Can a Tennessee municipal electric system that offers Internet and TV service borrow against non-electric assets like a private cable company would?

Subject

Opinion No. 12-70, Municipal Electric System Providing Internet and Video Programming, July 11, 2012

Plain-English summary

Representative Gerald McCormick asked the Tennessee AG whether a municipal electric system that has been authorized to provide Internet and video programming services under Tenn. Code Ann. §§ 7-52-601 to -611 can enter into financing contracts and pledge non-electric assets like a private provider would.

The AG said yes. Section 7-52-605 grants such a municipal electric system "all the powers, obligations, and authority granted entities providing similar services under applicable laws of the United States, the state of Tennessee or applicable municipal ordinances." Those powers include borrowing money for acquisition, construction, and working capital, and pledging non-electric assets as collateral. The key prerequisite is municipal authorization: the chief legislative body of the municipality (or a referendum) must first approve the system's entry into Internet and video programming services under § 7-52-602.

Currency note

This opinion was issued in 2012. 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.

Historical background and statutory framework

Authority to offer Internet/video services

Tenn. Code Ann. § 7-52-601(a) permits each municipality operating an electric plant under § 7-52-401 to "acquire, construct, own, improve, operate, lease, maintain, sell, mortgage, pledge or otherwise dispose of any system, plant, or equipment" for cable, video, Internet, and similar services. The services must be delivered through the board or supervisory body responsible for the electric plant. Subsections (c) and (d) carve out limitations in certain municipalities where existing providers are already in the market.

Authorization process

Section 7-52-602 requires the municipal electric system to obtain the approval of the chief legislative body of the municipality before it may provide Internet and video programming services. Under § 7-52-602(4), the system may provide the additional services "only after approval by a two-thirds (2/3) majority vote of the chief legislative body of the municipality," or by a public referendum. Under § 7-52-602(5), the chief legislative body may instead, by a majority vote, authorize a public referendum on whether the system may provide the additional services.

What § 7-52-605 grants

Once the municipal legislative body authorizes the additional services, Tenn. Code Ann. § 7-52-605 provides:

To the extent that it provides any of the services authorized by this part, a municipal electric system shall have all the powers, obligations, and authority granted entities providing similar services under applicable laws of the United States, the state of Tennessee or applicable municipal ordinances.

This is the broad-grant provision. The legislature gives municipal electric systems offering these services the same package of authorities that private competitors enjoy under applicable law.

What "municipal electric system" means here

Section 7-52-605 refers to "the municipal electric system" rather than to "the governing board." But in context, the term includes the governing board responsible for the electric plant (§ 7-52-601 places operation in the governing board). So the powers granted to the system are exercisable by the board.

Comparison with telecommunication services (Op. 12-34)

The AG had recently addressed a similar question in Op. Tenn. Att'y Gen. 12-34 (March 12, 2012) about telecommunication services under Tenn. Code Ann. §§ 7-52-401 to -410. That opinion required the chief legislative body of the city, county, or metropolitan government to authorize the electric-plant board to exercise such authority. The 12-70 opinion follows the same logic: authorization by the chief legislative body is the prerequisite, after which the system's governing board may exercise the full statutory powers, including borrowing and pledging non-electric assets.

Practical effect

The result is that a Tennessee municipal electric system providing Internet and video programming can finance its operations the same way a private cable or broadband company would. It can borrow from banks, give security interests in its non-electric assets, and otherwise operate as a marketplace competitor in those services. The municipality has to make the initial authorization decision, but then the system has parity with private operators.

Common questions

Our city's electric utility wants to roll out fiber broadband. What does it need to do?

According to this opinion, the utility needs authorization from the city's legislative body (either by a two-thirds vote or by a public referendum), after which it operates with the same powers as a private competitor, including borrowing authority secured by non-electric assets.

Can the utility pledge its electric-system assets to secure broadband-related loans?

The opinion focuses on pledging "non-electric assets" to secure such loans. Pledging electric assets to support a separate business raises different statutory and policy concerns that the opinion does not address.

Does the AG opinion say the utility can compete with existing cable providers?

The Act lets a municipal electric system offer cable, video, Internet, and similar services. Section 7-52-601(c) and (d) carve out limitations in certain municipalities. Whether the utility can serve a particular market depends on those subsections.

Does the AG opinion address rates or pricing?

No. The opinion addresses the scope of the system's borrowing and pledging authority. Rate regulation is separate.

Is this still the framework?

The opinion analyzed the 2012 version of these statutes. Tennessee's broadband and municipal utility laws have been the subject of significant legislative activity since. Verify current statutory text and any later AG opinions or court decisions.

Citations

• Tenn. Code Ann. §§ 7-52-401 to -410 (telecommunications)
• Tenn. Code Ann. §§ 7-52-601 to -611 (Internet, video, cable services)
• Tenn. Code Ann. § 7-52-601(a) (basic authority)
• Tenn. Code Ann. § 7-52-602 (authorization process)
• Tenn. Code Ann. § 7-52-605 (powers and authority)
• Op. Tenn. Att'y Gen. 12-34 (March 12, 2012)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2012/op12-070.pdf

Original opinion text

July 11, 2012
Opinion No. 12-70
Municipal Electric System Providing Internet and Video Programming

QUESTION

May the governing board of a municipal electric system that has been authorized to provide Internet and video programming services, pursuant to Tenn. Code Ann. §§ 7-52-601 to -611, enter into contracts with financial institutions to borrow money to acquire, construct, and provide working capital for Internet and video programming systems and services and to pledge non-electric assets to secure such loans, as is done by private entities providing such services?

OPINION

Yes. Once the municipal legislative body has authorized its municipal electric system to provide Internet and video programming services under Tenn. Code Ann. §§ 7-52-601 to -611, the governing board of the system may exercise "all the powers, obligations, and authority granted entities providing similar services under applicable laws of the United States, the state of Tennessee or applicable municipal ordinances" as provided in Tenn. Code Ann. § 7-52-605. These powers include entering into contracts with financial institutions to borrow money to acquire, construct, and provide working capital for Internet and video programming systems and services and pledging non-electric assets to secure such loans.

ANALYSIS

This opinion concerns the scope of authority of the governing board of a municipal electric system that has been authorized to provide Internet and video programming systems and services under Tenn. Code Ann. §§ 7-52-601 to -611. Tenn. Code Ann. § 7-52-601(a) permits each municipality operating an electric plant described in § 7-52-401 to acquire, construct, own, improve, operate, lease, maintain, sell, mortgage, pledge or otherwise dispose of any system, plant, or equipment for the provision of cable service, two-way video transmission, video programming, Internet services, or any other like system, plant, or equipment within or without the corporate or county limits of such municipality and, with the consent of such other municipality, within the corporate or county limits of any other municipality.

The municipality may only provide these services through its board or supervisory body having responsibility for the municipality's electric plant. Tenn. Code Ann. § 7-52-601(a). Subsections (c) and (d) restrict this power in certain municipalities where particular entities are already providing this service. Tenn. Code Ann. § 7-52-601(c) & (d).

The statute grants the following powers to municipal electric systems providing such services:

To the extent that it provides any of the services authorized by this part, a municipal electric system shall have all the powers, obligations, and authority granted entities providing similar services under applicable laws of the United States, the state of Tennessee or applicable municipal ordinances.

Tenn. Code Ann. § 7-52-605 (emphasis added).

The question posed is whether the governing board of the municipal electric system may, independently of the municipal governing body, enter into contracts with financial institutions to borrow money to acquire, construct and provide working capital for Internet and video programming systems and services and to pledge non-electric assets to secure such loans, as may be done by private entities providing such services. This Office recently addressed a similar question regarding the provision of telecommunication services under Tenn. Code Ann. §§ 7-52-401 to -410. Op. Tenn. Att'y Gen. 12-34 (March 12, 2012). That opinion concludes that the governing body of the city, county, or metropolitan government must authorize the governing body with responsibility for the municipal electric plant to exercise any authority with regard to those services. Id.

Under Tenn. Code Ann. § 7-52-602, the governing body of a municipal electric system must obtain the approval of the chief legislative body in which the municipal electric system is located before the system may provide Internet and video programming services. Under Tenn. Code Ann. § 7-52-602(4), "[a] municipal electric system may provide additional services only after approval by a two-thirds (2/3) majority vote of the chief legislative body of the municipality in which the municipal electric system is located, or by a public referendum held pursuant to subdivision (5)." Under subsection (5), the chief legislative body of the municipality in which the municipal electric system is located may, by a majority vote, authorize a public referendum on whether the electric system may provide the additional services. Tenn. Code Ann. § 7-52-602(5).

Once the legislative body approves the additional services, the municipal electric system may, independently, exercise "all the powers, obligations, and authority granted entities providing similar services under applicable laws of the United States, the state of Tennessee or applicable municipal ordinances" as provided in Tenn. Code Ann. § 7-52-605. By its terms, this statute refers to the "municipal electric system" and not specifically to the governing board of the system. But, in the context of the statutory scheme, the term "municipal electrical system" refers to and includes the governing board of the system. See Tenn. Code Ann. § 7-52-601 (granting the authority to operate these services to a municipality operating an electric plant, including the "governing board" having responsibility for the municipal electric plant). Thus, once the municipal legislative body has authorized its municipal electric system to provide Internet and video programming services under Tenn. Code Ann. §§ 7-52-601 to -611 the governing board of the system may exercise "all the powers, obligations, and authority granted entities providing similar services under applicable laws of the United States, the state of Tennessee or applicable municipal ordinances" as provided in Tenn. Code Ann. § 7-52-605. These powers include entering into contracts with financial institutions to borrow money to acquire, construct, and provide working capital for Internet and video programming systems and services and pledging non-electric assets to secure such loans, as may be done by private entities providing such services.

ROBERT E. COOPER, JR.
Attorney General and Reporter

WILLIAM E. YOUNG
Solicitor General

ANN LOUISE VIX
Senior Counsel

Requested by:
The Honorable Gerald McCormick
State Representative
18A Legislative Plaza
Nashville, Tennessee 37243