Maryland Attorney General Opinion 96 OAG 110

110 [96 Op. Att’y

PUBLIC UTILITIES

COUNTIES – CHARTER HOME RULE COUNTIES – WHETHER
MONTGOMERY COUNTY HAS AUTHORITY TO CREATE A
PUBLICLY CONTROLLED ELECTRIC COMPANY

December 5, 2011

Valerie Ervin, President
Montgomery County Council

You have asked whether Montgomery County (“County”) has
authority to create a publicly controlled electric company to
distribute electricity to County customers in place of Potomac
Electric Power Company (“PEPCO”).

In compliance with our policy on opinion requests from local
governments, you provided the County Attorney’s opinion on
various legal issues raised by your question. The County Attorney
concluded that the County could not assign such a function to a
County agency but would need to create a new entity under the State
corporation law to distribute electricity; that such an entity might
hold a franchise to distribute electricity, but could not exercise that
franchise without the approval of the Public Service Commission
(“PSC”); that the entity would have to obtain the consent of a
municipality to lay or construct power lines in the municipality; and
that neither the entity nor the County could condemn the
infrastructure of an operating utility like PEPCO without the General
Assembly’s express authorization to do so. A copy of that opinion
is attached.

We concur with the County Attorney’s description of the legal
prerequisites to the displacement of PEPCO by a County-controlled
distributor of electricity. We elaborate only on the PSC approval
process.

As the County Attorney indicated, a new entity would have to
apply to the PSC for the right to exercise a franchise to distribute
electricity to County customers. That process would concern not
only the new entity’s ability to serve the County’s citizens, but also
Gen. 110] 111

the modification of PEPCO’s service territory.1 PEPCO’s existing
service territory in Maryland also extends to Prince George’s County
and Howard County.2 The PSC has explained that “electric service
boundaries should not be changed without strong clear evidence of
need, equity, and practicality of the proposed change.” In re
Choptank Electric Cooperative and St. Michaels Utilities
Commission, PSC Case No. 9071, Order No. 81068, 2006 PSC
LEXIS 23.3 We understand that the County has raised the prospect
of modifying PEPCO’s service territory in a pending proceeding
before the PSC. See In re Investigation into the Reliability and
Quality of the Electric Distribution Service of Potomac Electric

1
As a practical matter, the success of such an application would
likely depend at the outset on the new entity’s ability to acquire PEPCO’s
distribution infrastructure by condemnation. See Town of Easton v. Public
Service Commission, 379 Md. 21, 33, 838 A. 2d 1225 (2003) (PSC’s
authority to designate where a company may exercise its franchise
“enables it to assure the efficient and non-duplicative provision of
service”). We agree with the County Attorney that the current law does
not empower a new public service entity to condemn another public
service company’s real property interests and other components of its
infrastructure for the purpose of providing the same services. Given the
extensive State regulation of electric companies and the cross-
jurisdictional nature of PEPCO’s service territory, the delegation of such
a power would be a matter for a State law, not a local ordinance. For a
discussion of various legal issues raised by a local government’s attempt
to take over the operations of a public utility, see S.R. Saxer, Government
Power Unleashed: Using Eminent Domain to Acquire a Public Utility or
Other Ongoing Enterprise, 38 Ind. L. Rev. 55 (2005).
2
PEPCO also provides service in Washington, D.C.
3
Choptank illustrates the difficulty of proving those three
propositions. In that case, the PSC found the petitioner’s proof
insufficient and declined to divide the service territory in question. First,
the PSC found that “practicality cuts against carving up the [existing]
service territory” because that change would “leave uncertain the future”
of the territory left to the partially-ousted utility. 2006 PSC LEXIS at
*54-55. Second, it found “no paramount or preeminent ‘need’ to serve
[the existing territory]; that is, there is no service problem in either of the
areas that would be fixed by awarding the territory to [the applicant],” Id.
at *56-57. Finally, the PSC found that the petition was not “advanced by
equity considerations,” because, “[e]ven assuming that fair value would
be exchanged for the property being acquired,” the applicant had “offered
no particular claim that a failure to grant its petition would be
inequitable. . . .” Id. at *57.
112 [96 Op. Att’y

Power Company, Case #9240, Order No. 83526.4 In any event, the
power to condemn PEPCO’s infrastructure, or, for that matter, a
simple purchase of that infrastructure, would not by itself assure a
new entity of PSC approval to modify PEPCO’s service territory.

Douglas F. Gansler
Attorney General

Ann MacNeille
Assistant Attorney General
Robert N. McDonald
Chief Counsel
Opinions and Advice

County Opinion Follows

4
The County has intervened in that proceeding, asserting that
[PEPCO] “has ... operat[ed] an unreliable electric system in Maryland
since at least 2005,” and has asked the PSC to order PEPCO to take
certain remedial actions. Reply Brief of Montgomery County, p. 23. The
County has requested that, if PEPCO does not improve certain reliability
statistics within two years of PSC’s issuance of an order in the case, the
PSC “act ... to initiate a proceeding to modify [PEPCO’s] service territory
to remove Montgomery County or revoke [PEPCO’s] authority to exercise
its franchise to serve Montgomery County, so that the County can move
toward obtaining highly reliable electric service from a replacement
utility.” Id. at pp. 16-17; see also Initial Brief of Montgomery County at
p. 30.
Gen. 110] 113

OFFICE OF THE COUNTY ATTORNEY

Isiah Leggett Marc P. Hansen
County Executive County Attorney

TO: Valerie Ervin, President
County Council

Roger Berliner, Vice President
County Council

FROM: Marc P. Hansen
County Attorney
DATE: September 6, 2011

RE: Public Electric Company – Creation

The Council has asked what steps Montgomery County
would need to take in order to create a publicly controlled electric
company to provide electric service to County customers in the
place of Potomac Electric Power Company (PEPCO). The specific
questions posed are:

! What changes, if any, would be required in state
law to allow for our residents to be served by
public power?

! What is the role of the Maryland Public
Service Commission, if any, in reviewing or
approving the transfer of PEPCO's franchise
to a public power entity?

! What are the principal legal issues that arise
when pursuing public power in the context of
taking service over from an incumbent?

! If an eminent domain action were to be required
to assume control of the electric distribution
system, how would Montgomery County go about
determining the value of the assets?
114 [96 Op. Att’y

Short Answer

In order for a publicly owned and controlled electric utility
company to provide electric power to the residents of Montgomery
County the following steps would need to be taken by the County:

1) Form a non-stock, non-profit corporation1 to operate an
electric company under the Corporations and Associations Article
of the Maryland Code;

2) Obtain the consent (i.e. a franchise) from the governing
bodies of each municipality in the County to lay or construct power
lines within the boundaries of the municipality in accordance with
the Public Utilities Article of the Maryland Code;2

3) Obtain from the General Assembly the authority to
acquire PEPCO's infrastructure by condemnation;3 and

4) Obtain the consent of the Maryland Public Service
Commission (PSC) before delivering electric service to County
customers.

1
This opinion assumes that the County would elect to create
(directly or indirectly) a corporation as the appropriate business form to
deliver electric service to County residents. Responding to the Council's
questions does not require a determination of whether a different
business form, such as a limited liability company, should or could be
used—a decision of the form of business organization that a public
electric company should take would require further analysis. Under
current law, however, the County could not elect to deliver electric service
directly through the County Government. Section 1-101 (h) of the Md.
Public Utilities Code Ann, defines an electric company as a "person who
physically transmits or distributes electricity in the State to a retail electric
customer." The County is not included in the definition of a "person"
under § 1-101 (u). The definition of a "person" in a statute does not
include the government unless the intent to include the government is
made manifest by the legislature. Unnamed Physician v. Commission on
Medical Discipline, 285 Md. 1, 12-14 (1979).
2
The consent of the State would need to be obtained to construct
power lines in State right of ways. Consent from the governing body of
the County would also need to be obtained as well.
3
This opinion assumes that PEPCO would not voluntarily sell its
infrastructure to a newly formed public electric company.
Gen. 110] 115

After obtaining the required approvals for a public electric
company to provide service to County customers, the County would
need to initiate a condemnation action against PEPCO. In this
condemnation action, the County would be required to pay PEPCO
"just compensation" for its infrastructure. Just compensation is
determined by ascertaining the fair market value of the
infrastructure being acquired from PEPCO.

Given the novel issues addressed in this opinion, the
Council may wish to obtain the opinion of the Attorney General
before pursuing this matter any further.

Discussion

Formation of a public electric company.

An electric company incorporated in Maryland may "furnish
electric power in any municipal corporation or county of the State."
Md. Public Utilities Code Ann., § 7-103.

Although the Public Utilities Code does not address how an
electric company is formed in Maryland, a review of pertinent
legislative history reveals that the provisions of the Public Utilities
Code were once part of Article 23 of the Maryland Code, and
Article 23 did address how an electric company could be formed.

The 1904 Md. Code Ann., Art, 23 § 14 provided that five or
more persons may form a "body corporate" for certain purposes,
which were set out in enumerated "classes" of corporations in the
sections following § 14. Under § 28 a "class 13" corporation could
be formed "for the transaction of any business in which electricity
over or through wires may be applied to any useful purpose."
Through numerous amendments to Article 23 over the intervening
110 years, this provision along with the other classes of
corporations were apparently collapsed into Md. Corporations and
Associations Code Ann., § 2-101, which now provides that a
corporation may be formed for "any lawful purpose."4

4
It appears that the General Assembly moved to a more general
approach to incorporation beginning with the 1911 Md. Code, Art. 23,
§ 2, which provided that a corporation may be formed "for any one or
more lawful purposes . . . except where special provisions inconsistent
herewith are made in this article for particular classes. . . ." As will be
seen in the following discussion public utilities were also formed by
special enactments of the General Assembly.
116 [96 Op. Att’y

The County could, therefore, authorize County officials to
form a non-stock, non-profit corporation to act as an electric
company under the State's general laws of incorporation. In the
alternative, the Council could indirectly "create" an electric
company by enacting legislation offering to grant a franchise over
County right of ways to construct power lines to any corporation
that was formed with a charter and bylaws consistent with the
enacted legislation. The County has adopted this indirect approach
with respect to the creation of the Arts and Humanities Council and
the Collaboration Council.5

A franchise is necessary to operate an electric company.

I. Section 7-103 of the Md. Public Utilities Code grants a
franchise to electric companies.

A franchise is a "government-conferred right to engage in a
specific business or to exercise corporate powers"6 that must be
obtained through a legislative act. "A franchise may be granted only
by the legislature or by a municipal corporation to which that power
has been delegated." Charles County Sanitary District v. Charles
Utilities, 267 Md. 590, 598 (1973). The PSC does not have the
authority to grant a franchise. Id.

Section 7-103 of the Md. Public Utilities Code grants a
franchise to operate an electric company in any municipality or
county of the State. But an electric company must obtain the
consent of the governing bodies of the municipality and the county
in which the electric company will operate before constructing any
power lines in the affected jurisdiction.

Subsection (a) of § 7-103 grants a general franchise to
operate an electric company in the State; it provides that an electric
company incorporated in Maryland may:

(1) manufacture, sell, and furnish
electric power in any municipal corporation or
county of the State;

5
See §§ 5A-1 through 5A-7 and 2-117 through 2-122,
Montgomery County Code (2004), respectively.
6
Black's Law Dictionary (Abridged Eighth Ed., © 2005, Bryan
Garner, ed.).
Gen. 110] 117

(2) construct a power line to transmit
power under, along, on, or over the roadways
or public ways of any municipal corporation or
county of the State; and

(3) connect the power line from the
place of supply to any other structure or
object.

Subsection (b) limits the General Assembly's general grant of
authority by requiring the electric company to obtain the consent of
the governing bodies of the affected municipalities and counties to
"lay or construct" power lines in the jurisdiction; subsection (b)
provides:

(1) An electric company must have the
consent of the governing body of the
municipal corporation or county before laying
or constructing any power line in accordance
with subsection (a) of this section.

(2) The governing body of the
municipal corporation or county may adopt
reasonable regulations and conditions for the
laying of a power line, including regulations
requiring the electric company to refill and
repave any roadway or public way under
which the power line is laid.7

Assuming that operating an electric company would at some
point in time require any electric company to "lay or construct"
power lines within a municipality, obtaining the consent of the
municipalities in the County will be required as a practical matter.8

7
The provisions of § 7-103 can be traced back in substantially the
same terms to 1910. See 1910 Md. Laws, Ch. 55.
8
The General Assembly has also granted a general franchise to
deliver electricity to an electric cooperative under Md. Corporations and
Associations Code Ann., § 5-607. Although the County could authorize
County officials to form an electric cooperative, this opinion does not
address in detail the powers of an electric cooperative because a
cooperative does not provide any significant authority that would not
otherwise be available to an electric company formed under § 2-101 of
(continued...)
118 [96 Op. Att’y

II. Montgomery County does not have the power to grant a
franchise to an electric company outside of the parameters
of § 7-103.

Consideration has been given as to whether the County, as
a home rule jurisdiction, has been delegated by the General
Assembly the power to grant a franchise to operate an electric
company outside the confines of § 7-103.

Montgomery County is a Charter home-rule county
organized under Article XI-A of the Maryland Constitution, and it
derives most of its powers from the Express Powers Act.9 The
Express Powers Act, however, contains no explicit authority for a
charter county to grant a franchise to provide electric power to
customers within the county.10

Subsection 5(S), however, authorizes the County to enact
legislation "deemed expedient in maintaining the . . . welfare of the
county." The Court of Appeals has held that this provision should
be construed as a broad grant of power to legislate to promote the
general welfare of the community. Montgomery Citizens League v.
Greenhalgh, 253 Md. 151 (1969). This broad power to legislate for
the general welfare is circumscribed, however, by the power of the
General Assembly to enact general laws and to preempt or reserve
fields of legislation as the exclusive preserve of the State. The
Court of Appeals has identified several factors to determine
whether a field of legislative activity has been preempted by
implication.11

8
(...continued)
the Md. Corporations and Associations Code Ann. In fact, the voluntary
nature of membership in a cooperative could prove problematic in the
context of taking over service from PEPCO.
9
Maryland Code Annotated, Article 25A, Section 5.
10
Subsection 5(B) authorizes a county to grant "any franchise",
but this authority seems to be limited to the context of granting a
franchise to use property acquired by the county for public purposes.
11
The General Assembly, of course, may expressly preempt a
field. See Montgomery County v. Atlantic Guns, Inc., 302 Md. 540 (1985).
The Md, Public Utilities Code does not contain any language expressly
preempting the field of providing electric service to retail customer,
Gen. 110] 119

The general rule is that a field, such as the regulation of
electric service, has been preempted by implication when the
General Assembly has legislated in the field with such
comprehensiveness that "the acceptance of the doctrine of
preemption by occupation is compelled." Allied Vending v. City of
Bowie, 332 Md. 279 (1993).12 In Allied Vending, the Court of
Appeals identified certain secondary factors that are to be
considered in determining whether preemption exists. The
secondary factors include whether: (1) local laws existed prior to
the enactment of the State laws governing the same subject matter;
and (2) the local law relates to an area over which some local
control has traditionally been allowed. Id. at 299.

As noted, the Md. Public Utilities Code, § 7-103 provides a
general franchise to electric companies to "furnish electric power
in any municipal corporation or county of the State." Obtaining a
franchise to operate an electric company under the general
franchise provisions of § 7-103, or its legislative precursors that
stretch back at least 100 years, is not the only means by which a
franchise to operate an electric company can be obtained. The
General Assembly has granted by special legislation electric
franchises to specific corporations. For example, PEPCO acquired
its electric franchise from corporations that obtained a franchise
from the General Assembly over a century ago.13 See, 1894 Md.
Laws, ch. 540 and 1900 Md. Laws, ch. 245.

The historic practice over the last century of the General
Assembly granting, through specific or general enactments, a
franchise to operate an electric utility company is well-entrenched,
and is a strong indication that the General Assembly has
preempted the field of granting electric utility company franchises.

In addition, as noted in Allied Vending, the Court of Appeals
considers whether local laws existed prior to the enactment of the
State laws governing the subject matter in question. Based on the

12
In Allied Vending, the Court of Appeals struck down Bowie's
regulation of cigarette vending machines concluding that the General
Assembly had by implication preempted the field of regulating cigarette
vending machines.
13
PEPCO operates under a franchise granted to Great Falls
Power Company. Great Falls received a state wide franchise by acts of
the General Assembly in 1894 and 1900. See Poiomac Electric Power Co
v. Birkett, 217 Md. 476, 479 (1958).
120 [96 Op. Att’y

cases reviewed for this opinion, it appears that electric companies
obtained their franchises from the General Assembly and there
appears to be no persuasive evidence that local governments have
exercised any control in this field in the past independent of the
franchise processes controlled (general or specific) by the General
Assembly.

The only case that mentions the possibility of local control
over granting an electric power franchise is Mayor and Council of
Berlin v. Delmarva Power & Light Company, 95 Md. App. 585
(1993), cert. denied 331 Md. 480 (1993). In Berlin v. Delmarva a
footnote appears indicating that Delmarva obtained a franchise
from Worcester County. Id., at 591, n. 2. Worcester County is a
commissioner county governed under Article 25 of the State Code.
A commissioner county may only exercise those powers
specifically granted to it by the General Assembly. Article 25, unlike
the Express Powers Act, does not delegate to commissioner
counties the power to legislate for the general welfare of the
residents of the county. Many of the powers of a commissioner
county are granted through the enactment of a public local law.
Significantly, Delmarva also operated under a franchise granted by
the General Assembly that pre-existed the franchise granted to it
by Worcester County. This footnote, therefore, provides little
support for the proposition that a county has historically granted a
franchise to operate an electric company.14

Finally, it is worth noting that the Court of Appeals has
applied Dillon's Rule in the context of a local government's authority
to grant a franchise. Purnell v. McLane, 98 Md. 589 (1904). Dillon's
Rule provides that a local government possesses only those
powers that are granted to it in express language or those
necessarily or fairly implied from that language. Dillon's Rule goes
on to provide that "Any fair, reasonable doubt concerning the
existence of the power is resolved by the court against the
[municipal] corporation and the power is denied." Id. at 594. The
Court of Appeals went on to note that this rule is applicable in the
context of a local government's authority to grant a franchise. The
Court stated "The right to a franchise is no more to be presumed,

14
Montgomery County had issued resolutions in 1914, 1927, and
1952 granting PEPCO 25 year franchises. The PSC essentially
concluded that these resolutions were superfluous because PEPCO
operated under a franchise granted by the General Assembly. PSC Order
No. 50070, Case No. 5263 (May 15, 1953).
Gen. 110] 121

than the exemption from taxation, and therefore every assertion of
such right must, to be efficacious, be distinctly supported by clear
and unambiguous enactment. To doubt is to deny the right to the
franchise." Id. The Court of Appeals cited, with approval, an Ohio
case that provided that a franchise "may be granted directly by the
State, or by a municipal corporation, if it is clothed with power to
make the grant. Such power in the municipality must either be
expressly granted, or arise from the terms of the statute by
implication so direct and necessary as to be clearly confirmed." Id.
at 592.

Given the historical practice that electric company franchises
have been granted by the General Assembly (and not by local
government), and the lack of any express language in the Express
Powers Act authorizing charter counties to grant an electric
franchise, it is highly probable that the Court of Appeals would
conclude that the County does not have the legislative authority to
grant an electric public utility franchise independent of the powers
granted local government under § 7-103.

The Maryland Public Service Commission must approve
the transfer of PEPCO's franchise to any new electric
company.

A new electric company would need to obtain the approval
of the PSC before exercising an electric utility company franchise.
Md. Public Utilities Code, § 5-201, provides, "A public service
company15 may not exercise a franchise granted by law except to
the extent authorized by the Commission,"

In Berlin v. Delmarva Power & Light Company, the Court of
Special Appeals approved the PSC's denial of the Town of Berlin's
extension of electric service by the municipal electric company to
land annexed by the Town, because the area was already served
by Delmarva. The Court approved PSC's finding that "designation
of service areas for electric utilities are in the public interest
because such designation would eliminate future wasteful
construction of duplicate distribution facilities, it would permit public
utilities to develop unserved portions of their service areas in the
most economical manner, and it would reduce to a minimum
disagreements between companies as to service areas." Berlin v.

15
A public service company includes an electric company. Md.
Public Utilities Code Ann. § 1-101(x).
122 [96 Op. Att’y

Delmarva Power & Light Company, 95 Md. App. at 592. The PSC
has adopted service area maps that confirm the exclusive service
areas of the electric utilities in Maryland.16

Hence, in order to avoid duplication of infrastructure, the
PSC would almost certainly require any entity designated to
provide electric service to customers in Montgomery County to
acquire PEPCO's infrastructure.

Montgomery County must obtain authority from the
General Assembly to condemn PEPCO's infrastructure.

Given the need to avoid creating a duplicate electric
distribution system, a publicly controlled electric company would
need to obtain PEPCO's distribution infrastructure necessary to
serve Montgomery County customers. Assuming that PEPCO
would not voluntarily sell its infrastructure to a County created
public electric company, PEPCO's infrastructure would need to be
acquired through the power of condemnation. Therefore, a newly
created electric company would need to be armed with a
condemnation power sufficient to acquire by eminent domain the
infrastructure of an existing electric company like PEPCO that
already possesses the power to condemn for its corporate
purposes.17

Current State law does not delegate to a newly formed
electric company the power to condemn the infrastructure of an
existing electric company that enjoys a state-wide franchise as well
as the power to condemn for its corporate purposes.18 Therefore,

16
See Order No. 52603, PSC Case No. 6017.
17
PEPCO's power to condemn for its corporate purposes has
been confirmed by the Court of Appeals in Potomac Electric Power
Company v. Birkett, 217 Md. 476 (1958).
18
An electric cooperative (see n. 8) may "exercise the power of
condemnation in the manner provided by the law of this State for the
exercise of that power by other corporations that construct or operate
electric transmission and distribution lines or systems." Md. Corporations
and Associations Code Ann., § 5-607 (a) (15). But this power is
insufficient to empower a cooperative to condemn the infrastructure of an
existing electric company absent express authority, because PEPCO's
condemnation authority would checkmate a condemnation action by
(continued...)
Gen. 110] 123

this opinion examines whether the County's condemnation power
would be sufficient to acquire by eminent domain PEPCO's
infrastructure on the assumption that the County could delegate to
a newly formed public electric company the County's power of
condemnation.19

Montgomery County has the general power to condemn
property for a public purpose. Article 25A, Section 5(B). In order for
the County to exercise this general condemnation authority to take
property already dedicated to a public use—as is PEPCO's
infrastructure—the County must show that its purposed use of the
property would not conflict with an existing public use and that the
County's purposed use is a more necessary public use.

In 1919, the Court of Appeals concluded that the City of
Baltimore did not have the authority to acquire under its general
power of condemnation a freight yard operated by Northern Central
Railway Company.20 Northern Central Railway Company v. Mayor
and City Council of Baltimore, 133 Md. 658 (1919). In turning aside
Baltimore City's attempt to acquire by condemnation a freight yard
owned by Northern Central Railway, the Court noted, "It is a firmly
settled principle of the law of eminent domain that when land has
once become lawfully appropriated to a public use [i.e., railway
freight yard] it cannot be thereafter condemned for an inconsistent
user unless authority for such later appropriation has been

18
(...continued)
another electric company. Nichols on Eminent Domain, § 2,2[5]. Cf.
McQuillin, Municipal Corporations, Section 32:79. Section 5-410 of the
Public Utilities Code grants the authority to condemn to an electric
company formed under Class 13 of Article 23 § 28 of the 1904 Code. This
provision would seem to be inapplicable because it is no longer possible
to form an electric company under this now repealed provision of State
law. Moreover, the condemnation power granted under § 5-410 is no
greater than that granted to an electric cooperative.
19
This assumption, it should be noted, is suspect because the
general rule is that apolitical subdivision may not re-delegate it
condemnation power to another entity. Nichols on Eminent Domain,
§ 3.211[1]. The Court of Appeals has, however, approved a charter
county delegating to its county executive the county's condemnation
power, Anne Arundel County v. Bowen, 258 Md. 713 (1970).
20
Railroads, like electric companies, are public utilities.
124 [96 Op. Att’y

confirmed expressly or by necessary implication." (Emphasis
added) Id. at 660.

Relying on Northern Central Railway Company, the Attorney
General in 1972 concluded that the general condemnation authority
of the City of Annapolis and Anne Arundel County was insufficient
to condemn easements granted to the Maryland Historical Trust. 57
Op. Atty. Gen. Md. 361 (December 28, 1972).

Although there appears to be no Maryland case directly on
point, the general rule is that a local government, under its general
condemnation authority, may take property of a private corporation
devoted to public use if the property is to be used by the local
government for the same purpose and in the same manner. The
rationale for this rule appears to be that the public interest is better
served and more generally protected if the use is under the control
of local government as opposed to a private corporation. See,
McQuillin, Municipal Corporations, § 32:79.

Despite this general rule, the County would, nevertheless,
need to obtain from the General Assembly express authority to
condemn PEPCO's electric infrastructure, because the County's
condemnation of PEPCO's distribution infrastructure would
constitute a de facto denial of PEPCO's right to exercise the
franchise specifically granted to it (through its predecessors in
interest) by the General Assembly.

The Court of Appeals has pointed out on numerous
occasions that a local government may not adopt any legislation
that prohibits something permitted by the General Assembly. See,
e.g. City of Annapolis v. Annapolis Waterfront Co., 284 Md. 383,
391 (1979) and Forest Heights v. Tillie Frank, 291 Md. 331, 338
(1981). In Tillie Frank, the Court struck down a Forest Heights
ordinance that banned fortune tellers in the Town, because Ms.
Frank had obtained a license under a Prince George's County law
to conduct fortunetelling in the Town. Since the Prince George's
County law was superior to a municipal ordinance, the Town's ban
could not stand.21 The County's taking of PEPCO's infrastructure
would likely be prevented by the Court under the same rationale

21
Subsequent to the Court's ruling in Tillie Frank, the General
Assembly enacted legislation providing that certain County laws do not
automatically apply within a municipality. See Md. Code Ann., art. 23A,
§ 2B.
Gen. 110] 125

used in the Tillie Frank case—i.e. the County cannot prohibit an
activity that the General Assembly has expressly allowed.22

Method of valuation in condemnation of public utility.

In exercising its power of condemnation, the newly created
electric company would be required to pay PEPCO "just
compensation". U.S. Const. amend. V; Md. Const. Art. III, § 40.

Title 12 of the Md. Real Property Code provides guidance in
understanding what is meant by "just compensation."23 The "just
compensation" awarded for the taking of property must reflect the
fair market value of the property taken, which:

[I]n a condemnation proceeding is the price as of the
valuation date for the highest and best use of the
property which a vendor, willing but not obligated to
sell, would accept for the property, and which a
purchaser, willing but not obligated to buy, would
pay, excluding any increment in value proximately
caused by the public project for which the property
condemned is needed. In addition, fair market value
includes any amount by which the price reflects a
diminution in value occurring between the effective
date of legislative authority for the acquisition of the
property and the date of actual taking if the trier of
facts finds that the diminution in value was
proximately caused by the public project for which
the property condemned is needed, or by
announcements or acts of the plaintiff or its officials
concerning the public project, and was beyond the
reasonable control of the property owner.

22
Presumably the County would seek from the General Assembly
legislation that empowered an electric company created by the County to
condemn property for the public electric company's corporate purposes.
This would make it possible for the public electric company to condemn
property in jurisdictions within the State in addition to the County. The
County's own general power of condemnation probably does not extend
beyond its borders. See McQuillin Municipal Corporations, § 32:76.
23
Title 12 would not apply directly to PEPCO infrastructure that is
not real property, but its principles would be applicable.
126 [96 Op. Att’y

Real Prop. § 12-1 0.5(b).

The process would likely begin with a feasibility study to
evaluate the costs of the acquisition, financing, and operation of
PEPCO's electric distribution system. The preliminary feasibility
study should examine the electric load growth, project the costs of
service from wholesale power suppliers, and estimate the capital
and operating costs of the new electric utility. Among the costs to
be considered is the loss of tax revenue that could result from the
condemnation of private property for the County utility.24

Various methodologies may be used to determine the value
of PEPCO's assets, any of which require reports from financial
experts. The public electric company may incur severance
damages to compensate PEPCO for the reconfiguration of its
remaining system to ensure the safety and reliability of service to
its remaining customers outside of Montgomery County. The value
may include calculation of PEPCO's "stranded costs," which are
investments made on behalf of customers to ensure future electric
service that are rendered uneconomic when those customers leave
the system.

Sales of investor-owned utilities to government entities do
not occur frequently, so there may not be comparables upon which
to rely in the appraisal process. Valuation methods that have
general acceptance include approaches that base the value of the
utility on the physical facilities that are being transferred
(reproduction cost less depreciation, replacement cost less
depreciation) and approaches that determine the value of the
system based on the earnings or some other measure of cash flow
that the utility will forego as a result of being forced to sell its
system. The types of property that will need to be assessed a value
include meters, service lines, overhead and underground lines
(mains), line transformers (regulators), and substations, as well as
the earnings and viability of the company as a going concern. See
WSSC v. Utilities, Inc., 365 Md. 1, 27-28 (2001) (discussion of
valuation of property in context of WSSC condemnation of an
existing water and sewer utility).

24
For tax year 2010, PEPCO paid Montgomery County
$517,655.09 in real property taxes. In addition, PEPCO paid Montgomery
County $16,175,969.79 in personal property utility taxes.
Gen. 110] 127

Suffice it to say that the appraisal of the just compensation
due to PEPCO to acquire its property will require complex analysis
and calculations. Ultimately, it could require a finding by a jury as
to the proper amount to be paid.25

I hope that you will find this opinion responsive to your
questions. If you have additional questions or concerns, please let
me know.

25
The American Public Power Association may be able to share
the experiences of other local governments, like Boulder Colorado, that
are considering or have taken over private electric companies.