Kan. City Power & Light Co. v. Mo. Pub. Serv. Comm'n

• Decision Date: 07 August 2018
• Docket Number: WD 80911
• Citation: 557 S.W.3d 460
• Parties: In the Matter of: KANSAS CITY POWER AND LIGHT COMPANY ’S REQUEST FOR AUTHORITY TO IMPLEMENT A GENERAL RATE INCREASE FOR ELECTRIC SERVICE, Appellant, v. MISSOURI PUBLIC SERVICE COMMISSION and Midwest Energy Consumers Group, Respondents.
• Court: Missouri Court of Appeals

557 S.W.3d 460

In the Matter of: KANSAS CITY POWER AND LIGHT COMPANY ’S REQUEST FOR AUTHORITY TO IMPLEMENT A GENERAL RATE INCREASE FOR ELECTRIC SERVICE, Appellant,

v.MISSOURI PUBLIC SERVICE COMMISSION and Midwest Energy Consumers Group, Respondents.

WD 80911

Missouri Court of Appeals, Western District.

Filed: August 7, 2018

James M. Fischer, Larry W. Dority, Jefferson City; Roger W. Steiner, Robert Hack, Joshua Harden, Karl Zobrist, Kansas City; Lisa Gilbreath, Portland for appellant.

Jennifer Heintz, John Borgmeyer, David Wordsmall, Jefferson City for Respondents.

Before Division Two: James E. Welsh, P.J.,¹ and Alok Ahuja and Anthony Rex Gabbert, JJ.

Alok Ahuja, Judge

Kansas City Power & Light Company("KCP&L") appeals a Report and Order issued by the Public Service Commission in KCP&L’s most recent general rate case.The company raises two issues on appeal.KCP&L first argues that the Commission erroneously refused to allow it to adjust the electrical consumption during the test year used in the rate case, to reflect the impact of certain energy efficiency measures which KCP&L had implemented under the Missouri Energy Efficiency Investment Act ("MEEIA"), § 393.1075 et seq.²Second, KCP&L argues that the Commission erroneously refused to include electric vehicle charging stations constructed and operated by KCP&L in the utility’s rate base, based on the Commission’s determination that the charging stations were not "electric plant" within the meaning of § 386.020(14).

We reject KCP&L’s challenge to the Commission’s treatment of KCP&L’s energy efficiency measures.We conclude, however, that the Commission erred when it held that KCP&L’s electric vehicle charging stations did not fall within the statutory definition of "electric plant."We accordingly reverse that aspect of the Commission’s Report and Order, and remand the case to the Commission for further proceedings consistent with this opinion.

Factual Background

KCP&L is an electric utility subject to Commission regulation.It provides electrical service to approximately 527,000 customers in the Kansas City metropolitan area and surrounding communities.

On July 1, 2016, KCP&L filed proposed tariffs designed to implement a general rate increase for electric utility service.The proposed tariffs had an effective date of July 31, 2016.The Commission suspended the proposed tariffs until May 28, 2017, to allow for full rate case proceedings.

KCP&L raises two issues on appeal.We discuss the facts relevant to each of those issues in the sections which follow.

1.Treatment of Cycle 1 Energy Efficiency Measures

The "test year" for KCP&L’s rate case was the 12-month period ending December 31, 2015.As the Commission explained in its Report and Order,

A test year is a historical year used as the starting point for determining the basis for adjustments that are necessary to reflect annual revenues and operating costs in calculating any shortfall or excess of earnings by the utility.Adjustments, such as annualization and normalization, are made to the test year results when the unadjusted results do not fairly represent the utility’s most current annual level of existing revenue and operating costs.

(Footnote omitted.)The Report and Order explains that

[a] normalization adjustment is an adjustment made to reflect normal, on-going operations of the utility.Revenues or costs that were incurred in the test year that are determined to be atypical or abnormal will get specific rate treatment and generally require some type of adjustment to reflect normal or typical operations.The normalization process removes abnormal or unusual events from the cost of service calculations and replaces those events with normal levels of revenues or costs.

(Footnote omitted.)On the other hand, "[a]n annualization adjustment is made to a cost or revenue shown on the utility’s books to reflect a full year’s impact of that cost or revenue."

During the 2015 test year, KCP&L was implementing "Cycle 1" of an energy-efficiency program approved by the Commission pursuant to the Missouri Energy Efficiency Investment Act (or "MEEIA").The Missouri Supreme Court recently described MEEIA’s general purpose and operation in Missouri Public Service Commission v. Union Electric Co. , No. SC96222, 552 S.W.3d 532, 534, 2018 WL 3235705(Mo. banc July 3, 2018) :

As a general matter, utilities ... recover their costs (plus a reasonable return on their investments) through the sale of electricity at the rates set by the Commission.As a result, [an electric utility] has little or no incentive to encourage energy efficient practices by its customers because, again generally, the more electricity [the utility] sells the more money it makes.To remove this disincentive and encourage utilities to develop and implement programs encouraging energy efficient practices by its customers, the legislature enacted the Missouri Energy Efficiency Investment Act ("the Act"), see§ 393.1075, RSMo, et seq.

Under the Act, the Commission is authorized to "develop cost recovery mechanisms to further encourage investments in demand-side programs including ... allowing the utility to retain a portion of the net benefits of a demand-side program for its shareholders."§ 393.1075.5.The Commission promulgated detailed regulations allowing utilities to seek Commission approval of a "[d]emand-side programs investment mechanism, or DSIM."Rules 3.163(1)(F),20.093(1)(M).These regulations provide that a DSIM is "a mechanism ... to encourage investments in demand-side programs," and may include "[r]ecovery of lost revenues" resulting from decreased electricity consumption, and a "[u]tility incentive based on the achieved performance level of approved demand-side programs."Id.

Id. at *1(footnotes omitted).

KCP&L’s Cycle 1 energy-efficiency plan proposed to implement twelve different energy-saving initiatives, including supporting upgrades to eligible customers' residential lighting, kitchen appliances, air conditioning systems, and thermostats.KCP&L forecast that, during the 18-month life of the Cycle 1 program (from July 1, 2014 through December 31, 2015), energy consumption would be reduced by more than 102 million kilowatt hours.The Cycle 1 plan provided that the company would be compensated for lost revenues due to the decreased sale of electricity through a "Throughput Disincentive-Net Shared Benefits"(or "TD-NSB") surcharge (which we describe in greater detail in § I of the Discussion which follows).KCP&L’s Cycle 1 plan did not provide for any annualization adjustment for energy-saving measures which were implemented during the test year of a future rate case.

In August 2015, KCP&L filed for Commission approval of its "Cycle 2" energy-efficiency program.Unlike the Cycle 1 program (which relied exclusively on a TD-NSB mechanism to compensate KCP&L for lost revenues resulting from the implementation of energy-saving measures), the Cycle 2 program provided that KCP&L’s lost revenues connected to its MEEIA program would be recovered through annualization adjustments to the electricity consumption figures used in subsequent rate cases.In other words, the Cycle 2 plan contemplated that, in future rate cases, KCP&L would reduce the electricity consumption figures during the test year, to reflect the full annualized effect of the energy-efficiency measures being implemented during the test year.These adjusted (i.e. , reduced) consumption figures would then be used in setting appropriate electricity rates going forward.The Stipulation embodying KCP&L’s Cycle 2 plan provided for an annualization adjustment for "all active MEEIA programs."

In the current rate case KCP&L argued that electricity usage during the 2015 test year should be subject to an annualization adjustment to reflect the decreased electricity consumption related to the implementation of its Cycle 1 and Cycle 2 energy-efficiency programs.It contended that its Cycle 1 programs should trigger an annualization adjustment because those programs had the effect of reducing electricity consumption during the 2015 test year.KCP&L argued that the Cycle 1 programs which had an effect on electricity consumption in 2015 were "active MEEIA programs" within the meaning of the Cycle 2 Stipulation, and were accordingly subject to an annualization adjustment under the terms of the Cycle2 Stipulation. KCP&L also relied on general ratemaking principles to argue that the Commission was required to consider all available information to determine the electricity consumption to be factored into KCP&L’s forward-looking electricity rates.KCP&L argued that, if the Commission failed to make an annualization adjustment based on the consumption-reducing effects of its Cycle 1 programs, the Commission would overstate electricity consumption during the test year by more than 100 million kilowatt hours.KCP&L claimed that this overstated consumption estimate would cause KCP&L to fail to recover more than $6.6 million of its revenue requirement (because it would sell less electricity than the Commission had estimated when setting KCP&L’s rates).

The Commission issued its Report and Order on May 3, 2017, with an effective date of May 13, 2017.In its Report and Order, the Commission rejected KCP&L’s argument that it was entitled to an annualization adjustment for reduced electricity consumption attributable to measures implemented as part of its Cycle 1 energy-efficiency program.The Commission found that KCP&L’s "lost revenues for Cycle 1 programs were already accounted for through operation of the TD-NSB in the MEEIA surcharge.Thus, granting KCP&L’s request [for an annualization adjustment in the present rate case] would result in double recovery of assumed lost revenues."The Commission also concluded that "[t]he language ‘all active MEEIA programs’ in the Cycle 2 Stipulation does not allow KCPL to annualize kWh sales from its Cycle 1 demand-side programs."

2.Treatment of Electric Vehicle Charging Stations

As...