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H.E.A. 1278 Changes Utility Condemnation Landscape

On May 13, 2009, Governor Mitch Daniels signed into law House Enrolled Act No. 1278 (“HEA 1278”). The bill makes changes in the procedures by which a municipality may exercise the power of eminent domain to acquire the property of a public utility. Most importantly, under the new law, municipalities may no longer use the Board of Works’ administrative condemnation option to condemn public utilities. If a municipality wishes to condemn a public utility, it must now rely solely on IC 32-24-1; or the judicial process. Additionally, under HEA 1278, a municipality may not impose special surcharges or rates to pay for costs associated with acquiring the property by condemnation. It is likely, however, that municipalities can incorporate the purchase price into their base rates if it can justify such base rates to the Indiana Utility Regulatory Commission (the “Commission”). With current Commission policies in place, it is also possible that municipalities can establish base rates for their territory prior to the acquisition and different base rates that incorporate the costs of the condemned assets for the condemned territory if those rates can be quantifiably proven to the Commission. Finally, the bill urges the legislative council to assign a study committee the topic of water rights, drainage, and utilities.

There were many concerns with HEA 1278 as it was introduced and subsequently amended during the 2009 legislative session. Amended versions included possible preapproval of the condemnation by the Commission; possible legal requirements to determine whether the condemnation was publicly convenient and necessary; and a possible referendum requirement. Opponents of the bill successfully negotiated these elements out of the bill.

Finally, it appears that HEA 1278 clarifies that a municipality that adopts an ordinance for condemnation under I.C. 8-1.5-2-15 establishes that public necessity exists for the condemnation. An ordinance adopted under that section is final. Until these amendments, however, there was some question as to whether the potentially condemned public utility could appeal a municipality’s decision to condemn under I.C. 8-1.5-2-11. That section has now been repealed. Therefore, it can be argued that a municipality’s decision to condemn as set out in a municipal ordinance, while possibly subject to challenge on other grounds, is not subject to review on the basis of its determination of “public convenience and necessity.”



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