Was St. George’s water supply contract with a regional agency a municipal franchise?

Plain-English summary

The AG had earlier called an agreement between St. George and the Lake Marion Regional Water Agency a municipal franchise based on the information then available. After receiving and reviewing the agreement itself, he changed that conclusion. He said the deal was a long-term water purchase and supply contract, not a franchise governed by the cited municipal-franchise provision.

The agency would sell water to the town's utility system, while St. George would keep serving and billing its own customers. The agreement did not give the agency the right to build distribution infrastructure in town streets, serve residents directly, or pay the town a franchise fee. It also did not exclude other suppliers after the town bought its contracted volume. Those contract terms distinguished it from the franchise arrangements discussed in the opinion.

Currency note

This opinion was issued in 2005. 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

Why did the AG change his earlier answer?
He received the actual Water Agreement after the first opinion and said its terms clarified the relationship between the town and the regional agency.

Would the agency provide retail water service in town?
No. Under the agreement described, it supplied St. George's utility system, while the town retained its direct relationship with residents and businesses.

Did the contract exclude competing water suppliers?
The AG said no. After buying its contracted volume, the town could purchase water elsewhere, and the agency could not bar other companies from operating in St. George.

Background and statutory framework

The opinion compared the contract with South Carolina decisions describing a municipal franchise as a privilege to use public rights of way and serve residents for a fee. The agency's role as a wholesale supplier did not fit that model.

Citations and references

The original letter discussed S.C. Code Ann. § 5-31-50 and South Carolina Electric and Gas v. Town ofAwendaw, 596 S.E.2d 482, 485 (2004), among other cases below.

Official title

Regarding the status of a water purchase and supply agreement between St. George and Lake Marion Regional Water Agency this office concluded that the agreement was a municipal franchise and, thus, subject to the provisions of S.C. Code Ann. § 5-31-50.

Requester

The Honorable David C. Sojourner, Mayor, Town of St. George

Source

• Landing page: https://www.scag.gov/opinions/opinions-archive/june-8-2005/
• Original PDF: https://www.scag.gov/wp-content/uploads/2011/03/05june8sojourner.pdf

Original opinion text

The State of South Carolina

OFFICE OF THE ATTORNEY GENERAL
HENRY MCMASTER
ATTORNEY GENERAL

June 8, 2005

l

I

The Honorable David C . Sojourner
Mayor, Town of St. George
Post Office Box 904
St. George, South Carolina 29477
Dear Mayor Sojourner:

I

In response to an inquiry regarding the status of a water purchase and supply agreement ("Water Agreement") between St. George ("St. George") and Lake Marion Regional Water Agency ("Agency") this office concluded that the agreement was a municipal franchise and, thus, subject to the provisions ofS.C. Code Ann.§ 5-31-50. This decision was based upon the information available at the time. Since that initial opinion was issued we have been provided with a copy of the Water Agreement and reviewing it has clarified the relationships that it would establish between St. George and the Agency. In light of this additional infonnation , we conclude that the Water Agreement is not a municipal franchise agreement as defined in South Carolina law. Instead, the information before us indicates that the Water Agreement is a long tenn water purchase and suppJy agreement and therefore is not subject to the provisions of S.C. Code Alm. § 5-31-50. The leading and most recent case on franchise agreements is South Carolina Electric and Gas v. Town ofAwendaw, 596 S.E.2d 482, 485 (2004). In that case, the South Carolina Supreme Cou1t defined a franchise as "a special privilege granted by the government to particular individuals or companies to be exploited for private profits. Such franchisees seek permission to use public streets or rights of way in order to do business with a municipality's residents, and are willing to pay a fee for this privilege." This definition of a municipal franchise is consistent with other South Carolina cases. For example, in City ofCay ce v. AT&T, 486 S.E.2d 92, 94 (1997) the South Carolina Supreme Court held "governmental franchises are obtained by service-type businesses which seek the municipality's permission to do business with the municipality's citizens, and are willing to pay the municipality for its privileges." ln Qua!izv Towing Inc., v. City o.fA1yrtle Beach, 547 S.E.2d 862, 867 (200 l) the Court explained, " [g]ovemment franchises are traditionally service-type businesses that are willing to pay the municipality for the privilege of doing business with its citizens. A franchise is a privilege of doing that whjch does not belong to citi zens generall y by co mmo n right." See also. City of Abbe,·i/le 11• Aiken Electric Cooperatil e, Inc., 338 S.E.2d 831 ( 185). 1

R EMBERT C. D ENNIS B un.DING •

Pos-r 0 Fl'ICE Box 11549 • CoLU~11J IA , s.c. 292 1 l-1549 •

T ELEPHONE: 803-734·3970

•

F ACSIMILE: 803-253-6283

The Honorable David C. Sojourner
Page 2
June 8, 2005

Thus, under the law of South Carolina, a typical franchise agreement for a water company involves a company tha,t seeks to build a water distribution system in a municipality. The company obtains a franchise which allows it to use municipal streets and spaces to lay mains and install meters. The company then connects private customers in the city to the water system, bills them for services rendered, and shares part of the resulting profit with the city as a franchise fee.

I
I

The Water Agreement as we now understand it, does not fit this definition. The Water Agreement does not grant the Agency permission to construct a water distribution system in St. George and place mains and other distribution infrastructure on public property. The Agency will not provide water service to citizens or businesses in St. George, but will provide service only to the town's utility system. St. George will continue to have the direct contractual relationship with the citizens and businesses receiving water service, and will continue to operate the water distribution utility serving St. George. The Agency will not pay a franchise fee to St. George. Rather, St. George will pay the Agency for the water it uses. For these reasons, we conclude that the Water Agreement is not a municipal franchise. In addition, there are also provisions in the Agreement which establish that it is not exclusive and therefore does not implicate S.C. Code Ann. § 5-31-50 (2004). Specifically, the City is only contractually bound to purchase its contracted volume of potable water from the Agency. After taking that volume of water, the City is free to purchase potable water from another entity. The Agency does not have the right to exclude other water companies from operating within St. George. For these reasons, it is our conclusion that the Water Agreement is a utility supply contract, not a municipal franchise, and so does not fall under the provision of S.C. Code Ann. § 5-31-50 (2004).

If there are any questions, please advise.
Sincerely,

Charles H. Richardson
Senior Assistant Attorney General
REVIEWED AND APPROVED BY:

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Robert D. Cook
Assistant Deputy Attorney General