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KANSAS GAS & ELECTRIC CO. v. KANSAS CORP. COMM'N

September 20, 1990.

KANSAS GAS AND ELECTRIC COMPANY, Appellant,
v.
THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS, Appellee, and BEECH AIRCRAFT CORPORATION, et al., Appellants, v. THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS, Appellee.



Kansas Gas and Electric Company (KG&E) and Beech Aircraft Corporation, The Coleman Company, Total Petroleum, Inc., LaFarge Corporation, and Texaco, Inc., (the industrial intervenors) appeal the Kansas Corporation Commission's (KCC) decision finding fuel costs were imprudently incurred during outages at the Wolf Creek Generating Station (Wolf Creek) and ordering a $6.9 million refund with interest to KG&E's customers. We affirm in part, reverse in part, and remand.

In September 1987, Wolf Creek embarked on a refueling outage scheduled to last 49 days. The refueling outage actually lasted 101 days and a subsequent, unscheduled outage on January 21, 1988, lasted another 26 days. As part of a general investigation into excess energy costs incurred during the 1987-88 extended outages at Wolf Creek, the KCC, on its own motion, ordered KG&E to show cause by an order dated December 30, 1988, why KG&E should be allowed to retain $6,415,582 of excess costs charged to Kansas ratepayers during the unscheduled outage periods. The industrial customers subject to KG&E's Retail Energy Cost Adjustment Clause intervened in the action. The Citizens' Utility Ratepayers Board (CURB), representing residential and small commercial customers, also intervened.

After a hearing, the KCC issued an order finding imprudence and mismanagement during the 1987-88 outages in question. The KCC further adopted the KCC staff's calculation of refund rather than relying on KG&E's Retail Energy Cost Adjustment Clause (ECA clause) to determine the refund. In so doing, the KCC found a 49-day outage schedule to have been prudent and the balance of the outage to have been avoidable, and ordered KG&E to refund $6,923,457 in three equal lump sums, payable annually. (The $6,415,582 refund proposed in the show cause order assumed

[14 Kan. App. 2d 529]

      a 56-day outage schedule.) The refund included 9.8836 percent interest from the time the overcharges were incurred until the time each refund is made. Chairman Henley dissented from the decision.

Both KG&E and the industrial intervenors timely applied for judicial review, and those applications were consolidated for argument and decision by this court.

  We are first confronted with the question of this court's jurisdiction to hear the appeal. K.S.A. 1989 Supp. 66-118a(b) provides in relevant part: "The court of appeals shall have exclusive jurisdiction to review any agency action of the state corporation commission arising from a rate hearing requested by a public utility or requested by the state corporation commission when a public utility is a necessary party." KG&E is clearly a public utility as defined in K.S.A. 66-104; i.e., it is a company "for the production, transmission, delivery or furnishing of heat, light, water or power." The jurisdictional question here is whether the agency action arises from a rate hearing.

  KG&E's position is that the ECA clause is a rate because it involves the pricing of a product to customers. In re Application of Southwestern Bell Tel. Co., 9 Kan. App. 2d 525, 685 P.2d 304, rev. denied 236 Kan. 875 (1984). The KCC's position, as announced in its order, is that the ECA clause is a tariff and not a rate and that the hearing appealed from was not a rate hearing.

  Two recent Court of Appeals decisions have addressed this jurisdictional issue. In re Application of Southwestern Bell Tel. Co., 9 Kan. App. 2d 525, involved approval of tariffs which had been severed from the underlying rate case because of the need to expedite the rate case. Jurisdiction was found to lie with the Court of Appeals based on two factors: "(1) the close relationship between this case and the prior rate case; and (2) the similarity of the involved tariff to a rate schedule." 9 Kan. App. 2d at 529.

  The court added a cautionary note, however:

  "The conclusion that this court has jurisdiction in this case does not mean that all cases involving tariffs are directly appealable to this court under K.S.A. 66-118a. For example, questions of tariff interpretation should be appealed to the district court. Southwestern Bell Tel. Co. v. Kansas Corporation Commission, 233 Kan. 375 [, 664 P.2d 798 (1983)]. If the tariff is closely related to a prior rate case or if it is similar to a rate schedule,

[14 Kan. App. 2d 530]

      jurisdiction will more likely be with this court than with the district court." 9 Kan. App. 2d at 531.

  MAPCO Intrastate Pipeline Co. v. Kansas Corporation Comm'n, 10 Kan. App. 2d 527, 704 P.2d 989 (1985), turned on application of the second Southwestern Bell factor. 10 Kan. App. 2d at 530-31. The court found the amended tariff which was the subject of appeal "dealt only with new rates" and "[t]he Commission's hearing on the tariff likewise dealt only with rates and revenues." 10 Kan. App. 2d at 531. The court concluded this was a rate hearing, and the resulting order was one "`arising from a rate hearing.'" 10 Kan. App. 2d at 531.

  In this case the KCC issued an order to KG&E to show cause why it should be allowed to retain in excess of six million dollars of excess costs charged to Kansas ratepayers during unscheduled outage periods associated with the second refueling of the Wolf Creek Generating Station. As part of the original Wolf Creek rate hearings, the KCC approved an ECA clause as part of KG&E's tariffs. The clause, as explained by KG&E's Supervisor of Regulatory Accounting, is a "rate setting mechanism whereby customers are charged, as a separate component on their bills, for the estimated costs of fuel and purchased power required to meet anticipated energy consumption on KG&E's system during each calendar month." In calculating the proposed refund for purposes of the show cause order, the KCC staff employed an alternative fuel mix ratio, a decision challenged by KG&E, which contended before the KCC and now on appeal that a refund, if ordered, should be calculated under the ECA clause approved as part of the Wolf Creek rate hearings. KG&E argues the rejection of the ECA clause and the application of a different cost adjustment formula resulted in retroactive ratemaking in the instant case.

  We find that, based on either Southwestern Bell factor, the close relationship between this case and the prior rate case, or the similarity of the involved tariff to a rate schedule, jurisdiction properly lies with this court because the show cause order in this case is inextricably bound to the tariffs established in the prior rate case and the issues involved are not simply ones of tariff interpretation. Likewise, KG&E's ECA clause is an indispensable component of its rate structure because it is the only

[14 Kan. App. 2d 531]

      mechanism available to KG&E to price its product for the purposes of recovering its fuel costs. Even if the ECA clause in this case is a tariff, it is a tariff similar to a rate schedule.

  Our scope of review is defined at K.S.A. 77-621, a codification of principles well established in Kansas case law. See Zinke & Trumbo, Ltd. v. Kansas Corporation Comm'n, 242 Kan. 470, 474, 749 P.2d 21 (1988); Kansas Gas & Electric Co. v. Kansas Corporation Comm'n, 239 Kan. 483, 497, 720 P.2d 1063 (1986). An explanation of those principles appears in Midwest Gas Users Ass'n v. Kansas Corporation Commission, 3 Kan. App. 2d 376, 380-81, 595 P.2d 735, rev. denied 226 Kan. 792 (1979).

 
"An order is `lawful' if it is within the statutory authority of the commission, and if the prescribed statutory and procedural rules are followed in making the order. Central Kansas Power Co. v. State Corporation Commission, 221 Kan. 505, Syl. ¶ 1, 561 P.2d 779 (1977). An order is generally considered `reasonable' if it is based on substantial competent evidence. Jones v. Kansas Gas and Electric Co., 222 Kan. 390, Syl. ¶ 2 [, 565 P.2d 597 (1977)].
"The legislature has vested the commission with wide discretion and its findings have a presumption of validity on review. Central Kansas Power Co. v. State Corporation Commission, 221 Kan. at 511. Since discretionary authority has been delegated to the commission, not to the courts>, the power of review does not give the courts> authority to substitute their judgment for that of the commission. Central Kansas Power Co. v. State Corporation Commission, 206 Kan. 670, 675, 482 P.2d 1 (1971). The commission's decisions involve the difficult problems of policy, accounting, economics and other special knowledge that go into fixing utility rates. It is aided by a staff of assistants with experience as statisticians, accountants and engineers, while courts> have no comparable facilities for making the necessary determinations. Southwestern Bell Tel. Co. v. State Corporation Commission, 192 Kan. 39, 48-9, 386 P.2d 515 (1963). Hence a court may not set aside an order of the commission merely on the ground that it would have arrived at a different conclusion had it been the trier of fact. It is only when the commission's determination is so wide of the mark as to be outside the realm of fair debate that the court may nullify it. Kansas-Nebraska Natural Gas Co. v. State Corporation Commission, 217 Kan. 604, 617, 538 P.2d 702 (1975); Graves Truck Line, Inc. v. State Corporation Commission, 215 Kan. 565, Syl. ¶ 5, 527 P.2d 1065 (1974)." (Cited with approval in Kansas Gas & Electric Co. v. Kansas Corporation Comm'n, 239 Kan. at 496-97, and MAPCO Intrastate Pipeline Co. v. Kansas Corporation Comm'n, 10 Kan. App. 2d at 533-34.)
  "[S]ubstantial competent evidence is that which possesses something of substance and relevant consequence, and which furnishes a substantial basis of fact from which the issues tendered

[14 Kan. App. 2d 532]

      can reasonably be resolved." Southwestern Bell Tel. Co. v. Kansas Corporation Commission, 4 Kan. App. 2d 44, 46, 602 P.2d 131 (1979), rev. denied 227 Kan. 927 (1980).

 1. Retroactive Ratemaking.

  In determining the amount of refund owed KG&E customers, the KCC based its calculation on actual fuel mix data collected over a three-year period. KG&E contends the only approved alternative fuel ratio is contained in the current ECA clause, and adoption of any other methodology constitutes prohibited retroactive ratemaking. The KCC relies on its statutory authority to prevent collection of unreasonable and unjust rates and claims that it does not have to abide by the terms of the ECA clause alternative fuel ratio for several reasons: (1) the ban against retroactive ratemaking is basically a policy decision; (2) the ECA clause is not a "rate"; (3) the ECA clause is subject to supervision by the KCC and thus can be modified retroactively; and (4) the ECA clause is only applicable to energy costs not within the control of the utility.

  While recognizing the KCC's broad authority to regulate rates, we hold that application of an alternative fuel ratio other than that contained in the current ECA clause constitutes prohibited retroactive ratemaking.

  K.S.A. 1989 Supp. 66-101d gives the KCC authority to investigate rates either on complaint or on its own initiative. The statute continues, in relevant part: "If after hearing and investigation the commission finds that such rates . . . are unjust, unreasonable, unjustly discriminatory or unduly preferential, the commission shall have the power to fix and order substituted therefor such rates . . . as are just and reasonable."

  The KCC's power to set just and reasonable rates, however, is subject to the general rule "that a statute will operate prospectively rather than retrospectively unless its language clearly indicates that the legislature intended the latter, and that retrospective application will not be given where vested rights will be impaired." Eakes v. Hoffman-LaRoche, Inc., 220 Kan. 565, 568, 552 P.2d 998 (1976). There is no clear indication of legislative intent that 66-101d operate retrospectively. On the contrary, such a ...


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