Central Kansas Power Co. v. State Corp. Commission

• Decision Date: 09 October 1957
• Docket Number: No. 40371,40371
• Citation: 181 Kan. 817,316 P.2d 277
• Parties: , 21 P.U.R.3d 157 CENTRAL KANSAS POWER COMPANY, a corporation, Appellee, v. The STATE CORPORATION COMMISSION of the State of Kansas et al., Kansas-Nebraska Natural Gas Company, Inc., Appellants.
• Court: Kansas Supreme Court

Page 277

316 P.2d 277

181 Kan. 817, 21 P.U.R.3d 157

CENTRAL KANSAS POWER COMPANY, a corporation, Appellee, v. The STATE CORPORATION COMMISSION of the State of Kansas et al., Kansas-Nebraska Natural Gas Company, Inc., Appellants.

No. 40371.

Supreme Court of Kansas.

Oct. 9, 1957.

Rehearing Denied Nov. 16, 1957.

Syllabus by the Court

1. The Kansas Public Utilities Act (G.S.1949, 66-101 et seq.) evinces no purpose to abrogate private rate contracts as such; on the contrary, G.S.1949, 66-108, by requiring such contracts be filed with the State Corporation Commission, expressly recognizes that rates to individual customers may be set by private contracts.

2. Where a contract between a public utility and its customer is filed with the State Corporation Commission pursuant to G.S.1949, 66-108, and the rates therein prescribed go into effect, a presumption of their reasonableness arises when the commission in light of its statutory duty under G.S.1949, 66-110 to investigate rates, classifications, or schedules of rates on its own initiative, does not do so.

3. The necessity for an express finding of the unreasonableness of existing contract rates as a prerequisite to their abrogation is in recognition of the state's police power to regulate public utilities, the exercise of which is conditioned on the public interest. Absent this public interest, abrogation of contract rates may not be effected merely to relive one or the other parties from unprofitable or injudicious undertakings.

4. The necessity of a showing that existing contract rates affect adversely the welfare of the public, thus rendering them unlawful or unreasonable, is not limited to contract rate changes in proceedings before the State Corporation Commission under G.S.1949, 66-110, but must be affirmatively incorporated in commission action to validate its consent to schedules of new rates proposed by a public utility under G.S.1949, 66-117. A finding that a contract rate is unreasonable must precede the abrogation of the contract.

5. Where a contract such as that described in par. 2 of this syllabus is filed with the State Corporation Commission pursuant to G.S.1949, 66-108, and the rates therein prescribed are sought to be unilaterally changed by the public utility by filing a schedule of new rates under G.S.1949, 66-117, a duty is imposed on the commission to investigate the existing contract rates, which may be abrogated only upon an express finding that they are unreasonable and that they affect adversely the welfare of the public. Absent such a finding, commission approval of a proposed schedule of new rates cannot and does not abrogate existing contract rates.

6. The record in a proceeding reviewing orders of the State Corporation Commission pursuant to G.S.1949, 66-118c et seq., examined and held: (1) There was substantial competent evidence to support the finding that the orders reviewed were unreasonable as applied to appellee Central Kansas Power Company, (2) the order of the district court staying the orders of the commission under review were properly entered effective December 15, 1954.

Harold E. Jones, Asst. Gen. Counsel, Topeka, argued the cause, and C. C. Lindley, Gen. Counsel, and Charles R. Escola, Acting Gen. Counsel, Topeka, were with him on the briefs for appellant State Corporation Commission.

Douglas Gleason, Ottawa, argued the cause, and James D. Conway, Hastings, Neb., was with him on the briefs for appellant Kansas-Nebraska Natural Gas Co., Inc.

Louis R. Gates, Kansas City, argued the cause, and Norman W. Jeter, Hays, was with him on the briefs for appellee.

FATZER, Justice.

These two appeals are from a judgment of the district court of Ellis County vacating and setting aside as unreasonable two orders of appellant State Corporation Commission, hereafter referred to as the commission, entered on the application of appellant Kansas-Nebraska Natural Gas Company, Inc., hereafter referred to as Kansas-Nebraska, insofar as those orders affected appellee Central Kansas Power Company, hereafter referred to as Central.

Both Kansas-Nebraska and Central are Kansas corporations and are public utilities engaged in the production, purchase, sale, transmission and distribution of natural gas in Kansas. Kansas-Nebraska's principal office is in Phillipsburg, Kansas, and Central's principal office is in Abilene, Kansas.

A brief background of each utility will be helpful. Kansas-Nebraska produces and purchases gas in Kansas, Oklahoma, Colorado and Nebraska, and transmits and distributes it through its pipe line system to wholesale and retail customers in Kansas, Nebraska, and to a limited extent in Colorado. It has two main pipe lines: the first, originating in the Hugoton field and extending northward to serve principally cities, which is termed the Oakley line, thence into Nebraska; the second, which is referred to as its predominate line, reaches the Hugoton field south from Kearny County and runs northeasterly from a point in that county to WaKeeney, thence to Phillipsburg and Stockton where it is joined with a line that procures gas from the Pawnee-Unruh area. Since April 1944 Kansas-Nebraska has purchased approximately 96 percent of its gas, 84 percent of which was secured from the Hugoton field in Kansas. Of the gas purchased and produced in Kansas, approximately 36 percent was sold and distributed in Kansas, while approximately 64 percent was sold and distributed in Nebraska. Kansas-Nebraska serves 50 communities in western Kansas--ten at wholesale, either directly from its transmission line to a purchaser who transports the gas in its own pipe lines to points of distribution, or by delivery to the distribution system of the purchaser at the 'town border;' and 40 in which it makes sale of gas to retail customers in the community through its own distribution system. During 1953 Kansas-Nebraska served gas in Kansas to an average of 12,384 residential, 2,446 commercial, and 148 industrial customers. It also made direct sales from its transmission system to industrial and institutional customers in Kansas.

Central owns a gas pipe-line system in central and western Kansas and is engaged in the transmission, distribution and resale of gas which it purchases from Kansas-Nebraska. In addition, it owns and operates electric generating plants located at Colby, Atwood, Hoxie and Hill City, interconnected to permit transmission of electric power from each plant to cities in the areas served.

On April 3, 1944, Kansas-Nebraska, having contracts for a supply of gas from the Hugoton field and desiring to construct a second pipe line from a point in Kearny County northeasterly to WaKeeney and Stockton, entered into a contract whereby it agreed to sell and deliver, and Central agreed to purchase, all of the gas Central might require for resale to customers then or thereafter connected to its distributing system at a price of 6 cents per M.c.f. to be delivered to Central's transmission system at WaKeeney, or at an emergency delivery point at Toulon, Kansas. This agreement is referred to as the WaKeeney contract and was effective until September 1, 1959. It was amended by supplemental agreements of April 4, 1946 and May 22, 1950, and also by orders of the commission entered February 18, 1949 and December 2, 1953. Together with its supplements, it was filed with the commission pursuant to G.S.1949, 66-108, and remained in effect until abrogated by the commission as hereafter detailed.

The WaKeeney contract was beneficial to both utilities. Central held franchises for the retail sale of gas in Hays, Ellis and WaKeeney. Although it owned producing gas wells, production was insufficient to insure performance of the franchises and the contract guaranteed Central adequate gas reserves. The contract assisted Kansas-Nebraska in financing the construction of the second pipe line: it provided a minimum return by requiring Central to pay a maximum demand charge on 5,000,000 c.f. deliveries, regardless of whether that amount was needed, but Kansas-Nebraska was obligated to deliver to Central only such gas as was available from its then source of supply. Central agreed to refrain from sale or delivery of gas to any additional customers for resale without Kansas-Nebraska's approval. Lateral lines were not required to establish service to Central, and it (Central) provided a site for Kansas-Nebraska's metering and regulation system at WaKeeney. The contract further provided that Kansas-Nebraska had the right, upon 60 days notice to Central, to require reconsideration of the price if the combined amount of its labor and tax costs were increased by 100 percent or more.

On May 22, 1950, a second supplement to the WaKeeney contract increased the price of gas to Central to 11 cents per M.c.f. and contained an escalator clause which provided that if the commission's order of February 18, 1949, establishing a minimum 8-cent wellhead price was sustained by the courts, Central would pay an additional 2 cents per M.c.f. for all gas produced after March 1, 1950. This order was sustained by this court October 7, 1950 (Kansas-Nebraska Natural Gas Co. v. State Corporation Commission, 169 Kan. 722, 222 P.2d 704), and Central was billed from March 1, 1950, accordingly. The escalator clause further provided that in the event any other order be made by any authorized federal or state agency increasing the wellhead cost of gas in the Hugoton field in excess of 6 cents per M.c.f., Kansas-Nebraska could charge any or all cost to Central. On December 2, 1953, the commission established a minimum wellhead cost of 11 cents per M.c.f. as a condition for the withdrawal of gas from the Hugoton field. That order was sustained by this court December 8, 1956 (Cities Service Gas Co. v. State Corporation Commission, 180 Kan. 454, 304 P.2d 528). However, Central was billed in accordance with this order from January 1, 1954, its effective date.

In addition to the WaKeeney...