GOVERNOR'S RESEARCH OFFICE v. KN ENERGY

Citation264 Neb. 924,652 N.W.2d 865
Decision Date08 November 2002
Docket NumberNo. S-01-1217.,S-01-1217.
PartiesThe GOVERNOR'S POLICY RESEARCH OFFICE and Lauren L. Hill, in her official capacity as director of the Governor's Policy Research Office, State of Nebraska, Appellees, v. KN ENERGY, a division of Kinder Morgan, Inc., Appellant.
CourtSupreme Court of Nebraska

M.J. Bruckner, Lincoln, and John C. Fowles, of The Bruckner/Fowles Law Firm, P.C., and B.J. Becker, Omaha, for appellant.

Don Stenberg, Attorney General, and Mark D. Starr, for appellees.

WRIGHT, GERRARD, STEPHAN, McCORMACK, and MILLER-LERMAN, JJ.

WRIGHT, J.

NATURE OF CASE

The Lancaster County District Court found that KN Energy (KNE) lacked standing to challenge a request by the Governor's Policy Research Office (GPRO) for repayment of $390,000 from a revolving loan fund created by the Municipal Natural Gas Regulation Act (Act). The court granted summary judgment in favor of the GPRO in the amount of $390,000 plus interest and costs. KNE timely appealed.

SCOPE OF REVIEW

Summary judgment is proper when the pleadings, depositions, admissions, stipulations, and affidavits in the record disclose that there is no genuine issue as to any material fact or as to the ultimate inferences that may be drawn from those facts and that the moving party is entitled to judgment as a matter of law. Altaffer v. Majestic Roofing, 263 Neb. 518, 641 N.W.2d 34 (2002).

Statutory interpretation presents a question of law. When reviewing questions of law, an appellate court has an obligation to resolve the questions independently of the conclusion reached by the trial court. In re Application No. C-1889, 264 Neb. 167, 647 N.W.2d 45 (2002).

MUNICIPAL NATURAL GAS REGULATION ACT

The Act, Neb.Rev.Stat. §§ 19-4601 to 19-4623 (Reissue 1997 & Cum.Supp.2000), makes provision for the Municipal Natural Gas Regulation Revolving Loan Fund (Fund). The Fund was created to make loans to municipalities for rate regulation, to pay the costs of administration, and to fund a study of natural gas utility systems. § 19-4617. The GPRO administers the Fund. See id. Municipalities which apply for a loan from the Fund must provide a budget statement that specifies the proposed use of the loan proceeds, which may only be used for the costs and expenses incurred by a municipality to analyze rate filings by utilities and establish area-wide rates, and to finance litigation costs of any appeals. Id.

The Act provides that the GPRO bills the utility for the amounts disbursed and that the utility may recover these amounts through a special surcharge added to utility bills. See § 19-4617(1)(b). The surcharge may be billed on monthly statements for up to 12 months and shown as a charge for rate regulation expense. Id.

BACKGROUND

KNE provides natural gas to customers within municipalities around the State of Nebraska. The municipalities are divided into 11 geographic rate areas. From February through October 1999, a number of municipalities served by KNE adopted resolutions stating their intention to conduct a review of one or more elements of KNE's total end rate. Four of the rate areas filed applications for loans from the Fund, and payments totaling $390,000 were made to municipalities by the GPRO.

During December 1999, at rate hearings in areas 2, 3, 4, and 7, KNE presented evidence that its current area-wide rates were insufficient (1) to enable it to meet the cost of furnishing natural gas service, including adequate provisions for depreciation of its utility property, and (2) to earn a fair and reasonable return upon the investment in such property. KNE also presented evidence to show that the disallowance of certain contract costs would exacerbate this insufficiency.

Between February and June 2000, governing bodies in 16 municipalities in rate areas 2, 3, 4, and 7 adopted rate ordinances that prohibited KNE from including in its rates certain above-market costs. On May 30, 2000, the GPRO wrote to KNE requesting payment of $390,000 within 30 days. The $390,000 figure represented loans the GPRO had made in the following amounts: rate area 2, $84,864; rate area 3, $79,482; rate area 4, $106,119; and rate area 7, $119,535.

In a letter dated June 15, 2000, KNE refused to remit the amount, claiming it had no legal obligation to reimburse the Fund. KNE asserted that it had informed the municipalities' attorneys that the review process was flawed and that the hearings were not covered by the Act. KNE stated that it had previously communicated to a division of the GPRO its concerns about the receipt of loans by municipalities that had failed to meet statutory requirements. KNE alleged that it received no response to its concerns.

On July 27, 2000, the Attorney General's office, on behalf of the GPRO, made written demand for the $390,000. In response, KNE reiterated that it was not obligated to repay the amount. Two representatives of KNE met with representatives of the Attorney General's office, and a second written request was sent on October 4. KNE did not respond or make payment.

In December 2000, the GPRO filed a declaratory judgment action against KNE, alleging that it had violated the Act by refusing to pay the requested $390,000. The GPRO alleged that as a result of KNE's refusal, it had been unable to disburse loan proceeds to compensate legal representatives and expert witnesses and for other services necessary to complete the rate review proceedings. The GPRO asked the district court to declare that the requirement for payment of loan amounts in § 19-4617 is direct and unconditional and that KNE has no discretion to decline to pay the amounts billed.

In its answer, KNE asserted what it labeled as "affirmative defenses," including:

a. The [GPRO] did not have legal authority to make the payments from the [Fund because]
i. the municipalities did not conduct a Neb.Rev.Stat. § 19-4618 review;
ii. appropriate resolutions were not adopted by municipalities representing 70% or more of the customers in Rate Areas 2, 3, 4 and 7; and
iii. the resolutions adopted by those municipalities which purported to conduct the review did not conform to the provisions of § 19-4618.
b. The amounts ... include costs incurred by other Rate Areas that did not initiate rate reviews.

....

f. [KNE] has no obligation to reimburse the [GPRO] or the [Fund] for amounts improperly disbursed from the [Fund].

The cities of Alliance, Broken Bow, Burwell, Chappell, Gordon, Kimball, Loup City, Ord, Oshkosh, Ravenna, and Sidney and the villages of Ansley and Hemingford intervened, alleging that appropriate resolutions had been adopted by the municipalities representing 70 percent or more of the KNE customers. Subsequently, the intervenors filed a notice of dismissal without prejudice, stating that their interests were aligned with and adequately represented by the GPRO.

In its reply, the GPRO asserted that KNE lacked standing to assert claims or defenses related to the loan amounts under the Act and that KNE had no discretion to refuse to pay the amounts billed. The GPRO filed a motion for summary judgment and motion in limine.

In granting the GPRO's motion for summary judgment, the district court stated:

Consequently, even if [KNE] is successful with any of its affirmative defenses, [KNE] has no legally protectable interest or right which is benefitted by the relief it requests. [KNE] is not entitled to the avails of the action and has not sustained a direct injury which will be satisfied by success on any of the affirmative defenses.

The district court found that the GPRO had established a prima facie case based upon the following undisputed facts:

1. The municipalities applied for loan funds under Neb.Rev.Stat. § 19-4617.
2. The GPRO determined the applicants were entitled to receive loan funds authorized by § 19-4617.
3. The funds the GPRO distributed to the municipalities were from [the Fund] authorized by § 19-4617.

4. The amount of the loan was $390,000.00.

5. [The] GPRO first made demand on [KNE] for repayment of the funds on May 30, 2000.
6. [KNE] failed to make payment of the loan amount within 30 days of when demand was made.

7. [KNE] has not paid any portion of the $390,000.00 loan.

The court concluded that KNE had produced no evidence to rebut or place at issue any of these material facts.

The district court found that the GPRO had established its right to payment from KNE and that KNE had raised no legal issue other than the affirmative defenses already addressed. The court entered judgment as a matter of law against KNE in the amount of $390,000 plus prejudgment and postjudgment interest and costs.

ASSIGNMENTS OF ERROR

KNE's assignments of error can be summarized into three claims: The district court erred (1) in finding that KNE does not have standing to challenge the request for reimbursement by the GPRO; (2) in ignoring the judgments of the Lancaster County District Court in KN Energy v. Cities of Alliance et al., case No. CI 00-1309; KN Energy v. Cities of Chappell et al., case No. CI 00-1310; and KN Energy v. Village of Hemingford et al., case No. CI 00-1311, involving rate areas 2, 3, and 4, in which the court held that the resolutions and actions of the municipalities in those rate areas did not comply with § 19-4618; and (3) in ignoring the plain and unequivocal language of the Act.

ANALYSIS

The basis for the district court's judgment was its conclusion that KNE lacked standing to raise the affirmative defenses asserted and that, therefore, there were no material issues of fact in dispute and that GPRO was entitled to judgment as a matter of law. Summary judgment is proper when the pleadings, depositions, admissions, stipulations, and affidavits in the record disclose that there is no genuine issue as to any material fact or as to the ultimate inferences that may be drawn from those facts and that the moving party is entitled to judgment as a matter of law. Altaffer v. Majestic Roofing, 263 Neb. 518, 641 N.W.2d 34 (2002). The...

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