Alabama Power Co. v. Citizens of State

Decision Date16 July 1999
Citation740 So.2d 371
PartiesALABAMA POWER COMPANY v. The CITIZENS OF the STATE OF ALABAMA et al. Dixie Electric Cooperative et al. v. The Citizens of the State of Alabama et al. The Municipal Utilities Board of Albertville et al. v. The Citizens of the State of Alabama et al. Kenneth E. Everett et al. v. The Citizens of the State of Alabama et al.
CourtAlabama Supreme Court

Charles M. Crook and James A. Byram, Jr., of Balch & Bingham, L.L.P., Montgomery, for appellant Alabama Power Company.

Robert A. Huffaker and J. Theodore Jackson, Jr., of Rushton, Stakely, Johnston & Garrett, P.C., Montgomery, for appellant Rural Electric Cooperatives.

Cecil B. Caine, Jr., Moulton, for appellant Joe Wheeler Electric Membership Corp.

Robert D. Thorington, W. Stanley Gregory, Wendell Cauley, and Stephanie McGee Azar of Thorington & Gregory, Montgomery, for Cities and Individual and Corporate Intervenors.

Robert H. Harris of Harris, Caddell & Shanks, P.C., Decatur, for appellee City of Decatur.

Phillip E. Kinney, Montgomery, for amicus curiae Consumers for Affordable and Reliable Electricity, in support of the appellants Alabama Power Co. and Dixie Electric Cooperative et al.

Kenneth Smith, league counsel, for amicus curiae Alabama League of Municipalities, in support of the appellees.

Thomas J. Saunders, Montgomery, for amicus curiae Alabama Industry and Manufacturers' Ass'n.

On Application for Rehearing

SEE, Justice.

The opinion of December 11, 1998, is withdrawn and the following is substituted therefor.

These appeals concern the constitutionality of Act No. 85-645, 1985 Ala. Acts, p. 983, which is intended to prevent the unnecessary duplication of facilities that supply "retail electric service" across the State of Alabama. Various municipalities that provide retail electric service, and certain individual and commercial consumers, challenged Act No. 85-645 on numerous constitutional grounds. The trial court held, among other things, that Act No. 85-645:(1) violates the substantive-due-process rights of certain "electric suppliers" and consumers; (2) is a local law and does not comply with the notice requirements for a local law; (3) grants special privileges to private corporations; (4) suspends the operation of the general law for the benefit of private corporations; (5) contains a vague and ambiguous section that incorporates private agreements; and (6) usurps the judicial function of setting the amount of compensation for takings. The plaintiffs named as defendants "the citizens of the State of Alabama"; the trial court refused to dismiss the citizens of the State of Alabama from the actions and also refused to dismiss certain named electric suppliers from the actions. Because we hold that Act No. 85-645 constitutes a valid exercise of the Legislature's power to enact economic regulatory statutes; that the trial court erred in refusing to dismiss the disinterested citizens of the state; and that the trial court correctly refused to dismiss the named electric suppliers, we affirm in part, reverse in part, and remand.

I. Historical Background

The electric-utility industry has a long history in this state. Electric suppliers have made large investments of capital to build generating facilities (e.g., hydroelectric dams and nuclear plants) and distribution facilities (e.g., power lines and transformer stations) that supply electricity to individual, commercial, and governmental consumers.

Because of the large investment required to construct and maintain electric-generation and-distribution facilities and the potential for wasteful duplication of such facilities, the Alabama Legislature enacted statutes that limited duplication by restricting competition while protecting consumers by regulating the prices charged for electric service. See, e.g., Act No. 37, Ala. Acts 1920, p. 38 (providing that no facility for the production or transmission of electricity shall be constructed without a certificate of convenience and necessity and providing that rates for utility services shall provide a fair net return on the reasonable value of property devoted to public service).

For many years, the Alabama Legislature delegated the function of regulating the electric industry to the Alabama Public Service Commission (the "PSC"). See, e.g., Ala.Code 1886, § 1120 (establishing the PSC); Ala.Code 1923, §§ 9661, 9771, 9813, 9621 (authorizing the PSC to promulgate regulations and to set utility rates). Although the PSC has long had the authority to regulate public-utility companies, such as Alabama Power Company ("APCo"), it has had a more limited authority to regulate other types of electric suppliers. See, e.g., Ala.Code 1975, § 37-6-27 (exempting electric cooperatives from the jurisdiction of the PSC); § 37-1-34 (exempting utilities owned and operated by municipalities from PSC jurisdiction); § 37-1-43 (exempting utilities regulated by Congress, such as the Tennessee Valley Authority, from PSC jurisdiction). In special situations where the PSC determined that private territorial agreements would eliminate competition and the resulting duplication of facilities, it approved private territorial agreements between a public-utility company on the one hand and a cooperative, a municipal electric supplier, or another public-utility company on the other. See, e.g., In re Birmingham Elec. Co. & Alabama Power Co., APSC Docket No. 4729, 36 APSC 367 (1925) (approving a territorial agreement between two public utilities); In re Alabama Power Co., Order of the Commission, APSC Docket No. U2539 (Dec. 28, 1973) (approving a territorial agreement between public-utility and an electric cooperative); In re Alabama Power Co., Order of the Commission, APSC docket No. 16517 (Feb. 22, 1972) (approving a territorial agreement between public-utility and municipality). There existed, however, no comprehensive regulatory system to prevent duplication of facilities for all types of electric suppliers.

Under the noncomprehensive regulatory system, four main types of retail electric suppliers became established in Alabama. The Tennessee Valley Authority (the "TVA") provides retail electric service in the northern part of the state. Approximately 22 electric cooperatives (the "Coops") supply retail electric service to their members, often in rural areas, including the portion of the state serviced by the TVA. Approximately 36 municipalities, or their utility boards, supply retail electric service to residents of those municipalities, and in some instances to nonresidents. Outside the TVA area, APCo supplies retail electric service to those consumers not served by the Co-ops or the municipalities.

In response to what it viewed as the increasing potential for duplication of facilities and costs of electric distribution systems, the Legislature conducted an investigation of the "economic, financial and environmental impact associated with the potential for duplication of electric distribution facilities used for the furnishing of electric retail service." Act No. 85-645, Ala. Acts 1985, § 1. From its investigation, the Legislature concluded:

"[W]ith respect to retail electric sales, the benefit normally associated with competition between two or more entities for customers is outweighed by the tremendous cost burden which must be borne by such customers associated with the maintenance of two or more duplicate sets of facilities. It is the further finding of the Legislature that the existence of duplicate facilities for the furnishing of electricity at retail is not in the public interest because of the adverse impact which such duplication has on environmental and aesthetic values and on safety. It is therefore declared that the policy of the State of Alabama is to ensure effective, economical and orderly supply of electric service at retail to customers in the State and to avoid unnecessary duplication of facilities by electric suppliers for the furnishing of such services which would result in waste and in degradation of the environment. To accomplish these objectives, it is necessary and in the public interest to establish, mandate and implement procedures for determining which electric supplier shall furnish electric service to customers at retail within various areas of the State including areas within the corporate limits of municipalities in the State."

Id. at § 1.

To implement its policy decision to prevent wasteful duplication of electric facilities across the state, the Legislature devised the comprehensive regulatory plan embodied in Act No. 85-645 (the "Act")1 to assign service territories to retail electric suppliers. The Act separates service territories into three categories: (1) territories outside municipal limits; (2) territories inside municipal limits; and (3) special territories. Section 3 of the Act addresses the potential for duplication of electric distribution facilities outside the corporate limits of municipalities. For such areas, retail electric service will be provided to a customer by the supplier whose distribution lines are closer to that customer. Act No. 85-645, § 3(a). However, non-municipal suppliers may compete to provide retail electric service to large new industrial customers without regard to the "closer to" rule. Id. at § 3(b).

Section 4 of the Act addresses the potential for duplication of electric facilities inside the corporate limits of municipalities. Where two or more suppliers deliver retail electric service within a municipality, the Act grants the primary supplier the option to purchase the distribution facilities of a secondary supplier. Act No. 85-645, § 4(a). Under the "option" rule, the option price is the value of the distribution facilities computed at replacement cost, plus two and one-half times the last year's gross revenue, plus certain other adjustments. Id. To the extent a primary supplier elects not to exercise the purchase option, the "closer to" rule...

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