Are utilities created under the Tennessee Municipal Energy Authority Act regulated the same way as government-owned utilities or electric cooperatives when it comes to setting rates and fees?

Subject

Whether a Tennessee Energy Authority formed under the Municipal Energy Authority Act faces the same rate-setting requirements and regulatory oversight as a government-owned utility or an electric cooperative.

Plain-English summary

Senator J. Adam Lowe asked the AG whether the rules an Energy Authority follows for setting rates and fees match the rules that government-owned utilities and electric cooperatives have to follow. The short answer is no: the Tennessee Code gives Energy Authority boards broad rate-setting autonomy, while government-owned utilities and electric cooperatives operate under different statutory frameworks. The longer answer is more complicated because the dominant economic fact about Tennessee electricity, the Tennessee Valley Authority, sits on top of all of them.

Energy Authorities get their rate-setting power from two sections of the Municipal Energy Authority Act. Section 7-36-119(a) says the Authority must adjust rates whenever necessary to keep each system self-supporting. Section 7-36-107(a)(7) says the Authority's board may fix and collect fees, rents, tolls, and other charges based on cost, sound economy, public good, and prudent business operations, "without the necessity of review or approval by any other municipality, the state, or any commission or authority thereof or any federal agency." That phrase is the heart of the AG's answer. Energy Authorities self-set rates; nobody else has to approve them.

There are two carveouts. First, if an Energy Authority offers certain telecommunications services, the Tennessee Public Utility Commission has jurisdiction over those services (and only those services). Second, if the Authority enters a federal-statutes-or-contracts arrangement, those terms control. The second carveout matters because almost all electric utilities in Tennessee, including Energy Authorities, get their wholesale power from the Tennessee Valley Authority. TVA's contracts with local power companies routinely set resale rate schedules and other operating terms. So while Tennessee state law does not impose rate-setting oversight on Energy Authorities, TVA contracts often do, and the same TVA contractual overlay reaches government-owned utilities and electric cooperatives. That is why all of these entities can look similar in practice even though their state-law frameworks differ.

The AG also flagged a separate water and wastewater oversight regime. The Tennessee Board of Utility Regulation has supervisory authority over water and wastewater systems, including those run by Energy Authorities and government-owned utilities, with remedial powers that can include changing user rates. So when an Energy Authority operates outside electric service, additional state oversight can attach.

Government-owned utilities and electric cooperatives have parallel but distinct frameworks. The Municipal Electric Plant Law contemplates that rates may be subject to contract terms (Tenn. Code Ann. § 7-52-115(a)), and § 7-52-201 lets local governments contracting with TVA agree to whatever terms the governing body deems appropriate, including resale rates. Electric cooperatives have similar contract authority under § 65-25-105(a)(6).

The opinion does not say Energy Authorities are unregulated. It says state regulation of rate setting is light, that telecommunications and water/wastewater have specific oversight regimes, and that TVA contracts can impose practical uniformity across all electric utilities in Tennessee even when their statutory regimes differ.

What this means for you

Energy Authority boards and managers

You set rates yourselves. The statute is unusually direct about this: no other municipality, no state agency, no commission, no federal agency has to sign off. The discipline you have to follow is internal: Section 7-36-119(a) requires that you keep the system self-supporting, and Section 7-36-107(a)(7) requires that you base fees on cost, sound economy, public good, and prudent business operations. Document those four factors in your rate-setting record so that any future challenge sees a tied-out justification.

The two exceptions to your autonomy: telecommunications services bring TPUC jurisdiction over those services, and water and wastewater services bring TBOUR jurisdiction. If your Authority is multi-service, segregate the regulatory analysis by service line. The fact that TPUC oversees your fiber business does not give TPUC oversight over your electric business, and vice versa.

If you contract with TVA for wholesale electric power, your contract is doing real work. Treat the contract as a binding constraint on your retail-rate flexibility. The same is true for any federal statute that touches your operation.

City managers and municipal finance directors

If your municipality is creating an Energy Authority, understand that you are giving up direct rate-approval power. The Authority's board sets rates, and your council or commission cannot override them. That is the design. If the council wants ongoing rate input, build it into the Authority's enabling resolution and board appointments, not into a rate-approval ladder.

For bond and disclosure purposes, the rate-setting autonomy is generally a credit positive, because it lets the Authority adjust rates to maintain debt service coverage without political delay. Note in offering documents that TVA contracts may impose resale rate terms.

Customers and ratepayers

If you have a complaint about an Energy Authority's electric rates, your remedy is not the Tennessee Public Utility Commission. TPUC does not have jurisdiction over electric rates set by an Energy Authority. Take complaints to the Authority's board (which sets the rates), to the municipality that chartered the Authority (which selects the board), or to court if the rates are arbitrary or capricious or violate the self-supporting/prudent-operations standards in the statute.

If your complaint is about water or wastewater, TBOUR can act. If your complaint is about a telecommunications service the Authority offers, TPUC can act over that service.

Electric cooperative and government-owned utility officials

The opinion confirms that your statutory framework is parallel to but not identical with the Energy Authority framework. The shared TVA contract overlay is the practical thread. Your contract with TVA likely sets resale rate schedules; the AG cited the TVA Act provision (16 U.S.C. § 831i) and Holbrook v. TVA confirming TVA's contractual rate-setting authority. Operationally that means rate flexibility is bounded by the contract, not by the state regulator.

State legislators

The opinion is a clean statement of the statutory architecture. If the legislature wants more state oversight of Energy Authority rate setting, the place to amend is § 7-36-107(a)(7); the current statute is explicit about no review or approval. If the goal is more uniform treatment across utility forms, that is a bigger overhaul. The AG also noted the absence of uniform statewide oversight as a feature of the existing scheme, not a bug.

Common questions

Does an Energy Authority need PUC approval to raise electric rates?

No. The statute says fees, rents, tolls, and charges are established by the Authority's board "without the necessity of review or approval by any other municipality, the state, or any commission or authority thereof." TPUC does not have rate-setting jurisdiction over an Energy Authority's electric service.

What if the Energy Authority also runs a fiber-to-the-home or other telecom service?

Then TPUC has jurisdiction over the telecom service. But that jurisdiction is limited to the telecom service. It does not bleed back into electric rate-setting authority. Treat the regulatory scopes as silos.

Can the city council overrule the Energy Authority's rates?

Generally no. The statutory grant of rate-setting authority runs to the Authority's board. If the council disagrees with the rates, its real lever is board membership at the next appointment cycle, not a direct rate-setting veto.

Is the Energy Authority required to break even?

Yes. Tenn. Code Ann. § 7-36-119(a) requires rates to keep each system self-supporting. So while the Authority does not need outside approval, it is required to set rates high enough to cover its costs.

How does TVA fit into all of this?

TVA is a federal agency that supplies wholesale electric power to most local power companies in Tennessee. TVA's contracts can set resale rate schedules and other operating terms. The TVA Act gives TVA's board authority to include those terms (16 U.S.C. § 831i, confirmed by Holbrook v. TVA). So even though Tennessee state law leaves Energy Authorities largely free to set their own rates, the TVA contract overlay can produce practical uniformity across Energy Authorities, government-owned utilities, and electric cooperatives that buy from TVA.

What about water and wastewater?

The Tennessee Board of Utility Regulation (TBOUR) has supervisory authority over water and wastewater systems, including those operated by Energy Authorities and government-owned utilities. TBOUR remedial actions can include rate changes. So the rate-setting autonomy that applies to electric service does not transfer wholesale to water and wastewater.

Background and statutory framework

The Municipal Energy Authority Act is codified at Tenn. Code Ann. §§ 7-36-101 et seq. It lets a Tennessee municipality that already operates an electric system create a separate "Energy Authority" to provide electric, water, wastewater, and various telecommunications services. The AG's prior Op. 21-06 (May 10, 2021) confirmed that an Energy Authority can be created only by a municipality that already operates an electric system.

The rate-setting architecture is in two statutes. Section 7-36-119(a) requires the Authority to adjust rates whenever necessary to keep each system self-supporting. Section 7-36-107(a)(7) gives the Authority's board the power to fix and collect fees, rents, tolls, and other charges based on cost, sound economy, public good, and prudent business operations, without the necessity of review or approval by any other municipality, the state, any commission, any authority, or any federal agency. The two carveouts in § 7-36-107(a)(7) are "as provided in federal statutes or contracts" and "as provided in subdivision (a)(6)" (the telecom carveout giving TPUC jurisdiction over certain telecom services).

Tennessee electric utility regulation has a TVA-shaped overlay. The AG cited prior Op. 14-20 (Feb. 19, 2014) for the proposition that "almost all electric power consumed in this state is generated by TVA." TVA is treated as a federal agency under the Authority statute (Tenn. Code Ann. § 7-36-102(9)) and Authorities are explicitly authorized to contract with federal agencies (Tenn. Code Ann. § 7-36-107(a)(29)). The TVA Act, 16 U.S.C. § 831i, gives TVA's board authority to include in any contract for the sale of power "such terms and conditions, including resale rate schedules, that it judges are necessary or desirable." The Fourth Circuit's 2022 Holbrook v. TVA decision confirms that TVA sets its rates largely through contracts with local power companies who then resell to different customer classes at different rates as required by the contracts.

For comparison, the Municipal Electric Plant Law acknowledges electric service rates may be subject to contracts (Tenn. Code Ann. § 7-52-115(a)) and authorizes local governments to agree to TVA contract terms including resale rates (Tenn. Code Ann. § 7-52-201). Electric cooperatives have the same contract authority under Tenn. Code Ann. § 65-25-105(a)(6).

Water and wastewater oversight runs through the Tennessee Board of Utility Regulation, which has supervisory authority over a defined "utility system" that includes Energy Authority and government-owned water and wastewater systems (Tenn. Code Ann. § 7-82-701(b)) with remedial powers (Tenn. Code Ann. § 7-82-706).

Citations

• Tenn. Code Ann. § 7-36-102(9) (TVA listed as a "federal agency")
• Tenn. Code Ann. § 7-36-107(a)(3)-(6) (Energy Authority service authority: electric, water, wastewater, telecommunications)
• Tenn. Code Ann. § 7-36-107(a)(6) (telecommunications carveout subjecting Authority to TPUC oversight)
• Tenn. Code Ann. § 7-36-107(a)(7) (rate-setting autonomy without state, municipal, commission, or federal-agency approval)
• Tenn. Code Ann. § 7-36-107(a)(29) (Authority's contract power, including with federal agencies)
• Tenn. Code Ann. § 7-36-119(a) (self-supporting rate requirement)
• Tenn. Code Ann. § 7-52-115(a) (Municipal Electric Plant Law: rates may be subject to contracts)
• Tenn. Code Ann. § 7-52-201 (local government TVA contract terms)
• Tenn. Code Ann. § 7-82-701(b) (TBOUR utility-system definition)
• Tenn. Code Ann. § 7-82-706 (TBOUR remedial actions)
• Tenn. Code Ann. § 65-25-105(a)(6) (electric cooperative contract authority)
• 16 U.S.C. § 831i (TVA Act, board contract authority including resale rate schedules)
• Holbrook v. TVA, 48 F.4th 282 (4th Cir. 2022) (TVA rate-setting through contracts)
• Tenn. Att'y Gen. Op. 21-06 (May 10, 2021) (Energy Authority must be created by a municipality operating an electric system)
• Tenn. Att'y Gen. Op. 14-20 (Feb. 19, 2014) ("almost all electric power consumed in this state is generated by TVA")

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2025/op25-018.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
November 14, 2025
Opinion No. 25-018
Regulation of Energy Authorities Formed Pursuant to the Municipal Energy Authority Act

Question

Does a utility or energy authority formed pursuant to the Municipal Energy Authority Act have the same requirements or regulatory oversight regarding rates and fees as a government-owned utility or electric cooperative?

Opinion

Generally, no. State laws and regulations differ depending on utility type, and utilities created under the Municipal Energy Authority Act (i.e., "Energy Authorities") typically set their own rates "without the necessity of review or approval by any other municipality, the state, or any commission or authority thereof." Tenn. Code Ann. § 7-36-107(a)(7). Contracts between utilities and the Tennessee Valley Authority ("TVA"), by far the largest energy provider in Tennessee, could impose other rate- and fee-setting requirements across all types of electric utilities, but those requirements would be contract specific.

ANALYSIS

The nature of regulatory oversight connected to utility providers is by no means uniform within Tennessee. Among other things, the scope of regulation can depend on the type of service at issue. It can also depend on the form of the entity providing the service. Your question concerns the requirements of an Energy Authority formed under the Municipal Energy Authority Act (the "Act"). Although this Office has observed that such an Energy Authority may be created only by a municipality that already operates an electric system, Tenn. Att'y Gen. Op. 21-06 (May 10, 2021), the Act's scope is not limited to the electric-utility context. Rather, the Act authorizes an Energy Authority to provide electric, water, wastewater, and various telecommunications services. Tenn. Code Ann. § 7-36-107(a)(3)-(6). This opinion discusses both the general regulatory landscape applicable to Energy Authorities and the specific requirements applicable to Energy Authorities providing electric service.

Different types of utilities in Tennessee are generally subject to their own state regulatory regimes when it comes to setting rates and charging fees. An Energy Authority's rate-setting power is set forth in Tenn. Code Ann. §§ 7-36-107(a)(7) and -119. Under section 119(a), an Energy Authority "shall revise . . . rates, fees, or charges from time to time whenever necessary so that each system, or any combined systems as authorized . . . , shall be and always remain self-supporting." Tenn. Code Ann. § 7-36-119(a). And under section 107(a)(7), an Energy Authority is authorized "[t]o fix, levy, charge, and collect fees, rents, tolls, or other charges . . . based on cost, sound economy, public good, and prudent business operations." Tenn. Code Ann. § 7-36-107(a)(7). Importantly, "fees, rents, tolls, or charges shall be established by the board without the necessity of review or approval by any other municipality, the state, or any commission or authority thereof or any federal agency . . . ." Id. Thus, the general rule is that an Energy Authority's board of directors has the exclusive power to set rates and fees. But section 107(a)(7) creates two exceptions to that power: "other than as provided in federal statutes or contracts and other than as provided in subdivision (a)(6)." Id. These exceptions create the possibility of overlapping requirements for Energy Authorities and other types of utility entities.

For instance, section 107(a)(6), which is referenced in section 107(a)(7), in part subjects an Energy Authority to regulation by the Tennessee Public Utility Commission ("TPUC") if the Energy Authority provides certain telecommunications services. Tenn. Code Ann. § 7-36-107(a)(6). Under those circumstances, TPUC's authority extends only to the Energy Authority's provision of those telecommunications services. Id. The other exception in section 107(a)(7), "as provided in federal statutes or contracts," also establishes a chance for the overlap of rate-setting requirements, particularly for electric-utility entities. The vast majority of electric utilities in Tennessee receive their power from TVA. As TVA is a federal agency, contracts between TVA and an Energy Authority can affect an Energy Authority's requirements for setting rates and fees. See Tenn. Code Ann. § 7-36-102(9) (listing TVA as an example of a "federal agency"); Tenn. Code Ann. § 7-36-107(a)(29) (providing that an Energy Authority is authorized to carry out other authorized powers by contracts with, among others, a "federal agency").

This overlay of TVA contracts to Tennessee's electric-utility regulation applies beyond Energy Authorities. Concerning government-owned utilities, the Municipal Electric Plant Law also acknowledges that electric service rates may be subject to contracts. Tenn. Code Ann. § 7-52-115(a). And in a separate statutory provision, the Code specifically authorizes local governments contracting with TVA to agree to terms and conditions that "the governing body of the municipality may deem appropriate," including terms and conditions regarding resale rates. Tenn. Code Ann. § 7-52-201. The statutory scheme governing electric cooperatives is of the same general accord. In pertinent part, it provides that a cooperative has the power to make contracts with any "federal agency" for the purchase or sale of electric power and energy. Tenn. Code Ann. § 65-25-105(a)(6). And it also provides that a cooperative has the power to "stipulate and agree to such covenants, terms, and conditions as the board may deem appropriate" in connection with such contracts, including with respect to resale rates. Id.

This common link among electric utilities is significant. Indeed, this Office has noted before that Tennessee "is unique in that almost all electric power consumed in this state is generated by . . . TVA." Tenn. Att'y Gen. Op. 14-20 (Feb. 19, 2014). And under the TVA Act, TVA's Board of Directors "is authorized to include in any contract for the sale of power such terms and conditions, including resale rate schedules," that it judges are "necessary or desirable." 16 U.S.C. § 831i; see also Holbrook v. TVA, 48 F.4th 282, 286 (4th Cir. 2022) (noting that "TVA sets its rates largely through entering power contracts with local power companies, who then resell the power to different classes of customers at different rates as required by the power contracts with TVA"). Thus, although the laws and regulations applicable to Energy Authorities differ from those applicable to other types of utility entities, all electric-utility entities that contract with TVA for their power will be subject to TVA's contractual terms. There could be practical overlap pertaining to the requirements TVA imposes on these entities when they purchase power, but whether any common requirements exist in this context would be contract dependent.

It is also worth noting that in the specific contexts of water and wastewater services, Energy Authorities and government-owned utilities are both subject to the oversight of the Tennessee Board of Utility Regulation ("TBOUR"), a body whose remedial actions can include changes in user rates. See Tenn. Code Ann. § 7-82-701(b) (noting that the term "utility system" includes, among other things, the water and wastewater systems of a "county, metropolitan government, or incorporated town or city" and the water and wastewater systems of an Energy Authority); Tenn. Code Ann. § 7-82-706 (outlining remedial actions TBOUR may require of utility systems).

JONATHAN SKRMETTI
Attorney General and Reporter

JAMES P. URBAN
Senior Deputy Attorney General

MATTHEW KERNODLE
Assistant Attorney General

Requested by:
The Honorable J. Adam Lowe
State Senator
Suite 732 Cordell Hull Building
425 Rep. John Lewis Way North
Nashville, Tennessee 37243