The arrival of orange barrels in the spring signals the start of road construction season. Frequently, road widening or improvement projects involve significant relocation of utilities before the actual road work can begin. Who is responsible for the cost involved in relocation—the government or the public utility? This was the question addressed by the Court of Appeals for Wood County in the recently reported case of The City of Perrysburg v. Toledo Edison Co. (Mar. 23, 2007), 171 Ohio App.3d 174.

The widening of an intersection in the City of Perrysburg required the relocation of Toledo Edison’s electrical poles and equipment that were partially in Perrysburg’s right-of-way. Toledo Edison relocated the equipment as requested by Perrysburg and submitted an invoice for the cost. Perrysburg refused to pay.

Perrysburg filed a suit asking the court to declare which party was required to pay for the relocation. Each party thought it was legally entitled to judgment:

Perrysburg asked the court to decide, without holding a trial, that the relocation was a valid exercise of the city’s police power so the cost of relocation would be the responsibility of Toledo Edison.

Toledo Edison asked the court to decide, without holding a trial, that the relocation was an unlawful taking of Toledo Edison’s property.

The trial judge agreed with the City, and Toledo Edison appealed.

Toledo Edison argued that Perrysburg’s actions amounted to a taking of their property by eminent domain. The court found that generally a public utility’s real property, including easements, is private property and cannot be taken without just compensation. But the court went on to say that public utilities are “peculiarly subject to regulation under the state’s police power.”

Looking to the earlier case of Automatic Refreshment Service, Inc v. Cincinnati (1993), 92 Ohio App.3d 284, the court noted the definition of police powers as the “power to guard public morals, safety, and health, and to promote the public convenience and the common good.” Under this power, the state’s decision to order the destruction or alteration of a structure is not a taking where the structure endangers public health.

Thus, the question to be resolved by the court was whether Perrysburg’s action was a valid exercise under its police power. For guidance, the court turned to the U.S. Supreme Court. In New Orleans Gaslight Co. v. Drainage Commission (1905), 197 U.S. 453, the Supreme Court held that when a utility company makes use of the public right-of-way, the municipality may require the company to relocate its equipment at its own cost when the public welfare so requires.

Here, the intersection was being improved to accommodate a new high school. Therefore, the court found the actions were a valid exercise of Perrysburg’s police power and not a taking by eminent domain.

Toledo Edison also argued that it was entitled to reimbursement under one of two different Ohio statutes. R.C. § 5501.51 provides that the state is required to reimburse a utility for the cost of relocation of its facilities necessitated by the construction of a highway project only if the utility can show a vested interest in the real property it occupies. Toledo Edison had obtained easements from the landowners in 1963. However, the state acquired right-of-way easements for the roads in 1946. Therefore, any easement Toledo Edison had acquired was subject to the earlier easements granted to the state and did not give Toledo Edison a vested right.

The other statute, R.C. § 163.53(D)(1), provides that if an agency undertakes a project that results in the relocation of a utility facility and the purpose of the project was not to relocate or reconstruct any utility facility, the state agency may pay for the relocation. The court noted that the word “may” was used in the statute. Since the word “may” is permissive, the decision to reimburse a utility under this statute is within the discretion of the agency, in this case Perrysburg.

Toledo Edison also argued that it was entitled to reimbursement as a third-party beneficiary of the contract between Perrysburg and the Ohio Department of Transportation. A third-party beneficiary is a person who is not a party to the contract but is a person intended by the parties to benefit from it.

The contract between Perrysburg and ODOT provided, among other things, that Perrysburg would “at its own expense, make all removals and/or relocations of publicly-owned utilities which do not comply with the reimbursement provisions of the ODOT Utilities Manual [making them eligible for Federal funding]. Publicly owned facilities which do comply with the reimbursement provisions of the ODOT Utilities Manual will be removed and/or relocated at project expense.”

Toledo Edison submitted a letter it had received from ODOT agreeing that “the submitted utility costs are eligible for reimbursement from the project funds.” The letter went on to state that since “the project funds cap had been reached on this project, any and all remaining project expenses must be borne by the City of Perrysburg,” in accordance with the contract. There was no suggestion in the letter that Toledo Edison would have to assume the costs of relocation.

Looking at the letter and the contract together, the court held that it was not clear if the parties intended Toledo Edison to be a third-party beneficiary to the contract. Since this was a “genuine issue of material fact,” the Court of Appeals directed the trial court to review and proceed as necessary to determine the intent of the parties. On this issue, then, the trial court had erred. Any judgment was premature until the court found the facts.

Who is responsible for the cost involved in relocation, the government or the public utility? It appears that the answer to the question in this case depends upon whether Perrysburg and ODOT intended Toledo Edison to benefit from the contract between them by having relocation expenses covered either by Federal or by City funds. If they did, Perrysburg will most likely be required to pay for the relocation. If they did not, then Toledo Edison cannot benefit from the contract to which they were not a party, and the relocation costs will most likely be the utility company’s responsibility. The issue goes back now to the trial court, the ultimate fact-finder.