Opinion ID: 2585635
Heading Depth: 3
Heading Rank: 4

Heading: Fair Value of Property Taken from THREA

Text: The superior court ruled that THREA is entitled to recover fair value for its property in Klawock because the decertification order effectively prevents THREA from using that property and therefore amounts to a de facto taking. The court ordered the commission to determine the fair value of THREA's property. On appeal, THREA contends that it should be compensated not just for the value of its physical property in Klawock, but also for the profits it could have made had it continued serving Klawock under its original certificate. In essence, THREA asserts that the certificate itself is valuable property that the commission has taken without just compensation. In response, Alaska Power and the commission do not deny that THREA is due compensation for its stranded facility. But they contest THREA's claim that the proper measure of compensation includes anything more than the fair market value of THREA's stranded Klawock facility. The Alaska Constitution's takings clause provides: Private property shall not be taken or damaged for public use without just compensation. [23] This clause must be interpreted generously in favor of the property owner; [24] by requiring the state to pay when property is damaged, and not just when it is taken, the clause offers Alaska property owners broader protection than does the federal Constitution's Fifth Amendment. [25] Furthermore, under Alaska's takings clause, any state action that entirely denies a property owner all the economically feasible use of the owner's property amounts to a per se taking. [26] Here, because the commission's modification of THREA's certificate had the effect of denying THREA the use of property dedicated to providing Klawock with electrical service, we agree with the superior court that the modification is a per se taking for which compensation is due. But we disagree with THREA's contention that the property taken includes both its stranded Klawock facility and its right, under its original certificate, to operate as a utility in Klawock. The commission originally granted THREA's certificate under a statutory structure that allows certificate modification. Thus, THREA was on notice that modification in the future was a real possibility. Because the commission at all times had the authority to modify THREA's service area under the circumstances presented here, THREA owned no property interest against the commission's regulatory action. This approach finds support in the United States Supreme Court's decision in Bowen v. Public Agencies Opposed to Social Security Entrapment. [27] There, the Court considered whether Congress took private property by eliminating an opt-out provision in the Social Security Act that allowed voluntarily enrolled states to withdraw from the Social Security System. A key ingredient of the case was that Congress had explicitly retained the power to alter the terms of the Act. The Supreme Court ruled that contractual rights conferred under the Act were necessarily subject to the sovereign power of the United States and bear[ ] little, if any, resemblance to rights held to constitute `property' within the meaning of the Fifth Amendment. [28] Distinguishing between the right to withdraw from the Social Security program and direct contractual rights or debts against the federal government, the Court emphasized that Congress had reserved the power to alter the opt-out element of the Social Security Act. [29] A certificate of public convenience and necessity presents a similar situation. When the legislature passed AS 42.05.271(1), it gave specific notice that the commission could modify or revoke a certificate of public convenience and necessity upon good cause shown. [30] Thus, the certificate grants a utility like THREA no vested right against the commission's exercise of this regulatory power. [31] Since THREA offers no convincing authority or reason why a certificate should qualify as property when the commission exercises a reserved regulatory power that was a condition of the certificate's original issuance, we conclude that the commission's decertification order is not a compensable taking of business rights conferred by THREA's original certificate. In summary, the commission's action did strand some of THREA's physical assets. The superior court correctly recognized that THREA must be compensated for those assets, and it properly ordered the commission to determine their value in the next phase of its proceedings. But the court did not err in failing to identify THREA's original certificate as compensable property taken by the commission's order. One aspect of the takings issue remains to be considered. In its cross-appeal, Alaska Power expresses reservations about the commission's impending determination of the fair market value of THREA's Klawock facilities. Fearing that the price may prove too high, Alaska Power argues that it should remain free to build new facilities in Klawock, thereby stranding THREA's facilities and leaving the state with the burden of paying THREA fair compensation. But in our view, under AS 42.05.221(d) and other provisions of the Public Utility Act, the commission may direct that Alaska Power purchase the existing Klawock facilities as a condition of its exclusive certification. If Alaska Power disagrees with the commission's evaluation of these assets, it may, of course, resort to its administrative appeal rights. But having come this far in this process, Alaska Power may not back away from the obligation to provide service in Klawock or to acquire THREA's plant, if the commission makes that purchase part of the package.