Court Opinion

ID: 5036580
Source: CourtListenerOpinion
Date Created: 2021-10-01 06:09:29.412373+00
Date Added: 2024-06-11T08:18:24.101476
License: Public Domain

OSBORNE, Judge
(dissenting).
I must dissent from the majority opinion in this case. I believe it is 180° wrong on every single issue presented. This case involves issues which are of vital importance to the general public, and these issues are obviously incorrectly determined by this opinion. It is apparent that this opinion *97will be of some concern to future legal scholars.
This is a declaratory judgment proceeding brought by a citizen of Henderson seeking a declaration of rights of the parties with respect to passage of two ordinances by the city of Henderson on August 27, 1970. These ordinances authorize the execution of three contracts between the City and the Big Rivers Rural Electric Cooperative Corporation. This proceeding seeks approval of the issuance of $76,000,-000 of additional electric light and power revenue bonds to finance the construction of the generating facility. To place this project in perspective one must first look at the history of Henderson relating to the production and distribution of electric power. On October 4, 1954, the City adopted an ordinance authorizing the issuance of electric light and power revenue bonds for the purpose of refunding all prior bonds then outstanding and to make certain extensions and improvements in the electric system. This ordinance was submitted to the people and approved in a referendum on November 2, 1954. Thereafter, on December 17, 1965, and again on May 22, 1968, the City authorized two additional issuances of revenue bonds for the purpose of providing extensions and improvements to its electric system. As a result of these actions there is now outstanding a total of $7,045,000 of these issues. There is no delinquency, the City having made payments as required by the bonds. As a result the City has a first-rate electrical system and facilities to generate 48,000 kilowatts, which is adequate to take care of its present demands. It, also, has agreements with other interconnecting generating facilities to acquire an additional 44,000 kilowatts in case of an emergency. In fact, in this year of 1970, Henderson has a peak load of 34,-800 kilowatts as compared to its generating capacity of 48,000 kilowatts. This record is replete with ridiculous testimony and allegations concerning what the future requirements of the City will be. All estimates of future growth rate are based on recent past growth rates and some of these projections run as far as thirty years. This is speculation of the highest order and not the type of evidence upon which large public debts should be incurred. No man knows with any degree of certainty what will be the population of Henderson twenty years hence. It could possibly be less than it is today. On the basis of this most speculative testimony it is proposed in this action that this small City, which has an adequate electrical system, issue $76,000,000 worth of revenue bonds and construct a generating facility of 350,000 kilowatts. When the law is clear and unambiguous that this facility cannot be constructed nor these bonds issued unless the primary purpose of the project is to furnish and supply the City and its inhabitants with electrical power. Miller v. City of Owensboro, Ky., 343 S.W.2d 398; KRS 96.520. Now, it so happens under the above statute and under the above authority that if the City in performing its primary function of providing its citizens with electrical power incidentally has some little power left over it may dispose of this surplus through private sale. Therefore, the city of Henderson, which, when this facility is constructed, will have a generating capacity of 398,000 kilowatts and will have for sale 363,000 kilowatts. This figure is determined by deducting 34,800 kilowatts, which is Henderson’s peak load capacity for 1970. These figures make it so obvious that the primary purpose of the construction of these facilities is to furnish power to Big Rivers that I am amazed, appalled and confounded that this court could reach a contrary conclusion.
Since there are those who will wonder why this plant is being financed in this manner, it should be explained here that the income from revenue bonds issued by the city of Henderson is tax free to the bondholder, therefore, the bonds are more readily salable on the market than would be a private bond issued by Big Rivers. Furthermore, being municipal bonds, they will sell at a smaller interest rate on the market.
The most serious criticism of the plan is that Big Rivers, a private corporation, is *98borrowing money on the credit of the people of the city of Henderson in direct violation of section 179 of the Constitution of Kentucky, which provides “The General Assembly shall not authorize any county or subdivision thereof, city, town or incorporated district, to * * * obtain or appropriate money for or to lend its credit to any corporation, association or individual * *
The majority opinion in an attempt to justify its conclusion states that expert engineers testified that a facility should have sufficient firm capacity to meet its load requirements, which means the facility must have standby or reserve capacity of its largest generating unit. The majority opinion points out that the facility proposed here consists of two units of 175,000 kilowatts each. That one unit can be justified under the Owensboro case, supra, and therefore, since good practice requires a standby capacity equal to the largest generating unit, then the other 175,000 kilowatt unit is justified. This reasoning is faulty on two grounds. First, the court takes into consideration the sale of surplus electricity in justifying the first 175,000 kilowatt unit. It was never intended that the sale of surplus electricity be used to justify the initial size of the unit. In determining the initial size of the unit only the needs of the city should be considered. Secondly, if a generating facility is being constructed to serve a city the size of Henderson, no competent engineer would recommend the use of units of 175,000 kilowatts. Smaller units could be used. Even if you were constructing a unit with a total capacity of 350,000 kilowatts, there is no reason why the plant could not be constructed with seven 50,000 kilowatt units, instead of two 175,000 units.
It is obvious from the way the system was designed and the questions presented to this court that we are being required to play with a stacked deck.
The second major objection is made by the bondholders. The plan submitted incorporates the original facilities now owned by the City into the new facility, the total of which is leased to Big Rivers. At present, there is approximately $7,000,000 in revenue bonds outstanding against the existing system. These bonds are seriously impaired in my opinion. Without going into lengthy detail as to how the rights of these bondholders are being impaired, I will only point out the fallacy in the reasoning of the majority opinion. The majority acknowledges that the contract between the original bondholder and the City is materially changed. It permits and justifies this change on the basis that the “security” of the outstanding bonds are not being impaired, because the evidence warrants a finding that the plan is economically sound. It is my opinion that any first-year law student could see the fallacy in this reasoning. For instance, if X mortgages a cow to Y and provides that in the event the mortgage payments are not made, Y can milk the cow. Then, later, X could not unilaterally substitute a mule for the cow and have this justified by a court of law on the basis that the mule is worth as much as the cow. What became of the milking rights? Where is the old concept of not impairing the obligation of a contract? To say that the old bondholders still have sufficient security is no answer. They have no assurance that the bonds will be as readily and promptly paid from revenues from the system as were the old bonds. Their system which had a known performance record and a known potential with a foreseeable future has been taken and incorporated into a system with many unknowns. Their assurance that next week’s and next month’s bond payments will be made as were last week’s and last month’s has been impaired. In short, it has been made nearly impossible for them to milk the cow. The cow has been incorporated and lost in a herd.
I am not convinced that the Owensboro case is legally sound but it is too late to attack that opinion at this time. Money has been invested. People have changed the course of doing business. Bonds have been *99sold and so, right or wrong, the Owensboro case is law. I believe it would be a serious mistake to extend it beyond its original scope. I believe it would be catastrophic to extend it to the extent that this opinion does.
For the foregoing reasons, I respectfully dissent.
NEIKIRK and REED, JJ., join in this dissent.