Can a Tennessee rural electric cooperative auto-enroll members in a charitable round-up program by default, or does the law require members to opt in first?

Subject

Opinion No. 15-61, Rural Electric and Community Services Cooperatives – Charitable Contributions, July 28, 2015

Plain-English summary

Tennessee's Rural Electric and Community Services Cooperative Act (Tenn. Code Ann. §§ 65-25-201 to 235) authorizes electric cooperatives to accept charitable contributions, including through programs that round members' electric bills up to the next dollar. Senator Ketron asked whether a cooperative could set up the round-up program as an automatic opt-out (everyone is in by default and has to act to leave) or whether it has to be opt-in (members are out until they affirmatively join).

The AG said opt-in. The statute uses the phrase "voluntary contributions," and "voluntary" means an act made consciously, with knowledge of the essential facts, and free from external pressure. Tennessee courts have repeatedly defined "voluntary" that way. Auto-enrolling members in a charitable deduction before they know the essential facts of the program is not consistent with a voluntary contribution. So the initial enrollment must require the member's affirmative consent after disclosure. Once a member has opted in, the cooperative can make removal an opt-out process, as long as the disclosure clearly explains that participation continues until canceled and provides an easy way to cancel. The AG also flagged federal and state consumer protection laws (FTC Act and Tennessee Consumer Protection Act) as backstops if cancellation procedures are unfairly burdensome.

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.

Common questions

What is a bill round-up program?

A program where the customer's monthly bill is rounded up to the next whole dollar and the extra cents are donated to a charitable fund or partner organization. Over many customers and months, even pennies add up to substantial charitable giving. Many utility programs adopted this model in the 2000s and 2010s.

Why is the opt-in vs. opt-out distinction such a big deal?

Default settings have enormous effect on participation rates. Auto-enrollment typically results in much higher participation than opt-in. So a cooperative that wants to maximize charitable giving has an incentive to auto-enroll. But that comes at the cost of taking money from members who never affirmatively agreed.

Why isn't a bill round-up "voluntary" when auto-enrolled?

Because "voluntary" in Tennessee statutory and decisional law means a choice made consciously and intelligently after knowing the essential facts. If a member is enrolled before being told the essential facts of the program, the contribution does not flow from a choice made consciously and intelligently.

What disclosure does the AG suggest a cooperative make?

The cooperative needs to clearly and conspicuously disclose that the member will remain enrolled until they take action to remove themselves, and explain how to cancel. The cancellation procedure should be easy and prompt.

What happens if the cooperative makes cancellation hard?

It risks violating consumer protection laws. The AG specifically cites 15 U.S.C. § 45(a)(1) (FTC Act prohibition on unfair or deceptive acts in commerce) and Tenn. Code Ann. § 47-18-104(a) (Tennessee Consumer Protection Act, same standard).

Does this apply to other utility cooperatives or to investor-owned utilities?

This opinion is specifically about cooperatives governed by Tenn. Code Ann. §§ 65-25-201 to 235. The analysis of "voluntary" would likely apply by analogy to any utility round-up program. Investor-owned utilities are subject to different regulatory regimes but would face similar consumer-protection concerns.

Background and statutory framework

The Rural Electric and Community Services Cooperative Act (Tenn. Code Ann. §§ 65-25-201 to 235) created Tennessee's framework for non-profit electric cooperatives. Cooperatives derive their power from the enabling Act and have only the authority the legislature expressly delegates or that is fairly implied from the statutory language. Shadow v. Volunteer Elec. Coop., 223 Tenn. 552, 448 S.W.2d 416 (1969); Sanifill, Inc. v. Tennessee Solid Waste Disposal Control Bd., 907 S.W.2d 807, 810 (Tenn. 1995).

Tenn. Code Ann. § 65-25-205(d)(1), enacted in 2002 (presumably in response to Tenn. Att'y Gen. Op. 98-178), authorizes a cooperative to "make contributions for bona fide charitable purposes and to accept voluntary contributions" pursuant to board-approved programs, including round-up programs. Contributions accepted under this authority are not revenue and may only be used for charitable purposes (§ 65-25-205(d)(2)). The Act is to be construed liberally (§ 65-25-226).

Tennessee courts have defined "voluntary" as a choice made consciously and intelligently, with knowledge of the essential facts, free from external pressure. Jenkins v. City of Knoxville, 1986 WL 13041, at *3; Brown v. McCulloch, 24 Tenn. App. 324, 144 S.W.2d 1, 4 (1940). Federal and state consumer protection statutes (15 U.S.C. § 45(a)(1); Tenn. Code Ann. § 47-18-104(a)) prohibit unfair or deceptive practices in commerce.

Citations

• Tenn. Code Ann. §§ 65-25-201 to 235 (Rural Electric Cooperative Act)
• Tenn. Code Ann. § 65-25-205(d)(1), (2) (charitable contributions; not revenue)
• Tenn. Code Ann. § 65-25-226 (liberal construction)
• Tenn. Code Ann. § 47-18-104(a) (Tennessee Consumer Protection Act)
• 15 U.S.C. § 45(a)(1) (FTC Act)
• Shadow v. Volunteer Elec. Coop., 223 Tenn. 552, 448 S.W.2d 416 (1969)
• Sanifill, Inc. v. Tennessee Solid Waste Disposal Control Bd., 907 S.W.2d 807 (Tenn. 1995)
• Jenkins v. City of Knoxville, 1986 WL 13041 (Tenn. Ct. App. Nov. 21, 1986)
• Brown v. McCulloch, 24 Tenn. App. 324, 144 S.W.2d 1 (1940)
• Tenn. Att'y Gen. Op. 98-178 (Sept. 4, 1998)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2015/op15-061.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
July 28, 2015
Opinion No. 15-61
Rural Electric and Community Services Cooperatives - Charitable Contributions

Question

If a cooperative establishes a program to accept voluntary contributions pursuant to Tenn. Code Ann. § 65-25-205(d), may the cooperative establish an "opt out" program where a member of the cooperative is enrolled automatically unless the member takes action to be removed, or does the statute require the program to be an "opt in" program where a member of the cooperative must take action prior to participating in the program?

Opinion

A cooperative may not enroll a member into a charitable contribution program under Tenn. Code Ann. § 65-25-205(d) before it provides the essential facts of the program to the member. These facts must be provided in order for the member to be able to voluntarily choose to contribute to the program. Accordingly, the cooperative must establish an "opt in" program. Once the member voluntarily enrolls in the program, the cooperative may make removal from the program an "opt out" process.

ANALYSIS

In 1998, the Tennessee General Assembly enacted the Rural Electric and Community Services Cooperative Act, codified at Tenn. Code Ann. §§ 65-25-201 - 235. Cooperatives organized under this Act are non-profit cooperative membership corporations. See Tenn. Code Ann. §§ 65-25-202(4), -203.

The cooperatives' powers are contained in Tenn. Code Ann. § 65-25-205. In 2002, the General Assembly amended Tenn. Code Ann. § 65-25-205 to expressly allow cooperatives to receive and make charitable contributions. By virtue of Chapter 512 of the Public Acts of 2002, subsection (d), in pertinent part, now provides:

(1) In addition to all other powers set forth in this chapter, a cooperative shall have the power and authority to make contributions for bona fide charitable purposes and to accept voluntary contributions pursuant to programs approved by the board of directors, which programs may include, but shall not be limited to, programs in which bills for electric power are rounded up to the next dollar when such contribution is shown as a separate line on the electric bill.

(2) Contributions accepted by a cooperative pursuant to programs authorized by subsection (d)(1) shall not be considered revenues to the cooperative and shall be used only for charitable purposes.

Tenn. Code Ann. §§ 65-25-205(d)(1), (2).

It is well established that electric cooperatives derive their power from the Acts that create them. See Shadow v. Volunteer Elec. Coop., 223 Tenn. 552, 448 S.W.2d 416 (1969); 27A Am. Jur.2d Energy and Power Sources § 159 (2015). Consequently, these cooperatives may exercise only such power and authority as the legislature, by statute, expressly delegates to them or that can be fairly implied from the statutory language. See Sanifill, Inc. v. Tennessee Solid Waste Disposal Control Bd., 907 S.W.2d 807, 810 (Tenn. 1995); Tennessee Pub. Serv. Comm'n v. Southern Ry. Co., 554 S.W.2d 612, 613 (Tenn. 1977). Although the Rural Electric and Community Services Cooperative Act is to be construed liberally, a cooperative's implied authority must still have its source in the language of the Act itself. See Sanifill, 907 S.W.2d at 810.

Subsection (d)(1) of Tenn. Code Ann. § 65-25-205 gives a cooperative the power and authority "to accept voluntary contributions." In construing a statute, courts assume that the General Assembly selected its words deliberately. Lee v. Franklin Special Sch. Dist. Bd. of Educ., 237 S.W.3d 322, 332 (Tenn. Ct. App. 2007).

"The word 'voluntary' refers to a choice that is made consciously and intelligently, and that is not influenced by others." Jenkins v. City of Knoxville, No. 679, 1986 WL 13041, at 3 (Tenn. Ct. App. Nov. 21, 1986). Thus, a voluntary act is "[o]ne that proceeds from one's own free will, done by one's choice, or one's own accord, unconstrained by external inferences, force or influence, and not prompted or suggested by another." Brown v. McCulloch, 24 Tenn. App. 324, 329, 144 S.W.2d 1, 4 (1940). When the word "voluntary" appears in a statute, it "often implies knowledge of essential facts." Jenkins, 1986 WL 13041, at 3.

Accordingly, a cooperative may not enroll a member into a charitable contribution program before it provides the "essential facts" of the program to the member. These facts must be provided in order for the member to be able to voluntarily choose to contribute to the program. Thus, the cooperative must establish an "opt in" program. Once the member voluntarily enrolls in the program, the cooperative may then make removal from the program an "opt out" process. The cooperative, though, would need to clearly and conspicuously disclose that the member will remain enrolled in the program unless the member takes action to be removed from the program. The cooperative would also need to disclose how a member could cancel enrollment in the program. The cancellation procedure should be easy, and the cooperative should promptly comply with a member's request to cancel his or her enrollment from the program. Otherwise, the cooperative risks running afoul of federal and state consumer protection laws. See, e.g., 15 U.S.C. § 45(a)(1) (prohibiting "unfair or deceptive acts or practices in or affecting commerce"); Tenn. Code Ann. § 47-18-104(a) (prohibiting "unfair or deceptive acts or practices affecting the conduct of any trade or commerce").

HERBERT H. SLATERY III
Attorney General and Reporter

ANDRÉE SOPHIA BLUMSTEIN
Solicitor General

LAURA T. KIDWELL
Senior Counsel

Requested by:
The Honorable Bill Ketron
State Senator
5 Legislative Plaza
Nashville, Tennessee 37243-0213

Footnotes:

1. Presumably, the General Assembly enacted this amendment in response to Tenn. Att'y Gen. Op. 98-178 (Sept. 4, 1998), which stated that electric cooperatives could not round up their customers' bills to the next highest dollar and then donate the monies to various charitable organizations because they lacked the statutory authority to do so.

2. See Tenn. Code Ann. § 65-25-226.