City of Kiowa Barber County v. Central Telephone & Utilities Corp., Western Power Division
| Decision Date | 03 November 1973 |
| Docket Number | No. 47006,47006 |
| Citation | 515 P.2d 795,213 Kan. 169 |
| Parties | CITY OF KIOWA, BARBER COUNTY, Kansas, Appellee, v. CENTRAL TELEPHONE & UTILITIES CORPORATION, WESTERN POWER DIVISION, and Continental Illinois Bank and Trust Company of Chicago, Appellants. |
| Court | Kansas Supreme Court |
Syllabus by the Court
In an appeal by a corporate utility from an order of the district court confirming the report of commissioners appointed under K.S.A. 12-811 wherein the commissioners determined the fair cash value of an electric utility system located within the city of Kiowa the record is examined and it is held: (1) The proceedings encompassed by K.S.A. 12-811, providing for the purchase of corporate utility plants upon expiration of a franchise, are not condemnation proceedings subject to the constitutional restrictions placed upon the exercise of the right of eminent domain; (2) The city's statutory right to purchase corporate utility plants under K.S.A. 12-811 arises on termination of the franchise contract previously entered into between the utility company and the city; (3) The right to purchase the city system in such case emanates from the statute which must be read into the contract obligations of the parties to the franchise contract; (4) The statute is construed not to allow items of consequential damage in arriving at the purchase price to be paid for a city utility system; (5) Engineering fees incurred by a corporate utility in attempting to establish damages arising by reason of the purchase were properly disallowed; and (6) The order of the district court excluding consequential damages and confirming the report of the commissioners was proper.
Donald W. Glaves, of Ross, Hardies, O'Keefe, Babcock & Parsons, Chicago, Ill. argued the cause, and John W. MacGregor, of MacGregor & MacGregor, Medicine Lodge, was with him on the brief for the appellants.
Gordon M. Penny, of Chapin & Penny, Medicine Lodge, argued the cause, and W. Luke Chapin, Medicine Lodge, was with him on the brief for the appellee.
This appeal arises from proceedings initiated by the city of Kiowa under K.S.A. 12-811 providing for the purchase by a city of any electric utility plant being operated within a city upon expiration of the current franchise. The defendant Central Telephone & Utilities Corporation appeals the order determining the amount of the purchase price to be paid by the city.
The above statute provides that the purchase price to be paid for the city utility plant shall be established by three commissioners to be appointed by the district court, one of whom shall be an expert engineer. The statute further directs that the commissioners 'ascertain the fair cash value of said plant and the appurtenances'. Then, if the city elects to pay the award the amount is paid to the clerk of the district court for distribution. Thereupon right, title and possession of said plant and appurtenances vest in the city.
The primary question presented here on appeal is whether the amount of the award should include severance and consequential damages as a result of the purchase such as (1) the cost of rerouting transmission lines around the city, (2) the cost of easements necessary in rerouting lines outside the city, (3) the loss of returns by reason of fixed costs and loss of load and (4) the engineering fees incurred by the company as a result of the city's action.
Although the question presented must be determined by construing the wording in the statute, certain background facts will be helpful in understanding the legal problem involved. Central Telephone & Utilities Corporation (CTU) owns and operates an interconnected system for the generation, transmission and distribution of electrical power in Kansas. The generating capability of its total system is approximately 411,000 kilowatts. The utility owns and operates 2,300 miles of major transmission lines and 199 substations. Its distribution system serves 144 communities. In addition CTU makes sales for resale to 12 rural electric cooperatives and 13 municipalities. The system is interconnected with the lines of four other established electrical utilities operating in this area.
Prior to 1928 the city of Kiowa owned and operated its separate electric generating and distributing system within the city. At that time the system was complete and relied on no outside source for its electrical energy except in possible emergencies. The city plant was sold in 1928 to a corporate utility and a franchise was granted to the corporation to furnish electric power for a period of 20 years. A renewal franchise to furnish such power was granted by the city in 1950 and this franchise expired on August 7, 1970. This latter franchise was held by CTU which owns the distribution system in Kiowa. There is no longer a generating plant in the city of Kiowa. The electric power is furnished by CTU through its system of transmission and distribution lines.
Under an order of the district court the commissioners appointed to set a purchase price determined that the 'fair cash value of said plant and the appurtenances' located within the city of Kiowa was $352,000.00. This amount was confirmed by the district court as the purchase price. However, in doing so the district court rejected the claim of CTU for severance and consequential damages. CTU on appeal now seeks a reversal of the order of the district court denying damages and asks for an additional $251,000.00 in consequential damages. No question is raised in this appeal as to the $352,000.00 set as the fair cash value of the physical property located within the city.
CTU argues that the proceedings under K.S.A. 12-811 are by their nature and effect a condemnation and partial taking of an entire generating, transmission and distribution system for which just compensation must be paid, including severance and consequential damages.
The city of Kiowa argues there was no condemnation in the usual sense. The statute grants an option to the city to purchase the physical property used as a separate unit within the city at its fair cash value. The statute does not authorize or require the payment of damages as a consequence of any severance of the city system from the entire system owned and operated by CTU.
The few Kansas cases bearing on this question are not too helpful. In Clay Center v. Light Co., 78 Kan. 390, 97 P. 377, the statutory authority of a city to grant a franchise to an electric utility was considered by the court but no question was raised as to the amount to be paid for purchase of the plant. However, the case is authority for the rule that both parties to a franchise between a city and an electric utility are bound and must take notice of the laws in effect when a franchise is granted. At page 392, 97 P. page 378 of the opinion it is said:
'. . . Both of the parties to this franchise were bound to take notice of the law under which they acted, and must be held to have contracted with reference thereto.'
So in the present case when the franchise was received by CTU in 1950 its ownership and maintenance of the utility within the city were subject to the statutory city purchase provisions then in effect. K.S.A. 12-811 was enacted in its present form in 1941 (L.1941, ch. 105, § 1) and has remained unchanged since that time.
The second Kansas case bearing on our present question is City of Wilson v. Electric Light Co., 101 Kan. 425, 166 P. 512. In that case the question was, what right, if any, does a utility company have after its franchise has expired. It was held the right of the utility to operate within the city terminated on the expiration of the franchise. On expiration of the franchise the city has the right to require the company to remove the electric plant and distribution lines without payment of damages by the city.
So in our present case it would appear when the franchise of CTU expired August 7, 1970, the city had a legal right to force CTU to remove its poles and wires from the city without payment of the expense of removal and without payment of damages. This, however, the city did not elect to do.
The last Kansas case bearing upon our question is City of Baxter Springs v. Foshay Co., 110 Kan. 409, 204 P. 678. That case deals with the purchase of a waterworks system located within a city under a predecessor statute similar to the one under discussion. However, that waterworks system was not a part of a larger utility being operated and maintained by the company. The question of severance or consequential damages on a partial taking was not considered.
The appellant, CTU, argues that the state and federal cosntitutions guarantee that when its private property is condemned for the use of the city it is entitled to 'just compensation'. Payment of 'just compensation' has been interpreted to mean that constitutionally the company is entitled to be placed in as good a position pecuniarily as it would have occupied if its property had not been taken. Bauman v. Ross, 167 U.S. 548, 17 S.Ct. 966, 42 L.Ed. 270, and other cases are cited as authority. These cases deal with the right of eminent domain when property is condemned for public use.
There can be little question that if the present property were being condemned under our law governing the exercise of the right of eminent domain by cities (K.S.A. 26-201 et seq.) the eminent domain procedure act (K.S.A. 26-501 et seq.) would apply and just compensation in such case would include the statutory elements including severance damages in the case of a partial taking. (See K.S.A.1972 Supp. 26-513.)
However, the right of Kiowa to acquire the present property is not exercised under a right of eminent domain. The right is a contractual right in the nature of a statutory option. The city's statutory right to purchase the property arises only on termination of a franchise contract binding upon the utility and the city. The right to purchase emanates from the statute (...
To continue reading
Request your trial