Strawberry Elec. Service Dist. v. Spanish Fork City, 940317

Citation918 P.2d 870
Decision Date21 June 1996
Docket NumberNo. 940317,940317
PartiesUtil. L. Rep. P 26,543 STRAWBERRY ELECTRIC SERVICE DISTRICT, an Electric Service District of the State of Utah, and Strawberry Water Users' Association, a Utah Corporation, Plaintiffs, Appellee, and Cross-Appellant, v. SPANISH FORK CITY, a Utah Municipal Corporation, Defendant, Appellant, and Cross-Appellee.
CourtSupreme Court of Utah

Michael R. Carlston, Reed L. Martineau, Rodney R. Parker, Salt Lake City, for plaintiffs.

Gary A. Dodge, Bentley J. Tolk, Salt Lake City, for defendant.

John R. Erickson, Brent O. Hatch, Salt Lake City, and F. Elgin Ward, Sandy, for amicus Deseret Generation & Transmission.

Val R. Antczak, James E. Karkut, Salt Lake City, for amicus Utah Associated Municipal Power.

RUSSON, Justice:

Spanish Fork City appeals from a decision of the Fourth District Court enjoining it from providing electric utility service to residents of its annexed areas to the extent that the supplier prior to annexation, Strawberry Electric Service District (Strawberry Electric), had present capacity to provide service at the time of the trial court's order. To the extent Strawberry Electric did not have present capacity to provide service, the trial court's decision allows Spanish Fork to provide electric service but only upon compensating Strawberry Electric for lost projected revenues. Spanish Fork also appeals the trial court's decision dismissing a request for a declaration as to Spanish Fork's rights and obligations if it determined to provide electric services to all residents within the annexed areas. Strawberry Electric cross-appeals that portion of the trial court's decision authorizing Spanish Fork to serve consumers in the annexed areas to the extent Strawberry Electric did not have present capacity to provide service. We affirm in part, reverse in part, and remand to the trial court for further proceedings.

I. BACKGROUND

Since 1986, Strawberry Electric has been providing electric utility service to customers in portions of southern Utah County. It operates under a certificate of public convenience and necessity issued by the Public Service Commission. The certificate recognizes Strawberry Electric as the exclusive distributor of electric power to consumers residing in its service area.

Adjacent to Strawberry Electric's service area is Spanish Fork City, which has been experiencing rapid growth. During the 1980s, Spanish Fork annexed approximately 4,000 acres, partly in response to changes in the Utah County zoning classifications permitting more development in these areas. All of the areas annexed by Spanish Fork since the organization of Strawberry Electric were included within Strawberry Electric's service area. Moreover, these areas constitute some of the more densely populated portions served by Strawberry Electric. At the time of annexation, Strawberry Electric provided electric power to approximately 200 consumers in these areas. In addition, Strawberry Electric maintained excess capacity to serve future customers who would likely be high margin electric users due to the changed zoning rules.

After its incorporation of these areas, Spanish Fork commenced, on a limited basis, to provide electric utility service within these areas. After disconnecting Strawberry Electric's distribution lines, Spanish Fork attached its own lines and commenced electric service to six residential consumers. For the most part, however, Spanish Fork provided service only to new consumers to the annexed areas never before served by Strawberry Electric (hereinafter referred to as future consumers). Spanish Fork required construction permit applicants to agree, as a condition to obtaining the permit and other city services, to accept Spanish Fork electric service and reject Strawberry Electric's services. By the time trial was held, Spanish Fork had commenced service to thirty-seven future consumers.

Aside from the six residential consumers, Spanish Fork elected to serve only future consumers because it claimed that it could not afford to provide service to all consumers in the annexed areas. Such an undertaking would have entailed reimbursing Strawberry Electric for its facilities used in supplying the areas, which, according to Spanish Fork's studies, was not economically feasible.

In some cases, Spanish Fork's strategy resulted in a duplication of Strawberry Electric's distribution system. Spanish Fork constructed distribution lines into the same areas in which Strawberry Electric had previously constructed its lines in anticipation of future growth. For example, Spanish Fork connected a line to a new building located on the property of the Intermountain Farmers Association (IFA), an existing customer of Strawberry Electric. Also, Spanish Fork constructed a line approximately one-half mile in length into the annexed area to serve only one consumer and another line approximately one mile in length to serve only two consumers. In all of these cases, Strawberry Electric stood ready to serve with distribution lines either within or immediately adjacent to the consumers' properties.

Strawberry Electric objected pursuant to section 10-2-424 of the Utah Code, which provides:

Whenever the electric consumers of the area being annexed are receiving electric utility services from sources other than the annexing municipality, the municipality may not, without the consent of the electric utility, furnish its electric utility services to the electric consumers until the municipality has reimbursed the electric utility company which previously provided the services for the fair market value of those facilities dedicated to provide service to the annexed area. If the annexing municipality and the electric utility cannot agree on the fair market value, it shall be determined by the state court having jurisdiction.

Strawberry Electric requested that Spanish Fork provide service to either all consumers in the annexed area or none of them. Also, Strawberry Electric requested compensation for its lost right to serve in these areas if Spanish Fork elected to provide service.

Spanish Fork denied all requests. It insisted that it need not serve all or none of the consumers in the annexed area. Also, Spanish Fork believed that it was not obligated to compensate Strawberry Electric under the statute because it chose to serve only future consumers, not the existing customers of Strawberry Electric. Failing to informally resolve its dispute with Spanish Fork, Strawberry Electric initiated this lawsuit. 1

Strawberry Electric sought an injunction to prohibit Spanish Fork from serving consumers within the annexed area until it received compensation. The compensation Strawberry Electric demanded included damages suffered as a result of its lost investment in facilities constructed to serve future growth. Spanish Fork counterclaimed, seeking two declarations: first, that it may serve future consumers without paying compensation and, second, enumerating its rights and obligations under section 10-2-424 if it elected to take over service to all residents within the annexed areas.

Strawberry Electric moved for summary judgment, arguing that Spanish Fork violated section 10-2-424 and urging dismissal of Spanish Fork's second claim for declaratory relief. Reasoning that the requested declaratory judgment would not "terminate the uncertainty or controversy giving rise to the proceeding," the trial court dismissed Spanish Fork's claim. Also, without identifying a particular damages formula, the trial court held that Spanish Fork was obligated to compensate Strawberry Electric for its lost right to provide electric service to future consumers. In so ruling, the trial judge limited the issues at trial to Strawberry Electric's claim for an injunction and the compensation due to Strawberry Electric under section 10-2-424.

During a bench trial, Strawberry Electric proposed a capitalized income method to assess damages. That is, it demanded anticipated revenues as damages caused by Spanish Fork's provision of service to future consumers. In contrast, Spanish Fork proffered a facilities-based calculation, or a calculation based on the amount by which the value of specified facilities dedicated to providing service to the annexed areas was lost.

Following the trial, the court enjoined Spanish Fork from providing electric utility services in the annexed areas until it complied with section 10-2-424. Specifically, the injunction prohibited Spanish Fork from serving the annexed areas until it either obtained Strawberry Electric's consent to provide service or paid Strawberry Electric the fair market value of those facilities dedicated to providing service to the annexed areas. In the expectation that Spanish Fork would compensate Strawberry Electric, the trial court enjoined Spanish Fork from providing service to future consumers who locate in the annexed areas after trial to the extent Strawberry Electric had capacity to serve them with its facilities then in place. The court ruled that Spanish Fork may provide electric services to future consumers who locate within the annexed areas to the extent that Strawberry Electric's service to them would require facilities in addition to meters, drop lines, and related items. 2

With regard to each future consumer Spanish Fork was allowed to serve, however, the trial court ordered Spanish Fork to pay Strawberry Electric damages. Adopting Strawberry Electric's capitalized income method, the court awarded Strawberry Electric $1,108.50 for each residential consumer who would move into the annexed areas and a sum to be determined by the court for future commercial consumers. In addition, the trial court, utilizing the same method, awarded Strawberry Electric $41,015.50 for consumers who had moved into the annexed area before trial and who had been served by Spanish Fork.

On appeal, both parties insist that the trial court erred. Strawberry Electric...

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