NO. A09-572

S tate of M innesota

In Supreme CourtCity of Cohasset,

Appellant,vs.

Minnesota Power,an Operating Division of Allete, Inc.,

Respondent.

APPELLANT'S BRIEF AND APPENDIX

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[

MINNESOTA POWERDavid R. Moeller (#0287295)30 West Superior StreetDuluth, MN 55802(218) 723-6963

Attorneysfor RespondentMinnesota Power

McGRANN SHEA CARNIVAL

STRAUGHN & LAMB, CHTD.Corey J. Ayling (#157466)Kathleen M. Brennan (#256870)Jodle M. Lester (#388044)2600 U.S. Bancorp Center800 Nicollet MallMinneapolis, MN 55402(612) 338-2525

Attorneysfor AppellantCity ofCohasset

LEAGUE OF MINNESOTA CITIESSusan L. Naughton (#259743)145 University Avenue WestSt. Paul, MN 55103(651) 281-1232

Attorneys for Amici Curiae League ofMinnesotaCities and Coalition of Utility Cities

I

,

2010 - PRINTING FAX (612) 337-8053 PHONE (612) 339-9518 or 1-800-715-3582

The appendix to this brief is not availablefor online viewing as specified in theMinnesota Rules ofPublic Access to theRecords ofthe Judicial Branch, Rule 8,Subd.2(e)(2).

TABLE OF CONTENTS

Page

Table of Authorities IV

Statement of Issues 1

Statement of the Case. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 2

Statement of Facts 4

Argument 11

I. Standard ofReview 13

II. The Public has the Right to Subject Minnesota Power'sCohasset Pipeline Operations to a Franchise or License 13

A. Cohasset's Franchise Power is Mandated byPlain Statutory Language 14

B. Cohasset's Reading ofPlain Statutory Text isConsistent with Longstanding Historical Practiceand is Compatible with the Surrounding BodyofLaw 20

C. Even ifthe Pipeline is Held to be "Private"Non-Utility Property, its Operation is stillSubject to the City's General Licensing Power 25

D. The Decisions Below Confuse Two DistinctIssues: (1) The Power of the City to License;and (2) The Proper Amount of the LicensingFee 29

III. The Cities' Right to Franchise Pipeline Operations isNot Preempted by the Routing Permit Statute 36

A. Special Standard of Review in LicensingPreemption Cases 37

B. The Text of the Routing Permit Statute can beReconciled with Continued MunicipalLicensing of Operations 39

C. There is no Legislative Intent to DisplaceMunicipal Licensing Power .41

D. Preservation ofMunicipal Licensing PowerIs Consistent with Administrative InterpretationsOf the Routing Permit Statute 43

E. In Construing the Statute, the Court MustFavor the Public Over the Private Interest .45

F. Summary 48

Conclusion 50

Certificate of Brief Length 51

Addendum

Appellate Court Decision AOOO1

District Court Order Granting PartialMotion for Summary Judgment AOO18

District Court Order Entering FinalJudgment A0024-25

Statutes A0026

Franchise Ordinance A0039

Appendix

Complaint A0043

11

Minnesota Power's Project Maps (Ex. A to Complaint) A0055

Affidavit of Susan Harper in Support of TemporaryInjunction (not including exhibits) A0062

MPUC Route Permit Issued to Minnesota Power A0068

Notice ofAppeal A0081

111

TABLE OF AUTHORITIES

Page

STATUTES AND RULES

Minn. Stat. § 216B.02 15

Minn. Stat. § 216B.045 18,24

Minn. Stat. § 216B.1646 46

Minn. Stat. § 216B.36 1, 11, 14, 15, 16, 18,23,30,32,48

Minn. Stat. § 216G.02 1, 12,38,39,41,48

Minn. Stat. § 216G.06 37

Minn. Stat. § 272.01 46

Minn. Stat. § 272.02 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 46

Minn. Stat. § 299J.I0 ....•................................. 43,46

Minn. Stat. § 301B.01. 11, 18, 19, 30, 34

Minn. Stat. § 368.85 45

Minn. Stat. § 412.211 26,27

Minn. Stat. § 412.221 1,27

Minn. Stat. § 645.16 43

Minn. Stat. § 645.17 20, 45

Minn. Admin. R. 7852.0300 37, 44

Minn. R. Civ. App. P. 103.03 3

IV

15 U.S.C. § 3301 36

FERC Order 636, 57 Fed. Reg. 13,267 ..................•......... 36

LEGISLATIVE MATERIALS

Minnesota Department ofPublic Service, Report to the MinnesotaLegislature on Franchise Fees and Public, Educational andGovernment (PEG) Access (Feb. 15, 1996) .47

Minnesota Senate Public Utilities and Energy Committee Minutes,Feb. 3, 1987 41,42

Research Department, Minnesota House ofRepresentatives,Primer on Minnesota's Property Taxation ofElectricUtilities (Oct. 2006) 46

CASES

Advantage Capital Management v. City ofNorthfield,664 N.W.2d 421 (Minn. App. 2003) 41

Algonquin Gas Transmission Company, 96 FERC 61364,2001 WL 1154520 (FERC Sept. 28,2001) 36

American Family Ins. Group v. Schroedl,616 N.W.2d 273 (Minn. 2000)....................•......... 21

Boutin v. LaFleur, 591 N.W.2d 711 (Minn. 1999) .21

Chanhassen Estates Residents Assoc. v. City ofChanhassen,342 N.W.2d 335 (Minn. 1984)....................•...... 11, 19

City ofAkron v. Budiani, 368 N.E.2d 851 (Ohio App. 1976) 28

City ofCohasset v. Minnesota Power,776 N.W.2d 776 (Minn. App. 2010) passim

v

City ofFort Morgan v. Colorado Public Utilities Commission,159 P.3d 87 (Colo. 2007) 37

City ofNewport v. Hiland Dairy Co. 164 S.W.2d 818 (Ky. 1942) 35

City ofNewton v. Reiss Associates, Inc.,117 N.E.2d 294 (Mass. 1954) 28

City ofSt. Paul v. Northern States Power,462 N.W.2d 379 (Minn. 1990) 1, 13, 33, 49

Columbia Heights Police ReliefAssoc. v. City ofColumbia Heights,233 N.W.2d 760 (Minn. 1975) 32

Concordia College Corp. v. State,120 N.W.2d 601 (Minn. 1963) 31

County ofLake v. Courtney, 451 N.W.2d 338 (Minn. App. 1990),review denied (Minn. April 13, 1990) . . . . . . . . . . . . . . . . . . . . . . . . 13

Davidson v. County Commissioners ofRamsey County,18 Minn. 482, 18 Gil. 432, 1872 WL 3324 (Minn. 1872) 23

Green v. Bock Laundry Machine Co., 490 U.S. 504 (1989) 21

Hyatt v. Anoka Police Department, 691 N.W.2d 824 (Minn. 2005) 20

Iowa State Commerce Commission v. Northern Natural Gas Co.,161 N.W.2d 111 (Iowa 1968) 25

Kellerman v. City ofSt. Paul, 1 N.W.2d 378 (Minn. 1941) .20

Mangold Midwest Co. v. Village ofRichfield,143 N.W.2d 813 (Minn. 1966) 39

McAdams Oil Co. v. City ofLos Angeles,89 P.2d 729 (Cal. App. 1939) 28

Michigan Consolidated Gas Co. v. Panhandle Eastern Pipe Line Co.,th

887 F.2d 1295 (6 Clr. 1989) 37

VI

Minneapolis St. Ry. Co. v. City ofMinneapolis,40 N.W.2d 353 (Minn. 1949) 1,26, 37, 38

Minnegasco v. MPUC, 549 N.W.2d 904 (Minn. 1996) " , . 35

Minnesota Agricultural Aircraft Assoc. v. Township ofMantrap,498 N.W.2d 40 (Minn. App. 1993) 1,38,39,41

Minnesota Gas Co. v. Public Service Commission,394 F. Supp. 327 (D. Minn. 1974), aff'd, 523 F.2d 581(8th Cir. 1975), cert. denied, 424 U.S. 915 (1976) 14,23

Myrick v. La Moure and Another, 23 N.W. 549 (Minn. 1885) 23

Northern States Power Co. v. City ofOakdale,588 N.W.2d 534 (Minn. App. 1999) 23,26,37

Orme v. Atlas Gas & Oil Co., 13 N.W.2d 757 (Minn. 1944) 40

Southern Pacific Pipe Lines, Inc. v. City ofLong Beach,251 Cal. Rptr. 411 (Cal. App. 1988),review denied (Dec. 1, 1988) 37

Southwestern Electric Power Co. v. Conger,280 So.2d 254 (Louis. App. 1973) 29

State v. Basal, 763 N.W.2d 328 (Minn. App. 2009) 20

State v. Thompson, 754 N.W.2d 352 (Minn. 2008) 20

Union Oil Co. v. City ofPortland,198 F. 441 (D. Oregon 1912) 28

Village ofBlaine v.Independent School District No. 12 ("Blaine 11'')138 N.W.2d 32 (Minn. 1965) 23,24

us. West Communications, Inc. v. City ofRedwood Falls,558 N.W.2d 512 (Minn. App. 1997),review denied (Minn. April 15, 1997) 49

Vll

Washington Mutual Bank, F.A. v. Elfelt, 756 N.W.2d 501(Minn. App. 2008), review denied (Minn. Dec. 16,2008) 13

Wegener v. Commissioner ofRevenue,505 N.W.2d 612 (Minn. 1993) 20

SECONDARY AUTHORITIES

Colton & Sheehan, Raising Local Government Revenue ThroughUtility Franchise Charges: Ifthe Fee Fits, Foot It,21 THE URBAN LAWYER 58 (Winter 1989) 22

Hanson & Davies, Judicial Review ofRate ofReturn Calculations,8 Wm. MITCHELL L. REV. 499 (1982) 35

McQUILLIN, THE LAW OF MUNICIPALCORPORATIONS (2009) 13, 14

Note, Halbert, Municipal Law Utility Franchise Fees,18 U. ARK. LITTLE ROCK L.J. 259 (1966) 22

PHILLIPS, THE ECONOMICS OF REGULATION (1969) 22

Sharfman, Commission Regulation ofPublic Utilities: A Survey ofLegislation, in 53 ANNALS OF AMERICAN ADADEMYPOLITICAL AND SOCIAL SCIENCE 1 (1914) 22

Stalon & Lock, State-Federal Relations in the Economic Regulation ofEnergy, 7 YALE L.J. REG. 427 (1990) 36

Wilcox, Effects ofState Regulation upon the Municipal OwnershipMovement, in 53 ANNALS OF AMERICAN ADADEMYPOLITICAL AND SOCIAL SCIENCE 71 (1914) 22

D. WILCOX, MUNICIPAL FRANCHISES (1910) 22,23

Vlll

STATEMENT OF ISSUES

I.

WHETHER THE OPERATOR OF AN INTRACITY NATURAL GAS PIPELINEMUST OBTAIN A FRANCHISE FROM THE CITY AND PAY A FRANCHISE

FEE?

The District Court held "no" and granted summary judgment against the City'sclaim that operation of the natural gas pipeline must be subject to its franchiseordinance and to the payment of a franchise fee; The Court ofAppeals affirmed.

See: Minn. Stat. § 216B.36;

Minn. Stat. § 412.221;

Minneapolis St. Ry. Co. v. City of Minneapolis, 40 N.W.2d 353(Minn. 1949);

City ofSaint Paul v. Northern States Power, 462 N.W.2d 379 (Minn.1990).

II.

WHETHER THE CITY'S FRANCHISE AND LICENSING POWER ISPREEMPTED BY STATE CONTROL OVER THE SITING OF THE PIPELINE?

The District Court did not reach this alternative grounds urged below for summaryjudgment against the City's claims; The Court ofAppeals reached this grounds andfound preemption in an alternative holding.

See: Minn. Stat. § 216G.02; and

Minnesota Agricultural Aircraft Assoc. v. Township ofMantrap, 498N.W.2d 40,42 (Minn. App. 1993).

STATEMENT OF THE CASE

The City of Cohasset ("Cohasset") commenced this action for declaratory

and injunctive relief against Minnesota Power, an operating division ofAllete, Inc.,

("Minnesota Power") on September 12, 2008. The action was filed with the Itasca

County District Court and was assigned to the Honorable Jon Maturi. The action

sought to enforce Cohasset's right to require Minnesota Power to obtain a

franchise or other permit to operate a natural gas pipeline that it intended to build

entirely within Cohasset's borders. Appendix ("App.") A0043-54.

Minnesota Power responded with a motion to dismiss, which was

subsequently treated as a motion for summary judgment given the Court's

consideration of materials outside of the pleadings. Cohasset filed a cross motion

for temporary injunction of any operation of the pipeline except in compliance

with all terms and conditions of the franchise ordinance or other permits or licenses

issued by Cohasset.

The District Court heard argument on the cross motions on December 1,

2008. On January 7, 2009, it granted partial summary judgment dismissing all of

Cohasset's claims except for the promissory estoppel count, which alleged

detrimental reliance on Minnesota Power's assurances that it would use Cohasset's

natural gas utility to supply it with natural gas. Addendum ("Add.") A0018-23.

The District Court reasoned that Minnesota Power was not acting as a "public

2

utility" with respect to the pipeline because it planned to consume all of the gas to

ignite its electrical plant, as opposed to using the pipeline to sell gas to the public.

Add. A0021-22.

On February 26, 2009, the District Court dismissed the promissory estoppel

count by stipulation of the parties and then entered final judgment of dismissal on

all other counts. The Court denied as moot Cohasset's cross motion for temporary

injunction. Add. A0024-25.

On April 1, 2009, Cohasset perfected an appeal from the final judgment of

February 26, 2009, pursuant to Minn. R. Civ. App. P. 103.03(a). App. A0081-83.

This judgment also rendered final the previous order for partial summary

judgment, which was appealed pursuant to Minn. R. Civ. App. P. 103.030).

On January 12, 2010, a split Court of Appeals affirmed, reasoning that (1)

Minnesota Power did not act as a "public utility" in operating the Pipeline; and (2)

the franchise and licensing power was in any event preempted by 1987 legislation

giving the State the power to site high pressure pipelines. App. AOOOl-15. The

dissenting judge criticized the majority for "adding language to the unambiguous

language in Minn. Stat. 216B.36 that authorizes the city to require Minnesota

Power to obtain a franchise or permit for its natural gas pipeline that occupies

streets, highways, or other public property within the city." App. A0016.

This Court granted Cohasset's Petition for Review on March 30, 2010.

3

STATEMENT OF FACTS

Plaintiff-Appellant Cohasset is a statutory city with a population of

approximately 2,500 located in Itasca County, Minnesota. App. A0062 ¶ 2.

Defendant Minnesota Power is an operating division of Allete, Inc. According to

its 2007 year-end 10Q filing, Minnesota Power provides regulated electric service

in, northeastern Minnesota to 141,000 retail customers and wholesale electric

service to 16 municipalities. Minnesota Power also provides service to large

industrial customers. Allete's other businesses include Superior Light & Power,

which services Wisconsin customers; a lignite coal mine in North Dakota; and

significant real estate holdings in Florida. It is traded on the New York Stock

Exchange. Its consolidated operating revenues in 2007 were $841.7 million. App.

A0062-63 ¶ 3.

Minnesota Power operates a coal-fired electric generating plant in Cohasset,

Minnesota, which it calls its "Boswell Energy Center." The plant generates 914

MW of power. According to Minnesota Power's website, this is by far its largest

generating plant - having more than 4 times the generating capacity of its next

largest plant, its 200 MW Taconite Harbor Plant. The Boswell Energy plant

employs hundreds of persons, and is the largest employer in Cohasset. App.

A0063 ¶ 4.

4

This case concerns Minnesota Power's proposed, and now completed, gas

pipeline to connect the Boswell Energy Center with the Great Lakes Gas

Transmission Company natural gas pipeline at the town border of Cohasset (the

"Pipeline"). The point at which Minnesota Power takes delivery of the gas from

Great Lakes is located within Cohasset and is metered. Transcript of Proceedings

("T.") at pp. 8-9. Minnesota Power filed its plans for the Pipeline with the

Minnesota Public Utilities Commission ("MPUC"), see Affidavit of Susan Harper

("Harper Aff.") Ex. A; App. A0056-61 (maps depicting path ofpipeline).

The Pipeline was designed for a 10.75 inch outside diameter and a pressure

capacity of 974 pounds per square inch. This diameter and capacity were far

larger than that comprised by Cohasset's natural gas lines serving its citizens.

App. A0063 ¶ 6. According to its MPUC filing, Minnesota Power intended the

Pipeline to serve the Boswell Energy Center's coal-fired plant. Its stated purpose

was to ignite coal in the coal-fired plant, thereby replacing the fuel oil ignition.

The Boswell Energy Center would continue to provide electricity to serve

Minnesota Power's retail and municipal customers. App. A0063 ¶ 7. Minnesota

Power's proposal to the MPUC further contemplated "potential future additional

uses ofnatural gas" at the Boswell Energy Center. App. A0063 ¶ 7.

The Pipeline was designed to run for 6,900 feet (about 1.3 miles) entirely

within the borders of Cohasset. App. A0064 ¶ 8. The path of the Pipeline crossed

5

underneath Pincherry Road (County Road 88), U.S. Highway 2, the Burlington

Northern - Santa Fe Railroad, and 3rd Street North (County Road 87). See App.

A0059 (map depicting Pipeline route and cited public roads). The Pipeline does

not parallel any of these roads. It crosses underneath these three public roads and

runs through several parcels of privately owned property. App. A0064 ¶ 9.

Cohasset does not own or maintain any of these county roads. However, it does

provide fire protection and is financially responsible for providing contract police

protection for any incidents occurring at the point of intersection of these various

roads, or for any incident occurring at any segment of the Pipeline. App. 0064 ¶

10.

Although the Pipeline skirted around Cohasset city streets, the Pipeline

project nonetheless crossed underneath three public roads and benefitted from

other privileges and services provided by Cohasset. These include fire and police

protection, as well as other city services that make the site attractive to Minnesota

Power.

Cohasset's 2008 budget for fire protection was $190,049. The Fire

Department has 2 pUmper trucks and 25 "volunteer" members, who despite this

designation are nonetheless paid a wage for actual time responding to a call. All of

Cohasset's firefighters are trained as first responders, given the health concerns

posed by, among other things, Minnesota Power's hazardous activities and many

6

employees. App. A0064 ¶ 11. As for police protection, this has been contracted

to the Itasca County Sheriff, who is paid by Cohasset for calls to the city. The

Sheriff is on call for any incidents occurring along the Pipeline or at the Boswell

Energy Center, or on the County Roads to be crossed by the Pipeline, or at any

point within Cohasset. The Cohasset Public Safety budget for 2008 was $17,505.

App. A0064 ¶ 12.

Cohasset provides a host of administrative services to the property

occupied by the Pipeline and to the Boswell Energy Plant at the terminus of the

Pipeline. These include city administration, zoning, public works, parks,

recreation, capital investment, and economic development. The total annual

budget of Cohasset in 2008 exceeded $2.0 million. App. A0065 ¶ 13.

Natural gas service is provided within Cohasset by a municipal utility owned

and operated by Cohasset. The system was built in 1997 with the encouragement

of Minnesota Power, whose affiliate, Superibr Light & Gas, was engaged to

construct it. The charges for natural gas services in 2008 were budgeted at

$1,423,775. App. A0065 ¶ 14. Minnesota Power represented that it had a long­

term need for significant natural gas purchases that would be made through this

recently-constructed utility. In addition, Cohasset, on Minnesota Power's advice,

built a large-capacity pipe from the border station in anticipation of Minnesota

Power's use of same to service its Boswell plant. This is the only large-capacity

7

pipe in the City system and was constructed for the specific purpose of serving

Minnesota Power's needs. App. A0065 ¶ 15.

Minnesota Power abruptly changed its mind after Cohasset had invested in

and completed this project. On April 22, 2008, without prior notice or explanation,

Minnesota Power informed Cohasset that it would not serve its Boswell Energy

Center with natural gas from Cohasset's utility. Rather, Minnesota Power stated

its intent to construct its own pipeline. Minnesota Power offered to pay no fee to

compensate Cohasset for the privileges and benefits of operating that pipeline

within the borders of Cohasset. App. A0065 ¶ 16.

On May 23,2008, Cohasset provided formal notice to Minnesota Power that

it believed the proposed Pipeline was subject to Cohasset's franchise power. App.

A0066 ¶ 17. Thereafter, Minnesota Power persisted with this project despite

repeated notice from Cohasset that the Pipeline must be subject to a franchise,

including payment of a franchise fee. On June 5, 2008, Minnesota Power filed an

application with the MPUC to route the Pipeline via the path proposed in App.

A0056-61; see Harper Aff. Ex. A. On June 12, 2008, the Cohasset City Council

met with Minnesota Power representatives to convey its position that the Pipeline

required a franchise. Minnesota Power representatives indicated a willingness to

discuss the matter. However, on June 17, 2008, Minnesota Power's counsel

provided formal notice that Minnesota Power's position was that the City had no

8

franchise authority because of "preemption" by the MPUC routing permit process.

App. A0066 ¶¶ 18-20.

Minnesota Power proceeded with its routing permit application, which was

expedited via an appeal for a partial exemption from some procedures pursuant to

Minn. Admin. R. 7852.0300 Subp. 3. In response to solicitation of public

comment, Cohasset filed comments making no objection to the routing of the

Pipeline, but reserving all rights to object to the operation of the Pipeline in

derogation of the city's franchise power. App. A0066 ¶ 20; Harper Aff. Ex. B.

Minnesota Power responded with comments seeking a finding of preemption.

App. 49 ¶ 21; Harper Aff. Ex. C.

On September 2, 2008, MPUC staff issued a report that did not make the

preemption decision demanded by Minnesota Power. Affidavit of Corey J. Ayling

("Ayling Aff.") Ex. C at p. 4 ¶ 18. This report was adopted by the MPUC in its

September 17,2008 order. Ayling Aff. Ex. D. The MPUC, like Cohasset, deemed

the franchise issue independent and separate from the routing decision.

18. Based on the three comment letters, EFP staff concludes thatthe franchise assertion supplied in comment by the city ofCohasset is not applicable and independent to the partialexemption pipeline routing procedures. Local franchiserequirements are not considered criteria used by theCommission in determining whether to grant a partialexemption from the pipeline route selection procedures.

Ayling Aff. Ex. D at p. 4 ¶ 18.

9

On September 17, 2008, the MPUC granted Minnesota Power's application

for a routing permit and partial exemption. App. A0068-80. The MPUC permit

directed Minnesota Power to "comply with all federal, state, county, and local rules

and regulation." App. A0075 ¶ D(8). On September 23, 2008, Cohasset

promulgated an ordinance requiring operators of high pressure pipelines, such as

Minnesota Power's Pipeline, to be subject to a franchise and a franchise fee. Add.

A0039-42; Ayling Aff. ¶ 6 & Ex. F.

By the time of the December 1, 2008 hearing, Minnesota Power had

completed construction of the Pipeline, subject to finalizing some items such as tie­

ins and associated electrical equipment. Pipeline operations - the subject of the

requested injunction - had not yet commenced; Minnesota Power at that time was

awaiting approval of the environmental permits necessary to operate the burners in

the Boswell Energy Plant connected by the Pipeline. T. at 21-22. On information

and believe, the Pipeline has since commenced operations.

On January 7, 2009, the District Court issued an order granting partial

summary judgment dismissing all but Cohasset's promissory estoppel claims.

Add. A0018-23. The District Court reasoned that Minnesota Power was not a

"public utility" subject to Cohasset's franchise power because the Pipeline would

not furnish natural gas servIce to the public. Add. A0021-22.

The promissory estoppel claim was preserved for trial, Add. A0020, but was later

10

dismissed by stipulation of both parties, Add. A0024-25. The District Court

entered final judgment on February 26, 2009, Add. A0024-25. The Court of

Appeals affirmed in a published decision filed January 12,2010. Add. AOOOl-17;

see City ofCohasset v. Minnesota Power, 776 N.W.2d 776 (Minn. App. 2010).

ARGUMENT

"When the words of a statute ... in their application to an existing situation

are clear and free from ambiguity, judicial construction is inappropriate."

Chanhassen Estates Residents Assoc. v. City ofChanhassen, 342 N.W.2d 335,339

(Minn. 1984). Not one, not two, but three separate statutory sections gave

Cohasset the express authority to require Minnesota Power to obtain a franchise

and to pay a franchise fee for operating a public utility in the City and for putting

public property to private, for-profit use:

o Minn. Stat. § 216B.36 extends Cohasset's franchise power to "[a]ny

public utility furnishing utility services" within the city;

o Minn. Stat. § 216B.36 alternatively extends Cohasset's franchise

power to "[a]ny public utility ... occupying streets, highways, or other

public property"; and

o Minn. Stat. § 301B.01 requires any "public service corporation" to

obtain a franchise to "construct, maintain, or operate a ... pipe line."

11

To avoid these statutory requirements, Minnesota Power must deny its

essential nature. If it is not a "public utility" or a "public service corporation", then

the plain statutory language defining its franchise obligation does not apply. But

the Court cannot ignore Minnesota Power's 141,000 retail electric customers; its

wholesale electric service to 16 municipalities; or its sale of electricity to Cohasset

residents. Nor is there any basis in statutory text or in reality for Minnesota Power

to define its entire Pipeline operation as "nonutility" in nature, thereby limiting

Cohasset's franchise power.

In addition to plain statutory text, historic practices extending back to the

19th century as well as this Court's longstanding precedents support the exercise of

municipal franchise power over explosive gas pipeline operations that burden the

public for private gain.

Nor is there any basis in the text, purpose, or history of the 1987 Minnesota

Pipeline Safety Act, Minn. Stat. § 216G.02, to preempt the exercise of the historic

municipal franchise power. This legislation displaced municipal zoning

ordinances so that the site of high pressure gas pipelines could, for public safety

purposes, be centralized with the Minnesota Public Utilities Commission. Indeed,

the legislation mandated continued city involvement with such pipelines by

requiring cities to serve as the emergency first responder - a role that cities finance

through franchise fees.

12

This Court should hold that Minnesota Power's operation of the Pipeline is

subject to Cohasset's franchise ordinance.

I. STANDARD OF REVIEW.

Summary judgment based upon the construction of a statute is a question of

law subject to de novo review by appellate court. See Washington Mutual Bank,

F.A. v. Elfelt, 756 N.W.2d 501,505-06 (Minn. App. 2008), review denied (Dec. 16,

2008). The District Court decision was premised on its reading of statute and its

rulings were entirely ones of law. "On appeal, this court need not defer to the trial

court's conclusion when reviewing questions of law." County ofLake v. Courtney,

451 N.W.2d 338,341 (Minn. App. 1990), review denied (Minn. April 13, 1990).

II. THE PUBLIC HAS THE RIGHT TO SUBJECT MINNESOTAPOWER'S COHASSET PIPELINE OPERATIONS TO AFRANCHISE OR LICENSE.

This Court has defined a franchise as "a privilege or immunity of a public

nature which cannot be legally exercised without legislative grant." City of St.

Paul v. Northern States Power Co., 462 N.W.2d 379, 383 (Minn. 1990). "[A]

governmental 'franchise' constitutes a special privilege granted by the government

to particular individuals or companies to be exploited for private profit as such

franchisees seek permission to use public streets or rights-of-way in order to do

business with a municipality's residents and are willing to pay a fee for this

13

privilege." 12 E. McQUILLIN, THE LAW OF MUNICIPAL CORPORATIONS

§ 34:2 at 15 (3 rd ed. 2006).

Minnesota Power "furnish[ed] utility services" in Cohasset. It "occupied

streets, highways, or other public property" in Cohasset. And it "constructed,

maintained, or operated a pipe line" in Cohasset. Cohasset therefore enjoyed three

separate statutory rights to require Minnesota Power to get a franchise and to pay a

franchise fee, pursuant to Minn. Stat. §§ 216B.36 and 301B.01.

A. Cohasset's Franchise Power Is Mandated By Plain StatutoryLanguage.

When the Minnesota legislature shifted utility ratemaking authority from

cities to a statewide agency in 1974, see Minnesota Gas Co. v. Public Service

Commission, 394 F. Supp. 327 (D. Minn. 1974), ajJ'd, 523 F.2d 581 (8th Cir.

1975), cert. denied, 424 U.S. 915 (1976), it took pains to preserve the historic

franchise power of cities. The legislature announced as follows:

Any public utility furnishing utility services enumerated in section216B.02 or occupying streets, highways, or other public propertywithin a municipality may be required to obtain a license, permit,right, or franchise in accordance with the terms, conditions, andlimitations of regulatory acts of the municipality, including theplacing of distribution lines and facilities underground. Under thelicense, permit, right, or franchise, the utility may be obligated by anymunicipality to pay to the municipality fees to raise revenues ordefray increased municipal costs accruing as a result of utilityoperations, or both. The fee may include but is not limited to a sum ofmoney based upon gross operating revenues or gross earnings from itsoperations in the municipality so long as the public utility shallcontinue to operate in the municipality, unless upon request of the

14

public utility it is expressly released from the obligation at anytime bysuch municipality....

Minn. Stat. § 216B.36.

The statutory test IS written in the disjunctive. The first possible

circumstance that triggers the public's right to require the franchise is whether a

"public utility" is present in the city. If Minnesota Power is a "public utility

furnishing utility services enumerated in section 216B.02", then it may be

subjected to Cohasset's franchise power.

The referenced statute, Minn. Stat. § 216B.02 reads:

'Public utility' means persons ... : operating, maintaining, orcontrolling in this state equipment or facilities for furnishing at retailnatural, manufactured, or mixed gas or electric service to or for thepublic or engaged in the production and retail sale thereof....

Minn. Stat. § 216B.02 Subd. 4.

Here, Minnesota Power is operating equipment in the form of the Pipeline

(among other things) to furnish electric power at retail. That satisfies the literal

definition of "public utility" contained in Minn. Stat. § 216B.02 Subd. 4.

The courts below agreed that Minnesota Power was an electric utility, but

reasoned that the dedication of the Pipeline to help ignition at the Boswell Energy

Center (and the forbearance from any retail sale of the natural gas) rendered

Minnesota Power a non-utility for the purpose of the Pipeline - given the absence

of "retail sale". However, the definition quoted above does not permit the utility to

15

II

I

I

segregate different parts of its infrastructure into "utility" and "non-utility"

equipment. Minnesota Power is, to be sure, not a gas utility. But it is an electric

utility, and everything used to furnish electricity for retail sale - including the

Pipeline used to ignite the generating units at the Boswell plant - are utility

operations invoking the franchise power.

Moreover, the franchise power is triggered by the second part of the statute's

disjunctive test. Minn. Stat. § 216B.36 permits the "public utility" to be franchised

if it is "occupying streets, highways, or other public property within a

municipality." This second definition is clearly met here.

The Pipeline passes underneath the following "streets" or "highways" or

"public property": County Road 88, U.S. Highway 2, and County Road 87. To be

sure, these roads are maintained by Itasca County, rather than by Cohasset. But the

statute does not require the affected highways to be owned or maintained by the

city; it simply triggers the franchise obligation if the Pipeline is to be "occupying

streets, highways, or other public property within a municipality." These two

roads are "streets" or "highways" that are within the municipality of Cohasset; and

they are "public property within a municipality." And Cohasset must provide

emergency first response, fire, and police protection for incidents occurring on

those roads.

16

Whether or not Minnesota Power uses the Pipeline to sell gas to the public

has little jurisdictional significance, other than its implication for rate and service

obligations not at issue in this case. What is significant is that Minnesota Power

has run a highly explosive Pipeline entirely within Cohasset; that the Pipeline

crosses public roads; and that the Pipeline benefits from public services without

paying for them.

For Minnesota Power - an investor-owned utility that will use the Pipeline

as part of the infrastructure necessary to sell electricity to over 100,000

Minnesotans - to define itself as anything other than a "public utility" defies

common sense. Minnesota Power does not hesitate to seize the "public utility"

mantle when it suits its interest - in obtaining the MPUC permit to route the

Pipeline; in citing improvement costs for its Boswell plant as justification for

higher electric rates l; and in claiming an exemption of Boswell improvement costs

from local personal property taxes.2 Indeed, the only way that Minnesota Power

can escape its statutory obligation to grant open access to the Pipeline - and the

The Court can take judicial notice of the Form lOQ filed by Allete,Minnesota Power's parent corporation, on May 1,2009. Page 15, note 6 of the documentreferences an April 3, 2009 MPUC approval of Minnesota Power's retail rate filing andestimates an overall rate increase of 4.5%. Allete notes that the MPUC has approved acash return on construction work in progress during the construction phase andMinnesota Power has filed a petition with the MPUC for cost recovery.

2 See infra at note 14.

17

3

only way to dedicate the Pipeline to its own uses - is to invoke its public utility

status. See Minn. Stat. § 216B.045 Subd. 3.3

In addition to the two separate savings provisions of Minn. Stat. § 216B.36

that preserved the cities' franchise powers in the present circumstances, there is yet

another, more longstanding statutory source of authority: Minn. Stat. § 301B.Ol,

which was first codified in 1925. That statute provides:

301B.Ol PUBLIC SERVICE CORPORATIONS; PURPOSES.

A corporation may be organized to construct, acquire, maintain,or operate internal improvements, including railways, street railways,telegraph and telephone lines, canals, slackwater, or other navigation,dams to create or improve a water supply or to furnish power forpublic use, and any work for supplying the public, by whatevermeans, with water, light, heat, or power, including all requisitesubways, pipes, and other conduits, and tunnels for transportation ofpedestrians. No corporation formed for these purposes may construct,maintain, or operate a railway of any kind, or a subway, pipe line, orother conduit, or a tunnel for transportation ofpedestrians in or upon astreet, alley, or other public ground of a city, without first obtainingfrom the city a franchise conferring this right and compensating thecity for it.

Minn. Stat. § 301B.Ol.

Minnesota Power was "organized ... to furnish power for public use." It is

therefore a "public service corporation" within the meaning of Minn. Stat. §

Under Minn. Stat. § 216B.045 Subd. 3, an owner or operator of anintrastate pipeline "shall offer intrastate pipeline transportation services by contract on anopen access, nondiscriminatory basis." However, if the owner/operator is a "publicutility" it is not an "intrastate pipeline" and does not, therefore, incur this open accessduty. Minn. Stat. § 216B.045 Subd. 1.

18

301B.01. Having been formed for this purpose, it proceeded to "construct,

maintain, or operate a ... pipe line." Id. Under the express, plain language of the

statute, Minnesota Power was therefore obliged to "first obtain[ ] from the city a

franchise conferring this right and compensating the city for it." ld.

Justice Holmes advised that "We do not inquire what the legislature meant;

we ask only what the statute means." Holmes, The Theory ofLegal Interpretation,

12 HARV. L. REV. 417, 419 (quoted with approval in S&E Contractors, Inc. v.

United States, 406 U.S. 1, 14 (1972)). And in judging the meaning of statutes, the

Court looks first and foremost to the statute's language. When those words and

their "application to an existing situation are clear and free from ambiguity", the

Court's job is over. See Chanhassen Estates, 342 N.W.2d at 339. There is no

room for further judicial construction. ld. The Court must enforce plain words.

Here, and for reasons that will be demonstrated below to have no sound

basis in precedent or policy, Minnesota Power insists that the legislature could not

have meant this plain result - that the result is simply unfair. This is an argument

better made to the legislature. The Court exceeds proper constitutional boundaries

when it ignores the plain meaning ofplain statutory language.

19

B. Cohasset's Reading Of Plain Statutory Text Is Consistent WithLongstanding Historical Practice And Is Compatible With TheSurrounding Body Of Law.

Minnesota Power seeks to dismiss as absurd the plain and literal

interpretation of three statutory provisions mandating Cohasset's franchise power.

Cf Minn. Stat. § 645.17(1) ("The legislature does not intend a result that is absurd,

impossible of execution, or unreasonable"). However, it is exceedingly rare for

this Court to dismiss plain meaning as "utterly absurd." See, e.g., Wegener v.

Commissioner of Revenue, 505 N.W.2d 612 (Minn. 1993). Indeed, this Court

commented in Hyatt v. Anoka Police Department, 691 N.W.2d 824, 828 (Minn.

2005) that it was not aware of any case save Wegener where it has "allowed an

absurdity analysis to override the plain meaning of a statute." Id.

In the rare case where the Court looks outside the plain statutory language, it

is not guided by its personal policy preferences. State v. Basal, 763 N.W.2d 328,

334 (Minn. App. 2009) ("The existence of an absurdity in a statute is not a basis

for a court to substitute its judgment concerning the wisdom of the statute").

Rather, the Court's reading of the statute is always guided by "what may appear to

have been the intention and meaning of its framers." Kellerman v. City ofSt. Paul,

1 N.W.2d 378,380 (Minn. 1941); State v. Thompson} 754 N.W.2d 352,355 (Minn.

2008) ("The objective of all statutory interpretation is to give effect to the intention

of the legislature in drafting the statute").

20

In determining that intent, the Court may consider the plain and ordinary

meaning of statutory text and may consider the context of that text. That is, the

language of the statute must be read in the context of the surrounding body of law

and historical practice into which the provision at issue must be integrated. See

American Family Ins. Group v. Schroedl, 616 N.W.2d 273, 278 (Minn. 2000)

("While statutory construction focuses on the language of the provision at issue, it

is sometimes necessary to analyze that provision in the context of surrounding- .-

provisions"); Boutin v. LaFleur, 591 N.W.2d 711, 715 (Minn. 1999) (the statutory

language has a plain and logical meaning particularly when read in the context of

other legislation). In construing a statute challenged as absurd, Justice Scalia

focused on two questions: what construction is "most in accord with context and

ordinary usage" and what construction is "most compatible with the surrounding

body of law into which the provision must be integrated." Green v. Bock Laundry

Machine Co., 490 U.S. 504, 528 (Scalia, J., concurring).

Here it is Minnesota Power's imaginative construction, rather than the plain

meaning relied on by Cohasset, that is absurd when viewing the context of a body

of law and practice that has developed over the past three centuries. There is

simply no legal or historical precedent for denying the public the right to franchise

an operator of systems that are dangerous and that take advantage of public

resources for private gain.

21

4

The long-standing historical practice dating back to the 19th century is that to

commence certain kinds of operations within a city, such as electric service or the

construction of gas pipelines, a private company needed to acquire a franchise

from the city council. The franchise would set terms of operations and rates, and

would provide for a fee to the city. C. PHILLIPS, THE ECONOMICS OF

REGULATION 68-88 (1969); 1 D. WILCOX, MUNICIPAL FRANCHISES § 246

at p. 537 (1910).4 Over the course of the 20th century, most states shifted rate and

safety regulation to statewide public utility commissions.5 Minnesota joined this

The earliest use of gas for lighting was in Manchester, England in 1804; thefirst public lighting company in the United States was organized in Baltimore in 1816. 1D. WILCOX, MUNICIPAL FRANCHISES § 246 at p. 533 (1910). By 1850, there were30 plants manufacturing gas in American cities, and cities such as Atlanta strictlyregulated prices. Id. at 534.

5 The growing size of the utilities beyond city borders and problems ofunequal bargaining power and corruption led reformers in New York (Governor CharlesEvans Hughes) and Wisconsin (Senator LaFollete) to spearhead the formation ofpowerful state commissions to regulate the utilities. See Sharfman, CommissionRegulation ofPublic Utilities: A Survey ofLegislation, in 53 ANNALS OF AMERICANACADEMY OF POLITICAL AND SOCIAL SCIENCE 1 (1914); Wilcox, Effects ofState Regulation upon the Municipal Ownership Movement, in 53 ANNALS OFAMERICAN ACADEMY OF POLITICAL SCIENCE 71 (1914).

By 1920, rate regulation in most states had largely been ceded from cities to statepublic utilities commissions, with the municipal franchise power surviving thereafter as ameans for conditioning the right to construct, maintain, expand, and operate the utilitysystem. See Colton & Sheehan, Raising Local Government Revenue Through UtilityFranchise Charges: If the Fee Fits, Foot It, 21 THE URBAN LAWYER 58-60 (Winter1989); Note, Halbert, Municipal Law - Utility Franchise Fees, 18 U. ARK. LITTLEROCK L.J. 259, 263-64 (1996); C. PHILLIPS, supra, at pp. 86-88 (economic regulationof utilities done by state commissions; city franchises continue to regulate use of streets).

22

6

7

trend in 1974, when cities such as Minneapolis lost their ratemaking powers.6 The

new utility code, however, expressly preserved the cities' franchise power. Minn.

Stat. § 216B.36.

"Historically, [Minnesota] cities have regulated utilities both by [franchise]

agreement and through the exercise of the police power." Northern States Power

Co. v. City ofOakdale, 588 N.W.2d at 539. Exercises of the franchise power were

reviewed and approved in some of the earliest decisions of this Court.7

Gas franchises in particular have enjoyed a long history in Minnesota.

Minneapolis has regulated gas pipeline operators via a franchise ordinance since

1870, see 1 D. WILCOX, supra, § 254. Starting in 1900, St. Paul exacted a

minimum franchise fee of 5% of the pipeline's gross receipts, see id. § 255. This

Court has held that a utility may not operate a natural gas pipeline without a

franchise. Village of Blaine v. Independent School District No. 12, 138 N.W.2d

See Minnesota Gas Co. v. Public Service Commission, 394 F. Supp. 327(D. Minn. 1974) (upholding state's right to shift rate regulation of gas utility from cityfranchise to state commission; remainder of city franchise upheld as valid andenforceable), aff'd, 523 F.2d 581 (8th Cir. 1975), cert. denied, 424 U.S. 915 (1976).

See Davidson v. The County Commissioners ofRamsey County, 18 Minn.482, 18 Gil. 432, 1872 WL 3324 (1872) (citing ancient English practice of granting royalprivileges of making a road, establishing a ferry, and taking tolls for use of same; findingthat "to provide the public with necessary and convenient ways of travel andtransportation, is an essentially public function, which may be performed by the stateitself, or may in the discretion of the government be devolved upon a privatecorporation.. ",,); Myrick v. La Moure and Another, 23 N.W. 549 (Minn. 1885) (statelegislative franchise for a ferry for 10 years conditioned on commencing operations in 6months and on maintaining good and sufficient boats; held: state may repeal franchisefor failure to comply with conditions).

23

32, 39 (Minn. 1965). As a result, a number of cities continue to franchise such

operations to the present day. See infra at note 15 and accompanying text.

In short, denying Cohasset the right to franchise an operator of an explosive

natural gas pipeline system would be an absurd and jarring departure from

centuries of consistent past practice. The only cases that counsel can find where a

city is denied the right to franchise such a system is when it is preempted by the

regulatory authority of some other superior agency of the State or federal

government. See infra at Section III. But the right of some sovereign (in this case

the City) to exercise the franchise power on behalf of the public cannot be denied.

In addition, Minnesota Power's construction does not fit with other

provisions of the utility code. In particular, to accept Minnesota Power's

construction is to accept its premise that the Pipeline is not part of a "public utility"

operation. But if that is the case, then, as noted above, see supra at note 3 and

accompanying text, the Pipeline cannot be dedicated to Minnesota Power for what

it calls its "private industrial use." Under Minn. Stat. § 216B.045 Subd. 3, such

non-utility lines must be open for public use. This, in tum, leads to the public

usage that Minnesota Power concedes would render the operation a "public utility"

operation. Minnesota Power's "public utility" definition is a vicious loop of

circular logic from which it cannot escape.

24

The text of the statutes is plain. Their literal meaning allowing Cohasset's

franchise is not absurd and is consistent with the context of historical practice and

of the surrounding body of law. Minnesota Power's strained and self-serving

construction of the statutes must be rejected.

C. Even If The Pipeline Is Held To Be "Private" Non-UtilitvProperty, Its Operation Is Still Subject To The City's GeneralLicensing Power.

In operating the Pipeline, Minnesota Power is either acting as a public utility

or it is not. If the former, then even Minnesota Power concedes that (absent

preemption) it must obtain a franchise under Minn. Stat. § 216B.36. If the latter,

then Minnesota Power and the Courts below make the following leap of logic: that

because one statutory source of licensing is inapplicable, no other statutory source

of licensing is applicable. Apart from being a non sequitur, such an argument is

counterintuitive. Why would the law favor a "private" "industrial" user of a

pipeline over a public utility? Would not the well-funded, publicly-accountable

public utility make it a better candidate for a regulatory exemption?

If Minnesota Power is not acting as a public utility in operating the Pipeline,

then "it is subject to the same rules as any other private person." See Iowa State

Commerce Commission v. Northern Natural Gas Co., 161 N.W.2d Ill, 113 (Iowa

1968). Ordinary private persons do not enjoy the unfettered right to operate

explosive natural gas pipelines or to place them under public streets. That such

25

persons are not "public utilities" simply makes them subject to the city's general

licensing powers - as opposed to making them exempt from all regulation;

Indeed, utilities and non utilities alike are subject to the cities' general police

powers. Northern States Power Co. v. City of Oakdale, 588 N.W.2d 534, 539

(Minn. App. 1999). The continuing statutory basis for these historic powers is

preserved in Minn. Stat. § 412.211:

412.211. GENERAL STATUTORY CITY POWERS.

Every city shall be a municipal corporation having the powersand rights and being subject to the duties of municipal corporations atcommon law.

Minn. Stat. § 412.211 (Add. A0033).

In addition to the police power, cities enjoy at common law (and therefore

continue to enjoy through Minn. Stat. § 412.211) the general right to issue licenses

and permits. Thus, this Court has defined the "imposition of license fees" by the

city as "one of the great functions of government." Minneapolis St. Ry. Co. v. City

of Minneapolis, 40 N.W.2d 353, 360 (Minn. 1949). The "relinquishment of the

power to discharge that function can be derived only from explicit and unequivocal

language that is so free from ambiguity as to leave no room for construction." Id.

And even apart from these general common law powers preserved by Minn.

Stat. § 412.211, cities enjoy specific statutory powers over streets, fire prevention,

26

nuisances, and the general welfare that would allow them to require a nonutility to

get a permit before running an explosive gas pipeline underneath public roads.

412.221 SPECIFIC POWERS OF COUNCIL.

Subd. 6. Streets; sewers; sidewalks; public grounds.[The council] shall have power by ordinance to regulate the use ofstreets and other public grounds ....

Subd. 17. Fire prevention. ... [The council] shall havepower to adopt such ordinances as are reasonable and expedient toprevent, control, or extinguish fires.

Subd. 23. Nuisances. The council shall have power byordinance to define nuisances and provide for their prevention orabatement.

Subd. 32. General welfare. The council shall have power toprovide for the government and good order of the city, ... theprotection of public and private property, the benefit of residence,trade and commerce, and the promotion of health, safety, order,convenience, and the general welfare by such ordinances notinconsistent with the Constitution and laws of the United States or ofthis state as it shall deem expedient.

Minn. Stat. §§ 412.211; 412.221 Subd. 6, 17,23,32 (Add. A0034-38).

A franchise ordinance requiring the Pipeline owner-operator to get a

franchise and to pay a fee as a condition for crossing under streets and public

grounds; as a means of controlling fires by funding first response and fire

suppreSSIOn; as a means of responding to and suppressing the nuisance of the

Pipeline's hazardous activity; and to protect property and public safety is

authorized by the above-quoted statutes.

27

There are many instances of cities subjecting non-utilities to its general

licensing powers where the non-utility transports or stores hazardous, explosive

substances. See, e.g., Union Oil Co. v. City ofPortland, 198 F. 441 (D. Oregon

1912) (city has right to grant or deny distributor a license to store fuel oil);

McAdams Oil Co. v. City ofLos Angeles, 89 P.2d 729 (Cal. App. 1939) (upholding

city's licensure ofoil wells and charge of fee of 1/2cent per barrel; barrels sell at 55

cents each); City ofNewton v. Reiss Associates, Inc., 117 N.E.2d 294 (Mass. 1954)

(upholding city license to store explosive fluids of not more than 156 gallons); City

ofAkron v. Budiani, 368 N.E.2d 851 (Ohio App. 1976) (upholding city licensure of

the storage and sale of fireworks).

As for the precise circumstances at bar of an electric utility operating a

natural gas pipeline to ignite its electrical generators, the licensure of the utility by

virtue of its operation of that pipeline does appear to be a case of first impression.

However, one court faced an analogous circumstance of an electric utility seeking

approval of its acquisition of right-of-ways for a natural gas pipeline to supply the

boilers of its electric power plants. The Defendant property owners challenged the

electric utility's use of eminent domain powers to acquire a right of way for a gas

pipeline as not within the acquisitions statutorily approved for electric utilities.

The court held that the acquisition of right of ways for a dedicated natural gas

pipeline was a proper taking of property necessary to the production and

28

distribution of electric light and power. Southwestern Electric Power Co. v.

Conger, 280 So. 2d 254 (Louis. App. 1973), review denied (1973). In short, the

natural gas pipeline supplying the electric generators is so integral to the electric

utility function as to be subject to all the rules that normally govern electric

utilities. This includes rules favorable to the electric utility (e.g., use of eminent

domain power) and unfavorable to the electric utility (e.g., susceptibility to city

franchising and licensing powers).

D. The Decisions Below Confuse Two Distinct Issues: (1) The Powerof the City To License; and (2) The Proper Amount Of TheLicensing Fee.

The Court of Appeals' reasoning in finding the public powerless to franchise

or license the operator of the Pipeline confused the clear right of the public to

license with how much of a fee the public may charge. The Court reasoned that

Cohasset could require Minnesota Power's electrical lines to be licensed as an

electric utility, but that it could not require Minnesota Power's Pipeline to be

licensed.

Here, it is undisputed that respondent is an electric public utility.But respondent's existence as an electric public utility does notautomatically subject it to the city's franchise power. The statutestates that "[a]ny public utility furnishing the utility services ... oroccupying streets, highways, or other public property within amunicipality" may be subject to a franchise. Minn. Stat. § 216B.36(emphasis added). The operative words are "public utility,"furnishing," and "occupying." Here, the pipeline is part ofrespondent's infrastructure. It is one of many components involved inthe manufacture of electricity. The electric lines running out of

29

respondent's power plant "furnish" the electricity to the public. Theparties agree that these electric lines and related electric distributioncomponents could be subject to a franchise, but the city has chosennot to franchise the electric lines and distribution components. Thepipeline, however, is not "furnishing" electricity to the public. Rather,it is serving respondent's infrastructure. Because it is not "furnishing"electricity to the public, it is not subject to the franchise powerenumerated in section 216B.36.

City of Cohasset v. Minnesota Power, 776 N.W.2d 776, 780 (Minn. App. 2010);

Add. A0006-7.

This is nonsense. Cohasset is not seeking to franchise or license equipment;

it is seeking to franchise or license the operator (Minnesota Power) because of

what it does with all of its equipment. Here, there is no question that Minnesota

Power's operations trigger both parts of the disjunctive test of Minn. Stat. §

216B.36. Minnesota Power is furnishing electric utility services within Cohasset;

and Minnesota Power is occupying streets within Cohasset. And Minnesota Power

is a public service corporation that operates a pipeline in Cohasset, thereby

triggering the franchise authority permitted by Minn. Stat. § 301B.01.

But in fairness to the Court ofAppeals, its fixation on various components is

understandable - because components are critically relevant to the completely

distinct issue of how much Cohasset can properly charge for its franchise or

license. Thus, Minnesota Power has no real, legitimate defense to what is plainly

allowed by the statute and to what has been done by cities for close to 150 years:

the right to license or franchise operators of. explosive intracity pipelines.

30

Minnesota Power's real defense, and the policy issue that troubled the appellate

and district courts, is whether Cohasset can calculate the fee on the basis of the

amount of explosive gas flowing through the intracity Pipeline as opposed to the

amount of electricity sold within the city. Cohasset's franchise ordinance uses the

former measure.

Below, Cohasset will demonstrate why its fee is permissible under

Minnesota law and why its fee is, indeed, the fairest and most appropriate fee

under the circumstances. But before doing so, it is important to note that this issue

has yet to be fully litigated. This case was thrown out on a motion to dismiss on

the assumption that Cohasset had no authority to license. The facts necessary to

calculate the fee - the amount of gas, the fair market value of that gas, 1% of the

product of these two measures, 1% of the imputed transportation charge, and any

hardship adjustment in Minnesota Power's favor - have not been developed. And

because both courts below confused the issues of the authority to license and the

amount of the fee, this Court does not have the benefit of fully developed findings

and memorandum opinions on this issue. The proper procedure would be to reach

the issue of the city's authority, to reverse the rulings below, and to remand the

important fee issue to the district court for further proceedings. Cf Concordia

College Corp. v. State, 120 N.W.2d601, 605-06 (Minn. 1963) (in the absence of a

31

finding of fact on an essential issue, the case is remanded to the district court for

further proceedings).

On the other hand, this Court may choose to exerCise its supervisory

discretion to reach an important issue of statutory construction of first impression

affecting the public interest. See Columbia Heights Police ReliefAssoc. v. City of

Columbia Heights, 233 N.W.2d 760, 767 (Minn. 1975). Accordingly, Cohasset

will briefly state its position as to why its fee calculation is consistent with

governing statute.

Minn. Stat. § 216B.36 empowers the city to calculate the fee as follows:

Under the license, permit, right, or franchise, the utility may beobligated by any municipality to pay to the municipality fees to raiserevenue or defray increased municipal costs accruing as a result ofutility operations, or both. The fee may include but is not limited to asum of money based upon gross operating revenues or gross earningsfrom its operations in the municipality so long as the public utilityshall continue to operate in the municipality, unless upon request ofthe public utility it is expressly released from the obligation at anytime by such municipality.

Minn. Stat. § 216B.36. Minnesota Power's focus is on its gross operating revenues

within Cohasset - which it defines as consisting only of the limited sales of

electricity to Cohasset residents. Because it does not, presumably, book as gross

revenues its natural gas deliveries to its Cohasset plant, then Minnesota Power's

position is that the franchise fee cannot be calculated on the basis of the volume of

natural gas flowing through the Pipeline.

32

I

I

This contention has two flaws. First, it ignores the plain language of the

statute - which states that the fee is not limited to a percentage of gross operating

revenues and which makes no distinction between "actual" and "imputed"

revenues. Second, Minnesota Power ignores the general principle announced in

the statute that the city may charge "fees to raise revenue or defray increased

municipal costs accruing as a result ofutility operations, or both."

As for the first flaw, Minnesota Power is simply rewriting the statute to

require Cohasset to base its fee on the amount of electricity sold in Cohasset. That

the statute is "not limited to" such.a calculation marks the end of that argument. In

addition, the statute does not preclude Cohasset from imputing revenues accruing

from the Pipeline. As this Court pointed out in City of Saint Paul v. Northern

States Power Co., 462 N.W.2d 379, 385 (Minn. 1990), the city could require the

public utility operating the pipeline to pay a franchise fee based on the amount of

gas flowing through the pipeline even if the utility is simply serving as a conduit

and does not buy or sell or produce sales revenues from the gas. In short, the city

can impute to the utility-operator the revenues it would have made on the Pipeline

had it been in a position to charge the end customer for the gas.

As for the second flaw, the statute expressly confers on cities sweepmg

discretion in ca,lculating franchise fees. Indeed, despite the criticism of both

Courts below that fees not be used as a mere revenue generating device, the

33

g

express language of the statute permits precisely that. Minn. Stat. § 216B.36

permits Cohasset to charge Minnesota Power a fee "to raise revenue." In addition,

the statute is written in the disjunctive to allow the city to charge a fee "to raise

revenue" "or" to charge a fee to "defray increased municipal costs accruing as a

result ofutility operation." Or Cohasset could do "both."g

This case was thrown out at the pleadings stage, before any discovery could

be taken and before any evidence could be heard. If Cohasset is permitted its day

in court, the evidence will show that its franchise fee based on the amount of gas

flowing through the Pipeline is justified under the statute as a rational means of

raising revenue, or as a means of defraying increased municipal costs accruing as a

result ofutility operation, or both.

The evidence will further show that Cohasset's method of calculating fees is

entirely fair and appropriate. The utility operations within the city that concern

Cohasset's policymakers are not electric wires but large-scale natural gas and other

highly dangerous activities for which Cohasset is the first responder. Minnesota

Power does not supply a fire department, or emergency responders, or police

There is a second and independent grant of franchise fee authority in astatute 50 years older, Minn. Stat. § 301B.01. That statute prohibits pipe line operationwithout first "obtaining from the city a franchise conferring this right and compensatingthe city for it." There is no limiting language on how the city, in its discretion, shouldstructure this compensation. Cohasset submits that the compensation structure chosen bythe City should be reviewed for a rational basis and submits that the evidence will showthat its fee structure is a rational compensation structure.

34

9

officers to relieve the citizens of Cohasset from this burden. Minnesota Power is a

for-profit, publicly traded company with annual revenues approaching $1 billion.

It should pay for the costs of producing those revenues and not get a free ride on

such costs as fire, emergency response, and police protection.9

In addition, Cohasset's franchise fee structure has the benefit of treating

similarly situated persons similarly. An electric public utility, or an end user

building its own pipeline, or a pipeline common carrier, or a gas public utility

which chooses to build and operate a high pressure natural gas pipeline in Cohasset

Minnesota Power insists that the fee must be structured in a way that allowsit to pass on the franchise fee to Cohasset consumers. There is nothing in the statute thatrequires this. In any event, the cost of constructing and operating the Pipeline, includingthe franchise fee, can be factored into the cost basis that Minnesota Power uses tocalculate rates. Cf Hanson & Davies, Judicial Review ofRate ofReturn Calculations, 8Wm. MITCHELL L. REV. 499, 501 (1982) (cost of furnishing utility service includeslabor, materials and supplies, taxes, insurance, and depreciation); Minn. Stat. § 216B.16Subd. 6 (rates must consider cost of furnishing the service and reasonable return toutility); Minnegasco v. MPUC, 549 N.W.2d 904 (Minn. 1996) (rate basis includes costsof furnishing service including even depreciation and financing costs; but does notinclude good will).

Of course, this rate basis would then affect rates statewide and not simply inCohasset. But this is entirely valid, given that those consumers benefit from Cohasset'ssupport of infrastructure used to generate power for all consumers statewide, not simplythose who live in Cohasset. A city may charge a license fee on the basis of the volume ofmaterial coming into the city that it must regulate and is not limited to charging for theconsumption within the city. Ultimately those fees are passed on to consumers outsidethe city, but the city has a right to charge for the burdens placed on the city. See City ofNewport v. Hiland Dairy Co., 164 S.W.2d 818 (Ky. 1942) (milk distributor's license feebased upon the volume of milk coming into the plant of the distributor, rather than uponvolume of milk sold within the city, is not an unreasonable or arbitrary charge, sinceinspection of all producing plants, as well as the plant of the distributor, is necessary forthe protection ofconsumers).

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10

each presents the same concern: each crosses underneath public roads and each

take advantage of Cohasset's fire, emergency first response, and police protection.

Cohasset's fee structure treats each of these similarly situated entities similarly;

Minnesota Power's proposed fee structure gives the electric utility an arbitrary free

ride.

III. THE CITIES' RIGHT TO FRANCHISE PIPELINE OPERATIONS ISNOT PREEMPTED BY THE ROUTING PERMIT STATUTE.

As indicated above, there is no logic or precedent to support the contention

that the public is powerless to require an operator of an explosive natural gas

pipeline to get a franchise or license and to pay a fee. Courts have routinely upheld

the exercise of this power for nearly 150 years.

The real issue is not whether such an operator has to get a license, but which

public agency is to exercise this authority. A number of courts have held that in

. . h d I 10 'd II .certam CIrcumstances t e Ie era government or a statewl e agency exerCIses a

preemptive authority that entirely displaces the city's historic authority.

Operators of interstate natural gas pipelines are subject to a federal policyfavoring deregulation. See Natural Gas Policy Act of 1978, 15 U.S.C. § 3301; Stalon &Lock, State-Federal Relations in the Economic Regulation ofEnergy, 7 YALE J. REG.427, 475-76 (1990). In October 1985, the Federal Energy Regulatory Commission(FERC) promulgated FERC Order 436 allowing the separate purchase of gas andtransportation, thereby introducing greater competition to both. 50 Fed. Reg. 42,408(1985); see also FERC Order 636, 57 Fed. Reg. 13,267 (1992) (requiring unbundling);Algonguin Gas Transmission Co., 96 FERC ¶ 61364, 2001 WL 1154520 (FERC Sept. 28,2001) (underlying policy is to promote competition to encourage improved gas servicesat lower costs).

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11

Because the Pipeline at issue is an intrastate - indeed is an intracity -

pipeline, there is no bona fide issue of federal preemption. Indeed, by applying for

a routing permit from the Minnesota Public Utilities Commission, Minnesota

Power has admitted that the Pipeline is not a interstate pipeline. See supra note 10.

This case, then, squarely presents the following bona fide issue of first impression:

does the routing permit statute preempt the cities' franchise and licensing powers?

Cohasset submits that there is no such preemption.

A. Special Standard of Review in Licensing Preemption Cases.

Because the power to license and charge licensing fees is "one of the great

functions of government," Minneapolis St. Ry. Co v. City of Minneapolis, 40

As a consequence, interstate pipeline systems used to ship natural gas to a largeindustrial user can, in certain circumstances, bypass the local city gas company or thefranchise requirement. See Michigan Consolidated Gas Company v. Panhandle EasternPipe Line Co., 887 F.2d 1295 (6th Cir. 1989) (Pipeline company applies for certificate ofpublic convenience to authorize bypass and build pipeline to industrial user).

However, the Pipeline at issue is an intracity, intrastate pipeline. MinnesotaPower did not invoke FERC jurisdiction to declare the Pipeline to be an interstate line.Indeed, its application for a MPUC routing permit necessarily conceded the intrastatenature of the Pipeline. This is so because MPUC rules governing the routing permitprocess expressly provide an exemption for interstate pipelines. Minn. Admin. R.7852.0300; see also Minn. Stat. § 216G.06 (interstate gas pipelines with eminent domainpower not subject to routing permit process).

See, e.g., City of Fort Morgan v. Colorado Public Utilities Commission,159 P.3d 87 (Colo. 2007) (Colorado PUC could license public utility in city over city'sobjection); but cf Southern Pacific Pipe Lines, Inc. v. City ofLong Beach, 251 Cal. Rptr.411 (Cal. App. 1988) (upholding city as proper governmental body to license or franchisepipeline operations), review denied (Dec. 1, 1988); Northern States Power Co. v. City ofOakdale, 588 N.W.2d 534 (Minn. App. 1999) (city's power to require undergrounding ofelectric wires not preempted).

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N.W.2d at 360, a displacement of the city's power must be based on "explicit and

unequivocal language that is so free from ambiguity as to leave no room for

construction," Id.

The preemption language here is narrow and does not preempt the field of

licensing of all pipeline operations. A pipeline of the size at issue here (i.e., more

than 275 pounds per square inch of pressure) cannot be constructed without a

"routing permit" from the MPUC. Minn. Stat. § 216G.02 Subd. 1, 2 (App. 92-3).

The preemption clause prevents cities from using zoning ordinances to undercut

the MPUC's right to determining the siting ofhigh pressure pipelines.

Subd. 4. Primary responsibility and regulation of routedesignation. The issuance of a pipeline routing permit under thissection and subsequent purchase and use of the route locations is theonly site approval required to be obtained by the person owning orconstructing the pipeline. The pipeline routing permit supersedes andpreempts all zoning, building, or land use rules, regulations, orordinances promulgated by regional, county, local, and specialpurpose governments.

Minn. Stat. § 216G.02 Subd. 4.

Because the statute does not occupy the entire field of pipeline regulation,

Cohasset's ordinance "is invalid only if the terms of ... [the] ordinance and ...

[the] state statute are irreconcilable. Minnesota Agricultural Aircraft Assoc. v.

Township ofMantrap, 498 N.W.2d 40, 42 (Minn. App. 1993).12

12 Judge Lansing succinctly summarized the law ofpreemption as follows:

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In sum, given the fundamental nature of the municipal power at issue and

given the nature of the preemption clause at issue as one which does not occupy

the field, the standard of review is whether Cohasset's franchise is irreconcilable

with the routing permit statute based on explicit and unequivocal statutory

language that is so free from ambiguity as to leave no room for construction.

B. The Text of the Routing Permit Statute can be Reconciled withContinued Municipal Licensing of Operation.

On its face, the pipeline routing preemption statute says nothing about the

operation of high pressure natural gas pipelines. What is preempted is the "siting"

not the "operation" of such pipelines. The statute states that the routing permit is

the only "site approval" the operator must obtain and that this site approval

"supersedes and preempts all zoning, building, or land use rules, regulations, or

ordinances promulgated by regional, county, local, and special purpose

governments." Minn. Stat. § 2160.02 Subd. 4.

Minnesota recognized two separate doctrines that determine preemptionquestions. the first, referred to specifically as "preemption," is based on the"occupying the field" concept. Mangold Midwest Co. v. Village ofRichfield, 274 Minn. 347, 356, 143 N.W.2d 813, 819 (1966). A state lawmay fully occupy a particular field of legislation so that there is no room forlocal regulation. Id. Under this doctrine it does not matter whether theregulation coincides with, is complimentary to, or opposes the state law.The second doctrine, referred to a "conflict," provides that a local ordinanceis invalid only if the terms of an ordinance and a state statute areirreconcilable.

Minnesota Agricultural Aircraft Assoc., 498 N.W.2d at 42. Like the statute before JudgeLansing, the present statute "expressly defines the scope of its preemption" and thereforedoes not occupy the field. See id.

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Here, Cohasset deferred to the MPUC's decision as to where the Pipeline

should be put. It did not cite or enact any zoning or land use regulations that

prevented this kind of industrial or hazardous use to be made along the 1.3 mile

course of the Pipeline. Nor did Cohasset's ordinance purport to instruct Minnesota

Power as to how to construct the Pipeline, what backfill to use, or what operating

pressures to use. All the Cohasset ordinance does is to instruct Minnesota Power,

once it situates and builds the Pipeline per MPUC specification, to get a permit-

before operating the Pipeline. If Minnesota Power is to benefit at the public's

expense by its use of public roads and by its use of Cohasset's fire, police, and

emergency first response protection, it should pay a franchise fee. Such licensing

does not require Minnesota Power to locate the Pipeline in any particular zone of

the city.

Cohasset's licensing ordinance is not the kind of "zoning" or "land use"

ordinance explicitly preempted by the routing permit statute. "Zoning imposes

restrictions on the use of the land itself which attach to and run with the land."

Orme v. Atlas Gas & Oil Co., 13 N.W.2d 757, 761 (Minn. 1944). A franchise

ordinance is the kind of licensing or regulation of operations that has been held in

other contexts not to be a zoning or land use regulation. Thus, a building permit is

not a zoning regulation; the engineering and safety concerns of a building permit

"differ[ ] qualitatively from the regulation of land use within certain districts or

40

defined areas included in the definition of zoning." Advantage Capital

Management v. City of Northfield, 664 N.W.2d 421, 426 (Minn. App. 2003).

Similarly, an ordinance requiring a permit for aerial spraying of pesticides is not a

zoning or land use regulation because it transcends the narrow issue of the

permissible uses of land and concerns matters of operation, health, and safety.

Minnesota Agricultural Aircraft Assoc., 498 N.W.2d at 42-43.

c. There is no Legislative Intent to Displace Municipal LicensingPower.

Minn. Stat. § 216G.02 was first enacted in 1987, see Chapter 353, 1987

Minn. Laws, on the basis of Senate File No. 90, which its sponsor, Senator Novak,

termed the "Minnesota Pipeline Safety Act." Ayling Aff. Ex. B (Senate

Transportation. Committee Minutes Jan. 22, 1987) at p. 00025. Although the

audiotapes of hearings are no longer in existence, minutes and committee reports

survive in the State Archives and are attached, in full, to the Ayling Affidavit

served and filed below. Ayling Aff. ¶ 2 & Ex. A, B.

There is no mention in the available legislative history of local franchise

powers or any need to curtail franchise powers. Rather, the concern was safety,

and the legislation was a reaction to the infamous 1986 explosion of a pipeline in

Mounds View, Minnesota, which killed two suburban residents outside their home

on July 8, 1986. Ayling Aff. Ex. B (Senate Public Utilities and Energy Committee

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Minutes, Feb. 3 1987 (attaching Minnesota Commission on Pipeline Safety,

Findings and Recommendations (Dec. 1986)) pp. 0027-93.

Bill-sponsor Senator Novak made no mention of franchise powers or the

need to preempt municipal franchise regulation in explaining the bill. Rather, the

concern was to adopt routing procedures and other safety measures to prevent

another Mounds View disaster.

Senator Steve Novak gave a brief history on S.F. 90, which sets fortha variety of pipeline safety measures designed to prevent a disastersuch as the July 8, 1986 pipeline fire in Mounds View. S.F. 90provides the creation of the Office of Pipeline Safety within theDepartment of Public Safety. In addition, the bill provides for astatewide notification center for pipeline emergencies, gives theEnvironmental Quality Board the authority to designate pipelineroutes and requires pipeline operators to file information about thelocation and operation of pipelines in the state. The bill also wouldrequire local governments to develop pipeline emergency responseplans.

Ayling AffEx. B (Senate Public Utilities and Energy Committee Minutes, Feb. 3,

1987) at p. 00025.

In sum, the legislative history demonstrates that the purpose of preemption

was to make the state agency the forum for deciding where to route the pipeline.

The concern was to prevent another Mounds View disaster. Zoning ordinances

and building permits issued by local governments should not determine where to

put the pipeline. Rather, the statute substituted a state-administered process that

focused attention on environmental factors, construction methods, and

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consideration of alternative routes. There was no intent to take cities out of their

historic role of issuing franchises and collecting franchise fees with respect to

pipelines put into their communities.

Indeed, the reports considered by the committee stressed the role of local

governments in providing emergency first response and recommended

improvements to that response. See Ayling Aff. Ex. B (Minutes, Senate Public

Utilities and Energy (Feb. 3, 1987) (attaching Minnesota Commission on Pipeline

Safety, Findings and Recommendations (Dec. 1986) at p. 00045 (finding that local

communities vary in their ability to respond and recommending that all local units

of government develop an emergency response plan)). And the final version of the

bill required local governments to develop such response plans. Chapter 353 § 31,

1987 Minnesota Laws (codified at Minn. Stat. § 299J.I0). It would be perverse to

read the legislation as taking away the franchise fees that would allow the local

governments to fund this emergency first response.

D. Preservation of Municipal Licensing Power is Consistent withAdministrative Interpretations of the Routing Permit Statute.

In construing the breadth of the preemption required by the routing permit

statute, the Court may consider "administrative interpretations of the statute."

Minn. Stat. § 645.16(8). Here, the MPUC has agreed with Cohasset that the

franchise power is irrelevant to its consideration of the routing permit. It refused to

accept Minnesota Power's invitation to construe Cohasset's assertion of the

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13

franchise power as a threat to its power under 216G to oversee routing permits.

Ayling Aff. Ex. D at p. 4 ¶ 18. Indeed, in previously promulgated rules, the

MPUC deferred even the routing permit procedure to lines built or expanded

pursuant to previously granted franchises. Minn. Admin. R. 7852.033 Subp. 1 (I).

Far from construing the cities as having been completely ousted from their

franchise powers, the MPUC read the statute as preserving and as requiring

deference to municipal franchise powers. 13

Moreover, the routing permit issued by the MPUC expressly directs

Minnesota Power to abide by Cohasset's "permits or licenses", which would

include a franchise:

8. Government Agencies. The permitee shall comply with allfederal, state, county, and local rules and regulations. The permiteewill work with units of government throughout the process to discussany particular concerns that may arise

F. COMPLIANCE WITH COUNTY, CITY, OR MUNICIPALPERMITS

The permitee shall comply with all terms and conditions of permits orlicenses issued by Itasca County, and local units of government (i.e.,townships, cities, and municipalities).

Ayling Aff., Ex. E at pp. 7-8.

The rule reads: "This chapter does not apply to: '" 1. natural gas pipelinesoccupying streets, highways, or other public property within a municipality under rightsgranted pursuant to a license, permit, right, or franchise that has been granted by themunicipality under authority of Minnesota Statutes, section 216B.36; ..."

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E. In Construing the Statute, the Court Must Favor the Public Overthe Private Interest.

"The legislature intends to favor the public interest as against any private

interest." Minn. Stat. § 645.17(5). Minnesota Power reads the statute as giving a

windfall to privately-owned utilities who are relieved from paying the franchise

fees necessary to compensate the public for use of public benefits. And it can

articulate no sound purpose served by such a legislative gift. The franchise fee has

nothing to do with the routing decision or the particulars of routing. Nor must the

local franchise fee be eliminated in favor of some fee paid to the State: the MPUC

can only charge for its administrative costs and will not step into the shoes of the

city in charging franchise fees ascribable to the public benefits to be enjoyed by the

pipeline. Minnesota Power's self-serving reading of the statute violates this rule of

statutory construction.

Nor can the public policy benefits of Cohasset's construction of the statute

as upholding the city franchise power be dismissed. For instance, the District

Court was incorrect in pointing to an easy alternative means of recovering these

costs pursuant to tax levies under Minn. Stat. § 368.85 Subd. 6. Add. 6. These tax

levies consist of real property taxes on certain defined fire protection districts. Yet,

Minnesota Power does not own real property it owns the Pipeline. And the

Pipeline itself is not subject to personal property taxes if it comes within the

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14

pollution remediation exemption. See Minn. Stat. § 272.02 Subd. 10. Even to the

/

extent it can be subject to some kind of local tax, Minnesota Power's Pipeline will

benefit from the lower rates of taxation resulting from the utility industry's

successful lobbying. 14

In short, if Cohasset's franchise power is not upheld, it will labor under an

entirely unfunded statutory mandate to provide emergency first response to the

Pipeline. See Minn. Stat. § 299J.10. The City also provides fire and police

protection. Minnesota Power and its 140,000 customers outside Cohasset, who

also benefit from the Pipeline, are happy to let Cohasset bear the public safety

burdens created by the enormous amount of flammable high pressure gas piped

within Cohasset. The City should be able to charge a private, for-profit entity like

Historically cities benefitted from the ability to subject the personalproperty of public utilities to property taxes. See Minn. Stat. § 272.01; ResearchDepartment, Minnesota House of Representatives, PRIMER ON MINNESOTA'SPROPERTY TAXATION OF ELECTRIC UTILITIES (Oct. 2006) (hereafter cited as"House Research Report"). However, "[0]ver the past two decades, the legislature hasgranted many tax exemptions for the attached machinery and other personal property atnewly constructedfacilities. These exemptions have been adopted in response to requestsfrom companies proposing to build new electric generating facilities in Minnesota...."House Research Report p. 8 (emphasis in original).

The Pipeline is part of a $200 million project to improve the Boswell EnergyCenter. The new personal property and machinery installed for this project has beenexempted from personal property taxes as installed for the purpose of pollution control.See Minn. Stat. § 272.02 Subd. 10. Yet, the facility and the attendant personal propertybenefit from Cohasset's services and infrastructure. What older personal property thereis that remains subject to taxation will benefit from legislative reclassification thatsignificantly lower the rate of taxation. See, e.g., Minn. Stat. § 216B.1646.

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15

Minnesota Power for its use of public roads and public safety services through the

one means available: a franchise fee rationally tied to the amount of gas being

pumped through the city's environs.

Finally, the two coordinate branches of government have recognized the

important public interest served by the franchise power that Cohasset's reading of

the statute upholds. In 1996, the Public Service Department (now known as the

Office of Energy Security), in response to 1995 legislation, prepared an

investigative report on municipal franchises that was submitted to the legislature.

The agency found that the continuing public policy justification for franchises and

franchise fees was "to compensate the municipality for use of a public property for

private gain." MINNESOTA DEPARTMENT OF PUBLIC SERVICE, Report to

the Minnesota Legislature on Franchise Fees and Public, Educational and

Government (PEG) Access (Feb. 15, 1996) (hereafter the "DPS Report") p. 1. The

public property included "rights of way under city streets, the easements in private

properties, ditches along roads and highways, etc." Id. 15

The responses to the Department's survey revealed that in 1994,Minneapolis charged over $11 million in franchise fees for electrical and gas utilities, andSt. Paul charged over $10 million in such fees. A total of 209 cities assessed franchisefees on cable communication companies; 11 cities assessed franchise fees on natural gasutilities; and 14 cities assessed franchise fees on electric utilities. MINN. DEPT. PUB.SERV., supra, pp. 2-3. Minnesota Power paid Duluth a franchise fee of $700,000 in1994. Id. at p. 3. Cities of the size of Cohasset (1,000 to 5,000 range) collected franchisefees of as low as $400 and as high as $108,000 for electrical service; the sole city that ofthis size that agreed to report its gas franchise fee for that year was Lake City, citing a feeof $34,581. Id. at 3-4.

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The Minnesota legislature has not disagreed with the Department's finding,

nor has it taken any action since commissioning the report in 1995 to limit the

municipal franchise power. Cohasset's reading of the statute, then, upholds an

historic municipal power necessary to fund compliance with the state mandate of

emergency first response - and upholds a power that continues to be endorsed by

the executive and legislative branches as serving the public interest. Minnesota

Power's reading of the statute eliminates this municipal power for the sole purpose

of providing it with a windfall. Cohasset's reading should be favored as serving

the public over the private interest.

F. Summary.

For the above reasons, Minn. Stat. § 2l6G.02 Subd. 4 does not explicitly and

unequivocally preempt the franchise powers preserved by Minn. Stat. § 2l6B.36.

Nor can any legislative intent to preempt be fairly inferred. Any intent to

completely preempt the entire field of local regulation of pipelines is contradicted

by the language of the heading of the statute giving "primary" not "exclusive"

responsibility to the State. And had the legislature intended complete preemption,

While critical of particular kinds of franchise fee arrangements, the Departmentdid not recommend that the legislature repeal the cities' franchise powers, nor has thelegislature done anything to circumscribe the power since receiving the Department'sreport in February 2006. See id. at 18-21. Indeed the Department confirmed that the"authority to manage local rights-of-way", and the attendant franchise power, "mustremain with local government." Id. at 21.

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16

it would not have limited preemption to "site approval" and to "land use"

regulation. 16 Indeed the legislative record is replete with references to the

important continuing municipal role as a mandated first responder. It would have

been perverse to mandate and endorse such a role with one hand and to take away

with the other hand the franchise fees funding that role.

Contrast this with the language and approach used by the legislature whenit completely preempted cities from the field of telephone franchises. In 1915, thelegislature vested control of the telephone franchises in the State Railroad and WarehouseCommission (now the Department of Public Service), to whom the previously issuedmunicipal franchises could be "surrendered." See u.s. West Communications, Inc. v.City of Redwood Falls, 558 N.W.2d 512, 515 (Minn. App. 1997) (citing Chapter 152,1915 Minn. Laws), review denied (Minn. April 15, 1997). Although the legislature neverrepealed general franchise language in Minn. Stat. §§ 300.03, 300.04, 227.37, the Courtof Appeals relied on the specific shift of franchising to the State in 1915 and a century ofpractice thereafter to hold that the State had preempted the entire field of telephonefranchising and regulation. u.s. West v. Redwood Falls, 558 N.W.2d at 515. Indeed, theCourt contrasted this with the specific choice of the legislature to maintain municipalrights to franchise gas utilities in Minn. Stat. § 216B. Id. (citing St. Paul v. NSP, 462N.W.2d at 385).

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CONCLUSION

For the above-stated reasons, this Court should reverse the judgment below

and remand for further proceedings.

Dated: April 28, 2010. McGRANN SHEA CARNIVALSTRAUGHN & LAMB, CHARTERED

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CERTIFICATE OF BRIEF LENGTH

I hereby certify that this brief conforms to the requirements of Minn. R. Civ.P. 132.0 Subd. 3 for a brief produced with a proportional font. The length of thisbrief (exclusive of cover page, table of contents, and table of authorities) is 10,638words. This brief was prepared using Microsoft Word 2002 XP word processingsoftware, and such software was used to compute the w count hereby certified.

Dated: April 28, 2010.

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