in-20260805-IR-010260262AOA: OFFICE OF THE ATTORNEY GENERAL

OFFICE OF THE ATTORNEY GENERAL Official Opinion 2026-2 June 29, 2026 The Honorable Ed Soliday Indiana House of Representatives 200 West Washington Street Indianapolis, Indiana 46204 RE: Regulated Territory Ordinances and Municipal Annexation Dear Representative Soliday: This opinion addresses your request to the Indiana Office of the Attorney General (“OAG”) regarding the authority of a municipality to: (1) unilaterally adopt regulated territory ordinances outside its municipal boundaries; and (2) enter into an agreement with another municipality to annex territory. QUESTIONS PRESENTED BRIEF ANSWERS ANALYSIS

I. The Commission Has Exclusive Jurisdiction Over the Provision of Utilities in Regulated Territories.

Under Indiana's Home Rule Statute,2 a municipality generally has exclusive jurisdiction over the area inside its corporate boundaries, unless a statute provides otherwise. Within its corporate boundaries, a municipality may act pursuant to all powers granted by statute and all other powers necessary or desirable in the conduct of its affairs, even if not granted by statute. IC 36-1-3-4. Specifically, a municipality has exclusive jurisdiction over the provision of utility services within its boundaries. IC 8-1.5-3-3. Municipalities may operate a utility within the corporate boundaries for the purpose of producing and furnishing heat, light, water, and/or power to the municipality and/or the public in and around six (6) miles of the municipal boundaries, without the consent of the Indiana Utility Regulatory Commission, even if there is another public utility operating within the municipality that is engaged in a similar service. IC 8-1-2-86. The municipality simply acts as a second utility that serves the same area as the pre-existing public utility, and any permit, license, or franchise that interferes with the existence of a second public utility that services the same area is against public policy. Id. The area inside a municipality's corporate boundaries comprises its territorial jurisdiction. IC 36-1-3-9. However, there are situations in which Indiana law authorizes a municipality to exercise power in areas outside its corporate boundaries. Id. Whenever a statute authorizes a municipality to exercise power in areas outside its corporate boundaries, the municipality may exercise the power inside the corporate boundaries of another municipality, but only if both municipalities, by ordinance, enter into an Interlocal Cooperative Agreement under IC 36-1-7. So, while it is possible for one municipality to provide utilities within another municipality's jurisdiction, that can only be accomplished by agreement of both parties. Municipalities may also exercise certain powers within the unincorporated areas surrounding their corporate boundaries. For example, municipalities can exercise powers related to sewage works in areas within ten miles of the corporate boundaries. IC 36-9-23-36. Powers concerning waterworks and disposal of wastewater can be exercised within four miles of the corporate boundaries. IC 36-9-2-18. While municipalities may be authorized by statute to exercise power in surrounding, unincorporated areas, the provision of utilities in these areas - known as “regulated territories” - fall under the jurisdiction of the Commission. IC 8-1.5-6-2, -6. Therefore, if a municipality wishes to be the exclusive provider of utilities in an unincorporated area, or if a municipality wants to prohibit another utility from providing services in an unincorporated area, the municipality must first receive approval from the Commission. The Regulated Territory Statute requires municipalities to petition the Commission for approval prior to enforcing regulatory ordinances that either: (1) assert the exclusive authority of the municipality utility to provide service within a regulated territory; or (2) prohibit another utility from providing utility service in the regulated territory. IC 8-1.5-6-3. The provision of service by a utility in a regulated territory falls under the exclusive jurisdiction of the Commission. IC 8-1.5-6-6. Moreover, the Regulated Territory Statute vests the Commission with the authority and duty to resolve all issues raised in the petition to approve a proposed regulatory ordinance, which may include “addressing other utilities that are or could provide service in the area.” Delaware Cnty. Reg'l Wastewater Dist. v. Muncie Sanitary Dist., 151 N.E.3d 1238, 1247 (Ind. Ct. App. 2020) (DCRWD). The Court of Appeals in DCRWD further reasoned that the “General Assembly passed the Regulated Territories Statute[s] in 2014 for the purpose of making the Commission the referee in disputes over service in regulated areas.” Id. at 1245.3 IC 8-1.5-6-9 requires the Commission to review and approve all proposed regulatory ordinances that attempt to assert an exclusive right by one municipal utility to provide service or that attempt to prohibit another utility from providing services in unincorporated areas outside the corporate boundaries of a municipality.4 A municipality may not enforce a regulatory ordinance of this kind until it receives approval from the Commission. A municipality must include in its petition, among other things, a list of any utilities actually or potentially affected by the proposed regulatory ordinance. IC 8-1.5-6-9(b)(4). After the Commission gives notice and holds a public hearing on the petition, the Commission shall issue an order “resolving all issues presented in the petition,” including the “enforceability of the regulatory ordinance in the manner that the [C]ommission determines is in the public interest.” IC 8-1.5-6-9(c). IC 8-1.5-6-8(g) requires the Commission to consider the following statutory public interest factors when considering whether to approve a municipality's proposed regulatory ordinance: Thus, the Commission has discretion to consider other non-statutory factors that may be relevant in any given case, such as: the financial solvency of the competing utilities, demands or strains on the existing systems in place, the environmental impact, and the age of existing property, plant, and equipment. The General Assembly intended that the Commission weigh all of the statutory and relevant non-statutory factors when making its determination to approve or disapprove a proposed regulatory ordinance. See DCRWD, 151 N.E.3d at 1247-48 (reasoning that the Commission is tasked with “evaluating [a utility's] ability to provide service and their history of service, and making a decision that is in the best interest of the public.”). In the event a Commission's determination order is challenged, the reviewing court will apply a multi-tiered approach and first assess whether the Commission's findings of fact are supported by substantial evidence. N. Indiana Pub. Serv. Co. v. U.S. Steel Corp., 907 N.E.2d 1012, 1016 (Ind. 2009). The reviewing court will only consider the evidence most favorable to the Commission's order and will not assess the credibility of witnesses or reweigh the evidence. Id. “At the second level, the order must contain specific findings on all the factual determinations material to its ultimate conclusions.” Id. Third, the reviewing court will determine whether the Commission's order is contrary to law. Id. “Insofar as the order involves a subject within the Commission's special competence, courts should give it greater deference.” Id. A well-crafted order from the Commission addressing these public interest factors is more likely to withstand judicial scrutiny. Accordingly, each statutory factor under IC 8-1.5-6-8(g) should be specifically detailed in the order and supported by substantial evidence. Rates, future economic development, and the history of utility service and the impact on existing contracts must be addressed and considered in detail.5 The effect of the Commission's order on customer rates and charges for service provided in the regulated territory may require studies and expert testimony supported by data. The same evidentiary rigor should also apply to determine the effect of the commission's order on present and future economic development in the regulated territory. However, an order that considers only pre-existing contracts and ignores the other statutory factors would be contrary to law and not withstand judicial scrutiny. Even so, impairment of contracts is certainly an important consideration, especially where such an impairment would have an impact on the other statutory factors like present and future economic development and rates charged to consumers. To protect the interests of any utilities that may already be providing service in the regulated territory, the Commission shall, upon the filing of a petition for review of a proposed regulatory ordinance by a municipality, “encourage all utilities listed under subsection (d)(4) to reach a mutual agreement that apportions the provision of service in the regulated territory among the utilities.” IC 8-1.5-6-8(e)(1). IC 8-1.5-6-10 vests the Commission with the duty to resolve all service disputes between utilities in regulated territories. The Regulated Territory Statute does not, on its face, explicitly state that the Commission may not approve a regulatory ordinance that directly interferes with or effectively invalidates an existing contract for service in the regulated territory. Instead, the statute requires the Commission to, where feasible, promote the resolution of disputes through mutual agreement between the utilities involved. The Indiana Supreme Court has consistently confirmed its commitment to advancing the public policy in favor of enforcing contracts. See Trimble v. Ameritech Publ'g, Inc., 700 N.E.2d 1128, 1129 (Ind. 1998) (citing Fresh Cut, Inc. v. Fazli, 650 N.E.2d 1126, 1129 (Ind. 1995)). Indiana courts recognize that it is in the best interest of the public not to unnecessarily restrict persons' freedom to contract. Id. “Courts have refused to enforce private agreements that contravene statutes, clearly tend to injure the public in some way, or are otherwise contrary to the declared public policy of Indiana.” Id. (citing Fresh Cut, Inc., 650 N.E.2d at 1130.) (See Cont'l Basketball Ass'n, Inc. v. Ellenstein Enters., Inc., 669 N.E.2d 134, 139 (Ind. 1996)). The language in IC 8-1.5-6-8(g)(4) and -9(c) clearly is designed to ensure the Commission gives fair consideration to any pre-existing agreements to provide services and to work with the parties to resolve territory disputes. In furtherance of protecting the public, the Commission may only approve mutual agreements that resolve territory disputes if the Commission determines the mutual agreement to be in the public interest. If the utilities are unable to reach a mutual agreement regarding the provision of utility services in the regulated territory, the Commission is tasked with resolving the dispute itself, while considering the factors set out in IC 8-1.5-6-8(g). It is well known that Indiana courts prohibit outside third parties from interfering with contracts for similar public policy reasons. “Indiana has long recognized that intentional interference with a contract is an actionable tort[.]” Winkler v. V.G. Reed & Sons, Inc., 638 N.E.2d 1228, 1234 (Ind. 1994) (citing Bochnowski v. Peoples Fed. Sav. & Loan, 571 N.E.2d 282, 284 (Ind. 1991)). “This cause of action recognizes the public policy that contract rights are property, which are entitled to enforcement and protection from, under proper circumstances, those who tortiously interfere with rights.” Haegert v. McMullan, 953 N.E.2d 1223, 1233 (Ind. Ct. App. 2011). However, by requiring the municipality proposing the ordinance to list any other affected utilities, the statute “recognizes a possible overlap in service from competing utilities,” and allows the Commission to work with the parties to avoid any interference with pre-existing agreements. See DCRWD, 151 N.E.3d at 1245. In DCRWD, the Court of Appeals affirmed the Commission's approval of regulatory ordinance granting the Muncie Sanitary District an exclusive license to provide sewer services to customers in unincorporated areas within several miles of municipal boundaries, even though the area was part of the DCRWD's existing sewer service territory. Id. The final approved license excluded areas currently being serviced by DCRWD to avoid any overlap or interference with DCRWD's services. Id. Additionally, the General Assembly has granted the Commission authority to assume immediate and exclusive jurisdiction over municipal utilities if competing utilities cannot reach a mutual agreement. IC 8-1.5-6-8(e)(2). Any order by the Commission that fails to resolve all issues will likely be remanded to the Commission by a reviewing court.

II. A Municipality Cannot Bargain Away Its Authority to Annex Territory

Annexation authority is exclusively governed by statute. Indiana's Annexation Statutes6 establish comprehensive and exclusive procedures by which a municipality may annex adjacent territory. The statutes provide multiple mechanisms for annexation, including annexations initiated by municipalities under IC 36-4-3-3 (contiguous territory) and 36-4-3-4 (noncontiguous territory) and annexations initiated by property owners under IC 36-4-3-5 (certain petitions requesting ordinance to annex, filed before July 15, 2015), 36-4-3-5.1 (petitions signed by 100% of landowners), and -5.2 (certain residential developments). Regardless of the procedural path, the final and indispensable act in every annexation is the adoption of an annexation ordinance by the municipal legislative body. See, e.g., IC 36-4-3-3(a), 36-4-3-4(a), 36-4-3-5.1(f), and 36-4-3-5.2(h) (2025). Annexation is, therefore, a legislative act. Bradley v. City of New Castle, 764 N.E.2d 212, 215 (Ind. 2002) (citing Rogers v. Mun. City of Elkhart, 688 N.E.2d 1238, 1239 (Ind. 1997)). A fundamental principle of Indiana law is that a legislative body cannot, by agreement or otherwise, divest itself or future legislative bodies of authority granted by statute. Nearly 150 years ago, the Indiana Supreme Court recognized “[t]hat a municipality can not abridge its legislative power by contract, and that it can not impair a contract by its legislative power[.]” City of Indianapolis v. Indianapolis Gaslight & Coke Co., 66 Ind. 396, 404 (1879). Moreover, a municipal legislative body cannot limit the discretionary functions of its successors. Allen Cnty. Council v. Stellhorn, 729 N.E.2d 608, 612 (Ind. Ct. App. 2000) (citing, inter alia, State ex rel. Scott v. Hart, 43 N.E. 7, 8 (Ind. 1896) (“[I]t may be correctly said that [a county] board of commissioners cannot by contract preclude itself or its successors from the right and duty to exercise the powers given it by statute, when, in its judgment or discretion, it is deemed necessary so to do.”); Pippenger v. City of Mishawaka, 88 N.E.2d 168, 171 (Ind. Ct. App. 1949) (finding that municipal corporation may not bargain away its right to exercise discretion)); cf. S. Ind. Gas & Elec. Co. v. City of Boonville, 20 N.E.2d 648, 652 (1939) (reasoning that, “if attempted to be contracted away, [eminent domain] may be resumed at will”). Because annexation authority is conferred by statute, it can only be exercised in the manner authorized by statute and may not be altered, restricted, or reassigned by agreement or any other means. Thus, a municipality cannot agree to divest itself of its annexation authority. As a general rule, political subdivisions may enter into interlocal agreements.7 IC 36-1-7 (2025). Annexation of territory, however, would be an inappropriate matter for an interlocal agreement and for good reason - it would bind future legislative bodies of the municipality. Additionally, IC 36-4-3-2 prohibits a municipality from annexing territory that is inside the corporate boundaries of another municipality. The General Assembly specifically provided the only way around this prohibition: A merger of municipalities under IC 36-4-2 (2025). Any agreement under which one municipality promises not to annex certain territory or agrees that another municipality has the exclusive right to annex that territory would constitute an impermissible restriction on the ability of future legislative bodies to exercise annexation authority expressly granted by the Annexation Statutes. Such an agreement would be contrary to Indiana law and unenforceable. Furthermore, under IC 36-4-3-5 and -5.1, providing for annexation requested by landowners, the failure of the applicable municipal legislative body to adopt an annexation ordinance can be appealed to a trial court, and the trial court is required to order the proposed annexation to take place if the requesting landowners demonstrate that the enumerated requirements exist. IC 36-4-3-5(e) establishes the procedure for judicial review of a municipality's failure to approve a landowner-initiated annexation petition 1) filed under IC 36-4-3-5 within 150 days or 2) filed under IC 36-4-3-5.1 within 60 days: If the evidence does not establish all four (4) of the preceding factors, the court shall deny the petition and dismiss the proceeding. An agreement between municipalities, such as an interlocal agreement, cannot override this statutory mandate. Accordingly, any agreement attempting to do so would be unenforceable and void ab initio. See, e.g., Tracy v. Morell, 948 N.E.2d 855, 865 (Ind. Ct. App. 2011) (“[T]he courts cannot be called upon to enforce contracts that violate the law or that violate public policy.”); Tolliver v. Mathas, 512 N.E.2d 187, 189 (Ind. Ct. App. 1987) (“Generally, a contract made in violation of a statute is void.”). A municipality cannot, therefore, contract away its annexation authority through an agreement, interlocal or otherwise. CONCLUSION A municipality cannot unilaterally enforce a regulatory ordinance that effectively invalidates a pre-existing agreement for services between another municipality and a developer with a property interest in the regulated territory. The Commission has exclusive jurisdiction to decide all disputes in Regulated Territories. The Commission is required to conduct a hearing and consider statutory and other relevant factors in its determination under the Regulated Territory Statute. In addition, two municipalities may not lawfully enter into any agreement establishing annexation rights for a certain area, as annexation is a legislative act governed solely by the Annexation Statute. Municipalities lack the authority to bind future legislative bodies, restrict statutory annexation rights, or override statutory annexation procedures through intergovernmental agreement. Any such agreement would therefore be inconsistent with Indiana law and unenforceable. Sincerely, Todd Rokita Attorney General of Indiana Joby D. Jerrells, Chief Counsel, Advisory Division Christopher M. Anderson, Asst. Chief Counsel Katie Bancroft, Deputy Attorney General _________________________ 1 IC 8-1.5-6. 2IC 36-1-3-9. 3 Prior to passage of the Regulated Territory Statute, the Court of Appeals addressed overlapping districts in Town of Newburgh v. Town of Chandler, 999 N.E.2d 1015, 1021 (Ind. Ct. App. 2013) (applying previous “first in time rule” and reasoning that a “commission in the executive branch could likely produce more effective and efficient results" than the courts). After Town of Newburgh was decided, the General Assembly in the next legislative session passed the Regulatory Territory Statute. See P.L. 213-2014, Sec. 7. 4 A petition filed by the Town of Whitfield, Lake County under the Regulated Territory Statute is currently pending on the Commission's docket in Cause No. 45992 (available at: https://iurc.portal.in.gov/advanced-search/). 5 For example, long-standing contracts or those with a substantial impact should also be considered and supported by documentary and testimonial evidence. While not a definitive factor, the impairment of contracts must be considered as a part of this statutory factor. See IC 8-1.5-6-8(g)(4); see also U.S. Const. Article 1, Section 10 (contracts clause) and Ind. Const. Article 1, Section 24 (same). 6 IC 36-4-3. 7 Approval of the Attorney General may also be required for certain interlocal agreements. See IC 36-1-7-4.