Legal Notes Regarding Regional MLP Operation and Collaboration

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From: Jim
Sent: Thursday, June 16, 2016 3:05 PM
To: Diedre Lawrence
Subject: Legal issues in choosing how to collaborate regionally

Two questions for you.

1. Are there any other legal structures that two or more MLPs can use to work together other than Chap 164 sect 47C? i.e. inter municipal agreements?
2. Is Chap 164 Sect 57 applicable to MLPs that do not offer gas and/or electric service? i.e. telecommunications only? Specifically the following clause , “…an amount for depreciation equal to three per cent of the cost of the plant exclusive of land and any water power appurtenant thereto, or such smaller or larger amount as the department may approve…”

We would like to schedule a phone call with you to discuss these issues anytime on 6/17, 6/20 or 6/21

Jim Drawe
Vice Chairman WiredWest

From: Diedre Lawrence
Sent: Thursday, June 16, 2016 3:44 PM
To: Jim
Subject: Re: Legal issues in choosing how to collaborate regionally

Municipal light plants can enter into contracts to work together.  For example, they enter into mutual aid agreements (storm related etc). Light plants have always had the legal authority to freely contract. It is also possible for towns to do things through their light plants via inter-municipal agreements, but those must be approved by town meeting.  However, none of these alternative arrangements give MLPs more powers than they currently possess under c. 164.  The Coop statute allows them to behave more like private corporations, in terms of their ability to borrow, form entities and issue shares, etc. In other words, when MLPs join and act through their cooperatives, they possess very different and expansive powers not available to them acting on their own as individual MLPs under the other sections of c. 164.

There has never been a MLP that has been formed solely for telecommunications. This is new territory.  One could argue that the “wherever apt” language of G.L. c. 164, sec. 47E, would permit the depreciation statute to apply to telecommunications-only MLPs. (“Wherever apt, the provisions of this chapter and chapter 44, which apply to the operation and maintenance of a municipal lighting plant, shall apply also to the operation and maintenance of such telecommunications system.”)  The Legislature put that in for a reason, and I would argue that where it makes sense, other provisions applicable to systems that operate electric facilities ought to apply to systems just operating telecommunications system.  The depreciation statute, provisions governing the borrowing of funds, budgets, management of the plant, all those provisions seem “apt” to apply to MLPs operating telecommunications systems.

I can talk Monday pretty much any time from 8:30 on and on Tuesday after 1:00 pm.

Diedre Lawrence
Duncan & Allen N.E., LLC
35 Braintree Hill Office Park
Suite 201
Braintree, MA 02184
(617) 435-2546

From: Diedre Lawrence
Sent: Friday, June 24, 2016 3:29 PM
To: Jim
Cc: Steve Nelson
Subject: Memo on MLPs

I can’t find the old memo, the new one regarding the LLC status touched a bit on the issue of what light plants can and can’t do (I’ve re-attached here for your records), and how they are separate from the towns owning them; however it was not as detailed on the issue of not being “another town department” as I thought it might have been. So, I have pulled out some key aspects on the law on this from a memo I did for another client (I know I did one a few years ago for WW but it may be trapped at my old firm).  While some of it really is specific to electric operations, the “separateness” issues are the same regardless of whether the services provided are in the nature of electricity or telecommunications.  See below:

It is well-settled that municipal light plants and departments (“MLPs”) cannot operate, let alone exist, absent the statutory scheme that governs them:  “It is only by the authority conferred by G.L. c. 164…that…[a city or town] can maintain a gas and electric plant.”  Adie v. Mayor of Holyoke, 303 Mass. 295, 299 (1939); MacRae v. Selectmen of the Town of Concord, 296 Mass. 394 (1937).   Indeed, the Supreme Judicial Court  (“SJC”) has held that “[w]here cities and towns are authorized to enter the field of business enterprises like the manufacture of gas and electricity they do it, not under the laws relating to private corporations, but under special statutory provisions; that the offices of the…[light plant officials] having been created and their duties defined by statute, they must be held to be public officers under legislative mandate, and not agents of the city….[emphasis added.]” Municipal Light Commission of Taunton v. City of Taunton (“Taunton”), 323 Mass. 79, 82 (1948).  Further, “[i]t is also settled that a municipality can exercise no direction or control over one whose duties have been defined by the Legislature.”  Id.  The duties of the GM have been defined by Chapter 164.

Chapter 164 provides for the appointment of a manager of the light plant, to perform statutory duties under the supervision of a light board, or where one does not exist, by the Board of Selectmen (“BOS”) acting in that capacity. The reason for this separate management and operational scheme and general independence from town processes is due to the fact that MLPs are public utilities with obligations to their ratepayers, not to the taxpayers.  The SJC has recognized that light plant funds are ratepayer funds generated by electric rates and not taxpayer funds generated by tax revenues.  See Town of Middleborough v. Middleborough Gas and Electric Department, 422 Mass 583, 586-87 (1996).  In that case, the SJC held that MLPs are so operationally and fiscally distinct from their cities and towns so as to permit them to maintain lawsuits against each other.  Id. at 588.  In other words, a MLP is neither the town nor simply another town department.

As set forth by the SJC in Whiting v. Mayor of Holyoke, 272 Mass. 116 (1930), a municipal light plant “…is separate from the town and exists to operate property ‘in its right of private ownership,’ to the end of providing electricity to retail consumers.”  Id. at 120.  MLPs have public service franchise obligations, which are identical to private utilities.  Planning Bd. of Braintree v. Department of Pub. Utils., 420 Mass. 22, 27 (1995).  Each has the same “duty to exercise [their] franchise for the benefit of the public, with a reasonable regard for the rights of individuals who desire to be served, and without discrimination between them.”  Id. at 27-28; Bertone v. Department of Pub. Utils., Mass. 411 Mass. 536, 544 (1992).   In fact, the Department of Public Utilities (“DPU”) specifically recognized that a light plant has an “obligation to furnish adequate, reliable service to all of its customers.”  See North Attleborough Elec. Dept. (“NAED”), D.P.U. 86-261, at 17 (1987); Prybyla v. Wellesley Municipal Light Plant, D.P.U. 19535, at 3, affirmed Prybyla v. Department of Pub. Utils. S.J. No. 79-188 (1979).

Given the public service franchise obligations of MLPs, under the statutory scheme of Chapter 164, MLPs are operated and managed as commercial enterprises, separate and independent from general town governmental departments.  Taunton, supra at 84.  Municipal light departments are “quasi-commercial” entities created by special act. See, e.g., MacRae, supra at 396; Spaulding v. Peabody, 153 Mass. 129, 137 (1891).  The SJC has held that pursuant to G.L. c. 164, § 56, the manager and board’s “determination as to what should be expended for the efficient operation of the business is not subject to change by other public officers or the legislative department.”  Municipal Light Comm’n. of Peabody v. Peabody, 348 Mass. 266, 268 (1964).  Further, a “municipal light plant is not dependent upon…appropriations by the municipality.”  Id. at 271.  Accordingly, the Legislature enacted a management and operation structure for MLPs that enable them to fulfill their public service obligations.

Diedre Lawrence
Duncan & Allen N.E., LLC
35 Braintree Hill Office Park
Suite 201
Braintree, MA 02184
(617) 435-2546

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From: Jim
Sent: Monday, January 23, 2017 6:58:23 PM
To: Diedre Lawrence
Subject: ownership

Can a town own and operate a telecom network without an MLP?  Chap 164 gives permission for MLPs to own telecom networks but does a town need to be specifically allowed to own and operate a telecom network.  Chap 44 sect 8 paragraph 8 was changed to allow towns to borrow without an MLP.

Jim Drawe
28 Wilder Road
Cummington, MA 01026

From: Diedre Lawrence [mailto:dtl@duncanallen.com] Sent: Monday, January 23, 2017 9:50 PM
To: Jim
Subject: Re: ownership

With regard to your question regarding c. 44, sec. 8(8), you are correct that it has changed. It formerly read:

(8) For establishing, purchasing, extending, or enlarging a gas or electric lighting plant, a community antenna television system, whether or not operated by a gas or electric lighting plant, or a telecommunications system operated by a municipal lighting plant, 20 years; but the outstanding indebtedness so incurred shall not exceed in a town 5 per cent and in a city 2.5 per cent of the equalized valuation of such town or city; provided, however, that the majority of the members of the municipal finance oversight board, may authorize a city to incur indebtedness under this clause in excess of 2.5 per cent but not in excess of 5 per cent of the equalized valuation of such city, and may authorize a town to incur indebtedness under this clause in excess of 5 per cent but not in excess of 10 per cent of the equalized valuation of such town.

It now reads (as of November, 2016):

(8) For establishing, purchasing, extending, or enlarging a municipally owned gas or electric lighting plant, community antenna television system, or telecommunications system, 20 years.

You are correct that the borrowing statute now does not specify who may operate the telecommunications system.  But this statute is not the source of authority for cities and towns to construct and operate telecommunications systems, and it never was.  It simply specified the purposes for which borrowings may be made outside the debt limits. Previously, it said a town could borrow for establishing, etc. a telecommunications system operated by a municipal lighting plant. Now, it says a town may borrow for establishing a municipally owned telecommunications system, thereby broadening the purposes for which it might borrow. (I do not have information on why this change was made.)  This revision can’t be used to justify a town operating a telecommunications system not through a light plant.

The authority for cities and towns to operate telecommunications systems (and municipal electric light plants, and cable televisions systems) still resides in c. 164.  There is a long line of cases that establishes that “where cities and towns are authorized to enter the field of business enterprises, like the manufacture of gas and electricity, they do it not under the laws relating to private corporations . . . but under special statutory provisions.” Adie v. Mayor of Holyoke, 303 Mass. 295, 299 (1939) citing MacRae v. Selectmen of Concord, 296 Mass. 394 , 397 (1937). “It is only by the authority conferred by G.L. (Ter. Ed.) c. 164, Sections 34-69, and not by virtue of any implied power of the city…that it can maintain a gas and electric plant. In the absence of any express provision in the city charter, any power of the mayor over those in charge of the management of the plant must be derived from the governing statutes, and is not to be implied from the provisions of the city charter…..”  Id. at 299.  Further, cities and towns may only operate municipal lighting plants, and ostensibly telecommunications systems, pursuant to the provisions of Chapter 164.

G.L. c. 164, sec. 47E is the sole source of authority for constructing and operating a municipal telecommunications systems and it says, in relevant part:

“A municipal lighting plant or a cooperative public corporation and any municipal lighting plant member thereof, established pursuant to this chapter or any general or special law may construct, purchase or lease, and maintain such facilities as may be necessary for the distribution or the operation of a telecommunications system for municipal use or for the use of its customers. Such municipal lighting plant may incur debt for such facilities by a vote taken in the manner prescribed pursuant to section 8 of chapter 44….Wherever apt, the provisions of this chapter and chapter 44, which apply to the operation and maintenance of a municipal lighting plant, shall apply also to the operation and maintenance of such telecommunications system.”

Technically, municipal light plants themselves do not incur debt, and therefore, as a practical matter, the town must borrow for municipal lighting plant purposes or for a telecommunications system to be constructed and operated by the municipal lighting plant. (I also note that there are provisions of c. 44, other than section 8, that apply to the operation of a municipal lighting plant, such as the payment of warrants by the treasurer and the duties of treasurers and auditors with regard to the light plant. The exact same “wherever apt” language appears in G.L. c. 164, sec. 34, which gives cities and towns the authority to form light plants and cable systems). Using the “wherever apt” language of Section 47E, the provisions of G.L. c. 164, sec. 40 are the source of authority for a city or town “which has duly voted to acquire a municipal lighting plant” to “incur debt as provided in section eight of chapter forty-four for establishing…such a plant….”

Presumably, the Legislature knew of the existence of G.L. c. 164, sec.47E when it passed the changes to G.L. c. 44, sec. 8(8).  It chose not to change the language of Section 47E regarding a “municipal lighting plant or a cooperative public corporation and any municipal lighting plant member thereof” having the sole authority to construct a telecommunications system.  There is probably good reason for this.  Having a municipal lighting plant in place (or a cooperative formed for that specific purpose) ensures that there is an existing structure for dealing with technical and financial matters involved with running a quasi-commercial enterprise. Further, repeals by implication are disfavored. “A statute is not to be deemed to supersede a prior statute in whole or in part in the absence of express words or clear implication.” Hersch v. Police Commissioner of Boston, 319 Mass. 428, 432 (1946). There is no reference in c. 44 to anything in c. 164.  “Repeals by implication are not favored, and both statutes must stand unless it plainly appears that the later was intended to be a complete substitute for the earlier one.”   There is nothing to indicate that G.L. c. 44, sec. 8(8) was intended to be a complete substitute for G.L. c. 164, sec. 47E, especially since c. 44 only deals with the borrowing aspect for a municipally-owned telecommunications system, and does not address anything to do with the actual construction and operation of a municipally-owned telecommunications system as set forth in G.L. c. 164, sections 34-69A.  Additionally, there are many other statutes addressing matters pertaining to telecommunications systems throughout the General Laws and every single one of them refers to “municipal lighting plants or cooperatives that operate telecommunications systems,” not cities and towns operating telecommunications systems. See e.g., G.L. c. 159, sec. 11 (rates); G.L. c. 166, secs.11 (annual returns), 13 (equal access to exchanges), 21 (lines in public ways), 25A (pole attachments); G.L. c. 258, sec. 1 (Tort Claims Act definition of public employer). None of these have been amended to reference a municipality operating a telecommunications system other than through a municipal light plant or cooperative.

Without changes to Chapter 164, available precedent indicates that the courts would not agree that the amendments to G.L. c. 44, sec. 8(8) have created a new and different source of authority for the municipal ownership of a telecommunications system. As it currently stands, the only manner in which a town may construct and operate a telecommunications system is through its municipal lighting plant or a cooperative of which it is a member. I can locate no other statute that would appear to give a town the authority to construct and operate a telecommunications system, except for what is in Chapter 164.  Operation of a telecommunications system for the use of its inhabitants is not one of the general municipal corporate powers that could be implied from some other source of authority. “The right to erect, maintain and operate electric plants is not one of the general powers conferred by implication of law upon

municipalities in this Commonwealth. Opinion of the Justices, 150 Mass. 592 . Spaulding v. Peabody, 153 Mass. 129 . Whiting v. Mayor of Holyoke, 272 Mass. 116 , 118, 119.”  See MacRae, supra at 397-97.

I hope this answers your question sufficiently. Let me know, thanks- Diedre

Diedre Lawrence
Duncan & Allen N.E., LLC
35 Braintree Hill Office Park
Suite 201
Braintree, MA 02184