CITIZENS'UTILITY RATEPAYER BD. v. Kansas Corporation Comm'n, No. 85

• Decision Date: 15 December 2000
• Docket Number: No. 750, No. 757, No. 85
• Citation: 28 Kan. App.2d 313,16 P.3d 319
• Parties: CITIZENS' UTILITY RATEPAYER BOARD, Petitioner/Appellant, v. THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS, Respondent/Appellee. UTILICORP UNITED INC., d/b/a PEOPLES NATURAL GAS and KANSAS PUBLIC SERVICE, Crosspetitioner/Appellant, v. THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS, Respondent/Appellee.
• Court: Kansas Court of Appeals

28 Kan. App.2d 313

16 P.3d 319

CITIZENS' UTILITY RATEPAYER BOARD, Petitioner/Appellant, v. THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS, Respondent/Appellee.

UTILICORP UNITED INC., d/b/a PEOPLES NATURAL GAS and KANSAS PUBLIC SERVICE, Crosspetitioner/Appellant, v. THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS, Respondent/Appellee.

Nos. 85,750, 85,757

Court of Appeals of Kansas.

Opinion filed December 15, 2000.

Walter Hendrix, for petitioner/appellant Citizens' Utility Ratepayer Board.

Robert A. Fox, Dana Bradbury Green, James D. Oliver, of Foulston & Siefkin L.L.P., of Topeka, for cross-petitioner/appellant UtiliCorp United Inc., d/b/a Peoples Natural Gas and Kansas Public Service.

Caroline Ong, advisory counsel, Glenda Cafer, general counsel, and Anne E. Tymeson, staff attorney, of the Kansas Corporation Commission, for appellee.

Before KNUDSON, P.J., RULON and GREEN, JJ.

KNUDSON, J.:

In this consolidated appeal, the Citizens' Utility Ratepayers Board (CURB) and UtiliCorp United, Inc., (UC) appeal from orders of the Kansas Corporation Commission (Commission) granting UC a rate increase. Appellate jurisdiction is conferred upon this court in K.S.A. 1999 Supp. 66-118a(b).

CURB contends the Commission's final orders are not supported by adequate findings of fact and were entered without appropriate consideration or investigation of UC's flexible rate practices. UC contends the Commission erroneously determined UC's cost of debt to finance its Kansas natural gas public utility divisions.

We affirm the Commission's final orders.

UC is a natural gas public utility engaged in the purchase, transmission, sale, and distribution of natural gas. In October 1999, UC filed a request for a rate increase on behalf of its two Kansas natural gas public utility divisions, Peoples Natural Gas Company (PNG) and Kansas Public Service (KPS). UC requested an increase of $5,884,389 based on a test year ending December 31, 1998. It subsequently revised its request to $6,025,413 because of various inadvertent omissions in the original request.

In addition to CURB, several other parties were allowed to intervene in the proceedings before the Commission, including Mountain Energy Corporation, the Department of Student Housing at the University of Kansas (KU), Kansas Gas Service Company, and the City of Garden City. CURB is a statutorily authorized volunteer consumer advocacy group which represents the interests of Kansas residential and small commercial ratepayers. See K.S.A. 66-1222. None of the intervenors other than CURB is a party in these appeals.

The Commission staff (Staff) position was that based upon its review of the test year, UC should be allowed a revenue increase of $1,316,701. CURB argued that the Commission should reduce UC's revenue by $3,002,508.

All parties supplied the Commission with direct and rebuttal testimony prior to the rate hearing. At the beginning of the technical hearing, UC and Staff presented a nonunanimous stipulation and settlement agreement (S&A), agreeing to settle most of the issues except for those relating to imputation of revenue relative to UC's discount contracts, cost of UC's debt issues, rate design, as well as aggregations and pooling issues. CURB did not agree to the S&A.

Not until all of the evidence was presented did the Commission decide to adopt the S&A. It also rejected Staff's and CURB's recommendations for revenue imputation as a result of discount contracts, rejected UC's position on the cost of debt, rejected UC's request to increase the charges associated with aggregation pooling charges, and ruled on a number of other issues not before us. UC, CURB, and KU filed timely motions to reconsider. The Commission made modifications in its original order and approved a revenue increase for UC of $4,779,351. Both CURB and UC appeal.

Our general standard of review is stated in K.S.A. 77-621. A party challenging the legality of the Commission's orders bears the burden of proof pursuant to K.S.A. 77-621(a)(1). See Farmland Industries, Inc. v. Kansas Corporation Comm'n, 24 Kan. App.2d 172, 175, 943 P.2d 470, rev. denied 263 Kan. 855 (1997).

"If KCC action is constitutionally authorized by statute, it is presumed valid on review unless it is not supported by substantial competent evidence and is so wide of its mark as to be outside the realm of fair debate, or is otherwise unreasonable, arbitrary, or capricious and prejudices the parties." Zinke & Trumbo, Ltd. v. Kansas Corporation Comm'n, 242 Kan. 470, 475, 749 P.2d 21 (1988).

CURB'S APPEAL

Commission Adoption of the S&A

CURB contends the Commission did not make sufficient findings of fact in adopting the nonunanimous S&A. Unquestionably, the Commission may accept a nonunanimous settlement agreement provided an independent finding is made, supported by substantial evidence in the record as a whole, that the settlement will establish just and reasonable rates. Farmland Industries, 24 Kan. App.2d at 186-87.

K.A.R. 82-1-232 provides rules of form and content for orders of the Commission. K.A.R. 82-1-232(a)(3) states that each order of the Commission shall contain "[a] concise and specific statement of the relevant law and basic facts which persuade the commission in arriving at its decision."

"The purpose of findings of fact as mandated by K.A.R. 82-1-232(a)(3) is to facilitate judicial review and to avoid unwarranted judicial intrusion into administrative functions. The Commission must, therefore, express the basic facts upon which it relied with sufficient specificity to convey to the parties, and to the courts, an adequate statement of facts which persuaded the Commission to arrive at its decision. [Citations omitted.]" Ash Grove Cement Co. v. Kansas Corporation Commission, 8 Kan. App.2d 128, 132, 650 P.2d 747 (1982).

The Kansas Supreme Court has construed the Commission's procedural requirements to mean findings need not be rendered in minute detail. However, findings must be specific enough to allow judicial review of the reasonableness of the order. To guard against arbitrary action, conclusions of law must be supported by findings of fact which are in turn supported by evidence in the record. Zinke & Trumbo, 242 Kan. at 475.

To examine whether the Commission's action is supported by substantial competent evidence, K.S.A. 77-621(c)(7), the record must contain evidence "which possesses something of substance and relevant consequence, and which furnishes a substantial basis of fact from which the issues tendered 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).

Where the trial court's (or the Commission's) findings of fact and conclusions of law are inadequate to disclose the controlling facts or the basis of the court's findings, meaningful appellate review is precluded. Tucker v. Hugoton Energy Corp., 253 Kan. 373, 378, 855 P.2d 929 (1993).

In its original order, Order No. 8, the Commission made the following findings regarding the S&A:

"6. UtiliCorp and Staff presented witnesses in support of the S&A. [Citation omitted.] The only party opposing the S&A was CURB. [Citations omitted.]

"7. There is a strong policy in the law that settlements are to be encouraged. Bright v. LSI Corp., 254 Kan. 853, 858, 869 P.2d 686 (1994). The Commission has the power to consider non-unanimous settlement agreements and can accept such settlements if it finds the proposed settlement to be reasonable. Farmland Industries, Inc. v. Kansas Corporation Comm'n, 24 Kan. App.2d 172, 186-88, 943 P.2d 470 (1997).

"8. The Commission notes that CURB's statutory obligation is to represent residential and small commercial customers, while the Commission's responsibility is to take a broader view that also considers the interests of any intervenors in the case, all classes of ratepayers, and the stockholders of the utility. [Citation omitted.]

"9. The Commission finds that, on balance, the S&A represents a reasonable settlement of the issues it addresses. The rate options in the S&A are within the litigation positions of Staff and UtiliCorp. [Citations omitted.] Staff indicates that it had considered the possibility that some of its requested adjustments may not have been accepted by the Commission. [Citation omitted.] Parties face uncertainty when litigating issues, and a settlement agreement will reflect acknowledgement of that risk and of the hazards of litigation. See 24 Kan. App.2d at 194-95. It is evident that the terms of the settlement were zealously negotiated. The fact that the parties could not resolve all issues indicates to the Commission that they were not seeking an agreement at any cost, but were carefully deciding where compromise was possible and where their positions could not be altered. UtiliCorp emphasizes the reasonableness and fairness of the rates agreed to in the S&A when compared to current rates for other natural gas local distribution companies. [Citation omitted.] Based on its familiarity with the industry and the evidence in the record as a whole, the Commission finds that the settlement will establish just and reasonable rates. The Commission also finds that the settlement provides for depreciation and corporate overhead allocation studies which will assist the Commission in monitoring the utility and will benefit future ratepayers. Having considered the terms of the S&A, the Commission concludes that it is reasonable and in the public interest. The May 16, 2000 S&A is accepted and approved."

Upon CURB's petition to reconsider, the Commission in Order No. 9 stated:

"10. CURB argues that the Commission did not make sufficient findings to support its approval of the S&A. The Commission met the applicable standard for approving the S&A by finding that the S&A reasonably resolved the issues it addressed and that the resulting rates would be within a range of reasonableness. As

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