Toledo Edison Co. v. City of Bryan
737 N.E.2d 529
Ohio
2000
Check Treatment

Lead Opinion

Lundberg Stratton, J.

We are asked to determine whether a municipality has constitutional authority to purchase electricity solely for direct resale to an entity that is not an inhabitant of the municipality and not within the municipality’s limits. For the following reasons we find that the answer is no.

Many of Ohio’s inhabitants are provided electrical service by public utilities. The Ohio Public Utilities Commission has divided Ohio into territories pursuant to the Certified Territories Act (“CTA”). See R.C. 4933.82. Under the CTA, each electricity-producing public utility is assigned a territory under which it has the exclusive right to sell electricity to the inhabitants of that territory. Cleveland Elec. Illum. Co. v. Pub. Util. Comm. (1996), 76 Ohio St.3d 521, 668 N.E.2d 889, 890, fn. 1. However, a public utility’s exclusive right to provide electricity within its territory is subject to an exception. The Ohio Constitution provides that municipalities may acquire or produce utility services or products for the municipality and its inhabitants and sell surplus product or service. Sections 4 and 6, Article XVIII of the Ohio Constitution. The question is whether a municipality can use this constitutional authority to purchase electricity solely for the purpose of reselling it to an entity outside the municipality’s geographic boundaries.

The Ohio Constitution addresses a municipality’s authority to produce and acquire a public utility product or service in Section 4, Article XVIII:

“Any municipality may acquire, construct, own, lease and operate within or without its corporate limits, any public utility the product or service of which is or is to be supplied to the municipality or its inhabitants, and may contract with others for any such product or service.” (Emphasis added.)

Section 4 authorizes a municipality to establish, maintain, and operate a power plant to produce electricity. See Orr Felt Co. v. Piqua (1983), 2 Ohio St.3d 166, 170, 2 OBR 709, 713, 443 N.E.2d 521, 525. It also authorizes a municipality to contract to purchase electricity. See Cleveland Elec. Illum. Co., 76 Ohio St.3d at 526, 668 N.E.2d at 893. However, a municipality’s authority to produce or purchase electricity is limited “primarily to the furnishing of services to their own *292inhabitants.” State ex rel. Wilson v. Hance (1959), 169 Ohio St. 457, 461, 8 O.O.2d 471, 473, 159 N.E.2d 741, 744.

Section 6, Article XVIII of the Ohio Constitution provides the criteria pursuant to which a municipality may sell electricity:

“Any municipality, owning or operating a public utility for the purpose of supplying the service or product thereof to the municipality or its inhabitants, may also sell and deliver to others any transportation service of such utility and the surplus product of any other utility in an amount not exceeding in either case fifty per cent of the total service or product supplied by such utility within the municipality * * *.” (Emphasis added.)

Section 6 allows a municipality that owns or operates a utility for the purpose of generating its own electricity to sell surplus electricity. Critical to our analysis of Section 6 is the meaning of the word “surplus.” Language used in the Constitution should be given its usual and ordinary meaning. Cleveland Tel. Co. v. Cleveland (1918), 98 Ohio St. 358, 368, 121 N.E. 701, 704. “Surplus” is defined as “the amount that remains when use or need is satisfied.” Webster’s Third New International Dictionary (1993) 2301. Thus, a municipality may sell electricity that is in excess of what the municipality or its inhabitants use subject to any other limitations, which we do not address in this opinion.

Where provisions of the Constitution address the same subject matter, they must be read in pari materia and harmonized if possible. State ex rel. Mitchell v. Council of Village of Milan (1938), 133 Ohio St. 499, 11 O.O. 187, 14 N.E.2d 772; Isaac v. Intercoast Sales Corp. (1937), 132 Ohio St. 289, 8 O.O. 49, 7 N.E.2d 216. Section 4 and Section 6 of Article XVIII of the Ohio Constitution define a municipality’s rights pertaining to acquisition and disposition of public utility products and services. Hance, 169 Ohio St. at 461, 8 O.O.2d at 473, 159 N.E.2d at 744. Thus, Sections 4 and 6 should be construed in pari materia.

Section 4 intends to limit a municipality’s authority to produce or acquire electricity primarily for the purpose of serving it or its inhabitants’ needs. Hance, 169 Ohio St. at 461, 8 O.O.2d at 473, 159 N.E.2d at 744. Section 6 intends to limit a municipality’s ability to sell only that electricity that is in excess of what is needed by the municipality or its inhabitants. Read in pari materia, Sections 4 and 6 only allow a municipality to purchase electricity primarily for the purpose of supplying its residents and reselling only surplus electricity from that purchase to entities outside the municipality. This interpretation necessarily precludes a municipality from purchasing electricity solely for the purpose of reselling the entire amount of the purchased electricity to an entity outside the municipality’s geographic limits.

This holding comports with this court’s determination that the framers “intended to * * * prevent * * * municipalities from entering into the general public-*293utility business outside their boundaries in competition with private enterprise.” Hance, 169 Ohio St. at 461, 8 O.O.2d at 473, 159 N.E.2d at 744. Public utilities that provide electricity, such as Toledo Edison, are subject to substantial regulatory controls by the Public Utilities Commission of Ohio, including regulation of rates. See, e.g., R.C. 4933.13 et seq.; R.C. Chapter 4909. Each electric utility is given a territory by the Public Utilities Commission within'which it has the exclusive right to sell its electricity. See R.C. 4933.81 et seq.; Cleveland Elec. Illum. Co. v. Pub. Util. Comm., 76 Ohio St.3d at 521, 668 N.E.2d at 890, fn. 1. In contrast a municipality’s production or purchase of electricity is not regulated by the PUCO. To allow municipalities the unfettered authority to purchase and then resell electricity to entities outside their boundaries could create unfair competition for the heavily regulated public utilities.

Thus, we hold that Sections 4 and 6 of Article XVIII of the Ohio Constitution, read in pañ materia, preclude a municipality from purchasing electricity solely for the purpose of reselling it to an entity that is not within the municipality’s geographic limits. In other words, a municipality is prohibited from in effect engaging in the business of brokering electricity to entities outside the municipality in direct competition with public utilities. This prohibition includes a de facto brokering of electricity, i.e., where a municipality purchases electricity solely to create an artificial surplus for the purpose of selling the electricity to an entity not within the municipality’s geographic boundaries.

Ultimately, determination of this issue requires fact-finding by the trial court as to whether the electricity purchased by the municipalities herein was solely for the purpose of resale to an entity outside the geographic boundaries of the municipalities. Thus, we reverse the judgment of the court of appeals and remand this cause to the trial court for further proceedings on Toledo Edison’s-claims.

Judgment reversed and cause remanded.

F.E. Sweeney, Acting C.J., Gwin, O’Neill and Young, JJ., concur. Pfeifer, J., concurs in judgment only. Hadley, J., dissents. W. Scott Gwin, J., of the Fifth Appellate District, sitting for Moyer, C.J. Ronald E. Hadley, J., of the Third Appellate District, sitting for Douglas, J. William M. O’Neill, J., of the Eleventh Appellate District, sitting for Resnick, J. William W. Young, J., of the Twelfth Appellate District, sitting for Cook, J.



Dissenting Opinion

Hadley, J.,

dissenting. I respectfully dissent.

I agree with the majority’s statement that “[t]he Ohio Constitution provides that municipalities may acquire or produce utility services or products for the municipality and its inhabitants and sell surplus product or service.” I disagree with the majority when it states that a municipality is limited in this endeavor by any means other than the fifty-percent limitation set forth in Section 6, Article XVIII of the Constitution.

Under the Home Rule Amendment, Article XVIII, adopted after being proposed by the Constitutional Convention of 1912, “the sovereign people of the state expressly delegated to the sovereign people of the municipalities of the state full and complete political power in all matters of ‘local self-government.’ ” Perrysburg v. Ridgway (1923), 108 Ohio St. 245, 255, 140 N.E. 595, 598.

In Travelers Ins. Co. v. Wadsworth (1924), 109 Ohio St. 440, 142 N.E. 900, at paragraph two of the syllabus, this court held that “in the absence of specific prohibition, the city acting in a proprietary capacity may exercise its powers as would an individual or private corporation.”

In State ex rel. Indian Hill Acres, Inc. v. Kellogg (1948), 149 Ohio St. 461, 37 O.O. 137, 79 N.E.2d 319, the court held that a municipality has full power to determine the policy to be followed in regard to the sale and delivery of a surplus product of a municipally owned utility to others and that it may sell and dispose of its surplus product in such quantities and in such manner as its council determines to be in the best interest of the municipality and its inhabitants.

Specifically referring to electrical utilities, in State ex rel. McCann v. Defiance (1958), 167 Ohio St. 313, 4 O.O.2d 369, 148 N.E.2d 221, paragraph one of the syllabus, the court ruled,- “The General Assembly has no power to * * * [limit] the * * * authority of a municipality * * * to sell and deliver to others the portion of the surplus product of such utility that it is authorized by Sections 4 and 6 of Article XVIII of the Constitution to sell and deliver to such others.”

The majority cities as its authority to limit the sale by municipal utilities the case of State ex rel. Wilson v. Hance (1959), 169 Ohio St. 457, 461, 8 O.O.2d 471, 473, 159 N.E.2d 741, 744. A close examination of that case reveals that the court found that the Constitution did in fact authorize municipalities to acquire public utilities and contract with others for their products and services, but pointed out that the disposition of surplus products or services of the utilities was limited by Section 6, Article XVIII, the fifty-percent limitation. The court merely found that under the circumstances of that case, since it had already been determined that the city of Piqua had exceeded its fifty-percent limitation, any further contract to sell surplus electricity outside the city would be invalid due to that fifty-percent limitation only. Thus neither the Constitution nor case law limits *295the action of the municipalities in this action except for the fifty-percent limitation.

In conjunction with the constitutional power regarding utilities, the General Assembly has enacted R.C. 715.02, which provides that two or more municipal corporations may enter into agreements for the joint construction or management of a utility, “or for the joint exercise of any power conferred on municipal corporations by the constitution or laws of this state, in which each of such municipal corporations is interested.”

Thus a municipality has full and complete power to enter into whatever arrangement it deems necessary for the ownership, operation, and control of public utilities by itself or in conjunction with other municipalities, subject to the fifty-percent limitation.

The majority concludes without authority that since municipalities are not regulated by the Public Utility Commission, “[t]o allow municipalities the unfettered authority to purchase and then resell electricity to entities outside their boundaries could create unfair competition for the heavily regulated public utilities.”

Examining the limitation provision, I find that Section 6, Article XVIII does not provide an “unfettered authority”:

“Any municipality, owning or operating a public utility for the purpose of supplying the service or product thereof to the municipality or its inhabitants, may also sell and deliver to others any transportation service of such utility and the surplus product of any other utility in an amount not exceeding in either case fifty per cent of the total service or product supplied by such utility within the municipality, provided that such fifty per cent limitation shall not apply to the sale of water or sewage services.”

The debates and proceedings of the constitutional convention clearly indicate that the framers considered whether municipalities would be competitive with private corporations for utilities and concluded that the fifty-percent provision would be the only necessary limitation and that the implementation of that limitation should be left to the courts. The court of appeals made the correct assessment of this matter and remanded it to the trial court for determination regarding fifty-percent limitation. I believe that the decision of the court of appeals should be affirmed.