Request By:
Mr. Al Parsons
Channel 27 News
Winchester Road
Lexington, Kentucky 40505
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
In your letter you say that the Kentucky-American Water Company, Columbia Gas, and General Telephone, have all had franchises to expire with the City of Lexington, which you feel is contrary to KRS 96.010. It is your belief that the old city government and now its heir, the Fayette Urban County Government, is in violation of KRS 96.010, which calls for renewing of an existing franchise. See OAG 77-200, which was based upon the assumption that there was no problem as to expiration of existing franchises.
You enclosed documents indicating that Columbia Gas and General Telephone were issued 20 year franchises in 1948. Those franchises were not renewed. The water company was issued a 20 year franchise in 1953. You informed us that this was renewed by Fayette County and assumed by L.F.U.C.G. but the city did not let it out on bids as required by KRS 96.010 in 1973.
The first question is: Has KRS 96.010 been violated concerning the three companies. Yes.
KRS 96.010 reads:
"(1) At least eighteen (18) months before the expiration of any franchise acquired under or prior to the present constitution, the legislative body of each city shall provide for the sale of a new franchise to the highest and best bidder on terms that are fair and reasonable to the city, to the purchaser of the franchise and to the patrons of the utility. The terms shall specify the quality of service to be rendered and, in cities of the first class, the price that shall be charged for the service.
"(2) If there is no public necessity for the kind of public utility in question and if the city desires to discontinue entirely the kind of service in question, or if, in the case of cities other than those of the first class, the city owns or desires to own and operate a municipal plant to render the required service, this section shall not apply."
The Fayette Urban County Government became effective on January 1, 1974. All franchises of the existing county government and of any municipality (Lexington) were required to be assumed by the urban county government. KRS 67A.030. Further, under KRS 67A.060, the urban county government may exercise the constitutional and statutory rights, powers, privileges, immunities and responsibilities of counties and cities of the highest class within the county [here: a second class city].
The statute, KRS 96.010, since it involves existing franchise about to expire, is mandatory and is not within the legislative discretion of a city legislative body. Seaton v. Lackey, 298 Ky. 188, 182 S.W.2d 336 (1944). However, it is directory as to the time element [statute says city must let out franchise on bids 18 months prior to expiration of franchise] . Justice Dietzman, in Kentucky Utilities Co. v. Board of Com'rs, 254 Ky. 527, 71 S.W.2d 1024 (1934) 1026, wrote that the statute "was enacted, not only for the benefit of the city, but for the benefit of the owner of the expiring franchise, and to prevent his arbitrary exclusion from the city." Justice Dietzman makes it clear that the constitutional framers meant to vest the city with the right and power to control the original occupation of its streets, as mentioned in § 163 of the Constitution. However, he said, there is no language in § 163 or § 164 of the constitution that takes away from the legislature the right and power to require a municipality, once it has granted a franchise to a public utility, to give that utility [after it has established its plant and occupied the public ways and streets of the municipality] the opportunity on the expiration of its franchise of procuring a new one, on terms fair to the city, the utility, and to the public, by a bid which is highest and best in open competition. In the absence of KRS 96.010, a utility could be forced to amortize its plant and facilities within its existing franchise period, resulting in a rate structure that could be burdensome to the users. Judge Dietzman further noted that the main purpose, as expressed in the constitutional debates, behind § 164 was to insure that every so often the municipality should have the opportunity of revising the terms of the franchise which it had granted as to rates, quality, service etc., and to have the advantage of obtaining from time to time for the franchise its value which most likely would be enhanced by the growth of population and business. The absence of KRS 96.010 would deny to the city the right to exact a consideration in keeping with the value of privilege bestowed.
In answer to your first question, since KRS 96.010 is mandatory and is in no way conditioned on the enfranchised utilities' affirmatively seeking the application of KRS 96.010, it is our opinion that KRS 96A.030, relating to the assumption of franchises by urban county government, is sufficiently broad enough to encompass the three franchises which the city was required to rebid under KRS 96.010, and that the urban county government should now take action under KRS 96.010. The L.F.U.C.G. will be in violation [as was the city] of the statute until it takes appropriate action to apply KRS 96.010. As you put it, such action has been long overdue.
You next raise the question as to the consideration to be paid the L.F.U.C.G. for such franchises, once they are let. Under the terms of § 164, Constitution, the franchise period cannot exceed twenty years; and the award is to be made to the "highest and best bidder" in open competition. This affords the local governmental unit flexibility in arriving at reasonable terms and conditions. But such terms must be fair to the government, the utility, and the public. See Kentucky Utilities Co. v. Board of Com'rs, above. The statute, KRS 96.010, really involves correlative rights. It does not create a purely public right or a purely private right. It creates both a public right and private right - a public right for the benefit of the inhabitants of the city and a private right for the benefit of the utilities company, the holder of the expiring [here, expired] franchise, in that it [the statute] gives the utility the right of an opportunity to purchase a new franchise as provided in the statute. City of Paris v. Kentucky Utilities Co., 280 Ky. 492, 133 S.W.2d 559 (1939) 562.
OAG 77-200 is modified accordingly.