Can a Maryland town charge a utility company a franchise fee or pole-rental fee if the utility already has a statewide franchise from the State?

Plain-English summary

The Town of Mountain Lake Park wanted to widen some of its streets, which meant relocating utility poles belonging to the Potomac Edison Company. The company demanded $1,000 per pole to move them and refused to pay for street damage its power plant operations had caused, taking the position that it was not subject to any town franchise ordinance because it held a statewide franchise from the State of Maryland. The town's counsel asked the Attorney General whether the town could require Potomac Edison to obtain a town franchise, regulate its operations locally, and charge franchise, pole-rental, or right-of-way fees.

The Attorney General concluded that Potomac Edison did hold a genuine statewide franchise under Article 23, section 340 of the Maryland Code, tracing the company's corporate lineage back to a 1904-era "class thirteen" electric corporation. Because a franchise is a grant that only the State can make, and because the State's power to regulate and charge for the use of that franchise had not been delegated to Maryland's municipal corporations generally (and specifically had not been given to Mountain Lake Park before the 1954 constitutional cutoff for local franchise taxing power), the town could not itself impose a franchise ordinance or collect franchise or pole-rental fees from the company. However, the opinion found the town was not without recourse: because a franchise's exercise is always subject to reasonable regulation, a utility can still be required, without additional compensation, to move its poles and equipment off public property at its own expense whenever that is genuinely necessary to carry out a governmental project like widening a street.

Currency note

This opinion was issued in 1986. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Can a Maryland town make an electric utility pay a franchise fee to operate within town limits?
Under this 1986 opinion, not if the utility already holds a valid statewide franchise from the State and the town has not been delegated the State's power to regulate or charge for that franchise, which was the case for Mountain Lake Park.

If a town needs to widen a street, does it have to pay a utility company to move its poles out of the way?
No, according to the opinion. It found that requiring a utility to relocate its own equipment from public property, at the utility's own expense, to further a genuine governmental purpose is a form of regulation that a franchise does not shield a utility from.

How did the Attorney General decide Potomac Edison actually held a valid statewide franchise, given some doubts about the original 1923 local approval?
The opinion traced Potomac Edison's corporate history through a merger chain back to the West End Gas and Electric Co., a company that was properly incorporated in 1904 as a "class thirteen" corporation under the statute, and found Potomac Edison a proper successor to that entity's franchise rights, regardless of separate doubts about the earlier West Maryland Power Co.'s original local authorization.

Background and statutory framework

Maryland law treats the use of public streets by a utility to string wires or lay lines as a "franchise," a limited grant of a special right in public property that only the State (or a municipality specifically authorized by the State) can confer, and that grant, once accepted, functions as a contract. Article 23, section 340 grants this power to a category of "class thirteen" corporations, defined in the old 1904 Code as companies formed to conduct an electricity, telegraph, or telephone business, and section 340 in turn incorporates the terms of section 318, which authorizes such companies to build lines along public roads and highways, subject to not "incommod[ing] injuriously" the public's use of those ways and subject to liability for any damage caused.

The opinion worked through two distinct legal questions. First, whether Potomac Edison genuinely held this statewide franchise: the opinion traced a chain of corporate mergers and found that although the original local approval for service by a predecessor company (West Maryland Power Co.) in 1923 was of doubtful validity, since the entity granting it lacked the corporate power to issue franchises at the time, Potomac Edison also descended by merger from a different company, West End Gas and Electric Co., that had been properly organized in 1904 as a class thirteen corporation with the necessary statutory language in its charter, giving Potomac Edison a sound legal basis for its statewide franchise regardless of the earlier company's history. Second, whether the existence of a state franchise stripped Mountain Lake Park of any power over the utility: the opinion held that a franchise does not preclude reasonable regulation, because that power is implicitly reserved in the franchise "contract," but that power belongs to the State unless expressly delegated. Maryland's municipalities gained broad home-rule authority over local affairs in 1954, but a specific constitutional provision (Article XI-E, section 5) bars municipalities from levying any new tax, license fee, or franchise fee not already in effect on January 1, 1954, unless the General Assembly has since granted that power by general law, and no such delegation had been made to Mountain Lake Park regarding franchises conferred directly by the State.

Citations

Statutes:

• Article 23, §340 (statewide franchise for "class thirteen" corporations, incorporating §318's powers)
• Article 23, §28 (1904 Code definition of "class thirteen" corporations)
• Article 23, §318 (telegraph/telephone/electric line construction along public ways; liability for damage)
• Article XI-E, §5 of the Maryland Constitution (bar on new municipal taxes, license fees, or franchise fees without state authorization)
• Article 23A, §2(b)(13) (municipal authority to grant franchises under general/local law)
• Article 23A, §2(b)(33) (municipal authority to levy reasonable franchise fees)
• Chapter 161, Laws of Maryland 1886 (original enactment of what became Article 23, §340)
• Chapter 430, Laws of Maryland 1888 (incorporation of the Community of Mountain Lake Park)
• Chapter 315, Laws of Maryland 1896 and Chapter 688, Laws of Maryland 1914 (amendments to the Community's limited powers)
• Chapter 507, Laws of Maryland 1931 (Mountain Lake Park's incorporation as a municipal corporation)
• Chapter 240, Laws of Maryland 1908 (repeal of former Article 23, §28's "class thirteen" designation)
• Article I, §10, cl. 1 of the United States Constitution (Contract Clause)

Cases:

• Adams v. Comm'rs of Trappe, 204 Md. 165, 171 (1954)
• Johnson v. Consolidated Gas, Elec. Light & Power Co., 187 Md. 454, 459, 460 (1947)
• Purnell v. McLane, 98 Md. 589, 592, 594 (1904)
• Charles County Sanitary Dist., Inc. v. Charles Util., Inc., 267 Md. 590, 598 (1973)
• Crisfield v. Public Serv. Comm'n, 183 Md. 179, 193, 199-200 (1944)
• Purnell v. Ocean City, 162 Md. 169, 174 (1932)
• Energy Reserves Group, Inc. v. Kansas Power and Light Co., 459 U.S. 400, 411 (1983)
• Kahl v. Consolidated Gas, Elec. Light and Power Co., 191 Md. 249, 261 (1948)
• Mayor and Council of Baltimore v. Baltimore Gas and Elec. Co., 232 Md. 123, 131 (1963)
• Postal Tel. Cable Co. v. Baltimore, 79 Md. 502, 509-510 (1894), aff'd 156 U.S. 210 (1895)
• Chesapeake & Potomac Telephone Co. v. State Roads Comm'n, 134 Md. 1, 4-6 (1919)
• 10 Opinions of the Attorney General 226, 228 (1925)
• Kelly v. Consolidated Gas Elec. Light and Power Co., 153 Md. 523, 530-532, 537 (1927)
• Birge v. Town of Easton, 274 Md. 635, 644 (1975)
• Campbell v. City of Annapolis, 289 Md. 300, 305, 308 (1981)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1986/Volume71_1986.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

UTILITIES

Franchises—Municipal Corporations—Scope Of Municipal Authority Over Utility With Statewide Franchise.

August 8, 1986

Robert E. Watson, Esquire
Counsel for Mountain Lake Park

You have requested our opinion on whether the Town of Mountain Lake Park may require the Potomac Edison Company to have a town franchise; may regulate the company's operations within the town; and may levy on the company a franchise, pole rental, or right-of-way agreement fee.

For the reasons stated below, we conclude that the Potomac Edison Company has a State franchise conferred by Article 23, §340. The State retains the power to impose reasonable regulations and to seek reasonable compensation for the exercise of this franchise and may delegate this power to the subdivisions. In the absence of such a delegation to the State's municipal corporations, the Town of Mountain Lake Park may not regulate and seek compensation for the exercise of this franchise. However, the Town may require the utility to move company equipment located on public property at company expense to further a governmental purpose.

I
Background

In your letter requesting this opinion, you indicated that the town desires to widen some of its 16-foot streets within the established 50-foot right-of-way. This work would require moving some of the utility poles of the Potomac Edison Company and the company has demanded that it be paid $1,000 for each pole that it relocates. You also mentioned that, in the course of operating and maintaining its power plant in the town, the company has damaged some of the town's streets but the company has declined to pay for the necessary repairs.

Moreover, the company has taken the position that it would not be subject to any franchise ordinance the town might enact, on the ground that the company enjoys a Statewide franchise. Although the company does not directly contest the authority of the town to levy a pole rental fee, it has requested that it be provided with the basis for any such authority. In light of the company's position, the town is interested in ascertaining what authority it might have to adopt a franchise ordinance to regulate the company within its jurisdiction and to levy reasonable franchise, pole rental, or right-of-way agreement fees.

II
Grant of Franchises Generally

The general rule is that "[t]he streets of a city or town are held by a municipal corporation in trust for the public, to be used for the purposes of travel and such other uses as customarily pertain thereto." Adams v. Comm'rs of Trappe, 204 Md. 165, 171 (1954). The use of public property by a limited number of persons for some special purpose is a franchise that can only be granted by the State. Hence, the use of the streets by a company for the purpose of distributing electric power requires the granting of a franchise. Johnson v. Consolidated Gas, Elec. Light & Power Co., 187 Md. 454, 459 (1947), or a duly authorized municipal corporation. Purnell v. McLane, 98 Md. 589, 592 (1904).

The granting of a franchise is regarded as a legislative function. Charles County Sanitary Dist., Inc. v. Charles Util., Inc., 267 Md. 590, 598 (1973). Although a franchise may be granted in perpetuity [Crisfield v. Public Serv. Comm'n, 183 Md. 179, 193 (1944)] and without compensation [Purnell v. Ocean City, 162 Md. 169, 174 (1932)], the right to a franchise is not to be presumed. McLane, 98 Md. at 594. The claim of a franchise must be supported by a clear and unambiguous legislative enactment and to doubt the claim is to deny it. Id.

Once a franchise is accepted, it is regarded as a contract. Crisfield, 183 Md. at 199. Both public and private contracts are, of course, subject to the protection of the Federal Constitution against the states "impairing the Obligation of Contracts." Art. I, Sec. 10, cl. 1. However, this prohibition is not absolute and contracts may be substantially modified for a "significant and legitimate public purpose." Energy Reserves Group, Inc. v. Kansas Power and Light Co., 459 U.S. 400, 411 (1983).

Moreover, the mere granting of a franchise does not preclude regulation of its use, because this power is impliedly reserved by the contract. Crisfield, 183 Md. at 199-200. See also Kahl v. Consolidated Gas, Elec. Light and Power Co., 191 Md. 249, 261 (1948). Thus, in the absence of applicable law to the contrary, a public utility may be required to move its facilities in or under public streets at its own expense in furtherance of projects of a governmental nature. Mayor and Council of Baltimore v. Baltimore Gas and Elec. Co., 232 Md. 123, 131 (1963). Likewise, the mere granting of a franchise does not preclude the levying of fees for the use of public property that the franchise permits. See Johnson v. Consolidated Gas, Elec. Light & Power Co., 187 Md. at 460 (citing cases). Although a franchise undoubtedly could by express terms confer the power to use the streets without compensation, it is not to be supposed that a franchise confers such power. Postal Tel. Cable Co. v. Baltimore, 79 Md. 502, 509-510 (1894), aff'd 156 U.S. 210 (1895). Thus, in Chesapeake & Potomac Telephone Co. v. State Roads Comm'n, 134 Md. 1, 4-6 (1919), the Court of Appeals held that a statute allowing telephone and telegraph companies to use the State's highways for their poles, wires, and other fixtures did not preclude the State from seeking compensation for that use when it acquired a road along which telegraph poles and wires had been erected.

III
Article 23, §340 Franchises

Article 23, §340 of the Maryland Code, the statute under which the Potomac Edison Company claims to have a Statewide franchise, provides as follows, in relevant part:

"Any of the corporations formed under class thirteen, §28 of this article, as codified by the Code of 1904, shall have the power which is conferred upon telegraph companies incorporated under this article by §318, and may construct and lay any part of its line or lines underground or any route for which it is authorized to construct such lines in whole or in part, above ground, and the corporation may acquire by condemnation any property or right whatsoever necessary for its purposes in its discretion, either in fee simple or the use thereof in fee simple, or for a less estate, in the manner set forth in Title 12 of the Real Property Article of the Code."

Section 340, which was originally enacted as Chapter 161 of the Laws of Maryland 1886, also requires local approval for use of the streets in Baltimore City.

The "class thirteen" corporations having the power conferred by §340 are those that construct, own, or operate telegraph or telephone wires in this State and maintain their principal office here, and those that transact "any business in which electricity over or through wires may be applied to any useful purpose." Article 23, §28 of the Maryland Code of 1904. The "power which is conferred upon telegraph companies ... by §318," and which §340 also confers on telegraph, telephone, and electric companies by reference, is defined in §318 as follows:

"It may construct a line or lines of telegraph through this State, from or to any point or points within this State, or upon the boundaries thereof, and along and upon any postal roads and postal routes, roads, streets and highways, or across any of the bridges or waters within the limits of this State, by the erection of the necessary fixtures, including posts, piers or abutments for sustaining the cords or wires of such lines, without their being deemed a public nuisance, or subject to be abated by any private party; provided, the same shall not be so constructed as to incommode injuriously the public use of said postal roads or postal routes, roads, highways and bridges or injuriously interrupt the navigation of said waters, or interfere with the convenience of any landowner more than is unavoidable."

Section 318 also provides that such corporations are liable for the damages that they cause in erecting or using such fixtures.

In an opinion interpreting what is now §340, this office said in 1925 that "no approval of any municipality of the State except the City of Baltimore is required for the construction and operation of a telegraph, telephone or electric light system in the State." 10 Opinions of the Attorney General 226, 228 (1925). However, in a court case two years later, the Court of Appeals concluded that what was claimed as a Statewide franchise under §340 (then §337) was subject to a local law requiring municipal consent if the utility had not yet exercised its franchise in that locale. Kelly v. Consolidated Gas Elec. Light and Power Co., 153 Md. 523, 530-532, and 537 (1927). Although the Court of Appeals has recognized that what is now §340 confers a franchise to construct lines along streets, highways, and the like "within the State," it has noted that the exercise of the franchise is subject to the limitations of what is now §318, including not "incommod[ing] injuriously the public use of" those ways. See Johnson v. Consolidated Gas, Elec. Light & Power Co., 187 Md. at 459. The Court of Appeals also noted in Johnson that these utilities "are liable for proper compensation for these franchise rights." 187 Md. at 460.

IV
Potomac Edison's Franchise

Although we are advised by Potomac Edison that electric service was established in Mountain Lake Park by West Maryland Power Co. in 1923, it is not clear that there was then a valid franchise for doing so. On May 23 of that year, the annual meeting of the Community of Mountain Lake Park passed an ordinance that granted to the West Maryland Power Co. the right to supply electric service in and through the community for a period of 50 years. Although Mountain Lake Park did not become a municipal corporation until 1931 [Chapter 507, Laws of Maryland 1931], the Community of Mountain Lake Park was incorporated by Chapter 430, Laws of Maryland 1888. Chapter 430 expressly declared that the community did not have the powers ordinarily associated with municipal corporations and this law, as amended by Chapter 315 of the Laws of Maryland 1896 and again by Chapter 688 of the Laws of Maryland 1914, granted only limited powers to the community. Because these powers did not include the power to grant the kind of franchise that was the subject of the 1923 ordinance, there is substantial question of whether the franchise was ever valid.

It is also doubtful that the West Maryland Power Co. enjoyed the franchise conferred by what is now §340. A certificate of incorporation for the West Maryland Power Co. was approved by the State Tax Commission on July 27, 1922. This certificate declares that one of the purposes of the corporation is to "transact any business in which electricity over or through wires may be applied to any useful purpose." Although this language closely follows the relevant language of Article 23, §28 of the 1904 Code, there is no reference in the certificate to the company being a "class 13" corporation. Moreover, §28, which established this class, was repealed in 1908. See Section 1 of Chapter 240, Laws of Maryland 1908. In 1965, the West Maryland Power Co. and the Monongahela Power Co., a West Virginia corporation, were merged into the Marietta Electric Co., an Ohio corporation, which changed its name to Monongahela Power Co. We are advised by Potomac Edison that on May 31, 1974, it purchased the Maryland utility property and franchises of its affiliate, Monongahela Power Co., including the electric facilities located in the Town of Mountain Lake Park.

The Potomac Edison Co. also claims to be a class 13 corporation as a successor by consolidation to West End Gas and Electric Co. of Frederick County. The articles of incorporation for West End Gas, dated June 20, 1904, declare that among the purposes of the company is the "transaction of any business in which electricity over or through wires may be applied to any useful purpose." This, of course, duplicates the relevant language of Article 23, §28 of the 1904 Code. Accordingly, there can be no doubt that West End Gas was incorporated as a class 13 corporation. Moreover, we are satisfied that the Potomac Edison Co. is properly regarded as a successor to West End Gas and its status as a class 13 corporation. Therefore, whatever questions there may be about the right of the West Maryland Power Co. to have established electric service in Mountain Lake Park, Potomac Edison provides electric service to the town under the franchise conferred by Article 23, §340.

V
Effect of Potomac Edison's §340 Franchise

As noted, the exercise of this franchise is subject to the State's reserve power of reasonable regulation and compensation. Such power may, of course, be delegated to the subdivisions.

Since 1954, all municipal corporations have enjoyed home rule under Article XI-E of the Constitution. Municipal corporations generally have the power to govern themselves in matters of local concern under this article. Birge v. Town of Easton, 274 Md. 635, 644 (1975). However, Article XI-E, §5 provides that they may not levy "any type of tax, license fee, or franchise tax or fee" that was not in effect on January 1, 1954 unless authorized by express, uniform general legislation enacted by the General Assembly. See Campbell v. City of Annapolis, 289 Md. 300, 305 and 308 (1981).

Under the general laws of the State, municipal corporations have the express authority to grant franchises under the existing general and public local laws. Article 23A, §2(b)(13). They also have the express authority to levy reasonable fees and charges for those franchises. Article 23A, §2(b)(33). However, they do not have express authority to levy fees on franchises conferred by the State, and Mountain Lake Park was not granted this power prior to January 1, 1954. Moreover, the regulation of a franchise granted by the State could hardly be said to be a matter of purely local concern subject to the general home rule powers of the municipal corporations.

VI
Conclusion

In summary, it is our opinion that the Potomac Edison Company has a State franchise conferred by Article 23, §340. The State retains the power to impose reasonable regulations and to seek reasonable compensation for the exercise of this franchise and may delegate this power to the subdivisions. In the absence of such a delegation to the State's municipal corporations, the Town of Mountain Lake Park may not regulate and seek compensation for the exercise of this franchise. However, the Town may require the utility to move company equipment located on public property at company expense to further a governmental purpose.

Stephen H. Sachs
Attorney General
Richard E. Israel
Assistant Attorney General

Jack Schwartz
Chief Counsel
Opinions and Advice