Request By:
Mrs. Pamela Todd Robinette
Assistant County Attorney
Pike County
P.O. Box 231
Pikeville, Kentucky 41501
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
Your letter presents a problem relating to cable television in Pike County. You describe the situation as follows:
"On the 4th day of January, 1977, the Pike County Fiscal Court adopted an ordinance which provided for the construction, operation, regulation and control of cable television systems within Pike County. The ordinance set up a franchise system by which operators within Pike County and to obtain a franchise before providing cablevision services.
"Section 17 of the Franchise Ordinance read as follows:
'The franchise authority shall amend this ordinance, and any franchise issued hereunder, upon its own motion or the application of a grantee, whenever amendment necessary to enable a grantee to utilize new developments and television or radio signal transmission which would improve and update cable television service in the franchise area, or to comply with any modifications and the rules of the FCC. Amendments to section 76.31 of the FCC rules will be incorporated into this ordinance within one year of their adoption or at the time of franchise renewal, which ever comes first. No amendment shall be adopted except after a full, open public hearing affording due process, and no amendment substantially amending the existing rights and obligations of the grantee shall be adopted without the grantees consent.'
The fiscal court has requested that you draft an amended franchise ordinance so as to alter the obligations and rights of the franchise holders.
Question No. 1:
"1. Can a Fiscal Court, and a franchise ordinance, set forth an amendment procedure whereby a future Court cannot amend an ordinance without all franchise holders approving said amendment."
A franchise is an agreement between the granting authority and the holder and partakes of the usual incidents of a contract. City of Owensboro v. Top Vision Cable Co. of Ky., Ky., 487 S.W.2d 283 (1972) 287. As a contract, it is subject to the protection of the constitutional guarantee against impairment. See § 19, Kentucky Constitution, and Article 1, § 10, United States Constitution.
The "obligation of a contract" has been defined as the law which binds the parties thereto to the performance of their agreement. City of Covington v. Sanitation District No. 1, Ky., 301 S.W.2d 885 (1957) 887. To impair the obligation of a contract, within the meaning of the Kentucky Constitution, it is only necessary to impose upon one of the parties a higher or greater duty than the one imposed upon him by the instrument itself, or by the implied conditions which the law will read into it. Union Gas & Oil Co. v. Diles, 200 Ky. 188, 254 S.W. 205 (1923) 207.
Thus a franchise, once issued under the terms of § 164, Kentucky Constitution, constitutes a contract, and its obligations are binding upon both parties. Kentucky Utilities Co. v. City of Paris, 237 Ky. 488, 35 S.W.2d 873 (1931) 874. Franchises can only be granted in the manner required by that section. See KRS 67.080, 67.083 (3) (s), and Akers v. Floyd County Fiscal Court, Ky., 556 S.W.2d 146 (1977).
The threshhold question is whether or not the original franchise ordinance may properly make provisions for future amendment.
In 36 Am.Jur. 2d, Franchises, § 53, p.p. 779-780, this is written:
"An exception to the rule prohibiting the revocation or change of the privileges granted by franchise ordinances arises where the constitution of the state, the statute or statutes under the authority of which the ordinances are enacted, or the ordinances themselves, contain a reservation of the power to alter, amend, or repeal, completely and properly expressed." (Emphasis added).
We find no specific authority to provide for amendment of franchise in §§ 163 and 164 of the Kentucky Constitution nor in the statutes. However, the Kentucky court has held that a franchise may be amended to provide an increased gas rate where the utility is not receiving a fair return and such amendment would insure the continuation of the public service. Johnson County Gas Co. v. Stafford, 198 Ky. 208, 248 S.W. 515 (1923) County Gas Go. v. Stafford, 198 Ky. 208, 248 S.W. 515 (1923) 518. Further, in Scott v. Cincinnati N. & C Ry. Co., 268 Ky. 383, 105 S.W.2d 169 (1937), the court ruled that purely regulatory provisions of a franchise may be changed or altered at any time by agreement of the parties, i.e., the grantor of the franchises and the grantee thereof.
We concluded in OAG 78-89, copy enclosed, that until and unless the Federal Communications Commission intervenes by way of rates regulations, the power of the fiscal court to agree on such rates by way of the franchise contract is a valid one. Thus the franchise contract can spell out reasonable provisions for service to be performed and rates to be charged the users under § 164, Constitution.
The original franchise ordinance may specify, in the public interest, that amendments relating to regulatory provisions [service and rates], including any subsequently evolved regulatory law under the administration of the F.C.C. and binding on local governments and their grantees, may be made in the original ordinance, provided that such amendments are agreed to by the fiscal court and the holder or holders of the franchise or franchises. We assume no bond issues are involved here. Section 164, Constitution, however, does not envision nor permit a major or basic alteration of a franchise contract. See Scott v. Cincinnati, N. & C. Ry. Co., 268 Ky. 383, 105 S.W.2d 169 (1937) 171. The right of amendment, even under the narrow terms we have just outlined, must be expressly reserved in the original franchise contract in order to keep within constitutional boundaries. 36 Am.Jur. 2d, Franchises, § 53, p. 780. See 8 Am.Jur Legal Forms 2d 124: 41, on amending ordinances.
Question No. 2:
"2. If the term of the franchise as granted by Court is for fifteen years, and the above provision is included in the ordinance, can the current Fiscal Court in any way amend the ordinance as far as it affects the rights and obligations of the franchise holders. "
Section 164 of the Constitution envisions a definite term of years for the duration of the franchise. Thus an amendment procedure established in the original franchise contract cannot constitutionally apply so as to validly authorize a change in the term of years of the franchise. The county and the franchise holder are bound by the original term of years under § 164 of the Constitution.