Citizens' Util. Ratepayer Bd. v. State Corp. Comm'n of the State

• Decision Date: 27 July 2012
• Docket Number: No. 107,897.,107,897.
• Citation: 284 P.3d 348,47 Kan.App.2d 1112
• Court: Kansas Court of Appeals
• Parties: CITIZENS' UTILITY RATEPAYER BOARD, Petitioner/Appellant, v. The STATE CORPORATION COMMISSION OF the STATE of Kansas, Respondent/Appellee, and Kansas City Power & Light Co., Intervenor.

47 Kan.App.2d 1112

284 P.3d 348

CITIZENS' UTILITY RATEPAYER BOARD, Petitioner/Appellant,

v.The STATE CORPORATION COMMISSION OF the STATE of Kansas, Respondent/Appellee,andKansas City Power & Light Co., Intervenor.

No. 107,897.

Court of Appeals of Kansas.

July 27, 2012.

Syllabus by the Court

1. This court's review of an order of the Kansas Corporation Commission is controlled by the Kansas Judicial Review Act. On appeal, the Corporation Commission's findings are presumed valid, and its order may only be set aside if it is not supported by substantial competent evidence, is arbitrary or capricious, or the Corporation Commission has misinterpreted or misapplied the law.

2. In deciding utility rates, the Kansas Corporation Commission must consider competing policies of what expenses should be included in the rates. Rate case expenditures involve some degree of management choice and discretion whether to incur the expenses. In establishing these rates the Corporation Commission is required to balance the public need for adequate, efficient, and reasonable service with the public utility's need for sufficient revenue to meet the cost of furnishing service and to earn a reasonable profit.

3. Once testimony is admitted in a rate case, the Kansas Corporation Commission has discretion to weigh and accept or reject that evidence. On appeal, this court may not substitute its judgment for that of the Corporation Commission even though there may be conflicting evidence in the record that would support a contrary result.

4. The decisions of the Kansas Corporation Commission determining utility rates involve complex problems of policy, accounting, economics, and other special fields of knowledge to arrive at a just and reasonable rate. A court may not set aside an order of the Corporation Commission merely because the court would have arrived at a different conclusion had it been the trier of fact.

5. A court may reverse a Kansas Corporation Commission rate order as arbitrary or otherwise unreasonable only when the decision is so wide of the mark as to be outside the realm of fair debate.

6. There is a range of reasonableness in calculating utility rates. A court can only decide if the rate is so unreasonably high or so low that it is, in fact, unlawful. The point in between, where the rate is fair and reasonable for the utility and the ratepayer, is a question for the Kansas Corporation Commission to resolve.

7. Under the facts of this case, the adoption by the Kansas Corporation Commissionof the eight factors found in Kansas Rule of Professional Conduct 1.5(a) (2011 Kan. Ct. R. Annot. 270) as a method for the determination of the reasonableness of attorney fee requests as a part of the Corporation Commission's determination of rate case expenses is approved.

C. Steven Rarrick, of Citizens' Utility Ratepayer Board, for petitioner/appellant.

Dana A. Bradbury and Brian G. Fedotin, of Kansas Corporation Commission, for respondent/appellee.

Frank A. Caro, Jr. and Anne E. Callenbach, of Polsinelli Shughart PC, of Overland Park, and Denise M. Buffington, of Kansas City, Missouri, for intervenor Kansas City Power & Light Co.

Before HILL, P.J., MALONE and BRUNS, JJ.

Introduction

HILL, J.

This is an appeal from the order of the Kansas Corporation Commission, referred to as the Commission in this opinion, granting the inclusion of $4.5 million for consultant and attorney fees as rate case expenses for Kansas City Power and Light Company, commonly called KCP & L, a public utility regulated by the Commission.

In 2005, KCP & L agreed with the Commission and its staff (Staff), along with other interested parties, to provide for the future energy needs of Kansas energy users by making substantial improvements in the company's capacity to generate and transmit electricity. The parties refer to this agreement as the Plan. When the agreement was made, the parties recognized that KCP & L needed to “make substantial investments in its electric infrastructure over a five-year period” to meet the projected future energy demands of its customers in an environmentally friendly way. This meant that the company would make major improvements to its generating station at Iatan I in Missouri and construct a new coal-fired plant called Iatan II at the same location. The Plan contemplated that KCP & L would recover the costs of its investments through a four-step rate increase application process. The rate application that is the subject of this lawsuit is the fourth and last of that series of applications.

The Citizens' Utility Ratepayer Board, known by its acronym CURB, is a watchdog group formed by the legislature to represent the interests of residential and small commercial ratepayers in such proceedings. See K.S.A. 66–1222(a). CURB entered its appearance in the rate case and made it known that it opposed granting KCP & L any money in excess of $2.1 million for rate case expenses, the amount initially claimed by KCP & L.

In due course, the Commission approved $4.5 million in rate case expenses to KCP & L. Both CURB and KCP & L asked the Commission to reconsider its award. CURB contended that the approved amount was too high, while KCP & L thought the amount was too low. After taking additional evidence and entertaining argument on the matter, the Commission once again approved $4.5 million to KCP & L for rate case expenses.

CURB now appeals that award, seeking our review under the Kansas Judicial Review Act, starting at K.S.A. 77–601. CURB attacks the rate case award on three fronts, claiming: (1) The award is not supported by substantial competent evidence when viewed in the light of the record as a whole; (2) the award is unreasonable, arbitrary, and capricious; and (3) the award results in an erroneous interpretation or application of the law.

The Commission appears in defense of its rulings and KCP & L intervenes in support of the Commission's award.

Given the standard of review and the extensive legislative power of the Commission to set utility rates in Kansas, our review of this administrative record reveals no good reason to overturn or modify it in any way. Indeed, the Commission did not roll over and play dead here but instead, vigorously challenged KCP & L to prove the necessity and reasonableness of its expenses. We begin by giving a brief history of the events leading up to this controversy. In our view, CURB tries, unreasonably, to restrict the Commission.Using the Commission's own findings that explain why it quit analyzing billing statements for want of detail and used a lodestar calculation instead, CURB unsuccessfully contends the Commission could not award a sum for expenses that was greater than the original estimate.

Prior rate proceedings led to this lawsuit.

Citing K.S.A. 66–117, KCP & L filed an application with the Commission in December 2009 seeking to change its rates for electricity provided to Kansas consumers. KCP & L requested an 11.5 percent increase in its rates to cover a claimed gross revenue deficiency of over $55 million dollars for a test year ending September 30, 2009.

The December 2009 rate application, found at Commission Docket No. 10–KCPE–415–RTS (called the 415 docket by the parties), was the fourth in a series of rate cases anticipated as part of a regulatory plan for KCP & L adopted by the Commission in 2004. That plan was part of a stipulation and agreement entered into by KCPL, Staff, CURB, and other interested parties. (Docket No. 04–KCPE–1025–GIE). We note the parties settled the first three rate cases in 2006, 2007, and 2009.

As a part of the settlement in the third rate case, the parties agreed that certain issues would be raised in a later docket. Those issues addressed the prudence of certain upgrade costs of KCP & L's Iatan I electrical generating facility and other Iatan common plan improvements. The parties needed to resolve how much of those costs would be included in KCP & L's rate base. As that docket progressed, other parties also asserted that KCP & L imprudently incurred substantial costs in building the Iatan II facility and those imprudent costs should be excluded from KCP & L's rate base.

After approving a partial settlement, the Commission held evidentiary hearings on KCP & L's rate application from August through September 2010 to resolve any remaining issues. With respect to the Iatan II construction and improvements, the Commission reviewed prefiled testimony and heard the cross-examination of Walter Drabinski, Staff's expert witness. It was Drabinski's opinion that KCP & L had been imprudent in many of its decisions made during the construction of Iatan II and certain environmental upgrades installed at Iatan I. Drabinski recommended that a substantial part of the construction costs be excluded from KCP & L's rate base. The Commission also considered the prefiled testimony and cross-examination of at least six witnesses presented by KCP & L to challenge Drabinski's opinions about the imprudence of KCP & L's actions.

In its initial rate case application, KCP & L requested $2.1 million in rate case expenses to be included in its operating expenses. CURB objected later at the evidentiary hearings to any amount of increase in rate case expenses in excess of that requested in the application. CURB asserted that if any additional rate expense was being claimed, CURB had a right to examine the evidence supporting any increase and oppose it. During testimony, CURB's expert witness gave the opinion that the original amount of rate case expenses requested was reasonable due to the complexity of the case. However, she testified that if the amount finally requested exceeded the original figure, CURB would not say the larger amount was reasonable. She emphasized the high number of attorneys KCP & L had working on the case and the high hourly rates of those attorneys. The witness offered that some states “have a 50/50 rate case sharing routinely” between the shareholders and...