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Muni Can't Skim Cream in Annexed Area

Fortnightly Magazine - October 1 1996

The Utah Supreme Court has ruled that a municipal utility must serve all customers in new areas that it takes over by annexation (em not just a select few.

Moreover, the city must compensate the former supplier of utility services for any dedicated facilities, even if it uses its own municipal facilities to serve the new area. However, the city will owe compensation for lost profits only if the municipality fails to obtain the prior consent of the supplier or to pay for the cost of the associated facilities. In general, the court said, a supplier has no "protestable property interest" in its certificate to serve an area lawfully annexed by a municipality, and thus no right to expect compensation for lost profits.

In rejecting the city's attempt at cream skimming, the court ruled that cities must serve all customers in newly annexed areas (em not just a select group (em since state law grants a preference favoring municipal service in incorporated areas. Strawberry Elec. Serv. Dist.

v. Spanish Fork City, No. 940317, June 21, 1996, 918 P.2d 870 (Utah).


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