Amendment of Comm'ns Rule Regarding Applications for Certificates of Convenience & Necessity v. Mo. Pub. Serv. Comm'n

• Decision Date: 28 June 2019
• Docket Number: WD82182
• Court: Missouri Court of Appeals
• Parties: IN THE MATTER OF THE AMENDMENT OF THE COMMISSION'S RULE REGARDING APPLICATIONS FOR CERTIFICATES OF CONVENIENCE AND NECESSITY; KANSAS CITY POWER AND LIGHT AND KCP&L GREATER MISSOURI OPERATIONS COMPANY, Appellants, v. MISSOURI PUBLIC SERVICE COMMISSION AND DOGWOOD ENERGY, Respondents.

IN THE MATTER OF THE AMENDMENT OF THE COMMISSION'S RULE REGARDING

APPLICATIONS FOR CERTIFICATES OF CONVENIENCE AND NECESSITY;

KANSAS CITY POWER AND LIGHT AND KCP&L GREATER MISSOURI OPERATIONS COMPANY, Appellants, v. MISSOURI PUBLIC SERVICE COMMISSION AND DOGWOOD ENERGY, Respondents.

WD82182

MISSOURI COURT OF APPEALS WESTERN DISTRICT

June 28, 2019

APPEAL FROM THE PUBLIC SERVICE COMMISSION

Before Division Three: Thomas H. Newton, Presiding Judge, Anthony Rex Gabbert, Judge and Edward R. Ardini, Jr., Judge

Kansas City Power & Light Company ("KCP&L") and KCP&L Greater Missouri Operations Company ("GMO") appeal an Order of Rulemaking issued by the Public Service Commission ("PSC") adopting a new rule relating to certificates of convenience and necessity. KCP&L and GMO argue that the rule exceeds statutory authority, and further that the rule's fiscal note is deficient, rendering the rule void and unenforceable. We agree that the rule exceeds statutory authority, and therefore vacate the Order of Rulemaking.

Factual and Procedural Background

"The PSC is a state agency established by the Missouri General Assembly to regulate public utilities operating within the state." State ex rel. Praxair, Inc. v. Mo. Pub. Serv. Comm'n, 344 S.W.3d 178, 186 (Mo. banc 2011). KCP&L and GMO are electrical corporations and public utilities as defined in section 386.020,¹ subject to regulation by the PSC. Dogwood Energy, LLC ("Dogwood") owns a majority interest in the Dogwood Energy Facility, "a natural gas-fired, combined cycle electric power generating facility" located in Missouri. The Dogwood Energy Facility is the "largest combined cycle plant in the state."

The PSC is vested with rulemaking authority under section 386.250.² On April 5, 2018, the PSC filed a proposed rule with the Missouri Secretary of State regarding electric utility³ applications for certificates of convenience and necessity ("CCNs"). The PSC sought to rescind the then-existing rule regarding applications for CCNs—4 CSR 240-3.105—and replace it with a new rule, the provisions of which are discussed in detail below. The proposed rule contained a statement that it would "not cost private entities more than five hundred dollars ($500) in the aggregate." Comments in support of or in opposition to the proposed rule were accepted until June 14, 2018, and a public hearing regarding the proposed rule was held on June 19, 2018.

KCP&L, GMO, and Dogwood submitted written comments to the PSC, and KCP&L and GMO appeared at the hearing to express their positions on the proposed rule.⁴ KCP&L and GMO generally opposed the proposed rule; Dogwood generally supported it. On August 8, 2018, the PSC filed two "Orders of Rulemaking" with the Secretary of State: one rescinding 4 CSR 240-3.105 and one adopting 4 CSR 240-20.045 ("the Rule"). The Order of Rulemaking adopting the Rule set forth the provisions of the Rule, summarized and responded to the comments that had been submitted regarding the proposed rule, and included a fiscal note, which estimated that compliance with the Rule "would result in an additional cost of $0 to $100,000" for private entities.

KCP&L and GMO filed a timely Application for Rehearing and Request for Stay, asserting that the PSC "should rehear this matter, and thereafter revoke and rescind its Order of Rulemaking." The PSC denied the request, and KCP&L and GMO appealed to this Court. See § 386.510 (orders of the PSC are directly appealable to "the appellate court with the territorial jurisdiction over the county where the hearing was held or in which the commission has its principal office"). Dogwood moved to intervene as a respondent in the appeal; we granted Dogwood's request. The Rule was published in the Missouri Register on October 15, 2018, and became effective on November 30, 2018.

Additional facts are set forth in our analysis.

Standard of Review

"[T]he standard of review of a PSC order of rulemaking is two-pronged: first, the reviewing court must determine whether the PSC's order is lawful; and second, the court must determine whether the order is reasonable." State ex rel. Atmos Energy Corp. v. Pub. Serv. Comm'n, 103 S.W.3d 753, 759 (Mo. banc 2003); see also § 386.510. To be lawful, the order of rulemaking "mustbe consistent with and subject to statutes adopted by the General Assembly." See State ex rel. Philipp Transit Lines, Inc. v. Pub. Serv. Comm'n, 523 S.W.2d 353, 356 (Mo. App. 1975); see also State ex rel. Sprint Mo., Inc. v. Pub. Serv. Comm'n, 165 S.W.3d 160, 163 (Mo. banc 2005) (The lawfulness of the PSC's order "turns on whether the PSC had the statutory authority to act as it did."); § 536.014. When determining whether an order of rulemaking is lawful, "we exercise independent judgment and must correct erroneous interpretations of the law." State ex rel. Pub. Counsel v. Pub. Serv. Comm'n, 397 S.W.3d 441, 447 (Mo. App. W.D. 2013). "There is no presumption in favor of the Commission's resolution of legal issues" and "we decide the legal points anew." Atmos Energy Corp., 103 S.W.3d at 759. If we find the PSC's order of rulemaking unlawful, we need not reach the issue of reasonableness. In re Verified Application & Petition of Liberty Energy (Midstates) Corp., 464 S.W.3d 520, 524 (Mo. banc 2015).

CCN Law and the Rule

KCP&L and GMO raise four points on appeal. Before we address these points, however, we believe it helpful to set forth some general law regarding CCNs, along with the relevant provisions of the Rule.

Section 393.170 requires that an electrical corporation obtain a CCN from the PSC before the corporation can take certain actions. Specifically, subsection 1 provides that, "[n]o . . . electrical corporation . . . shall begin construction of a[n] . . . electric plant . . . other than an energy generation unit that has a capacity of one megawatt or less, without first having obtained the permission and approval of the commission." § 393.170.1. Subsection 2 provides that, "[n]o such corporation shallexercise any right or privilege⁵ under any franchise⁶ . . . without first having obtained the permission and approval of the commission." § 393.170.2. Finally, subsection 3 provides that:

The commission shall have the power to grant the permission and approval herein specified whenever it shall after due hearing determine that such construction or such exercise of the right, privilege or franchise is necessary or convenient for the public service. The commission may by its order impose such condition or conditions as it may deem reasonable and necessary. Unless exercised within a period of two years from the grant thereof, authority conferred by such certificate of convenience and necessity issued by the commission shall be null and void.

§ 393.170.3.

In other words, "[s]ection 393.170 sets out two types of CCNs the Commission may grant a utility." Grain Belt Express Clean Line, LLC v. Pub. Serv. Comm'n, 555 S.W.3d 469, 471 (Mo. banc 2018). "These types are provided for in separate subsections of section 393.170 and are commonly referred to as 'line certificates' and 'area certificates.'" Id. (emphasis in original). "Section 393.170.1 grants the Commission the authority to issue a line CCN to a utility to construct electrical plants." Id. Additionally, "[p]ermission to build transmission lines or production facilities is generally granted in the form of a 'line certificate.'"⁷ State ex rel. Cass Cnty. v. Pub. Serv. Comm'n, 259 S.W.3d 544, 549 (Mo. App. W.D. 2008); see also State ex rel. Union Elec. Co. v. Pub. Serv. Comm'n, 770 S.W.2d 283, 285 (Mo. App. W.D. 1989) (describing the utility's certificate to construct an electric line as "a line certificate" and noting the authority for which wascontemplated in section 393.170.1). "Section 393.170.2 grants the Commission the authority to issue an area CCN for the utility to exercise a franchise and provide retail utility service to a geographic territory." Grain Belt Express, 555 S.W.3d at 471.

Although an electric utility generally must obtain a line CCN before building transmission lines, it need not do so if the utility is seeking to build or extend the transmission lines in "its certificated area (i.e. the territory covered by its area [CCN])." Cass Cnty., 259 S.W.3d at 549 n.6; see also State ex rel. Harline v. Pub. Serv. Comm'n, 343 S.W.2d 177, 185 (Mo. App. 1960); cf. Pub. Serv. Comm'n v. Kan. City Power & Light Co., 31 S.W.2d 67, 71 (Mo. banc 1930). However, "[b]ecause the construction of a new power plant, even within a certificated area, is governed by section 393.170.1, a utility may not rely solely upon its area certificate and must obtain a line certificate from the PSC before doing so." Cass Cnty., 259 S.W.3d at 549 n.6; see also Stopaquila.org v. Aquila, Inc., 180 S.W.3d 24, 35-39 (Mo. App. W.D. 2005).

With this background in mind, we turn to the Rule promulgated by the PSC. The stated purpose of the Rule is to "outline[] the requirements for applications to the commission, pursuant to section 393.170.1 and 393.170.2, RSMo, requesting that the commission grant a certificate of convenience and necessity to an electric utility for a service area or to operate or construct an electric generating plant, an electric transmission line,⁸ or a gas transmission line that facilitates the operation of an electric generating plant." 4 CSR 240-20.045.

The Rule provides that an "electric utility must obtain a certificate of convenience and necessity prior to (1) Providing electric service to retail customers in a service area pursuant to section 393.170.2, RSMo; (2) Construction of an asset pursuant to section 393.170.1, RSMo; or (3) Operation of an asset pursuant to section 393.170.2, RSMo." 4 CSR 240-20.045(2)(A). The Rule defines "asset" as:

1. An electric generating plant, or a gas transmission line that facilitates the operation of an electric generating plant, that is expected to serve Missouri customers and be included in the rate base⁹ used to set their retail rates regardless of whether

...