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Homer Electric Assoc. v. Kenai et al (8/16/91), 816 P 2d 182
NOTICE: This opinion is subject to formal correction
before publication in the Pacific Reporter. Readers are
requested to bring typographical or other formal errors to
the attention of the Clerk of the Appellate Courts, 303 K
Street, Anchorage, Alaska 99501, in order that corrections
may be made prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
HOMER ELECTRIC ASSOCIATION, )
Appellant, ) File No. S-3508
v. ) 3KN 85 169 CI
CITY OF KENAI, STATE OF ALASKA ) O P I N I O N
PUBLIC UTILITIES COMMISSION, )
and MATANUSKA TELEPHONE )
ASSOCIATION, INC., and CHUGACH ) [No. 3738 - August 16, 1991]
ELECTRIC ASSOCIATION, and )
FAIRBANKS NORTH STAR BOROUGH )
(amici curiae), )
Appeal from the Superior Court of the State
of Alaska, Third Judicial District, Kenai,
Roy H. Madsen, Judge.
Appearances: Blain D. Gilman, C. R.
Baldwin, Law Offices of C.R. Baldwin, Kenai,
for Appellant. Andrew E. Hoge, Lisa A.
Murkowski, Hoge & Lekisch, Anchorage, for
Matanuska Telephone. Cary R. Graves, Timothy
J. Rogers, City Attorneys, Kenai, for City of
Kenai. Donald W. Edwards, General Counsel,
for Amicus Curiae Chugach Electric. Mark
Andrews, Assistant Borough Attorney, Eugene
Hardy, Borough Attorney, Fairbanks, for
Amicus Curiae Fairbanks North Star Borough.
No appearance by APUC.
Before: Rabinowitz, Chief Justice, Burke,
Matthews, Compton and Moore, Justices.
In this case, the Alaska Public Utilities Commission (APUC)
decided a dispute over who should bear the costs of relocating
a utility's equipment in a municipal right of way when the
municipality's own improvement project made the relocation
necessary. On administrative appeal, the superior court found
that the APUC had acted beyond its jurisdiction. We disagree.
Accordingly, we reverse the superior court's decision on the
jurisdictional issue and remand for appellate review of the
underlying APUC decision.
In 1971, the City of Kenai (City) and Homer Electric
Association, Inc. (HEA) formally agreed that HEA would
purchase,1 operate and manage the City's electric utility
system. The agreement between them provided that the City
grant to HEA to such extent as may be
required by law a permit to operate the
System within the City's streets, alleys and
rights-of-way, which permit shall be for a
period of thirty (30) years from and after
the effective date of this agreement.
On August 3, 1971, in a special election, City voters
approved an ordinance that allowed the City to enter into the
agreement with HEA. The ordinance explained that the City and
have reached a basic understanding
concerning the terms and conditions relative
to the transfer of the operation and
management of the electric system to HEA and
the conveyance of the City's electrical
system to HEA and the City Council desires to
have the voters approve their entry into such
Agreement within the guidelines set forth
In describing the rights HEA would receive under the
agreement, the ordinance used the terms "franchise" and
"franchise or permit"interchangeably.2 The ordinance also
included the following provision:
In [the] event that at any time during
the period of this franchise the City shall
lawfully elect to alter, or change the grade
of, any street, alley or other public way,
HEA, upon reasonable notice by the City,
shall remove, relay, and relocate its poles,
wires, cables and other electrical fixtures
at its own expense.
The dispute at the heart of this case arose after HEA had
assumed operation of the City's electrical system, when
municipal construction projects in the City required
relocation of some of the city light facilities. HEA
relocated the facilities and demanded that the City reimburse
it for the expense. The City refused. HEA then petitioned
the APUC for a declaratory ruling that the City had breached
its contract with HEA. The APUC dismissed HEA's petition and
suggested that HEA seek approval of a rate surcharge of City
residents to pay for the contested relocation expenses. In
1983, HEA filed with the APUC a special tariff to obtain a
The APUC consolidated HEA's tariff request with a request by
Matanuska Telephone Association, Inc. (MTA) for a declaratory
ruling on the availability of rate surcharges as a means of
recouping relocation expenses. The City declined to
participate as a full party intervenor in the public hearing
that the APUC subsequently held in November 1983.4 Both HEA
and MTA, however, filed memoranda in support of their
surcharge requests and participated at the hearing. Of MTA's
three arguments in support of a surcharge, the only one
relevant to the larger legal issues in the case relied on
article I, section 18 of the Alaska Constitution, which
prohibits government taking or damaging of private property
without just compensation.5 HEA's main argument challenged
the validity of the traditional common-law rule that, absent a
statute or specific agreement to the contrary, a public
utility accepts the right to use public rights of way subject
to an implied obligation to relocate its facilities when
necessary to make way for public improvements.6
In its decision7 the APUC first found that it possessed
jurisdiction to review for reasonableness the traditional
common-law rule on relocation expenses. The APUC next
exhaustively considered the constitutional law and the public
policy dictates applicable to a determination of the
reasonableness of the common-law rule. Finally, the APUC held
that the common-law rule was not reasonable.8
The City appealed the APUC order to the superior court,
which dismissed the case on the ground that, as a nonparty to
the APUC hearing, the City had no standing to seek review.
City of Kenai v. State, APUC, 736 P.2d 760, 762 (Alaska 1987).
The City appealed the superior court decision to this court;
we vacated the dismissal and remanded the case for review.
Id. at 763. Upon remand, HEA and MTA joined the APUC in the
appeal by intervening. After review, the superior court,
Judge Roy H. Madsen, found in favor of the City, holding that
the APUC did not have subject matter jurisdiction to enter its
order. The superior court thus vacated the order. The
superior court also awarded attorney's fees of $8,500, but did
not apportion the award among the APUC, MTA and HEA. The APUC
has not appealed the superior court judgment. HEA has
appealed both the jurisdictional decision and the attorney's
fees decision. MTA also has filed briefs.9
When the question on appeal is one of law and no practical
administrative expertise is involved, the proper standard of
review is the "substitution of judgment test." Tesoro Alaska
Petroleum Co. v. Kenai Pipe Line Co., 746 P.2d 896, 903
(Alaska 1987); Glacier State Tel. Co. v. State, APUC, 724 P.2d
1187, 1189 n.1 (Alaska 1986). The questions here of APUC
adjudicatory jurisdiction invoke the special competency of the
courts, and not the expertise of the APUC.10 See Tesoro, 746
P.2d at 903-04. As a result, we review the controlling legal
issues with no deference to the APUC decision. Because the
superior court acted below as an intermediate appellate court,
we also offer no deference to its decision; rather, we review
the case de novo. Id. at 903.
As noted, the common law traditionally required a utility to
bear the cost of relocating its facilities in a public right
of way whenever state or local authorities request such
relocation. See City & County of Denver v. Mountain States
Tel. & Tel., 754 P.2d 1172, 1173 n.1 (Colo. 1988); General
Tel. Co. of the North-west, Inc. v. City of Bothell, 716 P.2d
879, 882 (Wash. 1986); see generally 12 E. McQuillin, The Law
of Municipal Corporations 34.74a, at 226 (3d ed. 1986); O.
Reynolds, Handbook of Local Government Law 111, at 341
(1982). This rule is still in force in many jurisdictions.
See, e.g., Mountain States Tel. & Tel., 754 P.2d at 1176. The
parties and the amici curiae in this case dispute whether the
APUC Act and the Alaska Constitution permit application of the
common-law rule. Because of the posture of this case, we
decline to reach that question today.
In our view, this case presents only an issue of APUC
adjudicatory jurisdiction. The specific jurisdictional
statute at issue is AS 42.05.251, which provided in pertinent
Use of streets in cities and boroughs.
Public utilities have the right to a permit
to use public streets, alleys, and other
public ways of a city or borough, whether
homerule or otherwise, upon payment of a
reasonable permit fee and on reasonable terms
and conditions and with reasonable exceptions
the municipality requires. A dispute as to
whether fees, terms, conditions, or
exceptions are reasonable shall be decided by
The APUC found that AS 42.05.251 granted it jurisdiction to
decide whether the City reasonably could impose, under color
of the common-law rule, relocation expenses on HEA.12 The APUC
described this jurisdiction as "the uniquely broad
responsibility conferred by the Legislature upon the
Commission in AS 42.05.251 to regulate the interface between
municipalities and public utilities."
The superior court sharply disagreed with the APUC. In its
Memorandum Opinion and Judgment, the superior court summed up
its legal conclusions:
1. The APUC is not vested with a
broad grant of jurisdiction to resolve all
disputes between municipalities and
2. Any common law liability for
relocation expenses that may exist is not the
statutory equivalent of a "permit fee" under
3. There is no necessarily
implied authority to review the common law
for reasonableness granted under AS
Therefore, the court holds the APUC
exceeded its statutory jurisdiction under AS
42.05.251 when it reviewed for reasonableness
the City's position of reliance on the common
law of relocation expense allocation.
Because the superior court found the jurisdictional question
dispositive, it did not review the substance of the APUC
order. We also do not review the order's substance. We only
consider whether the APUC had jurisdiction under the Alaska
Public Utilities Commission Act to issue the order.
The legislature established the "[g]eneral powers and
duties" of the APUC in AS 42.05.141, which provides in
subsection (a)(1), that the APUC shall
regulate every public utility engaged or
proposing to engage in such a business inside
the state, except to the extent exempted by
AS 42.05.711,13 and the powers of the
commission shall be liberally construed to
accomplish its stated purposes.
This provision presents two guiding principles for determining
the extent of the APUC's jurisdiction under specific
provisions of the Act. On the one hand, it includes a
principle of limitation, restricting the APUC's power to the
specific jurisdictional areas of its "stated purposes." Id.
On the other hand, it includes a principle of expansion,
mandating that the APUC's power to act within its specific
areas of jurisdiction "is to be liberally construed." Id.
Our prior decisions demonstrate the way in which these two
principles shape the adjudicatory jurisdiction of the APUC.
For example, in B-C Cable Co. v. City & Borough of Juneau,
613 P.2d 616 (Alaska 1980), we found that a challenge to a 3%
franchise tax imposed by the municipality upon a utility
clearly fell within the APUC's specific, stated purpose under
AS 42.05.251, to determine the reasonableness of use permit
fees. Id. at 619. Because the APUC Act mandates liberal
construction of APUC jurisdiction, our inquiry in the case
went no further. We explicitly declined to consider the
reasonableness of the tax and directed the appellant in the
case to bring an appropriate proceeding before the APUC if it
wished to contest the tax. Id.
By contrast, in Greater Anchorage Area Borough v. City of
Anchorage, 504 P.2d 1027 (Alaska 1972), overruled on other
grounds, City and Borough of Juneau v. Thibodeau, 595 P.2d
626, 629 (Alaska 1979), we found that a dispute between two
municipalities did not clearly fall within the stated purpose
of APUC jurisdiction to resolve disputes among competing
utilities under AS 42.05.221.14 Id. at 1033-34. Our opinion
in the case relied substantially upon an interpretation of the
overall design of the APUC Act, which, we found, very
selectively empowers the APUC. We wrote:
The essence of the administrative power
conferred upon the [A]PUC is regulatory; the
Commission is empowered to set rates,
promulgate regulations, collect information,
process complaints against utilities and the
like. The statutory framework, however, does
not grant unlimited adjudicatory authority to
the [A]PUC. The agency is not empowered to
decide disputes between municipalities over
the control of construction activities within
rights of way belonging to one of the
Id. at 1033. The construction activity precipitating the dispute
in Greater Anchorage was installation of utility equipment.
That meager nexus with APUC concerns, however, was not
sufficient to form a basis for agency jurisdiction under the
Act. See id. at 1033-34.
In Greater Anchorage, then, we narrowly construed the stated
purpose of a statute granting the APUC adjudicatory power and
found the dispute at issue outside the scope of the agency's
jurisdiction. In B-C Cable, having no doubt that the tax
issue fell within the narrow scope of APUC jurisdiction to
review a particular type of dispute, we liberally construed
the agency's power within that scope and refused to interfere.
In sum, we have construed AS 42.05.141(a)(1) to mean that the
actual areas in which the APUC may exercise its adjudicatory
authority are quite narrow. Within those narrow areas,
however, the APUC's powers to adjudicate are plenary, as broad
as the specific provisions of the Act permit.
As noted, this case concerns a very specific APUC
adjudicatory power: the agency's power to decide any dispute
between a municipality and a public utility as to the
reasonableness of "fees, terms, conditions, or exceptions"
imposed on the utility's permit to use the municipal rights of
way. AS 42.05.251. We believe that the dispute between the
City and HEA clearly falls within the APUC's jurisdiction
under this statute.
The City, not surprisingly, argues against such a finding of
original APUC jurisdiction over its dispute with HEA. The
City's arguments, however, are unpersuasive.
To begin with, the City argues that HEA has no permit in the
traditional sense, and thus the dispute between them does not
implicate AS 42.05.251. On the contrary, a permit is simply a
"license or grant of authority to do a thing." Black's Law
Dictionary 1140 (6th ed. 1990). The APUC Act requires the
City to grant HEA authority to use the rights of way. AS
42.05.251. The terms of the written agreement between HEA and
the City expressly include such a permit for HEA to use the
City's streets, alleys, and rights of way to operate the
utility system. Even the ordinance submitted to the City's
voters explained that the City was granting HEA a permit.
Obviously, HEA has a permit within the meaning of AS
Next, contends the City, the requirement that HEA relocate
its facilities within the City rights of way at its own
expense cannot be construed as a permit "fee," within the
meaning of AS 42.05.251. We find this argument irrelevant,
because we believe that the City's requirement that HEA pay
its own relocation expenses plainly constitutes a term or
condition of HEA's permit, thus bringing it within the purview
of AS 42.05.251.15 Even if the City were correct that its
imposition of the requirement is nothing more than invocation
of the common-law rule, we believe that the City's decision to
apply the common-law rule to HEA's permit makes the rule a
term or condition of that permit. Whether or not that rule is
a reasonable term or condition is an open question, squarely
within the jurisdiction of the APUC to determine under AS
42.05.251. Cf. B-C Cable, 613 P.2d at 619.
We hold that the APUC has jurisdiction pursuant to AS
42.05.251 to adjudicate a dispute over the reasonableness of
fees, terms and conditions imposed by a municipality on the
use of its rights-of-ways by a utility. We thus reverse the
superior court's jurisdictional ruling and remand this case to
the superior court for a review of the substance of the APUC
The superior court awarded partial attorney's fees in the
amount of $8,500 to the City, pursuant to Appellate Rule
508(e) (permitting discretionary awards of fees by an
appellate court). Our decision today removes the foundation
upon which the superior court necessarily based its
discretionary award of partial attorney's fees. We thus
vacate the fee award.
The decision of the superior court is REVERSED in part and
VACATED in part, and the case is REMANDED for proceedings
consistent with this opinion.
1. Under the terms of the agreement, HEA was to pay the
municipal bond debt outstanding on the City's electrical
system and eventually to assume ownership of the system.
2. After enactment of the APUC Act of 1970,
municipalities no longer had the power to grant franchises to
utilities such as HEA. See generally B-C Cable Co. v. City &
Borough of Juneau, 613 P.2d 616 (Alaska 1980). Rather, such
utilities received certificates of public convenience and
necessity from the APUC and mandatory permits from
municipalities. AS 42.05.221 & 42.05.251. The City's misuse
of the term "franchise"in its ordinance presumably was a slip
due to force of habit and not the product of a
misunderstanding of the recent changes in the law.
3. HEA also filed in the superior court a complaint
for breach of contract. The superior court proceedings have
been suspended pending disposition of this appeal.
4. See City of Kenai v. State, APUC, 736 P.2d 760, 761
5. MTA also presented arguments that turned upon the
unique circumstances of its contract with the City of Wasilla.
The APUC decision in this case did not resolve issues MTA
raised in those arguments.
6. See generally 12 E. McQuillin, The Law of Municipal
Corporations 34.74a, at 226 (3d ed. 1986); O. Reynolds,
Handbook of Local Government Law 111, at 341 (1982).
7. APUC Order No. U-83-74(7)/U-83-27(4).
8. Although the APUC agreed with the arguments that
both HEA and MTA had asserted, the APUC nevertheless denied
approval of the surcharge relief that the utilities requested.
Instead, MTA received declaratory relief significantly
different than the ruling it had sought, and HEA received an
order for reimbursement of relocation expenses that it might
enforce through further court action. The APUC stated that if
its decision on unreasonableness were overturned on appeal,
the APUC then would reconsider the appropriateness of
9. MTA is technically an appellee here, but MTA's
position is actually consistent with appellant HEA's. Two
amici curiae also have filed briefs: Fairbanks North Star
Borough and Chugach Electric Association.
10. We will review with some deference an agency's
construction of a statute "where the questions at issue
implicate special agency expertise or the determination of
fundamental policies within the scope of the agency's
statutory function." Tesoro, 746 P.2d at 903. In such cases,
we apply a rational basis standard. Id. Where the statute to
be construed, however, is, as in this case, the very statute
that defines the scope of the agency's function, the court
properly makes its own interpretation.
11. Enacted by ch. 113, 6, SLA 1970; amended by ch.
104, 1, SLA 1986. The 1986 amendments replaced "city and
borough" with "municipality," removed reference to "home
rule," and added a sentence to limit the amount that a
municipality may charge as a use "fee." The 1986 amendments
did not alter the language of the statute relevant to this
12. In its order the APUC stated in part:
However, as the Commission
construes AS 42.05.251, the imposition of a
surcharge requires a preliminary finding that
the expense imposed by a municipality and to
be recovered through the surcharge is the
consequence of a reasonable fee, term, or
condition. If the fee, term, or condition
causing the expenses is not reasonable under
AS 42.05.251, then the proper response is to
prohibit or appropriately modify the subject
In the concluding portion of its order the APUC stated:
3. The practice of municipalities
directing unreimbursed relocations of utility
facilities laid in municipal rights-of-way is
declared unreasonable within the
contemplation of AS 42.05.251, except for
those situations discussed in the body of
13. AS 42.05.711 exempts a few particular types of
utility providers from the APUC Act.
14. AS 42.05.221 requires a public utility to obtain a
certificate of public convenience from the APUC. One
subsection vests the APUC with dispute resolution authority
over a particular type of dispute:
(d) In an area where the commission
determines that two or more public utilities
are competing to furnish identical utility
service and that this competition is not in
the public interest, the commission shall
take appropriate action to eliminate the
competition and any undesirable duplication
of facilities. This appropriate action may
include, but is not limited to, ordering the
competing utilities to enter into a contract
. . . .
15. In 9, 3 of the ordinance that City voters
approved prior to the grant of the permit to HEA, the City
itself expressly described the relocation requirement as a
term or condition:
In [the] event that at any time during the
period of this franchise the City shall lawfully
elect to alter, or change the grade of, any
street, alley or other public way, HEA, upon
reasonable notice by the City, shall remove,
relay, and relocate its poles, wires, cables and
other electrical fixtures at its own expense.