Parties: South Nephi, LLC and Nephi City

Issued: January 31, 2025

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Compliance With Land Use Regulations

Exactions on Development

Interpretation of Ordinances 

Local government has discretion to establish—by legislative enactment—reasonable quality specifications or performance standards for the public facilities and services it provides and may exact from new development equitable contributions at that established level of service. However, where local ordinance is ambiguous as to the applicable level of service of a particular facility, then where at least two viable alternatives for compliance are presented, the government must use the least restrictive means as the basis for requiring contributions through exaction. Because the City’s ordinance was ambiguous, the City could not require a commercial subdivision to pay for an electrical power system with two source feeds that is “looped” to provide a backup power source in the event of a power failure, where engineering reports established that the subdivision was adequately serviced by a single-source system.

 Issue

Did the cost for electrical improvements required by Nephi City as a condition of approval for a commercial subdivision amount to an unlawful exaction?

Summary of Advisory Opinion

Local government has discretion to establish—by legislative enactment—reasonable quality specifications or performance standard for the public facilities and services it provides and may exact from new development equitable contributions at that established level of service. However, where local ordinance is ambiguous as to the applicable level of service of a particular facility, then where at least two viable alternatives for compliance are presented, the government must use the least restrictive means as the basis for requiring contributions through exaction.

Nephi City has required a commercial subdivision to pay for an electrical power system with two source feeds that is “looped” to provide a backup power source in the event of a power failure. The City claims that it has established a level of service for “looped” power and has required it of previous developments. However, the city’s only codified standard is that a developer pay the cost of electrical system extensions to service the development. Engineering reports conclude that the subdivision may be adequately serviced with a single-feed power system design that requires less equipment and therefore costs less. Where ordinance does not clearly express looped power as a chosen level of service, and the subdivision may otherwise be serviced by a less restrictive option, the city may not compel the additional costs of providing looped power over a single-feed system.

Evidence

The Ombudsman’s Office reviewed the following relevant documents and information prior to completing this Advisory Opinion:

1. Request for Advisory Opinion submitted by Michael Hutchings on behalf of South Nephi LLC, received on October 24, 2023.
2. Nephi City’s statement in response to the Request for Advisory Opinion, received December 21, 2023.
3. South Nephi’s Response to City’s Letter to Ombudsman, received May 31, 2024.
4. Nephi City Surreply to May 31, 2024 South Nephi Letter, received July 16, 2024.

Background

South Nephi LLC (“Developer”) is the developer of a six-lot commercial subdivision known as the Reed Ridge Subdivision located in Nephi City (“City”), just off of I-15. Immediately south of the subdivision is a new fuel service station, while much of the area surrounding the subdivision is presently undeveloped.

The Nephi City Power Department provides electrical services to the community. When new development activity occurs, the City performs the work to install the facilities needed to service the new development, and the costs for the equipment and work furnished by the City are imposed on the developer as a condition of the land use approval process. This dispute centers around the City’s established level of service for electrical power and what kind of power system design the City may lawfully use as the basis for imposing costs on a commercial subdivision.

At the time the City approved the subdivision plat for the Reed Ridge Subdivision, it also initially approved an electrical service plan for the subdivision that proposed a single pad-mounted PME-9 switchgear and three phase sectionalizers. An electrical sectionalizer is a device used in an electrical distribution system to isolate faulty sections of the system and minimize the impact of faults. Switchgears in power systems are a collection of devices used to control, protect, isolate, and switch electrical equipment in a power system. More specifically, switchgears interrupt electrical currents in the event of a fault or overload. This protects other parts of the system from damage and allows crews to isolate portions of the system for maintenance and repair. In sum, sectionalizers and switchgears allow for segments of the electrical system to be shut off while other segments remain open.

Over the course of the project, the Developer installed other required improvements and thereafter approached the City for a final bid to install the remaining portion of the electrical system to service the subdivision. In response, the City provided a second estimate that included an additional 7,800 feet of primary wire, a fourth phase sectionalizer, and a second pad-mounted PME-9 switchgear that were not initially listed in the approved electrical service plan. The City’s explanation for this additional equipment was that City personnel was negligent in approving the approved electrical plan, and that this additional equipment was necessary to provide a system with “looped” power.

As explained by the City, looping power means to have two paths by which power can enter a subdivision, greatly reducing the number of people impacted by a power outage and the duration of a power outage in the event of a problem with an electrical line. For example, the City proffers, if there is a problem with an electrical line going into a subdivision and the power line into the subdivision is not looped, then that subdivision could be without power for days or even weeks. Conversely, if there is an electrical line problem in a subdivision with a looped electrical system, then the power outage may be avoided, or the length of such outage may be reduced to minutes or hours. The City states that for these reasons, it has adopted a standard of looping its power into subdivisions and imposed this requirement of other previous subdivision approvals.

For several months, the parties disputed the electrical system’s costs and the components that would be required. Developer argued that a power design with a single switchgear and the three sectionalizers consistent with the initially approved electrical plan was adequate to service the subdivision, while the City argued that this would be the mere bare minimum infrastructure that would serve to “downgrade” the City’s established level of electrical service, and that the additional fourth phase sectionalizer and second switchgear were necessary to provide “looped” power consistent with the City’s practice in prior subdivision approvals.

The City forwarded to Developer a letter prepared for the City by Active Power Engineering. The Active Power Letter analyzed these two potential designs – a design with two PME-9 switchgears now being asked for by the City, as well as the design with a single PME-9 switchgear that was proposed by the Developer and initially approved as the electrical service plan for the subdivision. The letter provided a list of advantages and disadvantages of a design with only one switchgear and ultimately concluded that “the advantages and benefits of the power design with two PME-9 switchgear make it the recommended choice.”

Developer then retained its own electrical engineer and submitted a letter to the City prepared by Epic Engineering as a response to the Active Power letter. The Epic Letter noted that although the Active Power letter prepared for the City recommended the two-switchgear system due to its additional benefits to the subdivision and system at large, it did not disqualify the single switchgear system as a viable alternative. The Epic letter notes that while providing increased power capacity and a back-up power source are desirable, they amount to a redundancy whereas it concludes that the single switchgear design adequately covers system improvements necessary to provide electrical service to the subdivision.

Ultimately, Developer moved forward with the City’s two switchgear design under protest while simultaneously appealing the City’s final determination that this system was necessary to service the Subdivision. That appeal is currently stayed pending the outcome of this advisory opinion.

Analysis

As discussed below, Developer argues that the City’s requirement for electrical improvements in this instance is illegal because (1) the requirement amounts to an illegal exaction, and (2) the requirement is not plainly stated in the City’s ordinances. Developer does not dispute its need to pay for an electrical power system to service the subdivision as a required project improvement. However, Developer believes this requirement has been satisfied with the initially approved electrical service plan. It only disputes the City’s later bid for power system improvement costs as a condition of approval that included additional equipment that the City has explained is necessary to provide a looped power system.

Developer argues that the costs for a two-sourced looped power system amounts to an unlawful exaction, considering this to be an “upsized” system improvement that is not necessary to service only the power needs of the subdivision and will instead fund future and/or surrounding uses beyond the impact of the subdivision. The City refutes that the improvements are intended in any way to fund future or surrounding uses and argues that the City has an established level of service to provide looped power for the general health, safety, and welfare of its residents, including those businesses within the subdivision. The City argues that the improvements required of the subdivision are commensurate with the City’s existing electrical distribution system and are directly related to the development’s impact on that system.

Development exactions are required contributions to a governmental entity imposed as a condition of development approval. Salt Lake Cty. v. Bd. of Educ. of Granite Sch. Dist., 808 P.2d 1056, 1058 (Utah 1991). Exactions derive from the principle that new development causes certain impacts to a community. To address and offset these social impacts, local government requires dedication of land or construction of public resources such as roadways, sidewalks, and power distribution systems. Because development exactions result in the government mandating the dedication of private property or money for public purposes, such conditions implicate the Takings Clause of the U.S. Constitution and Article I Section 22 of the Utah Constitution, which both protect private property from governmental taking without just compensation.

The United States Supreme Court has held that development exactions are constitutional if (1) there exists an essential link to a legitimate governmental interest and (2) the condition is roughly proportionate, both in nature and extent, to the impact of the proposed development—a legal standard known as the “rough proportionality” test. See, Nollan v. California Coastal Comm’n, 483 U.S. 825 (1987); Dolan v. City of Tigard, 512 U.S. 374 (1994).

Apart from the constitutional standard of rough proportionality, municipalities in Utah are also subject to a state enabling act governing how they regulate land use and render decisions to approve, deny, or condition the approval of land use and development applications – Utah’s Land Use, Development, and Management Act (LUDMA), Utah Code § 10-9a-101 et seq. The Utah legislature has codified the rough proportionality standard in LUDMA’s text and expressly authorizes municipalities to impose development exactions as a condition of approval consistent with the constitutional test. See, Utah Code § 10-9a-508.

The City argues that its requirement that Developer install an electrical system sufficient to provide for looped power is a condition that satisfies the legal requirements of the rough proportionality test. The City argues that it has a legitimate government interest in determining the level of service or standard for the power services it provides for the benefit of those within the subdivision. The City argues further that the condition requiring Developer to provide looped power is consistent with this established level of service, is directly related to the needs of the subdivision, and is required to provide power service to the subdivision equal to the service it provides to other subdivisions.

However, while the Developer makes arguments against this conclusion, the Developer also makes a separate argument that the City may not impose this particular condition because it is otherwise limited by the language in the City’s enacted ordinances. Namely, citing to LUDMA, Developer posits that a city may not impose on a subdivision applicant a requirement that is not expressed in: (1) LUDMA, (2) a municipal ordinance then in effect, or (3) “a municipal specification for public improvements applicable to a subdivision or development that is in effect on the date that the applicant submits an application,” Utah Code § 10-9a-509(1)(g), and that a city “is bound by the terms and standards of applicable land use regulations and shall comply with mandatory provisions of those regulations.” Utah Code § 10-9a-509(2).

We do believe these are two separate questions, and that one could necessary inform the other. That is, if the City has enacted an ordinance that speaks to the kind of condition it may impose in the process of approving a development application, it may not then impose a condition that does not conform to its enacted standard, regardless of the condition’s compliance with the base constitutional standard of rough proportionality. Accordingly, we first address the threshold question of whether the City’s ordinance authorizes the proposed condition.

I.     The City’s Enacted Ordinance Controls What It May Require of Developers for Public Contributions to an Electrical Distribution System, and Must Be Interpreted in Favor of the Applicant Due to Ambiguity

The City’s ordinance addresses contributions to the City’s electrical distribution system very briefly. The ordinance simply provides that “[t]he developer shall pay the cost of electric system extensions and streetlights, installed by the city, to service the subdivision.” Nephi City Code § 11.7.3.

Despite its brevity, this legislative enactment does speak directly to electric system requirements imposed on a developer. As such, the regulation is applicable to Developer’s subdivision application, and the City is therefore “bound by the terms and standards of [this] regulation” in whatever kind of electrical requirements it imposes. Utah Code § 10-9a-509(2).

Developer argues that both the Epic Letter and Action Power Letter establish that the single feed power system is sufficient to “service the subdivision” as required by the City’s ordinances, even if it does not provide all the benefits desired by the City for a looped system.

In contrast, however, the City references this ordinance language and argues that “extension” does not mean installing something different than the existing electrical system—it means extending the system with the same level of service as it exists.

Municipal ordinances are subject to the ordinary rules of statutory interpretation. Ogden City Plaza Inv'rs Ltd. v. Ogden City Bd. of Zoning Adjustment, 2022 UT App 74, ¶ 7 (internal citation omitted), wherein the goal of Utah courts is to evince the true intent and purpose of the legislature, the best evidence of which is typically found in the plain language of the ordinance itself. Bryner v. Cardon Outreach, LLC, 2018 UT 52, ¶ 10. However, if after conducting this plain language review the court is left with competing reasonable interpretations, there is statutory ambiguity. Id. at ¶ 11. Specifically, statutory language is ambiguous if “its terms remain susceptible to two or more reasonable interpretations after [conducting] a plain language analysis.” Id. (quoting Marion Energy, Inc. v. KFJ Ranch P'ship, 2011 UT 50, ¶ 15).

Ambiguity is significant when it comes to interpreting land use regulations, specifically. This is because Utah courts have repeatedly and consistently held that as zoning laws are in “derogation of a property owner’s common-law right to unrestricted use of his or her property, provisions therein restricting property uses should be strictly construed, and provisions permitting property uses should be liberally construed in favor of the property owner.” Patterson v. Utah Cty. Bd. of Adjustment, 893 P.2d 602, 606 (Utah Ct. App. 1995).

Here, we believe that the respective meanings each party has derived from the ordinance language is plausible. That is, the ordinance is reasonably read as only requiring whatever electrical system is sufficient to service the subdivision, as advanced by the Developer. Alternatively, the City makes a compelling argument that the use of the term “extension” does not comport with installing something different than the existing electrical system—though we are not entirely convinced as to the City’s conclusion, as applied, as it seems evident that the particular components of any given electrical system improvements for a specific subdivision will differ from another solely based on the power needs of the given subdivision. In that regard, all subdivision electrical system extensions will differ to some extent.

That said, the City’s principal argument seems to hone in on the assertion that “electrical system extensions” necessarily means that each new power system introduced by a new subdivision will similarly feature looped power because the City has required it of other subdivisions. Ultimately, we disagree with this construction of the ordinance.

The City correctly points out that municipalities have been given discretion to set the standards of the services it provides to the community. Namely, City cites to relevant provisions in LUDMA,[1] Utah’s “General Welfare Statute” found at Utah Code section 10-8-84(1),[2] and decisions by Utah’s appellate courts. See, Wallingford v. Moab City, 2020 UT App 12, ¶ 18 (municipalities enjoy broad powers, both general and specific, to provide for the general welfare of their citizens); see also, Dairy Prod. Servs. v. City of Wellsville, 2000 UT 81, ¶ 31 (courts will not interfere with the means selected by cities to carry out their granted authority unless arbitrary or inconsistent with state or federal laws).

However, what is clear from each of these sources cited is that cities exercise these powers through legislative enactments. We do not disagree that the City has the authority to establish a particular and reasonable level of service including, potentially, a chosen level of service for looped power for required electric system improvements, to the extent that such level of service also satisfies the constitutional rough proportionality test when applied to individual development proposals. But the establishment of a particular level of service must be done through a plainly stated legislative enactment, not by mere practice alone. We find that the problem with the City’s argument is that this derived meaning for looped power is, at best, only implied from the language, and certainly is not expressly stated. When level of service is silent or otherwise undefined in ordinance, the level of service standard may be ambiguous where differing plausible interpretations are presented that each reasonably satisfy the intent of the ordinance.

Whereas the most basic requirement of any ordinance is to give notice that would “inform the ordinary reader” of “proscribed conduct,” see, State v. Frampton, 737 P.2d 183, 192 (Utah 1987), and land use ordinances in particular that would restrict the free use of property are to be strictly construed, Patterson, 893 P.2d 602, at 606, we do not feel the language in the City’s ordinance would plainly inform an applicant of any expectation of a particular level of service. As such, the level of service being undefined, the ordinance—interpreted in favor of the applicant to take the least restrictive means of allowing the proposed use—only requires whatever electrical system extensions that would reasonably service the subdivision, as supported by proper evidence. Applied here, the City’s enacted language does not expressly put Developer on notice that the costs it will incur to provide for electrical system extensions to service their development includes costs for a looped system when the record would support the conclusion that a single source system may still “service” the immediate power needs of the subdivision.

In this instance, the evidence in the record includes the professional opinions of two electrical engineers. The Epic Engineering letter directly concludes that the single-source electrical system is adequate to service the needs of the subdivision. What’s more, the other engineering report from Active Power never concludes that the single-source system is inadequate. Rather, tasked with comparing the single-source system with the City’s preferred two-source looped power system, the report merely makes a recommendation of the City’s preferred looped system over the other due to added benefits. As such, the evidence in the record supports that the single-source system proposed by the developer will “service the subdivision” as required by ordinance.

Both electrical service plans proposed by the Developer and City, respectively, would satisfy the requirements of the City’s land use ordinance to service the subdivision. With two viable alternatives that satisfy the ordinance, the City has no basis to disregard one compliant proposal in favor of another, especially where more it would be more costly and, therefore, a more restrictive requirement on allowing the proposed use. As Developer’s proposed electrical system satisfies the costs required by ordinance, the City is “bound by the terms and standards” of this ordinance, and Developer’s application—as it relates to electric system requirements—is entitled to approval as “conform[ing] to the requirements of . . . applicable land use regulations . . . and development standards.”  Utah Code § 10-9a-509(1)(a)(ii).

Accordingly, the City may not require Developer to pay additional costs attributable to a two-sourced looped power system that go beyond the costs associated with the single-source system presented in the initially approved electrical service plan.

II.     Other Issues Raised in the Request 

We do not feel the larger question of whether a requirement for a looped power system satisfies the rough proportionality test needs to be addressed here where, as explained above, the City has otherwise enacted an ordinance that only requires extensions that will service the development, which as applied here, does not arrive at a requirement for looped power.

Additionally, the Developer initially raised in its request, and the City briefly responded to, some additional allegations and arguments related to improvement completion assurances. As briefing continued, however, this issue was not further expounded or adequately addressed by either party, as was clearly not the focus of the request. As such, we do not feel we have sufficient information to form any opinion on issues that pertain to a dispute over the application of state law and any local ordinances or development agreements that would pertain to improvement completion assurance and instead leave the focus of this opinion on the primary question of the exaction for electrical system costs.

Conclusion

Cities are authorized by state law to impose development exactions that satisfy the constitutional rough proportionality standard. Cities have discretion to establish a chosen level of service for the public facilities and services they provide, but must do so through legislative enactment, and are bound by the terms and standards of enacted ordinances.

Nephi City’s ordinances require the developer of a subdivision to pay the cost of electric system extensions to service the subdivision. Developer has proposed a single-source electric system design that is supported by engineering professionals as adequate to service the subdivision, and satisfies the requirements of the ordinance. While previous developments may have installed electric systems that include a two-source design that allows for looped power and provides additional benefits over a single-source design, the City’s preference for a looped power system is not stated in its ordinances. The City may not impose the additional costs needed for a looped power system on an applicant as a condition of approval where the proposal conforms to the requirements of applicable land use regulations and development standards adopted by the City.

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Jordan S. Cullimore, Lead Attorney

Office of the Property Rights Ombudsman

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NOTE:

This is an advisory opinion as defined in Section 13-43-205 of the Utah Code. It does not constitute legal advice, and is not to be construed as reflecting the opinions or policy of the State of Utah or the Department of Commerce. The opinions expressed are arrived at based on a summary review of the factual situation involved in this specific matter, and may or may not reflect the opinion that might be expressed in another matter where the facts and circumstances are different or where the relevant law may have changed. 

While the author is an attorney and has prepared this opinion in light of the author’s understanding of the relevant law, the author does not represent anyone involved in this matter. Anyone with an interest in these issues who must protect that interest should seek the advice of his or her own legal counsel and not rely on this document as a definitive statement of how to protect or advance his or her interest. 

An advisory opinion issued by the Office of the Property Rights Ombudsman is not binding on any party to a dispute involving land use law. If the same issue that is the subject of an advisory opinion is listed as a cause of action in litigation, and that cause of action is litigated on the same facts and circumstances and is resolved consistent with the advisory opinion, the substantially prevailing party on that cause of action may collect reasonable attorney fees and court costs pertaining to the development of that cause of action from the date of the delivery of the advisory opinion to the date of the court’s resolution. Additionally, a civil penalty and consequential damages may also be available if the court finds that the opposing party—if either a land use applicant or a government entity—knowingly and intentionally violated the law governing that cause of action.

Evidence of a review by the Office of the Property Rights Ombudsman and the opinions, writings, findings, and determinations of the Office of the Property Rights Ombudsman are not admissible as evidence in a judicial action, except in small claims court, a judicial review of arbitration, or in determining costs and legal fees as explained above.

The Advisory Opinion process is an alternative dispute resolution process. Advisory Opinions are intended to assist parties to resolve disputes and avoid litigation. All of the statutory procedures in place for Advisory Opinions, as well as the internal policies of the Office of the Property Rights Ombudsman, are designed to maximize the opportunity to resolve disputes in a friendly and mutually beneficial manner. The Advisory Opinion attorney fees and civil penalty provisions, found in Section 13-43-206 of the Utah Code, are also designed to encourage dispute resolution. By statute they are awarded in very narrow circumstances, and even if those circumstances are met, the judge maintains discretion regarding whether to award them.

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Endnotes:

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[1] The City cites to Section 10-9a-102(2), quoting “a municipality may enact all ordinances, resolutions, and rules and may enter into other forms of land use controls and development agreements that the municipality considers necessary or appropriate for the use and development of land within the municipality, including ordinances, resolutions, rules, restrictive covenants, easements, and development agreements governing: . . . (j) infrastructure; . . . (m) public facilities; . . . .” Nephi City Surreply to May 31, 2024 South Nephi Letter, received July 16, 2024 (emphasis in original).

[2] Which reads: “The municipal legislative body may pass all ordinances and rules, and make all regulations, not repugnant to law, necessary for carrying into effect or discharging all powers and duties conferred by this chapter, and as are necessary and proper to provide for the safety and preserve the health, and promote the prosperity, improve the morals, peace and good order, comfort, and convenience of the city and its inhabitants, and for the protection of property in the city.” Utah Code § 10-8-84(1).