When a South Dakota highway construction project pushes a utility's power lines off private property and onto a new highway right-of-way (with federal aid paying for the move), can the State Highway Commission sign a subordination agreement promising that the utility will not have to bear future relocation costs if subsequent highway construction makes another move necessary?
Plain-English summary
A controlled-access section of Interstate 29 in Deuel County was being built with federal aid. The route crossed an Otter Tail Power Company easement that already carried electrical transmission lines. The State Highway Commission needed Otter Tail to move the lines. Federal aid was available to pay the relocation cost (a common feature of federal-aid highway projects).
The Commission proposed two alternative routings for the moved lines. Otter Tail preferred the cheaper option only if the state would sign a subordination agreement promising that the utility would not have to bear costs for any future relocations forced by later highway construction. Mr. Hallock asked AG Gordon Mydland whether the proposed agreement conflicted with South Dakota law.
Mydland's answer was firm: yes, it conflicted. SDCL 31-26-4 provides that when a highway is changed, the utility grantee shall, on 90 days notice, remove its line to the changed highway. The leading South Dakota authority, Dakota Central Telephone Co. v. Shipman Construction Co. (49 S.D. 251, 207 N.W. 72), confirmed that the state did not divest itself of the power to change highways or make that power subordinate to a utility grant. The South Dakota Constitution's police-power clause (Art. XVII, § 4) reinforced that the police power "shall never be abridged or so construed as to permit corporations to conduct their business in such manner as to infringe the equal rights of individuals or the general well-being of the state."
So the state's easement was dominant, and the utility's was subordinate. Otter Tail's proposed subordination agreement tried to invert that by giving the utility a guaranteed right to reimbursement for future relocations. The Highway Department had no authority to make that promise. The proposed agreement was contrary to law and public policy and would be of no legal effect.
The 1959-60 opinion to Mr. H.C. Koch (an Assistant Utilities Engineer at the Department of Highways) had been distinguishable on its facts (it involved a question of necessity of taking), but to the extent it conflicted with Mydland's reading, it was expressly overruled.
Currency note
This opinion was issued during AG Gordon Mydland's tenure in the early 1970s. 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. The federal-aid highway program (now part of FHWA Title 23 program) has evolved its utility-relocation reimbursement rules; state utility-relocation statutes may also have been amended. Modern utility-relocation negotiations should be analyzed under the current framework.
What the opinion meant at the time
For the State Highway Commission, the opinion drew a hard line: do not sign subordination agreements. The Commission had no statutory authority to promise utility companies reimbursement for future relocations.
For Otter Tail Power and other utilities, the opinion was a negotiating-position loss. They could not lock in future relocation cost protection through agreement with the Highway Department. Their facilities on highway right-of-way were subject to the state's dominant easement, with no contractual escape hatch.
For utility lawyers, the opinion underscored that easements granted by the state for utility lines on highway right-of-way carry the implicit reservation of the state's police power. Utility planning had to assume the possibility of future, uncompensated relocations.
Common questions
Q: What is a subordination agreement in this context?
A: A contractual promise by one party (here, the state) to treat another party's interest (here, the utility's easement) as superior or protected against subsequent state actions. Otter Tail wanted assurance that future highway projects would not force a costly relocation.
Q: Did the federal aid status matter?
A: Federal aid paid for the current relocation. The federal funding rules at the time provided for relocation reimbursement on federal-aid projects under certain conditions. Otter Tail wanted to preserve that protection for future projects too. The state lacked authority to make that promise.
Q: Why is the state's police power so strong here?
A: South Dakota Constitution Art. XVII, § 4 explicitly prohibits any construction or grant that "permits corporations to conduct their business in such manner as to infringe the equal rights of individuals or the general well-being of the state." That gives constitutional weight to the state's power to change highways regardless of utility-easement positions.
Q: Did the AG suggest any alternative way to protect the utility?
A: No. The opinion was a clean no on the subordination agreement. The utility's protection had to come from federal aid (when available) or from absorbing the cost itself when not.
Q: What about utilities that had been on private easements before the state ran a highway through them?
A: The opinion addressed exactly that fact pattern. Otter Tail had been on private property. The state was paying for the current move to highway right-of-way. From that point forward, the utility's facilities were on right-of-way subject to the dominant state easement.
Background and statutory framework
South Dakota's utility-on-highway-right-of-way framework rested on the principle that utility lines occupy the right-of-way at the sufferance of the state. SDCL 31-26-1 authorizes the construction of utility lines on highways under specified conditions. SDCL 31-26-4 obligates the utility grantee to relocate on 90 days notice when the highway is changed.
The Dakota Central Telephone decision was central. Judge Gates of the SD Supreme Court (writing earlier in the 20th century) reasoned that granting use of the highway to a utility did not extinguish or subordinate the state's power to manage and change the highway. The state retained dominant authority.
The 1959-60 opinion that Mydland partially overruled had taken a different view in a fact pattern involving necessity of taking. The factual distinction (a current taking question versus a future-relocation question) preserved the earlier opinion's holding in its own context, but Mydland was clear that the broader subordination-agreement rule was settled against the utility.
Federal-aid highway construction in the 1960s and 1970s had generated significant utility-relocation activity. The Interstate Highway System buildout meant many utility easements were being moved. The cost question (who pays for future relocations) was a recurring theme. Mydland's opinion settled it under SD law: the state, when it changes the highway again, does not pay.
Citations and references
Statutes:
- SDCL 31-26-1 (utility line construction on highways)
- SDCL 31-26-4 (relocation required on highway change)
- South Dakota Constitution, Art. XVII, § 4 (police power)
Cases:
- Dakota Central Telephone Co. v. Shipman Construction Co., 49 S.D. 251, 207 N.W. 72
Prior AG opinions:
- 1951-52 AGR 23 (utility pole relocation at utility expense when highway is changed)
- 1959-60 AGR p. 19 (Mr. H.C. Koch, December 6, 1958, distinguished and partially overruled)
Source
Original opinion text
Subordination agreement for right-of-way purposes
Dear Mr. Hallock:
Reference is made to your request for an official opinion on the following state of facts:
"Otter Tail Power Company is the owner of a certain easement, on which it presently owns and maintains electrical power transmission lines. The State Highway Commission, in conjunction with a Federal Aid Project, proposes to construct a controlled access highway-a portion of which will pass over said easement. In such cases as this the utility company is reimbursed for the relocation from Federal funds. The policy of the Commission has been to give the power companies, where necessary or desirable, a permit to construct their lines on the highway right-of-way. This permit allowed the construction and maintenance of the power lines, but the rights of the power companies were subordinate to the rights of the Highway Department. If it became necessary that these power transmission lines, located in the highway right-of-way, be moved or altered because of additional highway construction, it was done at the expense of the power company.
"In this present situation it is necessary for the Highway Department to pay for the relocation of Otter Tail Power Companies since they are presently located on private property.
"There are two alternatives relating to such relocation. The one alternative is to run the power lines along the highway to a point where the right-of-way is narrowest and cross over, such relocation would result in a situation where there would be no poles in the right-of-way.
"The second alternative is to cross over at the interchange in a straight line with existing lines. The latter alternative would be of less expense to the Department of Highways. Otter Tail Power Company will not agree to the latter proposal without a subordination agreement insuring them of not having to bear the costs should they be required to relocate if highway construction in the future should necessitate. A copy of their proposed subordination agreement is attached hereto."
"Otter Tail Power is the first power company to propose or demand such an agreement. It is their apparent feeling if they are being told or suggested as to where they should relocate, they should be protected as to reimbursement should they move again."
The subordination agreement reads as to pertinent parts as follows:
"Whereas, Otter Tail is the owner of certain rights under Right-of-Way Easements, copies of which are attached and made a part of this agreement, covering the following described land in Deuel County, South Dakota, to wit:
"WHEREAS, the State proposes the construction of an Interstate Highway known as U. S. Highway No. 29, Project 1-29-6(4) 148 Deuel County, South Dakota, and finds it necessary to request certain adjustments of facilities owned by Otter Tail and now located on a portion of the above described lands.
"NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, the parties hereto agree as follows:
"Section 1. Otter Tail does hereby subordinate those rights in the above described Right-of-Way easements to the paramount right of the State to build, construct, operate, maintain, and control an Interstate Public Highway across the aforedescribed lands.
"Section 2. This Agreement shall in no wise affect or impair the rights of Otter Tail or its successors or assigns under and by virtue of said Right-of-Way Easements.
"Section 5. This Agreement pertains only to the construction, operation and maintenance of Interstate Highway Project 1-29-6(4) 148 upon the above described lands, and in no manner is it intended to determine the rights of the parties hereto concerning future highway construction or improvement."
Your specific question is:
"Does the attached proposed subordination agreement received from Otter Tail Power Company relative to relocation of electrical lines which is made necessary by the construction of a highway by the State Highway Commission, conflict with any State laws relative to rights of way."
SDCL 31-26-4 provides as follows:
"When any highway along which a line has been constructed pursuant to Section 31-26-1 shall be changed, the grantee shall, upon 90 days notice in writing, remove such line to the highway as changed."
The leading South Dakota case on the question is Dakota Central Telephone Company v. Shipman Construction Company, 49 SD 251, 207 W 72. In that case Judge Gates stated:
"We are of the opinion that in granting the right to telephone companies to use the highways (now section 9791, Rev. Code 1919), the state did not divest itself of its power to construct and maintain highways, nor did it make such power subordinate to the grant. In view of this state of the law, and in view of the provision in Const. Art. 17, §4, 'and the exercise of the police power of the state shall never be abridged or so construed as to permit corporations to conduct their business in such manner as to infringe the equal rights of individuals or the general well-being of the state,' we will not presume that the Legislature intended that the state should be liable to the telephone company for damage necessarily done to its lines without negligence."
The present movement of the poles from their location on private property to the highway right-of-way will be at the expense of the government. However, Otter Tail seeks to maintain its easement on the right-of-way. In other words, Otter Tail desires to grant to the State of South Dakota an easement on their easement.
It is well settled in South Dakota that where a highway is changed, the utility poles thereon being there at the sufferance of the state must be moved at the expense of the utility company. See: 1951-52 AGR 23.
The state must have the dominant easement, and it is my opinion that on this statement of facts and because of the authorities above cited, that the subordination agreement submitted by Otter Tail would be of no legal effect if entered into by the State Highway Department, and that it would be contrary to law and public policy.
This case is distinguished from the Attorney General's opinion of 1959-60 p. 19, addressed to Mr. H. C. Koch, Assistant Utilities Engineer, Department of Highways, Pierre, South Dakota, and dated December 6, 1958, for the reason that there was a question of a necessity of taking in that case. Otherwise any parts of that opinion in conflict herewith are hereby expressly overruled.
Respectfully submitted,
Gordon Mydland
Attorney General