(1)    A town, village, or city may construct, acquire, or lease, or extend and improve, a plant and equipment within or without its corporate limits for the furnishing of water to the municipality or to its inhabitants, and for the collection, treatment, and disposal of sewage, including the lateral, main and intercepting sewers, and all necessary equipment. The plant and equipment, whether the structures and equipment for the furnishing of water and for the disposal of sewage are combined or separate, may by ordinance be constituted a single public utility.

   (2)   The provisions of this chapter and chs. 196 and 197 relating to a water system, including those provisions relating to the regulation of a water system by the public service commission, apply to a consolidated water and sewage disposal system as a single public utility. In prescribing rates, accounting and engineering practices, extension rules, service standards or other regulations for a consolidated water and sewage disposal system, the public service commission shall treat the water system and the sewage disposal system separately, unless the commission finds that the public interest requires otherwise.

   (3)   A town, village or city which owns or acquires a water system and a plant or system for the treatment or disposal of sewage may by ordinance consolidate the systems into a single public utility. After the effective date of the ordinance the consolidated utility is subject to this section as though originally acquired as a single public utility.