TITLE: Use of Appropriated Funds to Pay for the Relocation of Utilities, B-300538, March 24, 2003
BNUMBER: B-300538
DATE: March 24, 2003
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Use of Appropriated Funds to Pay for the Relocation of Utilities, B-300538,
March 24, 2003
Decision
Use of Appropriated Funds to Pay for the Relocation of Utilities
File: B-300538
Date: March 24, 2003
DIGEST
1. Unless otherwise addressed by statute, regulation, or governing
agreement, appropriated funds may be used to pay for the costs of
relocating utility facilities when utility facilities are located on
federal lands in order to serve the federal government and are not present
as part of the utility company's general operating network pursuant to a
right-of-way requested by the company. 10 Comp. Gen. 331 (1931), 51 Comp.
Gen. 167 (1971) and similar cases distinguished.
2. The amount specified by Pepco as a *gross-up* fee represents the cost
of Pepco's additional income taxes and is not a direct tax upon the AOC.
The legal incidence of any additional state or local income taxes falls
upon Pepco as *vendor* and not upon the federal government. Thus, to the
extent Pepco is permitted by the D.C. Public Service Commission to recover
such costs through the assessment of a *gross-up* fee, appropriated funds
are available to pay such a fee.
DECISION
The Architect of the Capitol (AOC) requested our opinion on the
availability of appropriated funds to pay utilities for the relocation of
their facilities on the Capitol grounds and to pay a *gross-up* fee
assessed on the costs of relocation. As a general proposition and
consistent with our prior decisions, unless otherwise specified by
statute, regulation, or governing agreement, utilities must bear the costs
of relocating their facilities from a federal right-of-way whenever
requested to do so by the federal government. However, when the federal
government seeks to relocate utility facilities that are and will continue
to be on federal lands in order to serve federal customers, appropriated
funds may be used to pay for the cost of the relocation of utility
facilities necessary to accommodate changing federal needs unless a
statute, regulation, or governing agreement provides otherwise. In
addition, appropriated funds are available to pay the *gross-up* fee
assessed by the Potomac Electric Power Company (Pepco) because the
*gross-up* fee represents the cost of additional income taxes to Pepco
that Pepco is attempting to recover through a regulatory approved charge
and is not a direct tax upon the federal government.
Background
The AOC advised in his letter of January 27, 2003, that he has been
requested to expend and has expended significant appropriated funds for
the relocation of facilities of Pepco and the D.C. Water and Sewer
Authority in connection with the construction of the new Capitol Visitor
Center and the West Refrigeration Plant at the Capitol Power Plant. The
AOC's specific inquiry concerns a pending request by the AOC that Pepco
relocate its facilities in connection with an AOC contractor's work on the
West Refrigeration Plant. Pepco demanded payment in advance of performing
the work and requested that the AOC pay approximately $144,000 for the
relocation of Pepco facilities. This figure represents approximately
$104,000 for the cost of the actual work and $40,000 for a *gross-up* fee
assessed by Pepco. The AOC did not provide a specific example of utility
relocation work associated with the CVC.
Through follow-up conversations with an AOC official,[1] we learned that
the work on the West Refrigeration Plant involves the construction of an
underground tunnel connecting to the Capitol Power Plant. The AOC has
requested that Pepco relocate Pepco's high-voltage feeders that bring
power into the Capitol Power Plant in order to accommodate the location of
the underground tunnel. Pepco's high-voltage feeders only serve the
Capitol Power Plant, which in turn only serves the buildings and
facilities that are on Capitol grounds. These high-voltage feeders do not
provide power to any other customer.[2]
The AOC objected to Pepco's request for payment on the basis of two
Comptroller General opinions, 10 Comp. Gen. 331 (1931) and 51 Comp. Gen.
167 (1971). These decisions held that absent specific statutory
authority, appropriations made to the AOC for certain Capitol construction
projects were not available for utility relocation costs as utilities must
bear the cost of relocating their facilities pursuant to the terms of the
right-of-way or franchise granted to public utility companies in the
District of Columbia.
In its response to the AOC's denial of its request for payment for utility
relocation costs associated with the West Refrigeration Plant project,
Pepco asserts that the authority absent when our decisions were issued now
exists.[3] Pepco points to the Federal Acquisition Regulation (FAR) and
the terms of the General Services Administration (GSA)-Pepco Areawide
Public Utility Contract[4] as the authority for the AOC to bear such
costs. The GSA-Pepco Areawide Contract specifically provides that
ordering agencies shall pay for the costs of the relocation of Pepco's
facilities required or requested by the ordering agency.[5]
The AOC now seeks our opinion on whether appropriated funds are available
for the costs of relocation of the utility facilities as described,
including the *gross-up* fee assessed by Pepco.
Analysis
Pepco's Position
We turn first to disposing of Pepco's assertion that the FAR and the
GSA-Pepco Areawide Contract provide authority for the AOC to pay for
utility relocation costs associated with the West Refrigeration Plant
project. GSA is directed to contract for utility services on behalf of
executive agencies for periods not exceeding ten years and fulfills its
requirement through the use of areawide agreements. 40 U.S.C.
S: 501(b). The FAR directs any *federal agency* having a requirement for
utility services within an area covered by an areawide contract to acquire
services under that areawide contract subject to certain exceptions not
applicable here. 48 C.F.R.
S: 41.204(c)(1). Under the terms of the GSA-Pepco Areawide Contract,
agencies requesting the relocation of Pepco utility facilities are
required to pay for the costs of the relocation.
The AOC correctly points out, however, that the AOC is not subject to the
FAR. The AOC and activities under the AOC's direction are specifically
excluded from the definition of the term *federal agency.* 40 U.S.C. S:
102(5) and 48 C.F.R. S: 2.101(b). And, while the AOC is authorized to use
GSA areawide contracts if he so chooses, the AOC provides that he did not
do so here. See 40 U.S.C. S: 113(d) (authorizing the AOC to use certain
services provided by GSA). Accordingly, contrary to Pepco's assertion,
neither the FAR nor the GSA-Pepco Areawide Contract provides the requisite
authority absent when we issued the cited decisions. We are unaware of
any specific statutory authority addressing the AOC's ability to pay for
utility relocation costs. For example, the Congress authorized the
reimbursement of such costs in the case of the construction of the
Metrorail system.[6] Therefore, we now examine the applicability of our
prior decisions relied on by the AOC in the situation before us.
Applicability of our Prior Decisions
The two decisions cited by the AOC held that absent specific statutory
authority, appropriations made to the AOC for the construction of
underground duct lines from the Capitol Power Plant to new public
buildings and for the construction of the Library of Congress James
Madison Memorial Building were not available for utility relocation costs.
Rights of way or franchises granted * to public utility corporations, in
public streets, etc., to operate their business are usually coupled with
reservations that the public utility company will, upon demand of the
granting authority, vacate the streets, etc., or relocate or divert its
conduits, lines, etc., to meet the needs of the granting authority as they
arise. It is understood that the franchises of public utility companies in
the District of Columbia are granted on such a basis and that when the
need of the Federal Government or the District of Columbia government so
require in connection with the construction of public buildings, etc.,
such public utility companies are under obligation to remove, divert, or
relocate their lines, conduits, etc., without cost to the Federal
Government or the District of Columbia.
51 Comp. Gen. 167 (1971) (quoting 10 Comp. Gen. 331 (1931)). These
decisions rely on the terms of the right-of-way or franchise granted to
public utility companies in the District of Columbia. They also reflect
the common law principle that utilities are required to bear the entire
cost of relocating from a public right-of-way whenever requested to do so
by state or local authorities. Norfolk Redevelopment and Housing
Authority v. Chesapeake & Potomac Telephone Company of Virginia, 464 U.S.
30, 35 (1983).
In another line of decisions, we similarly held that in the absence of
specific statutory authority, appropriations for the construction of roads
and trails could not be used for the purpose of paying the cost of
removing and relocating public utility lines on public property when they
interfered with the paramount right of the United States to use the
lands. See 44 Comp. Gen. 59 (1964), 20 Comp. Gen. 379 (1941) and 19 Comp.
Gen. 608 (1939) (citing A-44362 (December 1, 1932), A-38299 (September 8,
1931) and A-36464 (July 22, 1931)). In these cases, which concerned
federal lands outside the District of Columbia, it is clear that the
facilities or items on federal lands were part of a broader infrastructure
to serve more than the federal government.
The two decisions cited by the AOC do not specify that the utility
facilities at issue crossed Capitol grounds at the request of the utility
company as part of an overall infrastructure to serve the utility's
customers, including but not limited to the federal government. However,
from the decisions' use of the term *right-of-way*[7] and references to
the franchise granted to public utility corporations in the District of
Columbia, we infer that the utility company had requested access to the
federal lands in question in order to locate facilities that were part of
its overall infrastructure to service its customers. When a utility
company requests access to federal lands through a right-of-way, and the
federal government grants the utility company such access, if the federal
government subsequently requires the utility to relocate its facilities,
our decisions have held consistently that in the absence of specific
statutory authority, regulation, or other governing agreement the utility
must bear all costs of relocation.
In some situations, however, a utility company may locate facilities on
federal lands solely to serve the federal government's utility needs and
not pursuant to the company's request for a right-of-way in order to
locate facilities that will serve as part of the company's general
operating network. When a utility company locates facilities on federal
lands in order to serve federal needs, the federal government can be
viewed as acting, not in its capacity of the sovereign granting the
utility company's request for access, but rather as a customer of the
utility company. And, when the federal government subsequently asks the
utility company to relocate facilities that are located on and will
continue to be located on federal lands in order to better serve the
federal government, the federal government similarly is acting more as a
continuing customer of the utility company than as the sovereign
exercising its right of control over federal lands. In the absence of a
statute, regulation, right-of-way, or other agreement governing the
payment of utility relocation costs, we believe there is a distinction
between the federal government's role as the sovereign granting access to
the utility company to federal lands and the federal government's role as
a consumer of utility services. We view utility relocation costs, when
the utility facilities are present to serve the federal government alone
and not as part of the utility company's general operating network, as a
necessary expense of the project requiring the relocation of the utility
facilities. Therefore, we do not object to the use of appropriations to
pay the costs of utility relocations requested by the government for the
benefit of the government in its role as customer.
Neither the materials provided to us nor our later conversations with the
AOC or Pepco indicate conclusively which situation is before us. We were
not furnished a copy of a right-of-way or franchise agreement governing
the presence of the Pepco facilities on the Capitol grounds that are the
subject of this decision. In response to our inquiries, neither the AOC
nor Pepco was able to provide or was aware of any current franchise,
right-of-way, easement, or other agreement governing the facilities at
issue. In conversations with staff of the District of Columbia's Recorder
of Deeds, however, we were advised that there may be rights-of-way or
easements on file with that office that pertain to the Capitol grounds.
In order for the AOC to apply the principles articulated by this decision
to the utility facilities in question here and to similar circumstances
that may arise in the future, the AOC may need information concerning the
existence of any applicable rights-of-way, easements, or other
agreements. Accordingly, we recommend that the AOC take appropriate
action to ensure that it has timely information on what rights-of-way,
easements, or other agreements, whether on file with the Recorder of Deeds
or in the AOC's records, apply to utility facilities that are being
relocated.[8] An assessment of the terms and conditions of any
rights-of-way, easements, or other agreements currently in force will
assist the AOC in determining the availability of appropriations for
utility relocation costs for the West Refrigeration Plant and other
projects.
*Gross-Up* Fee
The AOC also requested that we determine whether appropriations are
available to pay for a *gross-up* fee assessed by Pepco on the utility
relocation costs associated with the West Refrigeration Plant project.
The AOC stated that Pepco advised the AOC that it would charge
approximately $144,000 for the relocation of the Pepco facilities as a
*contribution in aid of construction.* Of that amount, approximately
$40,000 represented the amount of a *gross-up.* In questioning whether it
may pay the *gross-up* Pepco charges, the AOC characterizes it as a tax,
implicating the issue of whether the federal government may pay taxes
assessed by state and local governments.
Section 118(a) of the Internal Revenue Code provides, as a general rule,
that a corporation's gross income does not include any contributions to
the capital of the corporation. 26 U.S.C. S: 118(a). Contributions to
capital include contributions made by persons other than shareholders. 26
C.F.R. S: 1.118-1. Section 118(b) provides, however, that contributions
to the capital of a corporation do not include contributions in aid of
construction or any other contribution as a customer or potential
customer. 26 U.S.C. S: 118(b). Prior to 1986, contributions in aid of
construction given to regulated public utilities were excluded from income
for purposes of section 118(a). However, section 824(a) of the Tax Reform
Act of 1986 amended section 118 specifically to require regulated public
utilities to include in income the value of any contribution in aid of
construction made to encourage the provision of service by the utility to
a customer. This change to the Internal Revenue Code directly affects the
amount of federal income tax paid by Pepco but also has implications for
Pepco's state and local income taxes to the extent state and local
governments rely on federal adjusted gross income to calculate taxable
income. In fact, Pepco refers to federal, state and local tax in its
response to the AOC's questions. [9]
Pepco's *General Terms and Conditions for Furnishing Electric Service in
the District of Columbia,* as approved by the D.C. Public Service
Commission, provides that *Contributions and fees shall be grossed up for
the estimated taxes to be levied on the contribution or fee** Par. 10e.
The taxes referenced are federal, state, and local income taxes assessed
upon Pepco due to the treatment of the costs of additional service
connection installations and alterations as a contribution in aid of
construction that must be included in Pepco's gross income.
The imposition of federal taxes upon federal entities does not raise
constitutional concerns. As a matter of constitutional law, however, the
United States and its instrumentalities are immune from direct taxation by
state and local governments. [10] Direct taxation occurs when the legal
incidence of the tax falls directly on the United States as the buyer of
goods,[11] or as the consumer of services,[12] or as the owner of
property.[13] Such taxes are known as *vendee* taxes and may not be paid
unless expressly authorized by the Congress. 64 Comp. Gen. 655, 656-7
(1985). When, however, the legal incidence of the tax falls directly on a
business as a *vendor* of goods and services, it is the contract or other
agreement between the vendor and the government that determines what the
government must pay for the goods or services supplied, even if part of
the contract price is attributable to taxes paid by the vendor. Id. at
657. Similarly, when a tax is assessed upon a utility company as a vendor
of services and the tax is passed along to customers in an approved
tariff, the federal government may pay such costs. See 45 Comp. Gen. 192
(1965), 32 Comp. Gen. 577 (1953), B-144504 (June 30, 1970) and B-144504
(June 9, 1967).
The amount specified by Pepco as the *gross-up* fee represents the cost of
Pepco's additional income taxes and is not a direct tax upon the AOC. The
legal incidence of any additional state or local income taxes falls upon
Pepco as *vendor* and not upon the federal government. Thus, to the
extent Pepco is permitted by the D.C. Public Service Commission to recover
such costs through the assessment of a *gross-up* fee, appropriated funds
are available to pay such a fee.
Conclusion
Consistent with common law principles and a number of our decisions that
rely on these principles, when utility facilities that are part of the
utility company's general operating network are on federal lands pursuant
to a right-of-way granted by the federal government to the utility
company, the utility company must bear the costs of relocating facilities
unless specific statutory authority, regulation, or other governing
agreement provides otherwise. These principles and prior cases do not
necessarily extend to all circumstances where utility facilities are on
federal lands to serve federal customers. In the absence of a statute,
regulation, right-of-way, or other governing agreement, when the federal
government is acting as a customer of the utility company, appropriated
funds are available to pay for the costs of utility relocations requested
by the federal government. In order for the AOC to apply the principles
articulated by this decision to the utility facilities in question here
and to similar circumstances that may arise in the future, the AOC may
need information concerning the existence of any applicable rights-of-way,
easements, or other agreements. Accordingly, we recommend that the AOC
take appropriate action to ensure that it has timely information on what
rights-of-way, easements, or other agreements, whether on file with the
Recorder of Deeds or in the AOC's records, apply to utility facilities
that are being relocated. In addition, appropriations may be used to pay
the *gross-up* fee assessed by Pepco, as it does not represent a direct
tax upon the federal government.
/signed/
Anthony H. Gamboa
General Counsel
------------------------
[1] Telephone conversation with Michael Keegan, AOC, Director of Utilities
and Power on February 11, 2003.
[2] Telephone conversations with Michael Keegan, AOC, Director of
Utilities and Power on February 11, 2003, and Jack Sullivan, Attorney,
Pepco Office of General Counsel on February 12, 2003.
[3] See letter of January 14, 2003, from William J. Sim, President of
Pepco, to Mr. Alan M. Hantman, the Architect of the Capitol.
[4] Areawide Public Utility Contract for Electric, Electric Transmission,
and Energy Management Services Contract No. GS-00P-00-BSD-0138 between the
United States of America and Potomac Electric Power Company for the
District of Columbia and the Adjoining Areas of Maryland.
[5] Id. at 5.
[6] Pub. L. No. 89-774, S: 68, 80 Stat. 1347 (1966).
[7] A right-of-way is defined as *the right belonging to a party to pass
over the land of another.* 25 Am. Jur. 2d Easements and Licenses in Real
Property S: 7 (2002).
[8] Some executive branch agencies have promulgated regulations concerning
the processing of applications for rights-of-way and indicating specific
agency personnel with whom such applications should be filed. See e.g.,
36 C.F.R. S: 14.21 (directing that applications to the National Park
Service for a right-of-way shall be filed with the superintendent) and 43
C.F.R. S: 2802.2-1 (directing that generally applications to the Bureau of
Land Management for a right-of-way grant shall be filed with either the
Area Manager, the District Manager, or the State Director having
jurisdiction over the affected public lands).
[9] See letter of January 3, 2003, from David C. Pirtle, High Voltage
Representative, Customer Design * DC, Pepco, to Mr. Michael Keegan, AOC,
Director of Utilities and Power.
[10] McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819).
[11] Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110 (1954).
[12] 53 Comp. Gen. 410 (1973).
[13] United States v. County of Allegheny, 322 U.S. 174 (1944).