Title: DECATUR CTY. RE MEM. v. Public Serv. Co. of Ind.

State: indiana

Issuer: Indiana Supreme Court

Document:

301 N.E.2d 191 (1973)
DECATUR COUNTY RURAL ELECTRIC MEMBERSHIP CORPORATION, Appellant, United States of America, Nominal Appellant,
v.
PUBLIC SERVICE COMPANY OF INDIANA, Appellee.
No. 470S88.

Supreme Court of Indiana.
September 6, 1973.
Rehearing Denied December 10, 1973.
*193 John J. Dillon, Virginia Dill McCarty, Indianapolis, Wickens & Wickens, Greensburg, Stanley B. Miller, Indianapolis, for appellant.
Greg K. Kimberlin, Duejean C. Garrett, Plainfield, Leon J. Humbert, Greensburg, Sharpnack, Bigley & Jurgemeyer, Columbus, for appellee.
HUNTER, Justice.
This is an action brought pursuant to IC 1971, X-X-XX-XX (Ind. Ann. Stat. § 55-4418a [1972 Supp.]), by the plaintiff-appellee, Public Service Company of Indiana, Inc., an Indiana public utility, to condemn all of the electric utility property owned by defendant-appellant, Decatur County Rural Electric Membership Corporation (REMC). The trial court entered an interlocutory order, overruling the defendant-appellant Decatur REMC's amended objections to plaintiff-appellee's complaint in condemnation and appointing appraisers. The overruling of those objections forms the basis of this appeal. Jurisdiction is based on IC 1971, 33-3-2-7(1) and (8), (Ind. Ann. Stat. § 4-214).
*194 The general question presented to this Court for review is whether Public Service Company has the right to appropriate the property of Decatur REMC. The specific issues raised by the Appellant's amended objections and those herein raised on appeal are:
1. Is IC 1971, X-X-XX-XX (Ind. Ann. Stat. § 55-4418a) (Section 18A of the Rural Electric Membership Corporation Act, hereinafter referred to as "Section 18A") constitutional?
2. Are Public Service Commission approval and stockholder authorization prerequisites to a Section 18A condemnation?
3. Must a complaint filed pursuant to Section 18A of the REMC Act specifically include franchise rights as property taken?
4. Must an offer to purchase specifically include a value for franchise rights?
Section 18A reads as follows:
Decatur REMC's allegation that Section 18A allows for an unconstitutional taking of its property is largely predicated on the principles enunciated by this Court in Kosciusko County REMC v. Public Service Commission (1948), 225 Ind. 666, 77 N.E.2d 572. The Kosciusko case held, inter alia, that an REMC has a franchise property right which must be protected from illegal encroachments by other utilities. (See also, City of Greenfield v. Hancock County Rural Electric Membership Corp. (1971), Ind., 266 N.E.2d 799.)
*195 With the Kosciusko case as a premise, the appellants cite us to the general proposition that compensation for condemned property includes compensation for any franchise property rights incident thereto. (See Ft. Wayne Land & Imp. Co. v. Maumee Ave. Gravel Road Co. (1892), 132 Ind. 80, 30 N.E. 880). The appellants, also, however, concede that the right to just compensation for franchise rights may be contracted away by a public utility pursuant to IC 1971, 8-1-2-92 and 93 (Ind.Ann. Stat. §§ 54-604 and 54-606 [1951 Repl.]). The pertinent provisions in those sections read as follows:
Decatur REMC contends that it is not a public utility, relying primarily on the following language in the REMC Act, IC X-X-XX-XX (Ind. Ann. Stat. § 55-4418(a) [1972 Supp.]):
Appellants conclude that the above is "a clear and unequivocal statement by the General Assembly that an REMC organized under the REMC Act is not a public utility within the meaning of the Public Service Commission Act."
It is Decatur REMC's position that it is not a public utility and that it possesses more than a mere "indeterminate permit," but rather, franchise rights granted by the state. Therefore, appellant believes that the termination provisions, i.e., waiver of the right to just compensation for franchise rights, incidental to indeterminate permits are inapplicable here. Since there has been no waiver, Decatur REMC should receive just compensation for the taking of its franchise service rights.
Appellant's argument is without substance. To begin with, this Court rejects Decatur REMC's contention that it is not a public utility. The statutory language found in Section 18A and § 55-4418(a), cited hereinabove, clearly establishes that the legislature conceived of no distinction between an REMC and other public utilities. The legislative intent was to apply the same rules and procedures found in these two statutory provisions to all utilities  to include REMC's. For example, Section 18A of the REMC Act specifically states:
Ind. Ann. Stat. § 55-4418(a), supra, provides that the procedures applicable to public utilities, pursuant to the Public Service Commission Act, should be equally applicable to an REMC.
The Kosciusko case, upon which appellant so heavily relies, unequivocally holds that REMCs are public utilities:
Decatur REMC's position is further undermined by the holdings in Southern Indiana Gas & Electric Co. v. Indiana Statewide Rural Electric Coop. (1968), 251 Ind. 459, 242 N.E.2d 361, Morgan County Rural Electric Membership Corp. v. Public Service Company of Indiana (1970), 253 Ind. 541, 255 N.E.2d 822, and Hendricks County Rural Electric Membership Corporation v. Public Service Company of Indiana (1971), Ind. App., 276 N.E.2d 852. These cases state the well-established rule that the certificate of convenience and necessity held by an REMC constitutes no more than an indeterminate permit and is thus "subject to termination `according to law.'" (Morgan County, supra, 255 N.E.2d  at 826.) In the case at bar, Decatur REMC holds a certificate of convenience and necessity (granted in 1937) and, therefore, such certificate is subject to termination according to law. Section 18A of the REMC Act provides for such termination.
The Morgan County case is directly on point with the case at bar. This Court's rejection of the Morgan County REMC's argument is equally applicable to Decatur REMC's contentions, and Chief Justice Arterburn's language best illustrates the futility of appellant's argument:
Appellant's allegation that Section 18A unconstitutionally impairs a valid contract as between the state and Decatur REMC is totally without merit. It has been established that Decatur REMC possesses nothing more than an indeterminate permit  one which may be terminated at *197 any time pursuant to Section 18A of the REMC Act. The state has retained the right of termination, while Decatur REMC received a conditional franchise. In effect, Decatur REMC consented to the "impairment" of its "contract" with the state. Hence, there is no intrusion as contemplated by the appellants.
Appellants argue that Section 18A, in its application, unconstitutionally discriminates against them. It is their position that Section 18A of the REMC Act "purports" to apply equally to all public utilities, yet, in reality, applies unequally. Any utility appears to qualify as "the franchised utility" which services the municipality at the time of annexation and as "the other utility" authorized to serve the annexed territory prior to annexation. Since the RSMCs are only mandated to serve rural areas, i.e., communities having a population of less than 1,500, they will rarely, if ever, be the so-called "franchise utility." Furthermore, appellants contend Section 18A provides for a constitutionally impermissible classification by failing to include utilities other than electric service. (Section 18A, in fact, deals only with electric service utilities.) Appellant alleges that the above-mentioned discriminations are violative of the equal protection clauses of Article 1, § 23 of the Indiana Constitution and the 14th Amendment to the United States Constitution.
Legislative classifications are not per se unconstitutional. In fact, legislation, by its very nature, is an enterprise requiring subject matter distinctions. However, arbitrary and capricious classification will not pass constitutional muster.
The Equal Protection Clause does not prevent a state from indulging in reasonable legislative classification. If it can be established that there is any rational basis for the classification, it will generally be sustained. State of Indiana, ex rel. Miller, et al. v. McDonald, et al. (1973), Ind., 297 N.E.2d 826. A higher level of judicial scrutiny is required when there are fundamental rights or suspect classes involved. Miller, supra. A public utility has not heretofore been construed as a "suspect class," nor is the privilege to provide electric service a fundamental right. Therefore, the classification which inheres in the application of Section 18A of the REMC Act may be sustained upon a showing of rationality or reasonableness.
There are rational grounds upon which the classifications created by Section 18A are based. There is a longstanding Indiana policy that two utilities should not render like service in the same municipality. The original enactment of the Public Service Commission Act reflects this fundamental policy:
This statute has been construed to mean that the operation of two utilities providing the same service within the same municipality is contrary to the stated policy of the state. See: Public Service Commission v. State ex rel. Merchants Heat and Light Co. (1915), 184 Ind. 273, 111 N.E. 10; In re Northwestern Indiana Tel. Co. (1929), 201 Ind. 667, 171 N.E. 65; Batesville Telephone Co. v. Public Service Commission (1931), 46 F.2d 226 (Court of Appeals, Seventh Circuit); Re Public Service Company of Indiana, Inc. (1947), 71 PUR NS 45 (wherein the Public Service Commission granted the Public Service Company of Indiana the right to extend its service into a territory theretofore serviced by an REMC on grounds that public convenience and necessity require the avoidance of duplication).
REMCs were created to service rural Indiana. REMCs were organized "for the *198 purpose of promoting and encouraging the fullest possible use of electric energy in the state by making electric energy available to inhabitants of rural areas of the state at the lowest cost consistent with sound economy and prudent management of the business of such corporations... ." IC 1971, 8-1-13-2 (Ind. Ann. Stat. § 55-4402 [1951 Repl.]).
It is only logical that once an area serviced by an REMC is incorporated into a municipality already serviced by an electric utility, it loses its rural identity. The justification for the continued existence of the REMC in such area no longer exists  its objective having been accomplished. This result is not only reasonable, but is fully within the ambit of statutory purposes and goals.
Appellant's contention that Section 18A violates equal protection, because it applies only to electric utilities, is also without merit. It is the duty of the legislature to promulgate statutes regarding the operation of public utilities. A legislative decision to limit the subject matter of such a statute to electric energy is clearly reasonable and, hence, permissible, so long as the statute does not result in invidious discrimination against any one electric utility or any one group of the same.
We, therefore, hold that Section 18A of the REMC Act, on its face and in its application, is consistent with the notions of equal protection and, hence, does not offend the Constitutions of either the United States or Indiana.
Decatur REMC further alleges that Section 18A improperly authorizes the taking of property already devoted to a public use and, hence, is unconstitutional. We believe Section 18A is a permissible expression of legislative policy. In Morgan County REMC, supra, this Court stated:
Section 18A represents a fundamental policy decision by the legislature. The exercise of eminent domain under Section 18A simply implements that policy; it is designed to serve the greater public interest rather than private interests. We can find no constitutional infirmity in the state's delegation of its powers of condemnation to effectuate legitimate state policy.
Decatur REMC asserts that Section 18A unconstitutionally interferes with the federal policy of rural electrification reflected in the Rural Electrification Act, and, hence, violates the Supremacy Clause of the United States Constitution, Art. 6, cl. 2.
The Rural Electrification Act, U.S.C.A., Title 7, ch. 31, § 901 et seq., authorizes federal loans to REMCs for the express purpose of "furnishing electric energy to persons in rural areas." (Emphasis added.) The Act defines "rural area" as "any area of the United States not included within the boundaries of any city, village or borough having a population in excess of fifteen hundred inhabitants."
After a reading of the Rural Electrification Act, we are unable to discern any clash between the State of Indiana and the United States. As we have stated, the purpose for an REMC's existence expires when the area which it serves becomes "urbanized." Once an area, which was theretofore "rural," is included within a municipality of 1,500 or more and becomes urban, it clearly falls outside the ambit of the Rural Electrification Act. Therefore, Section 18A in no way contravenes the Supremacy Clause.
It is Decatur REMC's position that IC 1971, 8-1-2-84 (Ind. Ann. Stat. § 54-510 [1951 Repl.]) implicitly provides that a condemnation proceeding brought pursuant to Section 18A requires approval by the Public Service Commission and by the stockholders of Public Service Company *199 of Indiana. IC 1971, 8-1-2-84 reads, in part, as follows:
We reject this argument for two reasons. First, 8-1-2-84 makes no mention of condemnation actions, but, rather, deals only with voluntary sales or leases. Second, Section 18A makes no reference to the requirements of 8-1-2-84. In the absence of explicit language to the contrary, we must assume that the legislature intended to exempt condemnation actions from the requirements of 8-1-2-84.
Finally, appellant argues that the Complaint in Condemnation is fatally defective for failure to specifically include franchise rights as property taken and that no good faith offer was made by Public Service Company in that value for franchise rights was not specifically included. As we have stated above, Decatur REMC had no right to compensation for any franchise due to the waiver inherent in the issuance of an indeterminate permit. Thus, we are unable to discern any foundation for appellant's contention.
We commend counsel for both parties for their excellent briefs.
For all the foregoing reasons, the interlocutory order of the trial court overruling defendant-appellant's amended objections is hereby affirmed.
ARTERBURN, C.J., and GIVAN and PRENTICE, JJ., concur.
DeBRULER, J., concurs in result.
DeBRULER, Justice (concurring in result).
I cannot keep in step with the majority of the Court, when it concludes from the language of I.C. 1971, X-X-XX-XX, being Burns § 55-4418(a) and I.C. 1971, X-X-XX-XX, being Burns § 55-4418a, that the Legislature conceives of no distinctions between the cooperative public utility and other public utilities. It appears to me from these enactments that they clearly delineate the jurisdiction of the Public Service Commission over an REMC, and contain no expression or intendment whatsoever that an REMC be regulated in every respect the same as other utilities. Burns § 55-4418a grants jurisdiction to the Public Service Commission to fix rates which may be charged by an REMC for energy. Nothing more. Burns § 55-4418(a) merely calls the REMC a "public utility" and subjects it to the loss of territory annexed by a city when that city is being served by some other "public utility". That statement would not warrant the conclusion which arises from the majority opinion as I read it, that the Legislature intends that the rural electric cooperatives be considered "public utilities" and therefore subject to the regulatory scheme contained in the Public Service Commission Act.
Neither do I agree that the prior cases of this Court or the Public Service Commission Act itself add any support to the conclusion reached by the majority. Even the majority in Southern Indiana Gas & Electric Co. v. Indiana Statewide Rural Electric Coop. (1968), 251 Ind. 459, 242 N.E.2d 361, (DeBruler, J., dissenting) would be surprised to see their opinion cited as supportive of so sweeping a conclusion. *200 There, the majority found that Statewide was required to seek Public Service Commission approval of its plan to generate electricity, since the original grant of authority in the original articles of incorporation approved by the Public Service Commission to do so, had been lost by non-use; and it was therefore concluded that Statewide should seek Public Service Commission approval for what was conceived in the majority as an expansion of the authority granted in the original articles of incorporation. In no way could the holding in that case support the conclusion that the REMC is a "public utility".
My dissent in the Statewide case led to my concurring in result in the case of Morgan County REMC v. Public Service Company of Indiana (1970), 253 Ind. 541, 255 N.E.2d 822. There, it was my unexpressed view that by enacting Burns § 55-4418a, the Legislature had directly effected the nature of the right of the REMC to serve in annexed areas, and that it had a right to do so in these circumstances. I did not agree that the REMC held only an indeterminate permit as defined in the Public Service Commission Act. I still contend, as I did in my dissent in the Statewide case that it is up to the Legislature to decide whether the rural electric cooperatives shall be subjected to the full regulatory scheme of the Public Service Commission Act. To date, they have not done so.