Brad Kuhn Discusses Municipalization Process for Public Agencies to Acquire Utility Services

Brad Kuhn, chair of Nossaman’s Eminent Domain & Inverse Condemnation Group, was quoted extensively in the SF Standard story “The power keeps going out. How would San Francisco take over PG&E assets?”. Brad provided insight into how — through the use of eminent domain — the municipalization process for public agencies to takeover utility services could play out.

As the SF Standard wrote, eminent domain “has been used to commandeer land for rail projects and is commonly employed for the construction of power lines and sidewalk.” However, “eminent domain has rarely been used to take over a private utility,” said Brad. If this was attempted, he continued, “The utilities are…going to put up a massive fight, since this pertains to their lifeblood, and the biggest challenge the public agencies face is proving that there is a more necessary public use — essentially that they would operate things better or more efficiently than the investor-owned company.”

Brad added, “These takeovers last multiple years, and even if successful, public agencies are not entitled to have attorneys’ fees recovered afterward. It’s all coming out of pocket.” 

In a situation like this, the public agency involved would have to prove the necessity of such an action in court and pay the utility fair market value for its assets and loss of business. The utility owner can dispute the public agency’s findings in the resulting trial.

“Investor-owned utilities can argue that they’ve been providing services for decades and thus have the expertise and resources to be more efficient than a public agency that doesn’t have the know-how,” Brad noted, adding that private providers are regulated by the California Public Utilities Commission and must secure approvals for rate increases. 

The SF Standard also highlighted the California Supreme Court is considering a significant case — Town of Apple Valley v. Liberty Utilities — that will determine how courts handle future eminent domain cases and what barriers each side would face in litigation. 

Commenting on this case, Brad said, “If the town of Apple Valley prevails this year, then public agencies will get more deference from the courts when citing their necessity findings… However, if Liberty wins, then each new eminent domain case would be subject to heightened judicial review and scrutiny.”