supply contract because the total commitment exceeds one year's net income, as long as such income covers the payments due during the year. We decline to hold so now. For the reasons stated in Part VII with respect to the cities, the PUDs did not enter into an unauthorized guarantee of the bonds issued by WPPSS, as distinct from the question whether they guaranteed the obligations of their fellow participants, discussed below.