Johnson v. Piedmont Municipal Power Agency

287 S.E.2d 476, 277 S.C. 345, 1982 S.C. LEXIS 269

• Court: Supreme Court of South Carolina
• Decided: February 10, 1982
• Docket: 21640
• Status: Published

Opinions

Ness, Justice:

This appeal tests the constitutionality of the Joint Municipal Electric Power and Energy Act of 1978 (the “Act”)¹ and challenges the validity o£ contracts executed under authority of the Act. We hold it constitutional.

FACTUAL BACKGROUND

In 1975, Duke Power Company (Duke) offered to sell its power generating Catawba Nuclear Station, under construction near Lake Wylie in York County, South Carolina, to its wholesale municipal customers in North and South Carolina.

In March, 1978, Duke sold a part interest in the Catawba project to a joint agency composed of municipalities in North Carolina.² South Carolina, unlike North Carolina, had no legislation allowing municipalities to form a joint agency that could issue revenue bonds for financing a project such as Catawba. On April 17, 1978, legislation (the Act) was signed into law. Thereafter, twelve South Carolina municipalities formed a joint agency, the Piedmont Municipal Power Agency (PMPA), and pursued the feasibility of accepting Duke’s offer to sell an interest in the Catawba project.³

By August, 1980, PMPA and Duke negotiated a sale. The contracts generally provide (1) that PMPA would purchase from Duke a 25 per cent undivided ownership interest in one of the two Catawba nuclear generators under construction,⁴ (2) that PMPA would employ Duke to complete construction of the generator and to maintain and operate it thereafter, (3) that Duke would furnish support facilities services (e.g. laboratories, roads, parking, railroads) and transmission services, and (4) that Duke would repurchase from PMPA any excess power generated over the first fifteen years of commercial operation.

PMPA then offered to sell its newly contracted-for bulk power to each of its member municipalities. Ten municipalities accepted the offer. This new arrangement substituted PMPA for Duke as supplier of the municipalities’ power.

To finance acquisition and completion of the construction of the generator, PMPA must issue revenue bonds totalling $675-767 million. PMPA’s revenues would consist primarily of its sales to the participating municipalities at a rate set by PMPA sufficient to pay all of its project-related costs. The municipalities would be required to establish their own customer rates at levels sufficient to operate their power distribution systems and to satisfy the rate payments of PMPA. The payments would include amounts sufficient to service the bond issues.

Plaintiffs P. Duncan Johnson and Roger Lloyd Jones, taxpayers from two of the member municipalities representing themselves and all persons similarly situated, and plaintiff Town of Bamberg, a municipality not qualifying under the Act, brought this declaratory judgment action seeking declaratory and injunctive relief to prevent both the issuance of bonds by PMPA and the performance of the Project Agreements (between Duke and PMPA) and Power Sales Agreements (between PMPA and the municipalities).

The trial judge upheld the Act and the agreements. We affirm. This appeal followed.

THE ACT

The purpose of the Act, as stated in the legislative finding, is to provide an economical and efficient method of producing energy not attainable by one. municipality acting alone.

Subject to certain qualifications, a municipality may join hands as tenant-in-common with one or more municipalities in this State or another state, or any political subdivision or agency of any other state, in order to jointly provide electricity for its inhabitants. § 6-23-30. To participate, a municipality must acquire approval of an appropriate resolution or ordinance by a majority of the members of its governing body. Upon approval, notice of the resolution is publicized in a newspaper, and any affected party may challenge the action by a de novo proceeding in the circuit court. § 6-23-40.

An application containing pertinent information about the joint agency is then filed with the Secretary of State, who may thereafter issue a corporate certificate recognizing the joint agency as a public body corporate and politic under State law. § 6-23-50.

The management and control of a joint agency is vested in a board of directors composed of one representative from each of the participating municipalities. § 6-23-70. The joint agency has the power, inter alia, to construct an energy plant, or to purchase an existing one, and to issue tax-exempt bonds of the joint agency to fund the project. § 6-23-90, § 6-23-230.

The bonds of PMPA are payable solely from the revenues collected by the municipalities from their customers; neither the full faith and credit nor the taxing power of the State or any municipality is, or may be, pledged for payment of the bond. § 6-23-210.

A municipality may be obligated to make payments to the joint agency even if the project never produces any energy. § 6-23-110. The payments shall be made from revenues derived from the operation of its electric system, and shall not invoke the municipalities’ taxing power. § 6-23-110.

Bonds may not be issued to finance facilities owned wholly or in part by any private corporation. § 6-23-320.

STANDARD OF REVIEW

In passing upon the constitutionality of legislative enactment, we are mindful of the proper framework for review:

The legislative power of the general assembly is not dependent upon specific constitutional authorization. The State Constitution only limits the legislature’s plenary powers. Thus, the general assembly may enact any law not prohibited, expressly or by clear implication, by the State or Federal Constitutions. See West’s South Carolina Digest, Constitutional Law, Key 26.

Where the constitution allegedly limits or prohibits a legislative act, every reasonable presumption must be made in favor of the constitutionality of the act. Only where an enactment offends specific constitutional provisions beyond a reasonable doubt will we declare it unconstitutional. State ex rel. McLeod v. Riley, S. C., 278 S. E. (2d) 612 (1981).

Several constitutional challenges to the Act are before us. The effect of a particular constitutional provision should be determined in light of its relationship to the entire Constitution and not as a single isolated provision. Knight v. Salisbury, 262 S. C. 565, 206 S. E. (2d) 875 (1974). Guided by the principles above, we proceed with our analysis of the Act in light of the questions presented.

PUBLIC PURPOSE

Bonded indebtedness may be incurred only for a public purpose. Incidental benefits to private interest from the promotion of projects funded with bond money is not inconsistent with the overall public purpose. Article X, Constitution of South Carolina; Hunt v. McNair, 255 S. C. 71, 177 S. E. (2d) 362 (1970); Elliott v. McNair, 250 S. C. 75, 156 S. E. (2d) 421 (1967). We find no constitutional provision which prohibits municipalities from combining their resources to purchase and operate electric utilities.

Any municipality in South Carolina may join with other municipalities to perform its public functions. Article VIII, § 13 of the S. C. Constitution. Also any municipality, singly or together with other municipalities, may join with a political subdivision outside the State to perform public functions. Article VIII, § 13, Id.

Article VIII, § 16 authorizes a municipality, upon a majority vote of its electors to acquire and operate an electric system. It is conceded the ten municipalities who are members of PMPA presently own and operate electric systems and are providing electricity to their respective consumers. The electors of these ten municipalities have already made the basic decision to enter into the providing of electric services. The PMPA municipalities would therefore have the constitutional authority to join together directly with each other and with the North Carolina joint agency in a project to provide electricity to their consumers. Act No. 473 of 1978 simply provides an alternative method to accomplish the same purpose through the formation of a joint agency. Section 6-23-110, Code of Laws, 1976, as amended.

PMPA, not the municipalities, will own the project with the North Carolina joint agency. The municipalities will purchase their electricity from PMPA under a contractual arrangement, in the same manner as they presently purchase their power from their suppliers. The project will not be part of the electric systems of the municipalities but will be solely owned and financed by PMPA through the issuance of revenue bonds.

The appellants assert that PMPA cannot acquire an electric generating station without an election. We disagree. PMPA is a political subdivision of the State of South Carolina created pursuant to legislative authority. See Act No. 473 of 1978. PMPA is a separate political subdivision from its member municipalities and is not subject to the election requirements of Article VIII, § 16. PMPA is more analogous to a special purpose district which need not hold an election prior to issuing bonds. Rutledge v. Greater Greenville Sewer District, et al., 139 S. C. 188, 137 S. E. 597 (1927); see also Lillard v. Melton, et al., 103 S. C. 10, 87 S. E. 421 (1915); Park v. Greenwood County, et al., 174 S. C. 35, 176 S. E. 870 (1934); Tovey v. City of Charleston, 237 S. C. 475, 117 S. E. (2d) 872 (1961).

Even if the project were regarded as an extension of the electrical system of the municipalities, as suggested by the appellants, no election would be required. The electors in these municipalities have previously made the decision that their respective municipalities should own and operate electrical utility systems.

Once the initial decision has been made by the electors no further election to extend or improve the municipal electric system is required. The argument that a municipality is required to hold an election any time it enlarges a public utility system was rejected in Seegers v. Gibbes, 72 S. C. 532, 52 , 588 (1905). There the Court held that bonds issued to expand the City of Columbia Waterworks were valid without an additional election. Also see § 6-21-80, Code of Laws of S. C., 1976, which authorizes any municipality which owns and operates a public utility system to issue bonds to improve, enlarge, extend or repair it. This statute requires no election prior to the issuance of bonds for this purpose.

It is argued that the taxing power of the individual municipalities is pledged to secure the obligations of PMPA. We disagree.

The bonds issued to finance the project will be issued by PMPA and not the municipalities. The bonds will be payable from revenues derived by PMPA from the sale of electricity to the municipalities and others. This is the only source of revenue which is pledged to the payment of these bonds. PMPA has no authority to assess and collect ad valorem taxes. Hence, PMPA cannot use the taxing power to replace lost revenues which we held was improper in Robinson v. White, 256 S. C. 410, 182 S. E. (2d) 744 (1971). Section 6-23-110 states that the payments by the municipalities to PMPA shall be made from revenues derived from the operation of the municipal electric system and shall not invoke the municipalities’ taxing power. The municipalities are only obligated to make payments from revenues derived from the rates and charges collected from the users of its electric system. Any attempt to equate these payments for electric utility services with taxes imposed on the citizenry in general is erroneous. It is conceded that the “bonds of PMPA are payable solely from the revenues collected by the municipality from their customers; neither the full faith and credit nor the taxing power of the state or any municipality is, or may be, pledged for payment of the bonds. Section 6-23-110.”

This is sufficient to establish that the bonds are merely revenue bonds and are therefore no more than a special obligation of PMPA.

“This Court has constantly held that bonds issued by [municipalities] — which are payable out of special funds do not create debts — .” Clarke v. South Carolina Public Service Authority, et al., 177 S. C. 427, 447, 181 S. E. 481, 489 (1935); Elliott v. McNair, supra; Rutledge v. Greater Greenville Sewer District, supra.

The only source of revenue pledged to tire payment of the PMPA bonds is revenue from the product itself. There is no circumstance by which these bonds could be converted from special obligation to general obligation bonds. General obligation bonds are secured by the taxing power. Special obligation bonds are secured by the project revenues or some other special source.

The appellants also assert that the arrangement for the sale and operation of the project amounts, in substance, to joint ownership prohibited by Article X, § 11 of the S. C. Constitution. While the undertaking at hand involves a rather ingenious arrangement, we do not believe it constitutes joint ownership between a political subdivision and a private business. This project is admittedly a complex undertaking, but complexity alone does not condemn it under our Constitution. The joint ownership clause of Article X, § 11 simply states that neither the State nor any political subdivision may become a “joint owner of or stockholder in” a private company. Under the Project Agreement, PMPA will not become a “joint owner of” Duke. Duke will not become a “joint owner” of PMPA. PMPA will not become a “stockholder in” Duke. Duke will not become a “stockholder in” PMPA. PMPA has acquired neither stock nor any other form of ownership in a private company. This arrangement does not violate Article X, § 11 of the Constitution. PMPA will become a joint owner of the project with a joint agency organized under the laws of North Carolina. We hold this is proper under Article VIII, § 13 of our Constitution, which permits municipalities and other political subdivisions of South Carolina to join with, “any one or more governments whether within — or without this State,” to perform public functions.

Appellants next argue that since there is specific authorization in Article X, § 11 for the South Carolina Public Service Authority to become a joint owner with privately owned electric utilities, that PMPA must acquire specific authorization by constitutional amendment.

The provision in Article X, § 11 authorizes joint ownership by an agency of the State of South Carolina with a privately owned corporation, thus permitting co-ownership of a single facility by a public and private entity.

Plere PMPA will not be a co-owner of any property in common with Duke. Hence the amendment to Article X, § 11 does not apply to the facts of this action.

Appellants also contend the North Carolina joint agency was authorized by an amendment to the North Carolina Constitution to jointly own with private corporations. Unlike PMPA, the North Carolina joint agency has become a co-owner of the project with Duke. This factual difference makes the appellants’ argument inapplicable to PMPA’s situation.

Finally, this Court has never held a public entity’s naked title to property operated by a private entity resulted in unconstitutional joint ownership. To so hold would overrule our prior decisions in Elliott v. McNair, supra; Chapman v. Greenville Chamber of Commerce, et al., 127 S. C. 173, 120 S. E. 584 (1923) and Gilbert v. Bath, et al., 267 S. C. 171, 227 S. E. (2d) 177 (1976). In each of these cases we approved as constitutional, projects in which the public entity held title but a private entity operated the project.

We hold this project complies with the Constitution in all respects and affirm.

Affirmed.

Gregory and Harwell, JJ., concur. Lewis, C. J., and Littlejohn, J., dissent.

1 Codified in Chapter 23, Title 6 of the Code of Laws of South Carolina, 1976, as amended.

2 The North Carolina Agency is a joint agency organized in 1976 under the provisions of Chapter 159B of the General Statutes of North Carolina. It has 19 participating municipalities.

3 The twelve municipalities are: Abbeville, Clinton, Easley, Gaffney, Greer, Laurens, Newberry, Prosperity, Rock Hill, Seneca, Union, and Westminster. After the initial information of PMPA, the City of Greenwood petitioned to become a member of the agency and was admitted to membership by resolution of the PMPA Board of Directors in late 1979. Greenwood subsequently withdrew its membership in December, 1980. Prosperity withdrew its membership in March, 1980.

4 The remaining 75 per cent is owned by the North Carolina joint agency. The expected useful life of the Catawba project is over forty years.