Request By:
Mr. Darrell K. Jackson
Councilman
Lexington Fayette Urban
County Government
1950A Wickland Drive
Lexington, Kentucky 40505
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
Your letter indicates that both Kentucky Utilities Company and Kentucky-American Water Company have franchises with the Lexington-Fayette Urban County Government. However, Columbia Gas Company of Kentucky and General Telephone & Electronics do not have franchises with LFUCG.
Your questions are:
"A. Are we discriminating against Kentucky Utilities Company and Kentucky-American Water Company? If so, what are possible penalties, under the law.
"B. What is the maximum number of years, or months, permitted for these type franchises?
"C. What is the maximum rate a municipality can charge for these franchises?
"D. For clarification, any utility company operating in Kentucky -- do they have to obtain Public Service Commission approval for any rate increase, whether they have, or do not have a franchise? "
Sections 163 and 164 of the Kentucky Constitution are self-operative and confer upon municipalities and counties authority to grant franchises pertaining to subjects over which they were given supervisory jurisdiction by the laws of the state. Tri-State Ferry Co. v. Birney, 235 Ky. 540, 31 S.W.2d 932 (1930); and Warfield Natural Gas Co. v. Lawrence County, 300 Ky. 410, 189 S.W.2d 357 (1945). Counties and cities have control over the use of their roads and streets, thus they may grant franchises to utilities specifically enumerated in § 163, Constitution, and other utilities, such as cable television, which are proper subjects for control. Ray v. City of Owensboro, Ky., 415 S.W.2d 77 (1967); and City of Owensboro v. Top Vision Cable Co. of Ky., Ky., 437 S.W.2d 283 (1972). See also KRS 67.080, KRS Chs. 178 and 179, KRS 85.140, 93.050, 94.110, 94.360, and KRS Ch. 96.
The court has said that " the right granted under these sections to the cities is absolute and can not be taken away by the legislature." (Emphasis added). This strongly suggests that generally the granting of franchises is not a mandatory method for providing the services of privately owned utilities to its inhabitants. See Ray v. City of Owensboro, p. 79, above. Further, the franchise, where granted, is essentially an agreement between the granting authority and the holder and partakes of the usual incidents of a contract. See City of Owensboro v. Top Vision Cable Co. of Ky., above, p. 287.
Clearly the Lexington-Fayette Urban County Government has the authority, even as a new kind of local governmental unit, 1 to invoke the provisions of §§ 163 and and 164, Constitution, the same as cities and counties. KRS 67A.060; and Holsclaw v. Stephens, Ky., 507 S.W.2d 462 (1974). The court wrote in the latter case, at page 470, that it could find nothing in the Constitution which requires that subdivisions of local government be limited to cities and counties. Also note that Article 3 of the charter of LFUCG provides that the merged government shall have all powers and privileges of second class cities and counties and urban county governments, including the power to provide for and regulate the use of roadways and the power to grant franchises and rights-of-way through the streets and roads and other public property of the merged government. See KRS 67A.060.
Judge Clay, in Bastin Telephone Co. v. Davidson, 176 Ky. 23, 195 S.W. 148 (1917), pointed out that there is " nothing " in §§ 163 and 164, Constitution "which makes it the duty of a municipality to sell a franchise. " (Emphasis added). The court ruled that the granting of a franchise is a legislative act, to be exercised or not as the legislative body may determine. In other words, the council of each city is vested with a lawful discretion to grant or withhold a franchise, and such discretion cannot be controlled by mandamus. In Bastin Telephone, above, telephone companies had the statutory right to condemn public land for rights of way where such rights of way could not be obtained by contract. See KRS 278.540 [also 416.150], which excepts cities. The old statute, K.S. § 4679d excepted cities. The court in Bastin distinguishes the situation in Christian-Todd Telephone Co. v. Commonwealth, 156 Ky. 557, 161 S.W. 543 (1913) 547, where the court said that the telephone condemnation statute and § 164, Constitution, would have to be read together. Thus telephone companies had the right, with the consent of fiscal court, to occupy with their poles and wires the public roads of the counties, etc. The court held in effect that the only method would be by way of a franchise issued by the fiscal court under § 164. The court added that a telephone company could, by mandamus, compel the fiscal court to issue a franchise where it abritrarily refuses to do so. See KRS 278.502 2 relating to gas companies; and KRS 416.540 et seq.
In Bastin there was no telephone condemnation statute applicable to cities. Thus §§ 163 and and 164, Const., were the only authorities to consider, and the granting of a city franchise is purely discretionary and the council could not be mandamused. In the Christian-Todd Telephone case the telephone condemnation statute was held applicable to counties as relates to granting of a franchise. Where the county arbitrarily refused to let a franchise a mandamus would lie. But importantly the telephone condemnation provisions, as such, cannot apply to a county or city since the constitutional right of local governments to grant a utility franchise cannot be modified or taken away by mere legislative action.
Under the above analysis, cities are not required to grant an initial franchise to gas and telephone companies, while counties are required to offer franchises to telephone companies, but not to gas companies. Since we assume the two utilities [gas and telephone] located their lines in the city of Lexington before the urban county government came into existence, and that there is no present problem as to expiration of an existing franchise, 3 we see no discrimination as concerns the Kentucky Utilities Company and Kentucky-American Water Company. Moreover, KRS 67A.030 provides that all franchises of the existing county government and municipality within the county shall be assumed by urban county government.
If the merged government came into existence and the subject gas and telephone companies had unexpired franchises from the county or city of Lexington, then the merged government had the duty to assume the franchise contracts, and would be subject to KRS 96.010 [offer a new franchise where the old will expire]. If the merged government came into existence and the subject gas and telephone companies had no franchises from the county or city of Lexington, then the merged government is not required to grant a franchise to the gas 4 company or telephone 5 company.
As to question no. B, a franchise granted under §§ 163 and 164, Constitution, can not exceed twenty years.
Question No. C concerns the rate or pay for granting a franchise. Sections 13 and 242 of the Constitution require that just compensation be paid for taking property [condemning] for a public use. The compensation is limited to the loss sustained, where condemnation becomes necessary. 6 Commonwealth, Department of Highways v. Sherrod, Ky., 367 S.W.2d 844 (1963). However, since a franchise involves a contract, the franchise price is determined by the award and contract documents, after bidding procedure.
Question D is whether any utility company operating in Kentucky has to obtain Public Service Commission approval for any rate increase, whether they are operating under franchises or not.
KRS 278.010 excludes from the regulatory control of the Public Service Commission municipally owned and operated utilities. However, if the utilities you have in mind do not include municipally owned and operated utilities, then such utilities would have to petition the PSC for any rate increases, regardless of whether they are operating under franchises from local governments or not. See KRS 278.030 and 278.040. While municipalities generally have the authority, in an initial franchise granted to a utility, to establish reasonable provisions for service and rates under §§ 163 and 164, Constitution, 7 thereafter such utility, as to service and rates, is subject to the exclusive jurisdiction of the Public Service Commission. This is merely the police power of the state in the exercise of its power of regulation. Union Light, Heat & Power Co. v. City of Covington, 282 Ky. 558, 139 S.W.2d 64 (1940);Southern Bell Telephone & Telegraph Co. v. City of Louisville, 265 Ky. 286, 96 S.W.2d 695 (1936); and Peoples Gas Co. of Kentucky v. City of Barbourville, 291 Ky. 805, 165 S.W.2d 567 (1942) 570.
Footnotes
Footnotes
1 Neither a city governmentnor a county government, according to Holsclaw v. Stephens.
2 Oil and gas companies may condemn private property only. See KRS 416.540(1). Telephone companies cannot, as shown above, condemn the streets or roads of cities and counties.
3 See KRS 96.010; and Seaton v. Lackey, 298 Ky. 188, 182 S.W.2d 336 (1944) 339.
4 See KRS 278.502; Bastin Telephone Co. v. Davidson, 176 Ky. 23, 195 S.W. 148 (1917); and §§ 163 and 164, Ky. Const.
5 See KRS 278.540, which excludes cities. The merged government is not a city or county. See KRS 67A.060. In a conflict between city and county derivative powers, we believe the courts would opt in favor of city derived powers in this situation.
6 Here the utilities in question cannot condemn city or county streets because of §§ 163 and 164, Const.
7 See Christian-Todd Telephone Co. v. Commonwealth, 156 Ky. 557, 161 S.W. 543 (1913) 545.