Can an Arkansas city like Maumelle regulate the rates of a public water authority operating within its limits, or otherwise control a PWA's actions?

Plain-English summary

Representative Mark Lowery, on behalf of constituents in Maumelle, asked three related questions about the relationship between cities and public water authorities (PWAs) created under the Water Authority Act (Ark. Code Ann. § 4-35-101 et seq., Act 1330 of 2003). Could a city regulate a PWA's rates? Could a city otherwise control a PWA's actions? Did any agency have regulatory oversight over a PWA?

On rate regulation, the AG punted. Ark. Code Ann. § 14-200-101 gives cities authority to set terms and conditions on which a "public utility" may occupy streets and rights-of-way, including the rates the utility may charge. The Water Authority Act gives PWAs sweeping authority to "fix, regulate, and collect rates." Whether those statutes conflict depends on whether a PWA is a "public utility" under § 14-200-101. The statute's definition of "public utility" turned on the undefined word "company." The Public Service Commission's parallel statutes (§ 23-1-101 and § 23-2-302) defined "company" in a way that arguably excluded publicly-owned utilities. But § 14-200-101 carved out exceptions (consolidated utility districts, water/light commissions) that would be redundant if the PSC's narrower definition controlled. That redundancy might suggest "public utility" is broader in § 14-200-101 than in the PSC context, which could include PWAs. The AG declined to choose between the two readings and said legislative clarity was needed.

On general municipal control, the AG said no, a city has no inherent authority over a PWA. Arkansas municipalities have only the powers granted by statute or constitution, and the AG's research uncovered no statute giving cities authority over PWA actions. The one exception: under § 4-35-201, two or more persons (which can include cities, counties, or other public bodies) may join to form a PWA. A city that is one of the founding members might have some representation on the PWA's board of directors and thus some influence. But that is a different question from unilateral municipal control.

On agency oversight, the answer was mostly negative. The Water Authority Act in § 4-35-109 expressly exempts PWAs from PSC jurisdiction, so the agency that ordinarily regulates utility rates has no role. The Arkansas Natural Resources Commission has rulemaking authority for "carrying out the intent" of the Water Authority Act, but in practice the Commission had only adopted rules about forming or converting to a PWA, not about ongoing operations. The Arkansas State Board of Health regulates water systems for safety under § 20-7-109, and that applies to PWAs like any other water provider. Beyond those, PWAs are largely self-regulating through their boards of directors, who have broad authority to "do and perform all acts and things and have and exercise any power as may be convenient or appropriate to effectuate the purposes for which the water authority is formed" (§ 4-35-210(20)).

Currency note

This opinion was issued in 2015. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

The Water Authority Act, Act 1330 of 2003 (codified at Ark. Code Ann. § 4-35-101 et seq.), was created to let nonprofit water companies convert to a tax-exempt public-body form ("public water authority" or PWA) that could access tax-exempt capital markets. The Act gave PWAs the legal status of "body politic and governmental entity" with sweeping operational authority delegated to a board of directors.

Ark. Code Ann. § 14-200-101 was the municipal rate-regulation statute. Subsection (b)(1)(A) gave a municipality authority to "determine the terms and conditions upon which [a] public utility may be permitted to occupy the streets, highways, and other public places ... including ... [t]he rates, quality, and character of each kind of product or service to be furnished." Whether that authority reached a PWA turned on whether a PWA was a "public utility" under § 14-200-101(a).

Section 14-200-101(a) defined "public utility" as (1) "any electric, gas, sewer, or telephone company" and (2) "any company providing similar services," subject to three exceptions: a company excluded under § 23-1-101(9)(B)(ii), a consolidated utility district under § 14-217-101 et seq., and a water or light commission under § 14-201-101 et seq. The first general definition listed electric, gas, sewer, and telephone but conspicuously omitted water.

The Public Service Commission statutes provided a contrasting definition. Section 23-1-101(9)(B)(ii) defined "public utility" to include those "diverting, developing, pumping, impounding, distributing, or furnishing water to or for the public for compensation," but expressly excluded "water facilities and equipment of cities and towns." So under the PSC's reading, publicly-owned water systems were not "public utilities." Section 23-2-302 defined "company" in a circular fashion ("any person, firm, association, company, partnership, corporation, or other organizations engaged in the operation of any public utility ... shall be deemed to be a company"), with the cross-reference to the PSC's public-utility definition supplying the substance.

The Arkansas municipal-powers doctrine reinforced the AG's negative answer to Question 2. Arkansas is a legislative home-rule state (Nahlen v. Woods, 1974). Municipalities have only the powers granted by statute or constitution (White County v. Cities of Judsonia; Stilley v. Henson). Where there is substantial doubt about a municipal power, it must be resolved against the city (Cosgrove v. City of West Memphis). The AG found no statute giving cities control over PWAs.

Common questions

Did the AG say cities can or cannot regulate PWA rates?
The AG did not say either way. The AG identified two plausible readings of § 14-200-101 leading to opposite results and called for legislative clarification. Cities considering whether to assert rate authority over a PWA were warned that the legal foundation was uncertain.

Could a city sue a PWA to challenge its rates?
The opinion does not directly address litigation. A city that believed § 14-200-101 applied to a PWA could try to enforce it through ordinance or litigation, but the threshold ambiguity would create significant litigation risk on both sides.

Does the Public Service Commission regulate water authorities?
No. § 4-35-109 expressly exempts PWAs from PSC jurisdiction. Whatever ongoing regulatory oversight applies, it comes from somewhere other than the PSC.

Does any agency regulate PWA operations?
Only narrowly. The Arkansas Natural Resources Commission has rulemaking authority under § 4-35-105 but as of 2015 had only promulgated rules about formation and conversion, not operations. The Arkansas State Board of Health regulates water-system safety under § 20-7-109. Beyond those, PWAs operate under the broad discretion of their boards.

What happens if a city is one of the founders of a PWA?
Under § 4-35-201, founders can include cities. If a city helped form a PWA, the city might have representation on the board and influence through that channel. But the city's authority would flow from its board seat, not from any inherent municipal power to control the PWA.

Was this opinion likely to be revisited?
The AG explicitly called for legislative clarity, which signals an expectation that the General Assembly might act. Whether subsequent legislation resolved the ambiguity would need to be checked.

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

Opinion No. 2015-013
June 1, 2015

The Honorable Mark Lowery
State Representative
229 Summit Valley Circle
Maumelle, AR 72113-5934

Dear Representative Lowery:

STATE OF ARKANSAS
THE ATTORNEY GENERAL
LESLIE RUTLEDGE

I am writing in response to your request for an opinion on the following questions:

1: According to Ark. Code Ann. § 14-200-101 et seq., does the City of Maumelle (or any municipality) have the ability to regulate the rates of a public water authority, created pursuant to Ark. Code Ann. § 4-35-101, operating within the city limits?
2: Is there any authority for a city to control the actions of such public water authority in any way?
3: Does any agency have regulatory authority over a public water authority?

RESPONSE

I am unable to provide an answer to your first question because it is unclear whether a public water authority is a "public utility" as defined under Ark. Code Ann. § 14-200-101 so as to make it subject to that statute. Legislative clarity is needed. With respect to Question 2, it is my opinion that a city lacks authority to control the actions of a public water authority as defined by Ark. Code Ann. § 4-35-101 et seq. Finally, as to Question 3, the text of Ark. Code Ann. § 4-35-101 et seq. suggests that public water authorities are intended to be for the most part self-regulating, although the Arkansas Natural Resources Commission is vested with some regulatory authority, at least as to the creation or conversion of water authorities from private, nonprofit water corporations. Additionally, like any water system serving the public, a public water authority is subject to Arkansas State Board of Health regulations concerning water systems.

DISCUSSION

Question 1: According to Ark. Code Ann. § 14-200-101 et seq., does the City of Maumelle (or any municipality) have the ability to regulate the rates of a public water authority, created pursuant to Ark. Code Ann. § 4-35-101, operating within the city limits?

This question presents a possible conflict of authorities with respect to who may exercise control over water rates of a public water authority (PWA). On the one hand, there is the authority granted cities under Ark. Code Ann. § 14-200-101 to "determine the terms and conditions upon which [a] public utility may be permitted to occupy the streets, highways, and other public places ... including ... [t]he rates, quality, and character of each kind of product or service to be furnished." On the other hand there is the broad authority under the Water Authority Act granted to PWAs, as public bodies politic and governmental entities, to "fix, regulate, and collect rates, fees, and rents, or other charges for water and any other facilities, supplies, equipment, or services furnished by the water authority."

This conflict, if one exists, is difficult to resolve under the current state of Arkansas law. However, there is only a conflict if a PWA falls under the definition of a "public utility" under section 14-200-101 in the first place. So your question requires an initial determination as to whether section 14-200-101 even applies to a PWA in the first place. Unfortunately, I cannot provide a definitive answer to this question. As a consequence, I cannot with confidence opine on your specific question. In my opinion, legislative clarity in this area is needed.

Subsection (a) of 14-200-101 gives the term "public utility" two general definitions and then provides three exceptions to those definitions. Under the general definitions, "public utilities" means (1) "any electric, gas, sewer, or telephone company," and (2) "any company providing similar services."

For purposes of this opinion, we can make three observations about these general definitions. First, in order to determine whether a PWA (or any entity) counts as a "public utility," we need to determine what the statute means by the undefined term "company." Did the General Assembly intend to connote a "commercial" enterprise or a "privately owned" "corporation?" Was the term intended to mean any kind of organization? Second, is the providing of water one of the "similar services" the statute references? This issue arises because water is not specifically enumerated in the statute along with "electric, gas, sewer, or telephone" as a service that a "company" must provide in order to be a "public utility."

These two observations then lead to the third. A necessary (but insufficient) condition for a PWA to count as a "public utility" is that a PWA must be a "company" under subsection 14-200-101(a). So the threshold question is whether there is good reason to think that a PWA is (or is not) a "company" under this statute.

While section 14-200-101 does not define "company," it is defined in the statutes regulating the Arkansas Public Service Commission ("PSC"). Indeed, the definition of the wider term "public utility" is critical to the mission of the PSC. Given the similar subject matter, a review of the PSC statutes might offer insight into what the legislature intended with regard to both "public utility" and "company" as those terms appear in subsection 14-200-101(a).

One PSC statute, Ark. Code Ann. § 23-2-302 (Repl. 2002), attempts to define "company" in the context of the PSC's jurisdiction over "public utilities" that provide water to municipalities:

(a) The jurisdiction of the commission shall extend to and include:
(1)(A) All matters pertaining to the regulation and operation of all:

(xvi) Water companies furnishing water within municipalities for municipal, domestic, or industrial use.

(b) For the purpose of this act ... every person, firm, association, company, partnership, corporation, or other organizations engaged in the operation of any public utility above indicated shall be deemed to be a company within the meaning of this act.

However, this definition isn't particularly helpful because it is a bit circular as the legislature used the word "company" in the very definition of the word "company." Nevertheless, this quasi-definition does set out the following two-part equation for what constitutes a "company."

"Company" = (a person, firm, association, company, partnership, corporation, or other organization) + (operating as a public utility)

The second part of the equation, "operating as a public utility," does offer some insight into what the legislature meant by a "company." This is because the term "public utility" is defined in great detail. And it is defined in such a way that no water facilities owned by a city or town count as a "public utility":

As used in this act, unless the context requires otherwise:

(9)(A) "Public Utility" includes persons and corporations ... owning or operating in this state equipment or facilities for:

(ii) Diverting, developing, pumping, impounding, distributing, or furnishing water to or for the public for compensation. However, nothing in this subdivision shall be construed to include water facilities and equipment of cities and towns in the definition of public utility.

Accordingly (and setting aside for the purposes of this analysis that the Water Authority Act specifically exempts PWAs from PSC jurisdiction), for purposes of the PSC, a PWA would not considered a "public utility." Thus, under the equation given above, a PWA would also not be a "company." If a PWA isn't a "company," then it wouldn't fall under the definition of a "public utility" under section 14-200-101. Accordingly, if this analysis is correct, then the answer would be, "No, a city cannot regulate the water rates of a PWA operating within its borders."

However, one could read subsection 14-200-101(a) in a way that potentially yields a different answer. This reading is grounded in the exceptions to subsection 14-200-101(a)'s definition of "public utility." After giving the two general definitions of a "public utility," the statute lists three exceptions to the definition: "except a company excluded from the definition of 'public utility' under § 23-1-101(9)(B)(ii), a consolidated utility district under the General Consolidated Public Utility System Improvement District Law, § 14-217-101 et seq., and a water or light commission under § 14-201-101 et seq."

If the above analysis of the seeming connection between the PSC statutes and the section 14-200-101 statute were correct, then there would be no need for these exceptions. The first exception listed above references an entity that is already excluded from the definition of a "public utility" in the PSC statutes at subsection 23-1-101(9)(B)(ii). And the second two exceptions are for publicly-owned public utilities, which means that they would not count as "public utilities" under the PSC statutes, at least to extent that they provide water services. So the fact that the legislature specifically excluded these kinds of entities might suggest that "public utility," as used in section 14-200-101, is broader than the term when used in the PSC context.

Under this analysis, the nature of the exceptions might give one some reason to think that, under section 14-200-101, "public utility" does include publicly-owned public utilities. If that is the case, then a PWA might well be included in the term "public utility" and, arguably, subject to a city's rate-determining jurisdiction.

In summary, there are two plausible, but opposed, answers to this question. The two views diverge on the question whether the term "public utility," as that term is used in the PSC statutes and in section 14-200-101, is identical. If the terms are identical, then a PWA is not subject to municipal control over water rates. If the terms are not identical (or more specifically, if that term is broader as it is used in section 14-200-101) then conceivably a PWA might fall under that jurisdiction.

In light of the foregoing, I cannot provide a definitive answer to the question of whether the term "company" as used in section 14-200-101 encompasses a "publicly owned public utility," such as a public water authority. And I believe that the resolution to that question is critical to a resolution of the question you have posed.

Question 2: Is there any authority for a city to control the actions of such public water authority in any way?

In my opinion, the answer to this question is "no," as a general rule, because of the broad authority the legislation gave to water authorities' boards of directors. As the Arkansas Supreme Court has repeatedly stated, "[m]unicipal corporations are creatures of the legislature and as such have only the power bestowed upon them by statute or the Arkansas Constitution." Furthermore, the court has stated, "It is well settled that municipal corporations have no inherent powers and can exercise only (1) those expressly given to them by state statute or the Arkansas Constitution, (2) those necessarily implied for the purposes of, or incident to, the express powers, and (3) those indispensable, not merely convenient, to their objects and purposes," and that "any substantial doubt about the existence of a power in a municipal corporation must be resolved against it." A city can legislate in matters designated as "state affairs" as long as the city's legislation is "not in conflict with state law." Further, even in matters designated as "municipal affairs," the state constitution prohibits municipalities from enacting any ordinances that are "contrary to the general laws of the state."

My research has not revealed any statutes that specifically would give cities any authority over the actions of water authorities created under the act. It should be noted, however, that under the act, "[t]wo (2) or more persons, which may include cities, counties, or other public bodies, may form a water authority ...." So, if a municipality joined with one or more persons to create a water authority, then presumably the municipality would have the ability to at least try to have some representation on, and thus some influence over, the water authority's board of directors. But this, of course, is different than a city attempting to exert control over a PWA upon its own authority.

Question 3: Does any agency have regulatory authority over a public water authority?

The Water Authority Act specifically exempts PWAs from the jurisdiction and control of the Public Service Commission. So certainly the PSC has no regulatory authority over these entities. The Act does vest the Arkansas Natural Resources Commission with authority to promulgate rules and regulations "for carrying out the intent" of the Act. Additionally, water authorities, just like any public water system, are subject to Arkansas State Board of Health's regulations concerning water systems.

Beyond these general observations, it is my opinion that the answer to the above question is "no." The Water Authority Act gives broad powers to water authorities. Subsection 4-35-105(a) confers upon PWAs "the authority to take action and do or cause to be done the things that shall be necessary or desirable to accomplish and implement the purposes and intent of this chapter according to the import of this chapter." Moreover, the act gives sweeping authority to a PWA's board of directors "[t]o do and perform all acts and things and have and exercise any power as may be convenient or appropriate to effectuate the purposes for which the water authority is formed." Furthermore, according to my understanding, the Arkansas Natural Resources Commission is generally of the view that water authorities be and are largely self-regulating and governed by their boards of directors.

Assistant Attorney General Ray Pierce prepared this opinion, which I hereby approve.

LR/RP:cyh