Delmarva Power & Light Co. v. City of Seaford

Citations: 575 A.2d 1089; 1990 Del. LEXIS 183

Court: Supreme Court of Delaware; May 8, 1990; Delaware; State Supreme Court

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An appeal was made by Delmarva Power & Light Company (Delmarva) against a summary judgment granted to the City of Seaford (Seaford). The Superior Court ruled that no material factual disputes existed and that Delmarva was not entitled to a claim for inverse condemnation due to two customers transitioning their electric service to Seaford's municipal utility after the annexation of their properties by Seaford. The facts are agreed upon: Delmarva, a Delaware corporation providing electric services, had served the Seaford Wesleyan Church and Parsonage, and the Seaford Golf and Country Club, both of which were annexed by Seaford prior to their service transitions to Seaford Power. Delmarva argued that these changes constituted inverse condemnation, claiming that Seaford appropriated its property rights without formal condemnation proceedings, violating constitutional protections. The Superior Court consolidated Delmarva’s complaints and concluded that Seaford was not legally required to compensate Delmarva for the loss of its service accounts, determining that Seaford Power’s franchise superseded Delmarva’s due to municipal powers acquired when Seaford adopted its home rule charter. The court noted that the customers voluntarily switched services. The appellate court disagrees with the Superior Court's conclusion and reverses the judgment, stating the standard of review involves assessing whether the lower court made an error of law, allowing for a de novo review of all evidence and records.

The court must evaluate the facts favorably for Delmarva, the appellant, in the context of a motion for summary judgment, which should be denied if any reasonable basis exists for the opposing party’s potential recovery. Delmarva claims an exclusive franchise from the State of Delaware, asserting that its exclusivity derives from statutory authority, terms from Sussex County, and regulation by the Public Service Commission. It argues that this exclusive franchise constitutes a vested property right that cannot be infringed upon by the government without compensation.

Franchises are defined as rights or privileges granted by the state for public purposes, and any ambiguity in such grants is interpreted against the grantee. Exclusivity is generally disfavored and only recognized if explicitly stated in the franchise terms. The court must examine the original franchise grant to Delmarva to ascertain its nature. Delmarva cites the 1899 Delaware General Assembly statute, which permits public utilities to use public roads for electrical service, indicating that utilities need municipal consent to operate within municipalities. The statute does not grant exclusivity to public utilities.

In 1900, the Levy Court of Sussex County granted a franchise to Delaware Electric Company, allowing it to use county streets for electricity transmission. This grant did not specify duration, revocability, or exclusivity. After several ownership changes and contractual agreements, the franchise's operational history includes a five-year contract with Seaford and subsequent agreements for continued service.

Sussex Light and Power Company was sold in 1935 to Eastern Shore Public Service Company, which provided power to Seaford under a twenty-year ordinance that expired without renewal. Seaford then enacted an ordinance for Eastern Shore to remove its infrastructure from the city limits, a decision upheld by the Court of Chancery based on the expiration of consent. In 1936, Seaford granted a non-exclusive twenty-year franchise to Seaford Light & Power Company, which Seaford purchased in 1938, establishing its own municipal utility.

Eastern Shore, and its successor Delmarva, had been granted rights to maintain poles and wires throughout Sussex County, but these grants did not confer exclusivity. Delmarva has continued providing electrical service outside Seaford since 1937. The historical context reveals that while public utilities needed municipal consent to operate, they were initially given broad authority through statute. However, municipalities could limit such authority, as demonstrated by the Court of Chancery's order for Delmarva to cease service within Seaford after 1937.

Although Delmarva serves areas adjacent to Seaford and holds a valid franchise, it does not possess exclusive rights to that territory. In 1949, Delmarva became regulated by the Public Service Commission, which it argues transforms its franchise into an exclusive one, akin to a legalized monopoly as defined by Delaware courts. Delmarva claims this regulation obligates it to serve all customers at regulated rates and establishes exclusive rights and duties to serve specific customers, thereby constituting a vested property right for which it seeks compensation due to Seaford's appropriation of customers.

Seaford argues that the Public Service Commission lacks legislative authority to grant franchises to public electric utilities like Delmarva, asserting that a certificate of public convenience and necessity does not constitute a property right. Consequently, Seaford maintains that Delmarva holds only a non-exclusive franchise, which is not a vested property right and can be lost due to competition. This position is supported by a Delaware Superior Court case, Greater Wilmington Transp. Auth. v. Kline, which interpreted the certificate as a mere license rather than a franchise. The Kline decision emphasized that the Commission functions as a regulatory body with limited powers granted by statute, holding that the certificate is revocable and non-transferable, thus conferring no vested rights. 

Delmarva distinguishes its case from Kline by referencing the legislature's authority to grant franchises to electric utilities, as indicated in statutes 26 Del.C. 906 and 907, citing the need for significant capital investment in public utilities. While the Kline case suggests that the Commission has franchise-granting authority, the current view holds that the Commission regulates the contractual relationship between the utility and the state, and that once a franchise is granted, it provides the utility with a private right protected by the state. Nonetheless, the nature of franchises includes public service obligations, which may impose additional burdens on the grantee. The Kline ruling is upheld to the extent that it indicates a certificate represents regulatory authority rather than exclusive property rights.

The certificate issued by the Commission defines the rights of regulated utilities, specifically noting that Delmarva does not have an exclusive franchise in Delaware solely due to its regulation by the Public Service Commission. The General Assembly's Act specifies that public utilities, including electric and gas providers, must obtain a certificate before initiating or expanding operations, balancing public interests with those of the utilities. This regulatory framework leads to a limited competition scenario, effectively creating a regulated monopoly for public utilities within designated territories, aimed at preventing the negative impacts of unregulated monopolies.

Two key cases illustrate the Commission's policy of protecting "pioneer utilities" from competition unless it can be shown that the public would benefit from such competition. In both instances—Dover Air Force Base and Mallard Lakes—the Commission denied Delmarva's requests for certificates to provide service, emphasizing the importance of maintaining existing service unless inadequacies are demonstrated. Delmarva's assertion of exclusive franchise rights is countered by the state's policy, which does not classify the certificate as a franchise but recognizes it as a valuable property right subject to due process. The Commission serves as the exclusive forum for resolving disputes among public utilities regarding these certificates.

The Public Service Commission lacks jurisdiction over municipal utilities, such as Seaford Power, meaning that Delmarva's certificate of public necessity and convenience only protects it from competition by other regulated utilities, not municipal ones. The statute governing the Commission limits its authority and the protections it can offer to certificate holders. The Supreme Court's 1939 ruling in Tennessee Electric Power Co. v. Tennessee Valley Authority established that holders of non-exclusive franchises do not possess a right to be free from competition, a principle that has not been overruled but may have evolved regarding standing to sue for damages. Seaford contends that this case supports its claim that Delmarva's franchise does not prevent losses from competition. However, subsequent amendments to the TVA's enabling statute aimed to limit competition for existing utilities, suggesting that non-exclusive franchise holders may have some compensable rights. The Superior Court found that Delmarva holds a non-exclusive franchise in Sussex County, derived from statutory authority and historical grants, which do not assure exclusivity against competition. While Delmarva is regulated by the Commission, this regulation does not grant a franchise itself; instead, it aims to restrict competition among regulated utilities.

Delaware law stipulates that while the Commission can regulate competition among certain utilities, it cannot govern municipal utilities like Seaford Light & Power Company. Delmarva's exclusive right to serve certain customers, as regulated by the Commission, does not extend to properties in Seaford. Delmarva holds a franchise and certificate that grant it property rights to its customers, which cannot be revoked without due process. Seaford asserts that its municipal authority allows it to serve customers in its jurisdiction, superseding any non-exclusive franchise rights held by Delmarva when the city boundaries were extended. Seaford claims that after adopting a new city charter in 1961, which expanded its authority to provide electrical service within a half-mile of its borders, Delmarva was aware of the potential loss of its franchise rights in those areas. The historical context reveals that Seaford initially granted a franchise to Delmarva in 1915, which was later withdrawn in favor of Seaford Light & Power Company in 1936. Seaford has operated its utility since 1938 and has the authority to annex territory and provide electric services to newly annexed areas. The changes in service in the mid-1980s were not compelled by Seaford, nor did Seaford obstruct Delmarva's service to other customers. However, the court found that Seaford's rights to serve outside its boundaries did not extinguish Delmarva's franchise for existing customers, a conclusion that contradicts municipal law and prior court rulings. The Superior Court's decision relied on case law from North Carolina, which the summary suggests may not fully align with Delaware's legal principles regarding municipal corporations.

Three garbage collection companies were awarded exclusive five-year franchises by Forsyth County to operate outside Winston-Salem. During the franchise period, Winston-Salem annexed parts of these areas and began offering free garbage collection, leading to a decline in the companies' business. The companies sued the city for inverse condemnation, claiming their franchises' value was diminished. The court ruled no taking had occurred, stating the franchises were granted based on the county's authority, which was limited to areas outside city boundaries. As such, once annexed, the franchises became invalid, extinguishing the companies' property rights in those territories. The court noted that the companies could still compete unless the city enacted an ordinance preventing them.

In contrast, Delmarva's franchises were not restricted to areas outside city limits, as they were granted by the State of Delaware. Delmarva operated within Seaford until a court ruling in 1938 allowed the city to regulate franchises within its boundaries. Seaford contended that its home rule powers extinguished Delmarva's franchise rights upon annexation. However, Delaware law permits utilities to operate within city limits with municipal consent, and the legislative intent supports that home rule powers do not override statutorily granted rights. Therefore, Seaford lacked authority to revoke Delmarva's property rights without compensation.

The Stillings case is distinguished by the nature of the services provided, specifically contrasting garbage collection and electrical service. Delmarva asserted that electrical service requires a greater capital investment, which affects the rights involved. However, the key distinction lies in the statutory obligation of the municipality of Winston-Salem to provide garbage collection to newly annexed areas, whereas Seaford is not legally compelled to extend electrical service to new residents. Seaford only provided electrical service to new citizens at its discretion, not as a mandate from the annexation. 

The authority for Delmarva’s franchise is not limited to areas outside city limits, unlike Forsyth County's authority. Moreover, Seaford's annexation does not automatically nullify Delmarva’s franchise rights, as established by various court precedents, which maintain that annexation cannot forcibly remove a franchisee without compensation. 

Seaford contended that the voluntary choice of two customers to switch their service to Seaford negated any compensatory rights Delmarva might have had. However, the ruling from the Superior Court on this issue contradicts established public policy regarding utility competition, which prioritizes public convenience over individual customer preferences. The Public Service Commission has emphasized that customer choice alone does not justify allowing one utility to serve in another's territory, as seen in past rulings.

Seaford Light and Power Company is not bound by the decisions discussed but finds them important due to their policy aimed at preventing chaotic competition among utilities. This policy notably favored the City of Dover, a non-regulated entity, due to its pioneering role in servicing the Dover Air Force Base. The ruling establishes that customer choice does not significantly influence the rights of electric service providers. In Delaware, public utilities like Delmarva are regulated by the Public Service Commission, which also requires municipal consent for operations within city limits. The court must determine if this consent provision applies retroactively when a municipality annexes territory where a public utility has been authorized to operate. The statute clearly states that consent is a "condition precedent" for a utility's use of municipal roads, and any public utility must comply with local regulations and taxes. The court concludes that Seaford's consent power cannot retroactively revoke Delmarva’s preexisting rights to serve customers in annexed areas. Delmarva has been legally providing service under a state-granted franchise, and there is no evidence that Seaford took steps to restrict Delmarva's service following the annexation in 1981 and 1982. The court interprets the General Assembly's intent as protecting existing franchisees from being ousted without compensation post-annexation. However, Delmarva’s franchise is now subject to Seaford's regulations aimed at public safety, and although Seaford's provision of electrical service to annexed areas is not mandated, Delmarva cannot abandon its services without Commission approval.

Seaford, as a governmental unit, cannot selectively choose among Delmarva's lawful customers to enhance its own opportunities without compensating Delmarva for the taking, as prohibited by the U.S. and Delaware Constitutions. The Superior Court's grant of summary judgment is reversed, and the case is remanded for further proceedings. It is clarified that Seaford is not legally obligated to continue serving two specific customers and may return them while compensating Delmarva for any damages incurred. If Seaford wishes to serve customers within its boundaries or within half a mile of its boundaries already served by Delmarva, it must provide fair compensation to Delmarva. The ruling does not require Seaford to compensate Delmarva for new customers that arise in annexed territory not previously served by Delmarva. Additionally, the Superior Court's prior ruling in City of Newark v. Delmarva Power and Light Co. is noted, which emphasized that when condemning property, the valuation method must include the tangible assets and Delmarva's franchise rights. In the current case, only customer accounts are involved, with no physical assets taken, meaning any compensation owed to Delmarva relates solely to the value of its franchise rights. This privilege, held under a non-exclusive franchise and protected by the Public Service Commission, cannot be taken without compensation. The decision of the Superior Court is reversed, affirming the importance of compensating Delmarva for its franchise rights.

Consent from relevant local authorities is required prior to erecting posts or poles on public roads, streets, or alleys. Posts or poles must only be placed in designated areas and must not obstruct public safety or convenience. Any installation on private property necessitates written consent from the property owner. Wires crossing railroads must be at least 23 feet above ground. Electric utility corporations may lay pipes, conduits, or wires beneath public infrastructure but must do so at a depth of at least 2 feet, ensuring no unnecessary obstruction or damage occurs. Public street usage is subject to regulations and taxation imposed by local authorities. The Levy Court of Sussex County granted the Delaware Electric Company permission to utilize county streets for erecting poles and placing wires for transmitting electricity, with conditions to ensure public access is not hindered. Similarly, the Eastern Shore Public Service Company was granted a revocable right to erect poles and maintain wires along County roads, emphasizing that these must be placed at the edges to avoid interference with traffic.

Whenever the Eastern Shore Public Service Company intends to erect poles and string wires along Sussex County roads, it must notify the County Engineer, and the installation must be supervised by the Engineer. According to 26 Del.C. 203A, no public utility can start operations or extend its services without first obtaining a certificate of public convenience and necessity from the Commission, although existing service areas are exempt from this requirement. The Commission can impose conditions on proposed extensions if a utility claims it will be adversely affected. Additionally, public utilities cannot abandon or discontinue services without Commission approval, and while Delmarva may not hold such a certificate due to its prior operations, it remains subject to the same regulatory obligations as those with a certificate. The legislature has granted the Commission authority to franchise cable television systems, but not for other public utilities. An amendment to 26 Del.C. 203B, effective June 19, 1987, allows the Commission to establish service territories, but it does not alter existing public policy or the Commission's role as previously defined.

The Commission lacks jurisdiction over municipally owned public utilities, specifically regarding their rates, properties, equipment, service territories, and franchises. The City of Seaford is authorized by its Charter to grant franchises for the construction and operation of electric and water facilities within city limits and up to half a mile beyond. It can establish regulations for the manufacture and sale of electric current, including service charges, within this area. Additionally, Seaford may supply electricity or gas to surrounding communities within half a mile of the city limits if it constructs or acquires relevant infrastructure. Furthermore, Delaware law permits municipal corporations with a population of at least 1,000 to amend their charters to assume powers granted by the General Assembly, excluding the ability to enact private or civil laws, or to define felonies.