Request By:
Mr. Joe Lamb, Editor
The Morehead News
722-730 West First Street
Morehead, Kentucky 40351
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Thomas R. Emerson, Assistant Attorney General
This is in reply to your letter stating that your newspaper continually receives complaints concerning the failure of the city's utility plant board, which provides the city with water, gas and sewer service, to return service deposits for utility services until a person either no longer rents the house which uses the services or sells the home which uses the services. In your opinion such a practice is improper but the city's utility plant board has refused to change its practice of not paying back a deposit even after a customer establishes good paying habits. You state that if the utility plant board does return a deposit when service is terminated, the customer does not receive interest on the refunded deposit. You refer to KRS 278.460 and OAG 60-432 and ask whether the utility plant board's practices are illegal and, if they are, what can be done to correct the situation.
It is a generally recognized principle that a public utility may require a deposit from its customers, provided it is reasonable and it is not discriminatory. The requirement of a deposit is designed to reduce the bad debt losses of a public utility as the deposit represents security for payment of future services. See 64 Am.Jur.2d, Public Utilities, §§ 40 and 46. Furthermore, in 43 A.L.R.2d 1262, 1263, it is stated that as security for services to be rendered, utility companies frequently require a deposit from the customer, generally under an agreement that the company will pay interest thereon and will return the deposit upon discontinuance of the service. We do not know whether there is a specific agreement between the utility plant board and its customers and, if there is, what the specific terms of that agreement are; but, nevertheless, certain basic principles exist in any event.
This office has consistently maintained that a municipal utility should pay interest on deposits required of its customers which deposits, with the interest, should be refunded to the customers when they cease to be patrons of the utility. See OAG's 79-418, 78-449, 77-477 and 77-353, copies enclosed. Although there is no specific statute requiring municipally-owned utilities to pay interest and to refund service deposits, interest should be paid and the deposits refunded (provided it is not necessary to use the deposits to cover delinquent accounts) at the time service is discontinued under the general principles set forth in
Commonwealth v. Kentucky Power & Light Co., 257 Ky. 66, 77 S.W.2d 395 (1934).
In the above-cited case, the Court construed essentially the present provisions of KRS 278.460 as requiring a public utility company to refund the service deposit with interest when the customer ceases to be a patron of the company. Although KRS 278.460 is not applicable to municipally-owned utilities under the terms of KRS 278.010(3), (4) and (5), the Court said in part, at page 396 of its opinion in the Kentucky Power & Light Co. case, supra, as follows:
". . . In arriving at what the Legislature intended by this act, we must remember that the deposit of the customer was subject at all times to a demand by the customer for its return. The customer, of course, would in that contingency have to cease to be a patron of the company or make other arrangements about securing his bill. The deposit being subject to this demand for its return at all times, it partook of the nature of a demand loan. In the case of
Union Light, Heat & Power Co. v. Mulligan, 177 Ky. 662, 197 S.W. 1081, this court held that if a public service company requires a deposit as here it must pay interest thereon. . . ."
Therefore, although there is no specific statute requiring municipally-owned utilities to refund service deposits with interest, it is our opinion that such deposits should be refunded with interest under the general principles cited in