August 20, 1976

Mr. R.D. Schreiner
City Attorney
Big Stone City, South Dakota 57216

OFFICIAL OPINION NO. 76-76

Whether city council has authority to enter into a power sale agreement with the Missouri Basin Municipal Power Agency for the purchase of excess power

Dear Mr. Schreiner:

You have requested an opinion from this office in regard to the following factual situation.

FACTS:

The question has recently arisen whether or not the City Council has authority to enter into a Power Sale Agreement with the Missouri Basin Power Agency for the purchase of excess power, which agreement provides that the duration of said agreement will be:

This agreement shall become effective on the day, month and year first above written and shall remain in effect until January 1, 2016, and thereafter as provided by law until ter­minated by the agency or the municipality giving to the other not less than one (1) year written notice of its intention to ter­minate.

Based on the above facts you ask:

QUESTION:

Can the present City Council enter into such a binding agreement for the purchase of excess power which agreement is to run for a period of 40 years and which would bind future city councils?

SDCL 9-21-11 provides:

The governing body may enter into a contract for any term of years as said governing body may determine with any person for the sale by him and purchase by the municipality of water, gas, or electric­ity, provided, however, that any contract entered into with the United States government, or any agency or department thereof, providing for the sale and purchase of water or the acquisition of a municipal water supply, may be for any term of years as said governing body may determine, or for the leveling or improvement of irrigable lands belonging to the municipality, which lands were on February 20, 1953, located and situated within the boundaries of an existing irrigation district. If such contracts shall extend for more than one year, an appropriation need not have been previous­ly made concerning such expense, except sufficient to cover the amount payable or estimated to become payable under such con­tract for the first year thereof, and the governing body shall an­nually thereafter sufficiently appropriate to cover the amount payable or estimated to become payable under such contract during the ensuing fiscal year.

Such contracts shall be subject to referendum as ordinances.

The above cited statute is quite clear, I believe, in that long-term contracts for the purchase of necessities such as electricity, are allowable contracts for governing bodies of a municipality to sign. The statute is also clear in that it provides that the term of years of such contract may be for a length of time as determined by the governing body, subject to the last paragraph of the above cited statute relating to referendum on such contracts.

The only case cited in the annotations under SDCL 9-21-11, is the case of Robbins v. Rapid City, 71 S.D. 171, 23 N.W. 2d 144 (1946). In that case, one of the questions involved was whether a municipality could sign such a long-term contract, without violating constitutional provisions limiting the indebtedness of municipalities. On this point the Court said:

We think the weight of authority as well as of reason, favors the more liberal construction, that a municipal corporation may con­tract for a supply of water or gas, or a like necessary, and may stipulate for the payment of an annual rental for the gas or water furnished each year, notwithstanding the aggregate of its rentals during the life of the contract may exceed the amount of the in­debtedness limited by the charter. There is a distinction between a debt and a contract for a future indebtedness to be incurred, pro­vided the contracting party perform the agreement out of which the debt may arise. There is also a distinction between the latter case and one where an absolute debt is created at once, as by the issue of railway bonds, or for the erection of a public improvement, though such debt be payable in the future by installments. In the one case the indebtedness is not created until the consideration has been fur­nished; in the other, the debt is created at once, the time of pay­ment being only postponed.

In view of the above cited statute and the Robbins decision, it is my opinion that the proposed contract you refer to is not unlawful by virtue of the fact that it is a 40 year contract which would bind future city councils. The law of South Dakota specifically allows such long-term contracts for necessities such as gas, water and electric service.

Respectfully submitted,

WILLIAM J. JANKLOW
ATTORNEY GENERAL

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