Did the 1976 repeal of Minn. Stat. §§ 452.02 and 454.041 invalidate a 1958 AG opinion on the City of Breckenridge's authority to set utility rates exceeding operating costs and transfer surplus revenue to the general fund?

Plain-English summary

The City of Breckenridge is a home rule charter city. Its charter authorizes a public utilities commission (PUC) to operate the city's utilities. The PUC sets rates that have, from time to time, exceeded operating expenses. The City Council has transferred surplus utility funds to the general fund for other public purposes. The PUC also hired a consultant to help set rates and adopted the consultant's recommendations.

Breckenridge had a 1958 AG opinion (Op. Atty. Gen. 624a-6, August 27, 1958) that approved the City Council's authority to transfer surplus utility funds above $40,000 to the general fund and the PUC's discretion in selecting rate-setting factors. But two of the statutes cited in the 1958 opinion (Minn. Stat. §§ 452.02 and 454.041) were repealed by the Act of March 12, 1976, ch. 44, 1976 Minn. Laws 139.

City Attorney Timothy Fox asked the AG four questions: did the statutory repeals invalidate the 1958 opinion; may the PUC use its discretion in choosing rate-setting factors; may the PUC hire and adopt the recommendations of a consultant; and may the PUC consider transfers to the general fund when setting rates.

The AG answered all four no/yes in favor of continued PUC authority.

Question 1: Did the repeals invalidate the 1958 opinion? No. The 1958 opinion did not rely on §§ 452.02 or 454.041 for its conclusions. The opinion rested on (a) the absence of statutory or charter restrictions on the activities in question, (b) traditional common-law powers and duties of municipal corporations as interpreted by the courts, and (c) charter provisions expressly authorizing the relevant activities. Section 452.02 was just referenced as additional support; § 454.041 wasn't mentioned in any answer. Both statutes were repealed because their substance had become redundant: § 452.02 (general utility authority of all cities, enacted 1907) was superseded for statutory cities by §§ 412.321-412.391 in 1949, and home rule charter cities had authority under Minn. Stat. ch. 410; § 454.041 (rate-making for third- and fourth-class cities) was similarly redundant. Repealing redundant statutes did not strip cities of underlying authority.

Home rule charter cities continue to rely on their charters and on § 410.07: "[a] charter may provide for the establishment and administration of all departments of a city government, and for the regulation of all municipal functions, as fully as the legislature might have done." Statutory cities now derive parallel authority from § 412.211 (general powers, including common-law powers of municipal corporations); § 412.331 (authority to establish a PUC); § 412.361 (PUC rate-setting authority and authority to agree with the city council on transfers of surplus utility funds to the general fund). So the 1958 opinion's conclusions remain valid for Breckenridge, assuming no material charter amendments.

Question 2: PUC discretion in rate-setting factors? Yes. The PUC may continue to exercise its discretion when setting rates and charges, as long as the rates are fair and reasonable and the charter does not specify or limit factors the commission may consider. The opinion cites McQuillin on Municipal Corporations §§ 35.06, 35.37a, 35.37c (3d Ed.).

Question 3: PUC hire consultant and adopt recommendations? Yes. Reliance on a consultant to prepare and present a rate recommendation is not an improper delegation of authority, as long as the commission exercises its own independent judgment and discretion in deciding whether to adopt the recommendation. The AG cited Thuhring v. School District No. 31 (1947) and Minneapolis Gas & Light Co. v. City of Minneapolis (1886) for the general rule that local governing bodies may not delegate powers calling for the exercise of judgment and discretion. But hiring a consultant to study and recommend is not delegation; it's standard staff or advisory work that any governing body uses. The commission must formally adopt the recommendation by resolution, motion, or other established procedure, after which the commission has exercised its authority and the recommendation becomes the commission's own act. A decision based on a consultant's recommendation is still subject to challenge as unfair or unreasonable, but not invalid simply for being based on a consultant's input.

Question 4: PUC consider transfers to general fund in rate-setting? Yes. Subject to the requirement that rates be fair and reasonable and that the charter not provide otherwise, the PUC may take into account transfers to the general fund (McQuillin § 35.37c).

Currency note

This opinion was issued in 1999. 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. The statutory cities utility statutes (Minn. Stat. §§ 412.211, 412.331, 412.361) and the home rule charter framework (ch. 410) have been amended since 1999. The principle that a municipal PUC may set reasonable rates exceeding operating costs and that surplus funds may be transferred to the general fund for public purposes appears to remain part of Minnesota practice but should be confirmed against current law and the city's current charter.

Historical context: what the AG concluded

The opinion is a careful exercise in distinguishing what a prior AG opinion actually relied on from what it merely cited. The 1958 opinion (624a-6) had cited §§ 452.02 and 454.041, but the AG's 1999 review showed those citations were supporting references, not load-bearing authority.

Section 452.02 (enacted 1907) had given every Minnesota city broad authority to own, construct, acquire, purchase, maintain, and operate any public utility within its corporate limits. It also empowered city councils to fix utility rates and charges. The 1958 opinion's fourth question asked whether the PUC should be guided by § 452.02's language requiring rates "high enough to produce a revenue sufficient to bear all the costs of maintenance and operation and to meet interest charges ... and to permit an accumulation of a surplus or sinking fund." The 1958 opinion's answer first cited McQuillin and judicial decisions for the proposition that "a rate may be fixed which will permit a reasonable return on the capital invested in the utility." Then the opinion added: "We agree with you that the Commission will be guided by Minnesota Statutes 452.02. That section appears to apply to all cities." Nowhere did the 1958 opinion rely on § 452.02 as the authority for setting reasonable rates including a return on investment; it cited § 452.02 as additional support for an authority that came from common law and from McQuillin.

Section 454.041 was not mentioned in any answer in the 1958 opinion. Section 454.041 had conferred rate-making authority on cities of the third and fourth classes; the 1958 opinion did not cite it.

So the repeal of these two statutes in 1976 didn't strip the underlying authority. The underlying authority for home rule charter cities comes from § 410.07 (charters may provide for "regulation of all municipal functions, as fully as the legislature might have done"). For statutory cities, parallel authority comes from §§ 412.211, 412.331, 412.361.

The consultant question turns on the standard rule against improper delegation. Local governments cannot delegate powers calling for the exercise of judgment and discretion (Thuhring v. School District No. 31; Minneapolis Gas & Light Co. v. City of Minneapolis). But studying an issue and recommending a course of action is not delegation; it's advisory work. The body must still make the decision itself. As long as the commission formally adopts the recommendation by its own action, the consultant's role is permissible.

Transfers to the general fund: McQuillin § 35.37c supports the proposition that a municipal utility may set rates that produce surplus revenue for transfer to other municipal purposes. As long as the rates are fair and reasonable and the charter doesn't prohibit the transfer, this is permissible.

Common questions

Q: I'm a small Minnesota city's utility commissioner. Can we set rates high enough to generate a surplus that the city uses for street repairs?
A: Under the 1999 opinion, generally yes. The PUC may set rates that produce surplus revenue, and the city council may transfer surplus to the general fund for public purpose expenditures. The conditions: rates must be fair and reasonable, and the city charter (if a home rule charter city) or statute (if a statutory city) cannot prohibit the practice. Check your charter and confirm with counsel.

Q: What counts as a "fair and reasonable" rate?
A: The 1999 opinion doesn't define this precisely. The relevant common-law authorities (McQuillin's treatise; the 1958 opinion's cited decisions) indicate that rates should permit a reasonable return on capital invested and should reflect economic and efficient management of the utility. Excessive rates that effectively become a tax may be challenged. Specific rate disputes are typically fact-intensive and may end up in court.

Q: Can our PUC just adopt our consultant's recommended rate without independent review?
A: Under the 1999 opinion, no, not "just adopt." The commission must exercise its own independent judgment in deciding whether to adopt the recommendation. Formally adopting by resolution or motion after deliberation satisfies the standard. The consultant's recommendation cannot itself be the decision; it must be received, reviewed, and acted on by the commission.

Q: Our city is a statutory city, not a home rule charter city. Does this opinion apply?
A: The opinion specifically addresses home rule charter cities. Statutory cities derive parallel authority from §§ 412.211, 412.331, 412.361 (and the AG noted this expressly in the opinion). The general principles (PUC may set reasonable rates, consider transfers to general fund, hire consultants) apply to statutory cities too, but the specific source of authority is statutory rather than charter-based.

Q: What about Minnesota Public Utilities Commission (state PUC) jurisdiction?
A: The 1999 opinion is about municipal PUCs, which are city-level commissions established by the city's charter or under Minn. Stat. § 412.331. The state Public Utilities Commission has different statutory jurisdiction and different rate-making rules. Municipal utilities are typically exempt from state PUC rate regulation under Minn. Stat. ch. 216B.

Background and statutory framework

Minnesota municipal utilities can be operated by cities directly through the city council or through a PUC established under city charter (home rule charter cities) or under Minn. Stat. § 412.331 (statutory cities). The PUC structure provides specialized oversight and insulation from political pressure on day-to-day rate decisions.

Home rule charter cities derive broad authority from Minn. Stat. § 410.07: charters may regulate municipal functions "as fully as the legislature might have done." The 1958 Op. Atty. Gen. 624a-6 confirmed Breckenridge's authority to operate its utility, set rates, and transfer surplus revenue to the general fund.

The 1976 repeal of §§ 452.02 and 454.041 was a cleanup exercise: those statutes had become redundant after the 1949 enactment of the statutory cities utility framework (§§ 412.321-412.391) and the well-established charter authority for home rule cities. The repeal did not change substantive authority.

McQuillin on Municipal Corporations is a foundational treatise on municipal law in the United States. The 1999 opinion's citations to McQuillin §§ 10.41, 13.51, 35.06, 35.37a, 35.37c provide the conceptual framework for the AG's answers on rate-setting discretion, consultant use, and general fund transfers.

Mike Hatch was AG in 1999. Gregory P. Huwe was the Assistant AG of record (note: a different Assistant AG than the Raschke who authored most other 1999 MN AG opinions in this corpus).

Citations and references

Statutes (1998 unless noted):
- Minn. Stat. § 410.07 (1998) (home rule charter authority)
- Minn. Stat. § 412.211 (1998) (general powers of statutory cities)
- Minn. Stat. § 412.331 (1998) (statutory city PUC authority)
- Minn. Stat. § 412.361 (1998) (PUC rate-setting and general fund transfers)
- Minn. Stat. §§ 412.321-412.391 (statutory cities utility chapter)
- Minn. Stat. § 452.02 (1971, repealed 1976) (general utility authority of all cities)
- Minn. Stat. § 454.041 (1971, repealed 1976) (rate-making for third- and fourth-class cities)

Session laws:
- Act of March 12, 1976, ch. 44, 1976 Minn. Laws 139 (repeal of §§ 452.02 and 454.041)

Cases:
- Thuhring v. School District No. 31, 244 Minn. 432, 28 N.W.2d 655 (1947) (no delegation of discretionary authority)
- Minneapolis Gas and Light Co. v. City of Minneapolis, 36 Minn. 159, 30 N.W. 450 (1886) (no delegation of discretionary authority)

Treatise:
- McQuillin, Municipal Corporations, §§ 10.41, 13.51, 35.06, 35.37a, 35.37c (3d Ed.)

Prior AG opinions:
- Op. Atty. Gen. 624a-6, August 27, 1958 (Breckenridge utility authority; subject of 1999 opinion's review)
- Op. Atty. Gen. 624a-6, February 20, 1936 (cities may use surplus utility earnings for other municipal purposes)
- Op. Atty. Gen. 624a-3, August 23, 1957 (charter cities PUC authority)
- Op. Atty. Gen. 59a-22, September 2, 1958 (charter cities PUC authority)
- Op. Atty. Gen. 59a-36, September 15, 1947 (charter cities PUC authority)
- Op. Atty. Gen. 1007, July 8, 1977 (no improper delegation)
- Op. Atty. Gen. 1001-a, September 13, 1950 (no improper delegation)
- Op. Atty. Gen. 476b-15, March 30, 1933 (Mahtomedi village; § 452.02 applies to all cities)

Source

• Landing page: https://www.ag.state.mn.us/Office/Opinions/
• Original PDF: https://www.ag.state.mn.us/Office/Opinions/624a3-19990628.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

PUBLIC UTILITIES COMMISSION: HOME RULE CHARTER CITIES: City public utilities commission is authorized to set reasonable rates, including rates in excess of the precise amounts required to operate utilities, and the City Council may transfer moneys from the public utilities fund to the city general fund for public purpose expenditures, subject to applicable charter provisions.

624a-3
June 28, 1999

Timothy E. J. Fox
Breckenridge City Attorney
420 Nebraska Avenue
Breckenridge, MN 56520

Dear Mr. Fox:

Your letter addressed to the Office of Attorney General states substantially the following:

FACTS

The City of Breckenridge is a home rule charter city which has established a public utilities commission pursuant to its charter. The commission has set utility rates which have, from time to time, exceeded the expenses of operating the City utilities. Excess funds have been transferred to the City's general fund and been used for other public purposes. The commission has also hired a consultant to assist in establishing rates and has accepted the consultant's recommendations. The City received an opinion of the Attorney General dated August 27, 1958, Opinion No. 624a-6. That opinion determined that the City Council was authorized, under the terms of the charter, to transfer to the City general fund moneys in the public utilities fund in excess of $40,000. The opinion also held that the public utilities commission could use its discretion in deciding what factors should be taken into consideration in establishing "fair and reasonable" rates.

Since the Opinion was issued, two of the statutes cited therein have been repealed. Minn. Stat. §§ 452.02 and 454.041 were repealed in 1976. Act of March 12, 1976, ch. 44, 1976 Minn. Laws 139.

Then you ask the following questions:

QUESTION ONE

Does the repeal of either one or both of these statutes modify the 1958 Attorney General's Opinion making the opinion invalid?

OPINION

We answer your question in the negative. The opinion did not rely on either of the repealed statutes in reaching its conclusions. Rather, the opinion was based on, (1) the absence of any statutory language or charter provisions prohibiting the acts in question, (2) traditional, common law powers and duties of municipal corporations, as interpreted by the courts, and (3) charter provisions expressly authorizing the relevant activities. In this regard, the opinion noted:

In the opinion of this office to your then City Attorney, dated February 20, 1936 (624a-6) it was ruled that cities may use surplus earnings derived from municipally-owned utilities for other municipal purposes where there were no other provisions in the applicable statutes or charter under which such municipalities are operating prohibiting the use of such surplus earnings for other municipal purposes.

[Footnote 1: Minn. Stat. § 452.02, first adopted by the Legislature in 1907, set forth a comprehensive scheme authorizing every city in the state, inter alia, to own, construct, acquire, purchase, maintain, and operate any public utility within its corporate limits. The statute also authorized cities to borrow money and issue bonds for those purposes, set out procedures for voter approvals, and empowered the city council to fix and prescribe rates and charges for utility services. The statute was presumably repealed because in 1949, essentially the same powers had been granted to all statutory cities with the adoption of Minn. Stat. §§ 412.321-412.391, and home rule charter cities had the authority required to adopt charter provisions providing for municipal ownership and operation of public utilities pursuant to Minn. Stat. ch. 410. When repealed in 1976, Minn. Stat. § 452.02 was thus, for all practical purposes, redundant. The same was true of Minn. Stat. § 454.041, which conferred utility rate-making authority on cities of the third and fourth classes.]

Minn. Stat. §§ 452.02 and 454.041 were mentioned in the fourth question asked in 1958 by then City Attorney Gospodar as follows:

What factors should be taken into consideration by the Public Utilities Commission in determining the rates and charges to be charged for the utilities furnished? Should the rate be calculated to produce a reasonable return on the capital invested in the utilities under an economical and efficient management of the same? (This is the rule set out in section 454.041 of the Minnesota Statutes in connection with the rates to be charged by public service corporations). Shall the Commission be guided by section 452.02 of the Minnesota Statutes which states: 'These rates and charges shall be high enough to produce a revenue sufficient to bear all the costs of maintenance and operation and to meet interest charges on all bonds or certificates issued on account of the public utility and to permit an accumulation of a surplus or sinking fund that would be sufficient to meet all the outstanding bonds or certificates at maturity.'?

Minn. Stat. § 454.041 is not mentioned in the answer to this or any of the other questions addressed in the 1958 opinion. Minn. Stat. § 452.02 is referred to in the answer to the fourth question. First, however, the opinion cites McQuillin's treatise on Municipal Corporations and several judicial decisions, concluding that on the basis of these authorities, "a rate may be fixed which will permit a reasonable return on the capital invested in the utility." The opinion then states, "We agree with you that the Commission will be guided by Minnesota Statutes 452.02. That section appears to apply to all cities. See opinion of the Attorney General to Attorney for Village of Mahtomedi, March 30, 1933 (476b-15), copy enclosed." Nowhere in the opinion is the statute cited as authority for setting reasonable rates, including a return on investment, or for transferring revenues from the public utility fund to the general fund.

Although both sections 452.02 and 454.041 were repealed in 1976, cities retain the authority under current law and applicable charter provisions to establish public utility commissions which can set and charge reasonable rates for utility services. Home rule charter cities continue to rely on their charters for such authority, as granted to them by Minn. Stat. § 410.07 (1998) (charter may provide for the establishment and administration of all departments of a city government, and for the regulation of all municipal functions, as fully as the legislature might have done). This office has rendered several opinions affirming that charter cities have such authority. See Op. Atty. Gen. 59a-22, September 2, 1958; Op. Atty. Gen. 624a-6 (February 20, 1936); Op. Atty. Gen. 624a-3 (August 23, 1957); Op. Atty. Gen. 59a-36 (September 15, 1947).

[Footnote 2: Although not explicitly conferring the power to own and operate public utilities, Minn. Stat. § 410.07 clearly authorized charter cities to so provide to the same extent as the legislature could have done, thereby delegating ample authority to charter cities to adopt any constitutional scheme for the ownership, operation and regulation of municipal utilities within their boundaries.]

Statutory cities now derive similar authority from Minn. Stat. § 412.211 (1998) (general powers of statutory cities include powers, rights and duties of municipal corporations at common law); Minn. Stat. § 412.331 (1998) (cities may establish a public utilities commission); and Minn. Stat. § 412.361 (1998) (public utilities commissions have authority to set rates for utility service and to enter into agreements with city council for transfers of surplus utility funds to the general fund). These powers and authorities, whether based on charter provisions or derived from statute, were not affected by the repeal of Minn. Stat. §§ 452.02 and 454.041. Therefore, assuming there have been no material amendments to the City charter, the Opinion of the Attorney General dated August 27, 1958, remains valid and applicable to the City of Breckenridge in all respects.

QUESTION TWO

May the Public Utilities Commission as stated in the original opinion use its discretion in deciding what factors should be taken into consideration in fixing fair and reasonable rates which will permit a reasonable rate of return on the capital invested in the utility?

OPINION

In light of the answer to question one above, we respond in the affirmative, again assuming there have been no amendments to the City charter which would affect the rate-making authority of the Commission in such a way as to limit its discretion. The common law on municipal corporations continues to apply to home rule charter cities to the extent not inconsistent with express charter provisions. The law on municipal corporations relevant to this issue remains substantially as expressed in the previous opinion. See McQuillin, Municipal Corporations, § 35.06 (3d Ed.). Thus, in our opinion, a municipal public utilities commission may continue to exercise its discretion in deciding what factors should be taken into consideration when setting rates and charges, as long as such rates and charges are fair and reasonable and the charter does not specify or limit the factors which the commission may consider. Id., §§ 35.37a, 35.37c (3d Ed.).

QUESTION THREE

May a Public Utilities Commission hire a consultant in establishing rates and adopt the recommendations of that consultant?

OPINION

We answer your question in the affirmative. Case law and prior opinions of this office have of course uniformly held that, absent specific statutory or charter authority, local governing bodies may not delegate their powers and duties calling for the exercise of judgment and discretion to other persons or bodies. See e.g., Thuhring v. School District No. 31, 244 Minn. 432, 28 N.W.2d 655 (1947); Minneapolis Gas and Light Co. v. City of Minneapolis, 36 Minn. 159, 30 N.W. 450 (1886); Ops. Atty. Gen. 1007, July 8, 1977; 1001-a, September 13, 1950.

However, reliance on a consultant to prepare and present a recommendation for rates to a commission for its consideration is not an improper delegation of authority, as long as the commission exercises its independent judgment and discretion in deciding whether to adopt the recommendation as its own decision. This is no different than a governing body relying on its staff or on a committee of its own members to study issues and recommend a course of action to the entire body for its consideration. McQuillin, Municipal Corporations, § 10.41 (3d Ed.). Of course an appropriate resolution, motion, or other form of decision must be adopted by the commission according to its established procedures. Having done so, the commission has exercised its authority and adopted the recommendation as its own act. Id., § 13.51 (3d Ed.). Any decision of the governing body is of course subject to challenge as unfair and unreasonable, but it is not invalid simply because it was based on a recommendation from a consultant hired by the commission for that purpose.

QUESTION FOUR

May the Public Utilities Commission in establishing rates take into consideration transfers from the Public Utilities Commission to the General Fund?

OPINION

In light of our response to questions one and two above, we answer this question in the affirmative. Again, subject to the requirement that rates be fair and reasonable, and that any applicable charter provisions do not provide otherwise, a municipal public utilities commission may take into consideration transfers to the general fund. McQuillin, Municipal Corporations, § 35.37c (3d Ed.).

Very truly yours,

MIKE HATCH
Attorney General

GREGORY P. HUWE
Assistant Attorney General