Alabama Power Co. v. Citizens of State of Ala.

• Citation: 527 So.2d 678
• Parties: ALABAMA POWER COMPANY v. CITIZENS OF the STATE OF ALABAMA, et al. DIXIE ELECTRIC COOPERATIVE, et al. v. The CITIZENS OF the STATE OF ALABAMA, et al. 86-1007, 86-1008.
• Decision Date: 26 February 1988
• Court: Supreme Court of Alabama

Page 678

527 So.2d 678

ALABAMA POWER COMPANY v. CITIZENS OF the STATE OF ALABAMA, et al.

DIXIE ELECTRIC COOPERATIVE, et al. v. The CITIZENS OF the STATE OF ALABAMA, et al.

86-1007, 86-1008.

Supreme Court of Alabama.

Feb. 26, 1988.

On Rehearing June 17, 1988.

Charles M. Crook, Robert A. Buettner, John F. Mandt, and Karl R. Moor of Balch & Bingham, and Robert A. Huffaker and J. Theodore Jackson, Jr., of Rushton, Stakely, Johnston & Garrett, Montgomery, for appellants.

Robert D. Thorington, W. Stanley Gregory and Wendell Cauley of Johnson & Thorington, and Robert D. Segall of Copeland, Franco, Screws & Gill, Montgomery, Robert H. Walstohn of Cabaniss, Johnston, Gardner, Dumas & O'Neal, Birmingham, for appellee City of Opelika.

John P. Adams of Bradley, Arant, Rose & White, Birmingham, for amicus curiae Utilities Bd. of City of Sylacauga.

James M. Campbell, Speaker Pro Tem., House of Representatives, Alabama State Legislature, Anniston, for Concerned Members of Alabama State Legislature.

Wallace F. Tillman, Sr. Regulatory Counsel, for amicus curiae Nat. Rural Elec. Co-op. Ass'n.

Drayton N. Hamilton, Montgomery, for amicus curiae Alabama League of Municipalities.

Albert L. Jordan and William A. Ratliff of Wallace, Brooke & Byers, Birmingham, for amicus curiae City of Lincoln, Ala., in support of application for rehearing.

TORBERT, Chief Justice.

These appeals are from a Montgomery County Circuit Court judgment declaring Code 1975 §§ 37-14-1 to -17 (Supp.1986) (the "1984 Act") and Code 1975 §§ 37-14-30 to -40 (Supp.1986) (the "1985 Act") unconstitutional and invalid in their entirety under Article 12, Section 220, of the Constitution of Alabama of 1901. The original plaintiffs, 22 electric cooperatives, initiated the proceedings below by filing a complaint pursuant to the 1984 and 1985 Acts' "validation" mechanisms for a judicial consideration of the Acts' constitutionality, and also pursuant to the Alabama declaratory judgment statute. The plaintiff cooperatives named as defendants all municipal electric suppliers in the state, Alabama Power Company, and the citizens of Alabama. Alabama Power Company was later realigned as a party plaintiff. The plaintiffs are the appellants here.

The 1984 and 1985 Acts were enacted for the putative purpose of minimizing or eliminating the deleterious effects of wasteful duplication of electric distribution facilities in the State of Alabama; and both Acts sought to address the problem of duplication in a similar fashion by establishing a comprehensive statewide system of service territories and assigning a territory to each of the State's retail electric suppliers. In order to understand the issues presented, it is necessary to present some information on the current state of the power suppliers in Alabama.

1. Retail Electric Suppliers in Alabama: Three categories of entities operate electric distribution facilities for retail electric service in the State: 1) public utilities subject to the regulation of the Alabama Public Service Commission ("APSC"); 2) rural electric cooperatives; and 3) municipally owned and operated systems ("municipal electric suppliers"). Alabama Power Company ("APCo") is the only public utility serving at retail and subject to the APSC at the present time.

2. Regulation of Facility Duplication Prior to 1984.

a) Inside Municipal Limits: The majority of the municipalities outside the Tennessee Valley Authority (TVA) service area have granted franchises to APCo to provide retail electric service to their citizens. A small number have selected cooperatives as their franchisees. Thirty-six municipalities in Alabama have established municipal electric suppliers. Any extension of electric distribution systems within municipal limits must be approved by municipal authorities.

b) Outside Municipal Limits: There have been few, if any, restrictions on extensions outside municipal limits. APCo is restricted by Code 1975, § 37-4-28, which provides that no extensions may be made by APCo, except ordinary extensions of existing systems, without permission of the APSC. Since most extensions are ordinary extensions of existing systems, APCo The APSC's authority is limited by statute. It had no jurisdiction over territorial agreements between cooperatives and municipal electric suppliers, nor can it require utilities to reach an agreement in order to prevent facility duplication. The 1984 and 1985 Acts were purportedly attempts to deal with unnecessary duplication.

usually does not have to get permission. Also, municipalities have had authority under Code 1975, § 11-50-1, to provide electric service outside the municipal limits, but only a limited number have done so. When areas not previously within municipal limits have been annexed by municipalities, and the annexed area already had an electric supplier, that electric supplier's distribution facility has been allowed to remain and be utilized for service to customers who were being served prior to annexation.

3. 1984 Act: The rules established by the 1984 Act for the purpose of preventing duplication can be divided into three categories: 1) rules governing activities outside municipal limits; 2) rules governing activities inside existing municipal limits; (i.e. municipal boundaries as of April 26, 1984); and 3) rules governing special situations. In addition, the 1984 Act established a validation mechanism, which, together with the history of litigation under the mechanism, is described below.

a) Outside Existing Municipal Limits: Section 3 of the 1984 Act, Code 1975, § 37-14-3 (Supp.1986), established rules for extension of service in areas outside the existing municipal boundaries. The rules governing areas outside municipalities may be summarized as follows: 1) electric suppliers are prohibited from extending service to a premise already being served by another electric supplier, and 2) no electric supplier may extend its facilities to provide service to a new premises located within the boundaries of the assigned service area of another electric supplier, except in cases of industrial customers whose electric load will exceed 2500 kilowatts, where customer choice will prevail. Each area outside existing municipal boundaries is assigned to a particular electric supplier. The assignment continues to govern even if a municipality subsequently annexes the area. These restrictions prohibit suppliers from extending duplicative lines into the assigned areas of other suppliers; however, if an area is subsequently annexed, the municipality must give its consent to the assigned electric supplier if any more facilities are to be built. The State-assigned electric supplier will be the only one permitted to serve the annexed area.

b) Inside Existing Municipal Limits: Section 4 of the 1984 Act, Code 1975, § 37-14-4 (Supp.1986), established an option for the primary electric supplier in every municipality to purchase the electric distribution facilities of other suppliers within "existing municipal limits". If the primary electric supplier chooses to purchase the existing facilities of the secondary electric supplier, then the primary electric supplier may purchase the secondary electric supplier's facilities at a price determined by a formula specified in Code 1975, § 37-14-4 (Supp.1986). Should the primary electric supplier elect not to purchase the facilities of the secondary supplier within the existing municipal limits, the secondary electric supplier is permitted to maintain its existing facilities in that municipality, and becomes the assigned supplier to serve those new customers inside the municipality that locate closer to its electric lines than to the electric lines of other electric suppliers. In these circumstances, all other suppliers would be prohibited from extending any facilities into the area assigned to the secondary supplier. The secondary electric supplier can expand and serve new customers with the consent of the City.

c) Special Rules: Section 7 of the 1984 Act, Code 1975, § 37-14-7 (Supp.1986), recognizes that special rules are necessary to accomplish the objective of the Act in certain areas of the State. In some areas of the State, the agreements that had been reached by the electric suppliers and approved by the APSC were credited by the Legislature as being in the public interest and were adopted as rules governing the prevention of duplication of electric facilities in the areas covered by the agreements d) The 1984 Act Validation Mechanism: The Legislature developed a mechanism for judicial consideration of the 1984 Act's constitutionality prior to the time electric suppliers become irrevocably committed to the transactions authorized by the Act. The Act provides for judicial proceedings to "validate" i) purchases of electrical distribution facilities effected pursuant to the 1984 Act, as well as ii) the provisions of the 1984 Act itself. Under the Act, a proceeding could be initiated by an affected secondary supplier whose distribution facilities were subject to the provisions of the Act, and whose facilities might be purchased pursuant to the Act by a primary electric supplier. These proceedings would be for the purpose of seeking a judicial determination of the legality and validity of such purchase of facilities pursuant to the provisions of the Act, and a determination of all other questions of the legality or validity of the provisions of the Act.

The 1984 Act provided that all of the citizens of Alabama be named defendants in such a validation proceeding. Also, each electric supplier in the State was to be given notice of the validation proceedings and could petition to intervene. The failure of an electric supplier to participate in the validation proceeding constituted a permanent waiver of its right to question the validity of the 1984 Act.

e) Non-severability Clause: The 1984 Act also provided that if any of its provisions are finally determined by a court...