Farmland Industries, Inc. v. State Corp. Com'n of Kansas

• Decision Date: 01 August 1997
• Docket Number: No. 78637,78637
• Parties: , Util. L. Rep. P 26,633 FARMLAND INDUSTRIES, INC., Board of Commissioners of Jefferson County, Kansas, Kansas Pipeline Partnership, Boeing Company, General Motors Corporation, Vulcan Material, Inc., Cereal Food Processors, Inc., and Heartland Cement Company, Appellants, v. The STATE CORPORATION COMMISSION OF KANSAS, Appellee. Western Resources, Inc., Kansas Gas and Electric Company, Citizens' Utility Ratepayer Board, and City of Wichita, Intervenors.
• Court: Kansas Court of Appeals

Page 470

943 P.2d 470

24 Kan.App.2d 172, Util. L. Rep. P 26,633

FARMLAND INDUSTRIES, INC., Board of Commissioners of Jefferson County, Kansas, Kansas Pipeline Partnership Boeing Company, General Motors Corporation, Vulcan Material Inc., Cereal Food Processors, Inc., and Heartland Cement Company, Appellants, v. The STATE CORPORATION COMMISSION OF KANSAS, Appellee Western Resources, Inc., Kansas Gas and Electric Company Citizens' Utility Ratepayer Board, and City of Wichita, Intervenors.

No. 78637.

Court of Appeals of Kansas.

Aug. 1, 1997.

Review Denied Nov. 13, 1997.

Syllabus by the Court

1. K.S.A. 77-621, regarding the scope of judicial review of an administrative agency action, is construed and applied.

2. K.A.R. 82-1-231, regarding public utility rate applications, is construed.

3. Under the facts of this case, although the nature of the utilities' applications before the Kansas Corporation Commission changed from an integrated rate plan to a cost-of-service rate proceeding, the initial notice furnished to the utilities' customers was adequate to inform customers of the main scope of the utilities' applications.

4. K.A.R. 82-1-225(c), regarding intervention by a party in a proceeding before the Kansas Corporation Commission, is construed.

5. Because the Kansas Corporation Commission has broad powers in setting just and reasonable electric rates, it has the power to approve a nonunanimous settlement agreement.

6. K.A.R. 82-1-241, regarding an intervenor's application for compensation under the Public Utility Regulatory Policies Act of 1978, is construed.

James P. Zakoura and David J. Roberts, of Smithyman & Zakoura, Chartered, Overland Park, and Edmund S. Gross, of Farmland Industries, Inc., Kansas City, MO, for appellant Farmland Industries, Inc.

Daniel D. Owen, of Shughart Thomson & Kilroy, P.C., Overland Park, for appellant Board of Commissioners of Jefferson County.

Fred J. Logan, Jr., of Logan & Logan, Prairie Village, for appellant Kansas Pipeline Partnership.

Robert C. Johnson and Diana M. Schmidt, of Peper, Martin, Jensen, Maichel and Hetlage, St. Louis, MO, and Robert Van Cleave, of Gates & Clyde, Chartered, Overland Park, for appellants Boeing Company, General Motors Corporation, Vulcan Material, Inc., Cereal Food Processors, Inc., and Heartland Cement Company.

Larry M. Cowger, John J. McNish, and Janette W. Corazzin, of the Kansas Corporation Commission, Topeka, for appellee.

J. Michael Peters and Martin J. Bregman, of Western Resources, Inc., and Kansas Gas and Electric Company, Topeka, John D. Petersen and Frank A. Caro, Jr., of Polsinelli, White, Vardeman & Shalton, a Professional Corporation, Overland Park, and Mike Lennen, of Morris, Laing, Evans, Brock & Kennedy, Chartered, Wichita, for intervenors Western Resources, Inc., and Kansas Gas and Electric Company.

Walker Hendrix, of Citizens' Utility Ratepayer Board, Topeka, for intervenor Citizens' Utility Ratepayer Board.

Gregg D. Ottinger, of Duncan & Allen, Washington, D.C., Gary E. Rebenstorf, City Attorney, and Joe Allen Lang, First Assistant City Attorney, for intervenor City of Wichita.

Before GREEN, P.J., ELLIOTT, J., and WAHL, Special Judge.

GREEN, Judge:

This case involves a number of challenges to the Kansas Corporation Commission's (KCC) approval of two nonunanimous settlement agreements setting revenue requirements and rate design charges for electricity of two public utilities. The two utilities, Kansas Gas and Electric Company (KGE) and Kansas Power and Light Company (KPL), are owned by Western Resources, Inc. (WRI). Nevertheless, the utilities exist as separate entities for tax and rate-making purposes. Seeking judicial review of the order approving these settlements, Farmland Industries, Inc. (Farmland), Kansas Pipeline Partnership (KPP), Kansas Industrial Consumers (KIC), and the Board of Commissioners of Jefferson County (Jefferson County) all filed petitions for review. The appellants challenge the sufficiency of the evidence supporting KCC's order and allege that the notice furnished to KGE and KPL customers was inadequate.

Farmland is a commercial customer that uses between $12 and $15 million worth of electricity annually. KPP is a natural gas utility that has been deeply involved in promoting competitive energy markets in Kansas. KIC is a group of large consumers of electricity and gas in the state of Kansas, which includes Boeing Company, General Motors Corporation, Vulcan Material, Inc., Cereal Food Processors, Inc., and Heartland Cement Company. Jefferson County has a significant number of KPL residential customers living within its boundaries.

The intervenors were WRI; the Citizens' Utility Ratepayer Board (CURB), a state agency created to represent residential and small commercial ratepayers in proceedings to regulate public utilities; and the City of Wichita, a party that pays a $12 million-a-year electric bill to KGE and that is concerned with the difference between the higher rates of KGE and the lower rates of KPL.

In August 1995, WRI, on behalf of KGE, KPL, and WRI's natural gas division, filed three applications with KCC. WRI proposed an integrated rate plan that would take effect at the same time in all three cases. As a result of changes in depreciation and proposed increases in natural gas rates, WRI proposed rate reductions for KGE customers of $8.7 million a year for 7 years and no change in KPL rates for 7 years. In December 1995, KCC scheduled public hearings and directed KPL and KGE to furnish notice to customers of the applications and hearings. Although WRI's original three applications were consolidated on November 1, 1995, KCC later directed that the natural gas proceeding be handled separately.

On May 22, 1996, WRI moved to amend its applications in support of its present rates, requesting permission to file its own cost-of-service studies. On June 14, 1996, KCC granted WRI's request to amend its application to allow filing of cost-of-service information and restarted the 240-day time period of K.S.A.1996 Supp. 66-117(b), effective May 22, 1996. The amended application changed the proceedings into a traditional cost-of-service rate case for KGE and KPL. No additional notice was sent to KPL and KGE customers about changes in the nature of the proceedings.

On August 9, 1996, WRI, KCC staff (Staff), CURB, and the City of Wichita asked KCC to approve a nonunanimous settlement agreement resolving the amount of money the utilities would be allowed to collect in rates and how this amount would be spread among KGE and KPL customers. During the hearings for approval of the settlement, Gary C. Harpster, a KPP witness, testified that Staff had made an error in analyzing WRI's cost of service. As a result, Staff increased the amount it contended KGE was over-earning by $32 million. Based on the possible impact of this error on the settlement negotiations, KCC rejected the settlement agreement.

After an amended settlement was submitted, KCC conditionally approved it and set hearings to begin on November 5, 1996. Following the hearings, KCC orally approved the amended settlement agreement. After KCC approved the amended settlement agreement, Staff and WRI submitted a proposal on rate design. At the same time, Farmland, KIC, and CURB submitted the customers' proposal on rate design. KCC adopted Staff and WRI's proposal and rejected the customers' proposal.

Standard of Review

Our standard of review is set forth in K.S.A. 77-621, which codifies principles repeatedly recognized by the Kansas courts. See Kansas Gas & Electric Co. v. Kansas Corporation Comm'n, 239 Kan. 483, 497, 720 P.2d 1063 (1986); Midwest Gas Users Ass'n v. Kansas Corporation Commission, 3 Kan.App.2d 376, 380-81, 595 P.2d 735, rev. denied 226 Kan. 792 (1979). The party asserting the agency action is invalid has the burden of proving its invalidity. K.S.A. 77-621(a)(1).

In Midwest, our court stated:

"A court has no power to set aside [a KCC] order unless it finds that the commission acted unlawfully or unreasonably. [Citation omitted.] An order is 'lawful' if it is within the statutory authority of the commission, and if the prescribed statutory and procedural rules are followed in making the order. [Citation omitted.] An order is generally considered 'reasonable' if it is based on substantial competent evidence. [Citation omitted.]

"The legislature has vested the commission with wide discretion and its findings have a presumption of validity on review. [Citation omitted.] Since discretionary authority has been delegated to the commission, not to the courts, the power of review does not give the courts authority to substitute their judgment for that of the commission. [Citation omitted.] The commission's decisions involve the difficult problems of policy, accounting, economics and other special knowledge that go into fixing utility rates. It is aided by a staff of assistants with experience as statisticians, accountants and engineers, while courts have no comparable facilities for making the necessary determinations. [Citation omitted.] Hence a court may not set aside an order of the commission merely on the ground that it would have arrived at a different conclusion had it been the trier of fact. It is only when the commission's determination is so wide of the mark as to be outside the realm of fair debate that the court may nullify it. [Citations omitted.]" 3 Kan.App.2d at 380-81, 595 P.2d 735.

In Zinke & Trumbo, Ltd. v. Kansas Corporation Comm'n, 242 Kan. 470, 473-75, 749 P.2d 21 (1988), our Supreme Court noted that after a court considers all the named reasons for vacating an agency order, the legislature provided administrative bodies with an escape clause by requiring in K.S.A. 77-621(d) that courts give "due account" to the harmless error rule. Therefore, if the agency error did not prejudice the parties, the agency's action must be affirmed. Summarizing briefly the scope of appellate review, the...