When an electric co-op is serving customers inside a city's electric-service territory, does the city have to use the statutory buyout process to take those customers over?

Plain-English summary

Representative Robin Lundstrum asked AG Leslie Rutledge a question on behalf of the City of Siloam Springs. Carroll Electric, a rural electric co-op, was serving roughly 227 customers who sat outside Carroll Electric's own assigned service area but inside the territory the Public Service Commission had assigned to Siloam Springs's municipal electric utility. The customers were not within the city limits, just inside Siloam Springs's electric service boundary.

Carroll Electric wanted Siloam Springs to "buy out" those customers under Ark. Code Ann. § 14-207-103, the same procedure used when a city annexes territory and absorbs an existing utility's customers. Siloam Springs took the position that the buyout statute did not apply because the city was not annexing any of Carroll Electric's territory; rather, Carroll Electric had been serving customers in territory that already belonged to Siloam Springs.

The AG sided with Siloam Springs. She read § 14-207-103 by its terms, which trigger the buyout procedure on "inclusion by annexation, whether voluntary or involuntary according to applicable law, or any part of the assigned service area or an electric public utility within the boundaries of any Arkansas municipality." That language requires a municipality to be annexing part of an electric public utility's assigned service area. If the municipality was not annexing, the procedure was not triggered.

Two corollaries followed. First, the customer's request to switch to the municipal utility did not, by itself, change the analysis. The statute is keyed to annexation, not to customer choice. Second, the underlying right-to-serve question (whether Carroll Electric was supposed to be there in the first place, or whether and how the customers could move) was a separate matter that the AG explicitly did not address.

The opinion resolved a narrow but practical question for Arkansas municipal electric utilities and cooperatives: the statutory buyout track exists for cross-border consequences of annexation, not for retrospective cleanup when one utility has been serving in another utility's assigned territory.

Currency note

This opinion was issued in 2020. 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 does Ark. Code Ann. § 14-207-103 actually trigger on?
Annexation of part of an electric public utility's assigned service area into a municipality. The buyout procedure was the legislature's way of handling the wrinkle when a city expands its limits and the new area was already being served by another electric utility.

Why didn't the customer's request to switch matter?
Because the statute is keyed to the annexation event, not to customer demand. A customer asking to be transferred to the municipal utility does not, by itself, drag § 14-207-103 into play. Whether and how the customer can switch is governed by the substantive territorial-rights rules, which the opinion did not reach.

Did the opinion decide who has the legal right to serve those 227 customers?
No. The AG specifically said the opinion addressed only § 14-207-103's applicability to the described situation, and "should not be read as addressing the rights or duties of either Carroll Electric or the City of Siloam Springs with respect to the provision of services to any customers." That dispute went elsewhere, presumably to the Arkansas Public Service Commission or the courts.

What is the practical effect when one utility is serving customers in another's assigned territory?
The opinion did not say. It only ruled out one particular statutory remedy (the § 14-207-103 buyout procedure). The remaining options would include negotiation between the utilities, a formal complaint to the Public Service Commission, or litigation, but the AG did not analyze any of those.

Does the customer being outside the city limits matter?
The opinion notes the customers were inside Siloam Springs's electric service boundary but outside the city limits. That distinction was not load-bearing for the AG's reasoning, because the statutory trigger is annexation of an electric public utility's assigned service area, regardless of whether the customers themselves sit inside or outside the city limits at any given moment.

Background and statutory framework

Arkansas allocates electric service territory through a regulatory scheme administered by the Public Service Commission. Each municipal utility, investor-owned utility, and rural electric cooperative has a defined "assigned service area." Ark. Code Ann. § 14-207-103 is part of the framework that handles what happens when a city's boundary changes to absorb territory previously assigned to another electric utility.

The statute's operative trigger language, quoted in the opinion, contemplates an "inclusion by annexation, whether voluntary or involuntary." When that trigger fires, the statute spells out a buyout-style procedure that allows the municipal utility to acquire the customers and facilities of the absorbed electric public utility.

Standard Arkansas rules of statutory construction (Arkansas Soil & Water Conservation Comm'n v. City of Bentonville, 351 Ark. 289, 92 S.W.3d 47 (2002); Yamaha Motor Corp. v. Richard's Honda Yamaha, 344 Ark. 44, 38 S.W.3d 356 (2001)) require giving statutory words their plain and ordinary meaning. The AG read "annexation" as the controlling concept and refused to extend the statute to scenarios where no annexation was occurring.

Citations

Statutes:

• Ark. Code Ann. § 14-207-103 (Supp. 2019) (municipal acquisition of utility property and customers upon annexation)
• Ark. Code Ann. § 14-207-103(a)(1) (annexation trigger language)

Cases:

• Arkansas Soil & Water Conservation Comm'n v. City of Bentonville, 351 Ark. 289, 92 S.W.3d 47 (2002) (plain-meaning rule)
• Yamaha Motor Corp., U.S.A. v. Richard's Honda Yamaha, 344 Ark. 44, 38 S.W.3d 356 (2001) (plain meaning controls absent drafting error)

Source

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

Original opinion text

Opinion No. 2020-031
September 10, 2020
STATE OF ARKANSAS
THE ATTORNEY GENERAL
LESLIE RUTLEDGE
The Honorable Robin Lundstrum
State Representative
1327 Elm Springs Road
Springdale, AR 72762-9119

Dear Representative Lundstrum:

This is in response to your request for an opinion on behalf of the City of Siloam Springs regarding Ark. Code Ann. § 14-207-103 (Supp. 2019), which addresses a municipal entity's right to acquire properties, facilities, and customers upon annexation.

In this regard, you have provided the following background information:

Presently, Carroll Electric has approximately 227 electrical customers outside of their service boundary and inside the Siloam Springs service boundary. The Carroll Electric customers are not within the city limits, but as stated, within Siloam Springs' electrical service territory. Carroll Electric wants Siloam Springs to buy-out these customers per the applicable state statute as if Siloam Springs was annexing the customers into the city. Siloam Springs believes that since Carroll Electric extended its service into Siloam Springs' territory, the statute does not and should not apply.

In light of the above background information, you have asked the following questions:

1) When an electrical public utility has provided service to a customer outside of its assigned service area and within the service area of a municipal electric utility, is the municipality required to follow the purchase procedure of Ark. Code Ann. § 14-207-103 if the local electrical public utility customer subsequently requests to have their service transferred to the municipal electrical utility?

2) Moreover, is Ark. Code Ann. § 14-207-103 applicable in and to the situation occurring between Siloam Springs and Carroll Electric where Siloam Springs is not annexing or otherwise acquiring any part of an electric public utility's assigned service area?

RESPONSE

Given the context and background you have provided for these questions, I gather that you are asking about a situation in which the municipal electric utility is not annexing any of the electric public utility's assigned service area, but the electric public utility is providing service to customers who are located within the municipality's own currently-assigned service area. With this understanding, the answer to your first question is "no." The answer to your second question is also "no."

DISCUSSION

Question 1: When an electrical public utility has provided service to a customer outside of its assigned service area and within the service area of a municipal electric utility, is the municipality required to follow the purchase procedure of Ark. Code Ann. § 14-207-103 if the local electrical public utility customer subsequently requests to have their service transferred to the municipal electrical utility?

As stated above, I understand this question to be asking about a situation in which the municipal electric utility is not annexing any of the electric public utility's assigned service area, but the electric public utility is simply providing service to customers who are located within the municipality's own currently-assigned service area. Consequently, Ark. Code Ann. § 14-207-103 would not apply to the situation you have described.

The basic rule of statutory construction is to give effect to the intent of the legislature by giving words their usual and ordinary meaning. The Arkansas Supreme Court has stated, "When a statute is clear, it is given its plain meaning, and we will not search for legislative intent; rather, that intent must be gathered from the plain meaning of the language used. In other words, if the language of the statute is plain and unambiguous, the analysis need go no further." The court is reluctant to interpret a legislative act in a manner contrary to its express language unless it is clear that a drafting error or omission has circumvented legislative intent.

Here, the plain language of section 14-207-103 indicates that the statute applies when there is "… inclusion by annexation, whether voluntary or involuntary according to applicable law, or any part of the assigned service area or an electric public utility within the boundaries of any Arkansas municipality …." If a municipality does not annex part of the assigned service area of an electric public utility, section 14-207-103 plainly does not apply.

Therefore, the answer to your question is "no." The municipality would not be required to follow the purchase procedures set forth in the statute.

Question 2: Moreover, is Ark. Code Ann. § 14-207-103, applicable in and to the situation occurring between Siloam Springs and Carroll Electric where Siloam Springs is not annexing or otherwise acquiring any part of an electric public utility's assigned service area?

For reasons explained above, the answer to this question is also "no." Section 14-207-103 is not applicable to the situation you have described, given your statement that Siloam Springs is not annexing or otherwise acquiring any part of Carroll Electric's assigned service area.

Sincerely,

LESLIE RUTLEDGE
Attorney General

[Final footnote: This opinion only addresses the questions you have asked, which are narrow in scope and pertain only to the applicability of Ark. Code Ann. § 14-207-103 in the situation you have described. This opinion should not be read as addressing the rights or duties of either Carroll Electric or the City of Siloam Springs with respect to the provision of services to any customers.]