Sec. 552.902. OPERATION OF CERTAIN ELECTRIC LIGHT AND POWER SYSTEMS BY HOME-RULE MUNICIPALITIES. (a) If a home-rule municipality, whose charter authorizes it to furnish electric light and power service inside and outside the municipal boundaries, owned and operated a municipal electric system as of July 4, 1949, and on that date owned and operated a rural electric system as a unit separate from the municipal system, and if the governing body of the municipality set up a rural electric system as a separate system, the bonds, mortgages, warrants, or other evidences of indebtedness are obligations of the system which they benefitted. The obligations of one system do not apply to or affect the other system.

(b) Any issued obligation of a system is not a debt of the municipality but is only a charge on the properties of the system and may not be considered in determining the ability of the municipality to issue bonds for any purpose authorized by law.

(c) The expense of operation and maintenance of each system is a first lien and charge against the income of the system. Operation and maintenance expenses include salaries, labor, repairs, cost of electrical energy, interest, repairs or extensions necessary for efficient service, and other proper operation and maintenance expenses.

(d) The governing body of the municipality shall charge and collect for each service a rate sufficient to:

(1) pay operation and maintenance expenses, depreciation, replacement, improvement, and interest;

(2) pay the principal of and interest on obligations issued against each system separately; and

(3) maintain any reserves required by the ordinance authorizing the issuance of the obligations.

(e) None of the income of a system may be used to pay any other debt, expense, or operation until the secured indebtedness is finally paid.

(f) Each evidence of indebtedness issued by a municipality to which this section applies must contain the clause: "The holder of the instrument hereof shall never have the right to demand payment of this obligation out of any funds raised or to be raised by taxation." The evidence of indebtedness must be payable not more than 40 years from the date of the instrument and may bear interest at a rate not to exceed five percent a year. The instrument must be signed by the mayor and countersigned by the municipal secretary. Facsimile signatures of those officers may be printed on interest coupons attached to the instrument.

(g) A municipality to which this section applies is not required to submit an instrument issued against either of the systems to any public official of this state. The only approval required or authorized by this section is that of the governing body of the municipality. An obligation issued under this section is not contestable after issuance and delivery except for fraud and forgery.

(h) This section does not authorize a municipality to construct facilities or furnish electric power and energy to an area served with central station electric service as of July 4, 1949.

(i) An obligation issued under this section is exempt from state or local taxation.

(j) After a finding that a merger is in the best interests of its separately owned rural electric system and its municipal electric system, the governing body of a municipality to which this section applies may by ordinance order a merger of the systems. After the merger, all laws relating to the municipal electric system, including laws relating to authorization and issuance of bonds, apply to the merged system.

Acts 1987, 70th Leg., ch. 149, Sec. 1, eff. Sept. 1, 1987.

Renumbered from Local Government Code, Section 402.902 by Acts 2007, 80th Leg., R.S., Ch. 885 (H.B. 2278), Sec. 3.76(a)(2), eff. April 1, 2009.