110 [96 Op. Att’y

PUBLIC UTILITIES

COUNTIES – CHARTER HOME RULE COUNTIES – WHETHER

MONTGOMERY COUNTY HAS AUTHORITY TO CREATE A

PUBLICLY CONTROLLED ELECTRIC COMPANY

December 5, 2011

Valerie Ervin, President

Montgomery County Council

You have asked whether Montgomery County (“County”) has

authority to create a publicly controlled electric company to

distribute electricity to County customers in place of Potomac

Electric Power Company (“PEPCO”). 

In compliance with our policy on opinion requests from local

governments, you provided the County Attorney’s opinion on

various legal issues raised by your question. The County Attorney

concluded that the County could not assign such a function to a

County agency but would need to create a new entity under the State

corporation law to distribute electricity; that such an entity might

hold a franchise to distribute electricity, but could not exercise that

franchise without the approval of the Public Service Commission

(“PSC”); that the entity would have to obtain the consent of a

municipality to lay or construct power lines in the municipality; and

that neither the entity nor the County could condemn the

infrastructure of an operating utility like PEPCO without the General

Assembly’s express authorization to do so. A copy of that opinion

is attached.

We concur with the County Attorney’s description of the legal

prerequisites to the displacement of PEPCO by a County-controlled

distributor of electricity. We elaborate only on the PSC approval

process.

As the County Attorney indicated, a new entity would have to

apply to the PSC for the right to exercise a franchise to distribute

electricity to County customers. That process would concern not

only the new entity’s ability to serve the County’s citizens, but also
Gen. 110] 111

the modification of PEPCO’s service territory.1 PEPCO’s existing

service territory in Maryland also extends to Prince George’s County

and Howard County.2

 The PSC has explained that “electric service

boundaries should not be changed without strong clear evidence of

need, equity, and practicality of the proposed change.” In re

Choptank Electric Cooperative and St. Michaels Utilities

Commission, PSC Case No. 9071, Order No. 81068, 2006 PSC

LEXIS 23.3

 We understand that the County has raised the prospect

of modifying PEPCO’s service territory in a pending proceeding

before the PSC. See In re Investigation into the Reliability and

Quality of the Electric Distribution Service of Potomac Electric

1 As a practical matter, the success of such an application would

likely depend at the outset on the new entity’s ability to acquire PEPCO’s

distribution infrastructure by condemnation. See Town of Easton v. Public

Service Commission, 379 Md. 21, 33, 838 A. 2d 1225 (2003) (PSC’s

authority to designate where a company may exercise its franchise

“enables it to assure the efficient and non-duplicative provision of

service”). We agree with the County Attorney that the current law does

not empower a new public service entity to condemn another public

service company’s real property interests and other components of its

infrastructure for the purpose of providing the same services. Given the

extensive State regulation of electric companies and the crossjurisdictional nature of PEPCO’s service territory, the delegation of such

a power would be a matter for a State law, not a local ordinance. For a

discussion of various legal issues raised by a local government’s attempt

to take over the operations of a public utility, see S.R. Saxer, Government

Power Unleashed: Using Eminent Domain to Acquire a Public Utility or

Other Ongoing Enterprise, 38 Ind. L. Rev. 55 (2005).

2 PEPCO also provides service in Washington, D.C.

3 Choptank illustrates the difficulty of proving those three

propositions. In that case, the PSC found the petitioner’s proof

insufficient and declined to divide the service territory in question. First,

the PSC found that “practicality cuts against carving up the [existing]

service territory” because that change would “leave uncertain the future”

of the territory left to the partially-ousted utility. 2006 PSC LEXIS at

*54-55. Second, it found “no paramount or preeminent ‘need’ to serve

[the existing territory]; that is, there is no service problem in either of the

areas that would be fixed by awarding the territory to [the applicant],” Id.

at *56-57. Finally, the PSC found that the petition was not “advanced by

equity considerations,” because, “[e]ven assuming that fair value would

be exchanged for the property being acquired,” the applicant had “offered

no particular claim that a failure to grant its petition would be

inequitable. . . .” Id. at *57. 
112 [96 Op. Att’y

Power Company, Case #9240, Order No. 83526.4 In any event, the

power to condemn PEPCO’s infrastructure, or, for that matter, a

simple purchase of that infrastructure, would not by itself assure a

new entity of PSC approval to modify PEPCO’s service territory. 

Douglas F. Gansler

Attorney General

Ann MacNeille

Assistant Attorney General

Robert N. McDonald

Chief Counsel

 Opinions and Advice

County Opinion Follows

4 The County has intervened in that proceeding, asserting that

[PEPCO] “has ... operat[ed] an unreliable electric system in Maryland

since at least 2005,” and has asked the PSC to order PEPCO to take

certain remedial actions. Reply Brief of Montgomery County, p. 23. The

County has requested that, if PEPCO does not improve certain reliability

statistics within two years of PSC’s issuance of an order in the case, the

PSC “act ... to initiate a proceeding to modify [PEPCO’s] service territory

to remove Montgomery County or revoke [PEPCO’s] authority to exercise

its franchise to serve Montgomery County, so that the County can move

toward obtaining highly reliable electric service from a replacement

utility.” Id. at pp. 16-17; see also Initial Brief of Montgomery County at

p. 30.
Gen. 110] 113

OFFICE OF THE COUNTY ATTORNEY

Isiah Leggett Marc P. Hansen

County Executive County Attorney

TO: Valerie Ervin, President

County Council

Roger Berliner, Vice President 

County Council

FROM: Marc P. Hansen

County Attorney

DATE: September 6, 2011

RE: Public Electric Company – Creation

The Council has asked what steps Montgomery County

would need to take in order to create a publicly controlled electric

company to provide electric service to County customers in the

place of Potomac Electric Power Company (PEPCO). The specific

questions posed are:

! What changes, if any, would be required in state

law to allow for our residents to be served by

public power?

! What is the role of the Maryland Public

Service Commission, if any, in reviewing or

approving the transfer of PEPCO's franchise

to a public power entity?

! What are the principal legal issues that arise

when pursuing public power in the context of

taking service over from an incumbent?

! If an eminent domain action were to be required

to assume control of the electric distribution

system, how would Montgomery County go about

determining the value of the assets?
114 [96 Op. Att’y

Short Answer

In order for a publicly owned and controlled electric utility

company to provide electric power to the residents of Montgomery

County the following steps would need to be taken by the County:

1) Form a non-stock, non-profit corporation1 to operate an

electric company under the Corporations and Associations Article

of the Maryland Code;

2) Obtain the consent (i.e. a franchise) from the governing

bodies of each municipality in the County to lay or construct power

lines within the boundaries of the municipality in accordance with

the Public Utilities Article of the Maryland Code;2

3) Obtain from the General Assembly the authority to

acquire PEPCO's infrastructure by condemnation;3

 and

4) Obtain the consent of the Maryland Public Service

Commission (PSC) before delivering electric service to County

customers.

1

 This opinion assumes that the County would elect to create

(directly or indirectly) a corporation as the appropriate business form to

deliver electric service to County residents. Responding to the Council's

questions does not require a determination of whether a different

business form, such as a limited liability company, should or could be

used—a decision of the form of business organization that a public

electric company should take would require further analysis. Under

current law, however, the County could not elect to deliver electric service

directly through the County Government. Section 1-101 (h) of the Md.

Public Utilities Code Ann, defines an electric company as a "person who

physically transmits or distributes electricity in the State to a retail electric

customer." The County is not included in the definition of a "person"

under § 1-101 (u). The definition of a "person" in a statute does not

include the government unless the intent to include the government is

made manifest by the legislature. Unnamed Physician v. Commission on

Medical Discipline, 285 Md. 1, 12-14 (1979).

2

 The consent of the State would need to be obtained to construct

power lines in State right of ways. Consent from the governing body of

the County would also need to be obtained as well.

3

 This opinion assumes that PEPCO would not voluntarily sell its

infrastructure to a newly formed public electric company.
Gen. 110] 115

After obtaining the required approvals for a public electric

company to provide service to County customers, the County would

need to initiate a condemnation action against PEPCO. In this

condemnation action, the County would be required to pay PEPCO

"just compensation" for its infrastructure. Just compensation is

determined by ascertaining the fair market value of the

infrastructure being acquired from PEPCO.

Given the novel issues addressed in this opinion, the

Council may wish to obtain the opinion of the Attorney General

before pursuing this matter any further.

Discussion

Formation of a public electric company.

An electric company incorporated in Maryland may "furnish

electric power in any municipal corporation or county of the State."

Md. Public Utilities Code Ann., § 7-103.

Although the Public Utilities Code does not address how an

electric company is formed in Maryland, a review of pertinent

legislative history reveals that the provisions of the Public Utilities

Code were once part of Article 23 of the Maryland Code, and

Article 23 did address how an electric company could be formed.

The 1904 Md. Code Ann., Art, 23 § 14 provided that five or

more persons may form a "body corporate" for certain purposes,

which were set out in enumerated "classes" of corporations in the

sections following § 14. Under § 28 a "class 13" corporation could

be formed "for the transaction of any business in which electricity

over or through wires may be applied to any useful purpose."

Through numerous amendments to Article 23 over the intervening

110 years, this provision along with the other classes of

corporations were apparently collapsed into Md. Corporations and

Associations Code Ann., § 2-101, which now provides that a

corporation may be formed for "any lawful purpose."4

4

 It appears that the General Assembly moved to a more general

approach to incorporation beginning with the 1911 Md. Code, Art. 23, 

§ 2, which provided that a corporation may be formed "for any one or

more lawful purposes . . . except where special provisions inconsistent

herewith are made in this article for particular classes. . . ." As will be

seen in the following discussion public utilities were also formed by

special enactments of the General Assembly.
116 [96 Op. Att’y

The County could, therefore, authorize County officials to

form a non-stock, non-profit corporation to act as an electric

company under the State's general laws of incorporation. In the

alternative, the Council could indirectly "create" an electric

company by enacting legislation offering to grant a franchise over

County right of ways to construct power lines to any corporation

that was formed with a charter and bylaws consistent with the

enacted legislation. The County has adopted this indirect approach

with respect to the creation of the Arts and Humanities Council and

the Collaboration Council.5

A franchise is necessary to operate an electric company.

I. Section 7-103 of the Md. Public Utilities Code grants a

franchise to electric companies. 

A franchise is a "government-conferred right to engage in a

specific business or to exercise corporate powers"6

 that must be

obtained through a legislative act. "A franchise may be granted only

by the legislature or by a municipal corporation to which that power

has been delegated." Charles County Sanitary District v. Charles

Utilities, 267 Md. 590, 598 (1973). The PSC does not have the

authority to grant a franchise. Id.

Section 7-103 of the Md. Public Utilities Code grants a

franchise to operate an electric company in any municipality or

county of the State. But an electric company must obtain the

consent of the governing bodies of the municipality and the county

in which the electric company will operate before constructing any

power lines in the affected jurisdiction.

Subsection (a) of § 7-103 grants a general franchise to

operate an electric company in the State; it provides that an electric

company incorporated in Maryland may:

(1) manufacture, sell, and furnish

electric power in any municipal corporation or

county of the State;

5 See §§ 5A-1 through 5A-7 and 2-117 through 2-122,

Montgomery County Code (2004), respectively. 

6 Black's Law Dictionary (Abridged Eighth Ed., © 2005, Bryan

Garner, ed.).
Gen. 110] 117

(2) construct a power line to transmit

power under, along, on, or over the roadways

or public ways of any municipal corporation or

county of the State; and

(3) connect the power line from the

place of supply to any other structure or

object.

Subsection (b) limits the General Assembly's general grant of

authority by requiring the electric company to obtain the consent of

the governing bodies of the affected municipalities and counties to

"lay or construct" power lines in the jurisdiction; subsection (b)

provides:

(1) An electric company must have the

consent of the governing body of the

municipal corporation or county before laying

or constructing any power line in accordance

with subsection (a) of this section.

(2) The governing body of the

municipal corporation or county may adopt

reasonable regulations and conditions for the

laying of a power line, including regulations

requiring the electric company to refill and

repave any roadway or public way under

which the power line is laid.7

Assuming that operating an electric company would at some

point in time require any electric company to "lay or construct"

power lines within a municipality, obtaining the consent of the

municipalities in the County will be required as a practical matter.8

7

 The provisions of § 7-103 can be traced back in substantially the

same terms to 1910. See 1910 Md. Laws, Ch. 55.

8

 The General Assembly has also granted a general franchise to

deliver electricity to an electric cooperative under Md. Corporations and

Associations Code Ann., § 5-607. Although the County could authorize

County officials to form an electric cooperative, this opinion does not

address in detail the powers of an electric cooperative because a

cooperative does not provide any significant authority that would not

otherwise be available to an electric company formed under § 2-101 of

(continued...)
118 [96 Op. Att’y

II. Montgomery County does not have the power to grant a

franchise to an electric company outside of the parameters

of § 7-103. 

Consideration has been given as to whether the County, as

a home rule jurisdiction, has been delegated by the General

Assembly the power to grant a franchise to operate an electric

company outside the confines of § 7-103.

Montgomery County is a Charter home-rule county

organized under Article XI-A of the Maryland Constitution, and it

derives most of its powers from the Express Powers Act.9 The

Express Powers Act, however, contains no explicit authority for a

charter county to grant a franchise to provide electric power to

customers within the county.10

Subsection 5(S), however, authorizes the County to enact

legislation "deemed expedient in maintaining the . . . welfare of the

county." The Court of Appeals has held that this provision should

be construed as a broad grant of power to legislate to promote the

general welfare of the community. Montgomery Citizens League v.

Greenhalgh, 253 Md. 151 (1969). This broad power to legislate for

the general welfare is circumscribed, however, by the power of the

General Assembly to enact general laws and to preempt or reserve

fields of legislation as the exclusive preserve of the State. The

Court of Appeals has identified several factors to determine

whether a field of legislative activity has been preempted by

implication.11

8

 (...continued)

the Md. Corporations and Associations Code Ann. In fact, the voluntary

nature of membership in a cooperative could prove problematic in the

context of taking over service from PEPCO.

9

 Maryland Code Annotated, Article 25A, Section 5.

10 Subsection 5(B) authorizes a county to grant "any franchise",

but this authority seems to be limited to the context of granting a

franchise to use property acquired by the county for public purposes.

11 The General Assembly, of course, may expressly preempt a

field. See Montgomery County v. Atlantic Guns, Inc., 302 Md. 540 (1985).

The Md, Public Utilities Code does not contain any language expressly

preempting the field of providing electric service to retail customer,
Gen. 110] 119

The general rule is that a field, such as the regulation of

electric service, has been preempted by implication when the

General Assembly has legislated in the field with such

comprehensiveness that "the acceptance of the doctrine of

preemption by occupation is compelled." Allied Vending v. City of

Bowie, 332 Md. 279 (1993).12 In Allied Vending, the Court of

Appeals identified certain secondary factors that are to be

considered in determining whether preemption exists. The

secondary factors include whether: (1) local laws existed prior to

the enactment of the State laws governing the same subject matter;

and (2) the local law relates to an area over which some local

control has traditionally been allowed. Id. at 299.

As noted, the Md. Public Utilities Code, § 7-103 provides a

general franchise to electric companies to "furnish electric power

in any municipal corporation or county of the State." Obtaining a

franchise to operate an electric company under the general

franchise provisions of § 7-103, or its legislative precursors that

stretch back at least 100 years, is not the only means by which a

franchise to operate an electric company can be obtained. The

General Assembly has granted by special legislation electric

franchises to specific corporations. For example, PEPCO acquired

its electric franchise from corporations that obtained a franchise

from the General Assembly over a century ago.13 See, 1894 Md.

Laws, ch. 540 and 1900 Md. Laws, ch. 245.

The historic practice over the last century of the General

Assembly granting, through specific or general enactments, a

franchise to operate an electric utility company is well-entrenched,

and is a strong indication that the General Assembly has

preempted the field of granting electric utility company franchises.

In addition, as noted in Allied Vending, the Court of Appeals

considers whether local laws existed prior to the enactment of the

State laws governing the subject matter in question. Based on the

12 In Allied Vending, the Court of Appeals struck down Bowie's

regulation of cigarette vending machines concluding that the General

Assembly had by implication preempted the field of regulating cigarette

vending machines.

13 PEPCO operates under a franchise granted to Great Falls

Power Company. Great Falls received a state wide franchise by acts of

the General Assembly in 1894 and 1900. See Poiomac Electric Power Co

v. Birkett, 217 Md. 476, 479 (1958).
120 [96 Op. Att’y

cases reviewed for this opinion, it appears that electric companies

obtained their franchises from the General Assembly and there

appears to be no persuasive evidence that local governments have

exercised any control in this field in the past independent of the

franchise processes controlled (general or specific) by the General

Assembly.

The only case that mentions the possibility of local control

over granting an electric power franchise is Mayor and Council of

Berlin v. Delmarva Power & Light Company, 95 Md. App. 585

(1993), cert. denied 331 Md. 480 (1993). In Berlin v. Delmarva a

footnote appears indicating that Delmarva obtained a franchise

from Worcester County. Id., at 591, n. 2. Worcester County is a

commissioner county governed under Article 25 of the State Code.

A commissioner county may only exercise those powers

specifically granted to it by the General Assembly. Article 25, unlike

the Express Powers Act, does not delegate to commissioner

counties the power to legislate for the general welfare of the

residents of the county. Many of the powers of a commissioner

county are granted through the enactment of a public local law.

Significantly, Delmarva also operated under a franchise granted by

the General Assembly that pre-existed the franchise granted to it

by Worcester County. This footnote, therefore, provides little

support for the proposition that a county has historically granted a

franchise to operate an electric company.14

Finally, it is worth noting that the Court of Appeals has

applied Dillon's Rule in the context of a local government's authority

to grant a franchise. Purnell v. McLane, 98 Md. 589 (1904). Dillon's

Rule provides that a local government possesses only those

powers that are granted to it in express language or those

necessarily or fairly implied from that language. Dillon's Rule goes

on to provide that "Any fair, reasonable doubt concerning the

existence of the power is resolved by the court against the

[municipal] corporation and the power is denied." Id. at 594. The

Court of Appeals went on to note that this rule is applicable in the

context of a local government's authority to grant a franchise. The

Court stated "The right to a franchise is no more to be presumed,

14 Montgomery County had issued resolutions in 1914, 1927, and

1952 granting PEPCO 25 year franchises. The PSC essentially

concluded that these resolutions were superfluous because PEPCO

operated under a franchise granted by the General Assembly. PSC Order

No. 50070, Case No. 5263 (May 15, 1953).
Gen. 110] 121

than the exemption from taxation, and therefore every assertion of

such right must, to be efficacious, be distinctly supported by clear

and unambiguous enactment. To doubt is to deny the right to the

franchise." Id. The Court of Appeals cited, with approval, an Ohio

case that provided that a franchise "may be granted directly by the

State, or by a municipal corporation, if it is clothed with power to

make the grant. Such power in the municipality must either be

expressly granted, or arise from the terms of the statute by

implication so direct and necessary as to be clearly confirmed." Id.

at 592.

Given the historical practice that electric company franchises

have been granted by the General Assembly (and not by local

government), and the lack of any express language in the Express

Powers Act authorizing charter counties to grant an electric

franchise, it is highly probable that the Court of Appeals would

conclude that the County does not have the legislative authority to

grant an electric public utility franchise independent of the powers

granted local government under § 7-103.

The Maryland Public Service Commission must approve

the transfer of PEPCO's franchise to any new electric

company.

A new electric company would need to obtain the approval

of the PSC before exercising an electric utility company franchise.

Md. Public Utilities Code, § 5-201, provides, "A public service

company15 may not exercise a franchise granted by law except to

the extent authorized by the Commission,"

In Berlin v. Delmarva Power & Light Company, the Court of

Special Appeals approved the PSC's denial of the Town of Berlin's

extension of electric service by the municipal electric company to

land annexed by the Town, because the area was already served

by Delmarva. The Court approved PSC's finding that "designation

of service areas for electric utilities are in the public interest

because such designation would eliminate future wasteful

construction of duplicate distribution facilities, it would permit public

utilities to develop unserved portions of their service areas in the

most economical manner, and it would reduce to a minimum

disagreements between companies as to service areas." Berlin v.

15 A public service company includes an electric company. Md.

Public Utilities Code Ann. § 1-101(x).
122 [96 Op. Att’y

Delmarva Power & Light Company, 95 Md. App. at 592. The PSC

has adopted service area maps that confirm the exclusive service

areas of the electric utilities in Maryland.16

Hence, in order to avoid duplication of infrastructure, the

PSC would almost certainly require any entity designated to

provide electric service to customers in Montgomery County to

acquire PEPCO's infrastructure.

Montgomery County must obtain authority from the 

General Assembly to condemn PEPCO's infrastructure.

Given the need to avoid creating a duplicate electric

distribution system, a publicly controlled electric company would

need to obtain PEPCO's distribution infrastructure necessary to

serve Montgomery County customers. Assuming that PEPCO

would not voluntarily sell its infrastructure to a County created

public electric company, PEPCO's infrastructure would need to be

acquired through the power of condemnation. Therefore, a newly

created electric company would need to be armed with a

condemnation power sufficient to acquire by eminent domain the

infrastructure of an existing electric company like PEPCO that

already possesses the power to condemn for its corporate

purposes.17

Current State law does not delegate to a newly formed

electric company the power to condemn the infrastructure of an

existing electric company that enjoys a state-wide franchise as well

as the power to condemn for its corporate purposes.18 Therefore,

16 See Order No. 52603, PSC Case No. 6017.

17 PEPCO's power to condemn for its corporate purposes has

been confirmed by the Court of Appeals in Potomac Electric Power

Company v. Birkett, 217 Md. 476 (1958).

18 An electric cooperative (see n. 8) may "exercise the power of

condemnation in the manner provided by the law of this State for the

exercise of that power by other corporations that construct or operate

electric transmission and distribution lines or systems." Md. Corporations

and Associations Code Ann., § 5-607 (a) (15). But this power is

insufficient to empower a cooperative to condemn the infrastructure of an

existing electric company absent express authority, because PEPCO's

condemnation authority would checkmate a condemnation action by

(continued...)
Gen. 110] 123

this opinion examines whether the County's condemnation power

would be sufficient to acquire by eminent domain PEPCO's

infrastructure on the assumption that the County could delegate to

a newly formed public electric company the County's power of

condemnation.19

Montgomery County has the general power to condemn

property for a public purpose. Article 25A, Section 5(B). In order for

the County to exercise this general condemnation authority to take

property already dedicated to a public use—as is PEPCO's

infrastructure—the County must show that its purposed use of the

property would not conflict with an existing public use and that the

County's purposed use is a more necessary public use.

In 1919, the Court of Appeals concluded that the City of

Baltimore did not have the authority to acquire under its general

power of condemnation a freight yard operated by Northern Central

Railway Company.20 Northern Central Railway Company v. Mayor

and City Council of Baltimore, 133 Md. 658 (1919). In turning aside

Baltimore City's attempt to acquire by condemnation a freight yard

owned by Northern Central Railway, the Court noted, "It is a firmly

settled principle of the law of eminent domain that when land has

once become lawfully appropriated to a public use [i.e., railway

freight yard] it cannot be thereafter condemned for an inconsistent

user unless authority for such later appropriation has been

18 (...continued)

another electric company. Nichols on Eminent Domain, § 2,2[5]. Cf.

McQuillin, Municipal Corporations, Section 32:79. Section 5-410 of the

Public Utilities Code grants the authority to condemn to an electric

company formed under Class 13 of Article 23 § 28 of the 1904 Code. This

provision would seem to be inapplicable because it is no longer possible

to form an electric company under this now repealed provision of State

law. Moreover, the condemnation power granted under § 5-410 is no

greater than that granted to an electric cooperative.

19 This assumption, it should be noted, is suspect because the

general rule is that apolitical subdivision may not re-delegate it

condemnation power to another entity. Nichols on Eminent Domain,

§ 3.211[1]. The Court of Appeals has, however, approved a charter

county delegating to its county executive the county's condemnation

power, Anne Arundel County v. Bowen, 258 Md. 713 (1970).

20 Railroads, like electric companies, are public utilities.
124 [96 Op. Att’y

confirmed expressly or by necessary implication." (Emphasis

added) Id. at 660.

Relying on Northern Central Railway Company, the Attorney

General in 1972 concluded that the general condemnation authority

of the City of Annapolis and Anne Arundel County was insufficient

to condemn easements granted to the Maryland Historical Trust. 57

Op. Atty. Gen. Md. 361 (December 28, 1972).

Although there appears to be no Maryland case directly on

point, the general rule is that a local government, under its general

condemnation authority, may take property of a private corporation

devoted to public use if the property is to be used by the local

government for the same purpose and in the same manner. The

rationale for this rule appears to be that the public interest is better

served and more generally protected if the use is under the control

of local government as opposed to a private corporation. See,

McQuillin, Municipal Corporations, § 32:79.

Despite this general rule, the County would, nevertheless,

need to obtain from the General Assembly express authority to

condemn PEPCO's electric infrastructure, because the County's

condemnation of PEPCO's distribution infrastructure would

constitute a de facto denial of PEPCO's right to exercise the

franchise specifically granted to it (through its predecessors in

interest) by the General Assembly.

The Court of Appeals has pointed out on numerous

occasions that a local government may not adopt any legislation

that prohibits something permitted by the General Assembly. See,

e.g. City of Annapolis v. Annapolis Waterfront Co., 284 Md. 383,

391 (1979) and Forest Heights v. Tillie Frank, 291 Md. 331, 338

(1981). In Tillie Frank, the Court struck down a Forest Heights

ordinance that banned fortune tellers in the Town, because Ms.

Frank had obtained a license under a Prince George's County law

to conduct fortunetelling in the Town. Since the Prince George's

County law was superior to a municipal ordinance, the Town's ban

could not stand.21 The County's taking of PEPCO's infrastructure

would likely be prevented by the Court under the same rationale

21 Subsequent to the Court's ruling in Tillie Frank, the General

Assembly enacted legislation providing that certain County laws do not

automatically apply within a municipality. See Md. Code Ann., art. 23A,

§ 2B.
Gen. 110] 125

used in the Tillie Frank case—i.e. the County cannot prohibit an

activity that the General Assembly has expressly allowed.22

Method of valuation in condemnation of public utility.

In exercising its power of condemnation, the newly created

electric company would be required to pay PEPCO "just

compensation". U.S. Const. amend. V; Md. Const. Art. III, § 40.

Title 12 of the Md. Real Property Code provides guidance in

understanding what is meant by "just compensation."23 The "just

compensation" awarded for the taking of property must reflect the

fair market value of the property taken, which:

[I]n a condemnation proceeding is the price as of the

valuation date for the highest and best use of the

property which a vendor, willing but not obligated to

sell, would accept for the property, and which a

purchaser, willing but not obligated to buy, would

pay, excluding any increment in value proximately

caused by the public project for which the property

condemned is needed. In addition, fair market value

includes any amount by which the price reflects a

diminution in value occurring between the effective

date of legislative authority for the acquisition of the

property and the date of actual taking if the trier of

facts finds that the diminution in value was

proximately caused by the public project for which

the property condemned is needed, or by

announcements or acts of the plaintiff or its officials

concerning the public project, and was beyond the

reasonable control of the property owner.

22 Presumably the County would seek from the General Assembly

legislation that empowered an electric company created by the County to

condemn property for the public electric company's corporate purposes.

This would make it possible for the public electric company to condemn

property in jurisdictions within the State in addition to the County. The

County's own general power of condemnation probably does not extend

beyond its borders. See McQuillin Municipal Corporations, § 32:76.

23 Title 12 would not apply directly to PEPCO infrastructure that is

not real property, but its principles would be applicable.
126 [96 Op. Att’y

Real Prop. § 12-1 0.5(b).

The process would likely begin with a feasibility study to

evaluate the costs of the acquisition, financing, and operation of

PEPCO's electric distribution system. The preliminary feasibility

study should examine the electric load growth, project the costs of

service from wholesale power suppliers, and estimate the capital

and operating costs of the new electric utility. Among the costs to

be considered is the loss of tax revenue that could result from the

condemnation of private property for the County utility.24

Various methodologies may be used to determine the value

of PEPCO's assets, any of which require reports from financial

experts. The public electric company may incur severance

damages to compensate PEPCO for the reconfiguration of its

remaining system to ensure the safety and reliability of service to

its remaining customers outside of Montgomery County. The value

may include calculation of PEPCO's "stranded costs," which are

investments made on behalf of customers to ensure future electric

service that are rendered uneconomic when those customers leave

the system.

Sales of investor-owned utilities to government entities do

not occur frequently, so there may not be comparables upon which

to rely in the appraisal process. Valuation methods that have

general acceptance include approaches that base the value of the

utility on the physical facilities that are being transferred

(reproduction cost less depreciation, replacement cost less

depreciation) and approaches that determine the value of the

system based on the earnings or some other measure of cash flow

that the utility will forego as a result of being forced to sell its

system. The types of property that will need to be assessed a value

include meters, service lines, overhead and underground lines

(mains), line transformers (regulators), and substations, as well as

the earnings and viability of the company as a going concern. See

WSSC v. Utilities, Inc., 365 Md. 1, 27-28 (2001) (discussion of

valuation of property in context of WSSC condemnation of an

existing water and sewer utility).

24 For tax year 2010, PEPCO paid Montgomery County

$517,655.09 in real property taxes. In addition, PEPCO paid Montgomery

County $16,175,969.79 in personal property utility taxes.
Gen. 110] 127

Suffice it to say that the appraisal of the just compensation

due to PEPCO to acquire its property will require complex analysis

and calculations. Ultimately, it could require a finding by a jury as

to the proper amount to be paid.25

I hope that you will find this opinion responsive to your

questions. If you have additional questions or concerns, please let

me know.

25 The American Public Power Association may be able to share

the experiences of other local governments, like Boulder Colorado, that

are considering or have taken over private electric companies.