Kansas Gas and Elec. Co. v. State Corp. Com'n

• Decision Date: 13 June 1986
• Docket Number: Nos. 58914,58917 and 58918,s. 58914
• Citation: 239 Kan. 483,720 P.2d 1063
• Parties: KANSAS GAS AND ELECTRIC COMPANY, Applicant/Appellant, v. STATE CORPORATION COMMISSION of the State of Kansas, Respondent/Appellee. KANSAS CITY POWER & LIGHT COMPANY, Applicant/Appellant, v. STATE CORPORATION COMMISSION of the State of Kansas, Respondent/Appellee. KANSAS ELECTRIC POWER COOPERATIVE, INC., Applicant/Appellant, v. STATE CORPORATION COMMISSION of the State of Kansas, Respondent/Appellee.
• Court: Kansas Supreme Court

Page 1063

720 P.2d 1063

239 Kan. 483

KANSAS GAS AND ELECTRIC COMPANY, Applicant/Appellant, v. STATE CORPORATION COMMISSION of the State of Kansas,

Respondent/Appellee.

KANSAS CITY POWER & LIGHT COMPANY, Applicant/Appellant, v. STATE CORPORATION COMMISSION of the State of Kansas,

Respondent/Appellee.

KANSAS ELECTRIC POWER COOPERATIVE, INC., Applicant/Appellant, v. STATE CORPORATION COMMISSION of the State of Kansas,

Respondent/Appellee.

Nos. 58914, 58917 and 58918.

Supreme Court of Kansas.

June 13, 1986.

Syllabus by the Court

1. The record is examined in three consolidated appeals from orders of the Kansas Corporation Commission determining the valuation of the Wolf Creek nuclear generating facility for rate-making purposes and it is held that the KCC did not err in excluding from the rate base (1) certain costs of construction found to have been imprudently incurred, (2) certain costs found to constitute excess physical capacity, and (3) certain costs found to constitute excess economic capacity.

2. The Kansas Corporation Commission, in setting the rates for an electrical utility, should have as its goal the fixing of the rates within a zone of reasonableness after balancing the interests of the utility's investors, the ratepayers, and the public.

3. There is no constitutional requirement that a utility's rates be set by a regulatory authority at a sufficiently high level to guarantee a return on its capital investments, irrespective of the interests of the ratepayers and the public.

4. The Kansas statutes which give the power and authority to the Kansas Corporation Commission to fix the rates for a public utility (K.S.A. 66-101 et seq.) are analyzed and discussed in relation to the Wolf Creek nuclear generating facility.

5. K.S.A. 66-128 et seq., are not unconstitutional because of vagueness or as an unlawful delegation of legislative authority.

6. The Kansas Corporation Commission is not bound to use any particular formula, or combination of formulae, in valuing a public utility's property for rate-making purposes. Any evidence having a bearing on reasonable value may be considered, and the KCC may then use any formula or combination of formulae that it may believe necessary for arriving at a reasonable basis for rate-making purposes.

7. K.S.A. 66-128g(b), which creates a rebuttable presumption that construction costs of a generating plant or facility have been incurred due to a lack of prudence as to that portion of the total costs which exceeded 200% of the original cost estimate, is not unconstitutional as a violation of due process of law.

8. In determining that a portion of the construction costs of the Wolf Creek nuclear generating facility should be disallowed because it constituted excess economic capacity, the Kansas Corporation Commission did not err in using a risk-sharing approach in balancing the interests of the investors and the ratepayers.

9. The determination of the rate base for revenue purposes by a state regulatory agency does not encroach on the power of the federal Nuclear Regulatory Agency to establish and regulate the safety requirements of nuclear generating plants.

James Haines and Jonathan L. Heller, of Wichita, and Edgar M. Roach, Jr., of Hunton & Williams, of Raleigh, N.C., argued, and Ralph Foster, Wichita, Richard D. Gary and Laurence E. Skinner, of Hunton & Williams, Richmond, Va., and Thomas E. Graham, Raleigh, N.C., were with them on briefs, for appellant Kansas Gas and Elec. Co.

Lowell L. Smithson, of Spencer, Fane, Britt & Browne, Kansas City, Mo., argued the cause, and Russell W. Baker, Jr. and Curtis E. Woods, Charles S. Schnider, and Warren B. Wood, Overland Park, were with him on briefs, for appellant Kansas City Power and Light Co.

Clifford L. Bertholf and John Philip Kassebaum, of Kassebaum & Johnson, Wichita, argued and were on briefs, for appellant Kansas Elec. Power Co-op., Inc.

Brian J. Moline, Gen. Counsel, and Donald A. Low, Director of Utilities, argued and LuAnn C. Dixon, John Jay Rosacker, Robert L. Bezek, Jr., Topeka, and Richard Hird, Assts. Gen. Counsel, were with them on brief, for appellee Kansas Corp. Com'n.

Patrick H. Donahue, of Kansas Legal Services, Inc., Topeka, argued, and William G. Riggins, was with him on brief, for intervenor Mary Margaret Rogers.

Robert T. Stephan, Atty. Gen., and Carl M. Anderson, Asst. Atty. Gen., were on brief, for intervenor Office of Attorney General.

Robert Vinson Eye, of Irigonegaray, Eye & Florez, Topeka, was on brief, for intervenor Alliance for Liveable Electric Rates (ALERT).

Dwight A. Corrin, of Corrin & Krysl, Chartered, Wichita, was on brief, for intervenor Electric Shock Coalition.

John Dekker, City Atty., and Joe Allen Lang, Asst. City Atty., were on brief, for intervenor City of Wichita and Cities of Cheney, Clearwater, Derby, Garden Plain, Goddard, Kechi, Potwin and Whitewater.

C. Edward Peterson, of Perry & Hamill, Overland Park, was on brief, for intervenor Johnson County Joint Intervenor Group.

PRAGER, Justice:

This is a consolidation of three appeals by three electrical utilities from orders of the State Corporation Commission (KCC) granting in part and denying in part the requests of the utilities for rate increases due to the commercial operations of the Wolf Creek Generating Station (Wolf Creek) near Burlington, Kansas. The three utilities are Kansas Gas and Electric Company (KGE), Kansas City Power and Light Company (KCPL), and Kansas Electric Power Cooperative, Inc. (KEPCo). The KCC is the appellee. There are also a number of intervenors, including the Kansas Attorney General and various individuals and organizations representing interested citizens and the public.

Historical Background

The legal issues presented in this case are not peculiar to Kansas but are the natural result of the national controversy over the construction of nuclear power plants which has developed over the past thirty years. On December 8, 1953, in his address to the United Nations, President Dwight D. Eisenhower announced his "Atoms for Peace" program. Among other subjects, he spoke of using the atom "to serve the peaceful pursuits of mankind." He spoke of providing abundant electrical energy in the power-starved areas of the world and envisioned the cooperation of the nations of the world to serve the needs rather than the fears of mankind. The possibility that nuclear energy could be used to improve rather than to destroy the world excited most Americans. Today, three decades later, the future of nuclear power is uncertain and the national debate has not been resolved.

In 1953, the Atomic Energy Commission, an agency created by Congress to supervise atomic energy and its development, allocated funds for a demonstration nuclear plant at Shippingport, Pennsylvania. The reactor used in that plant was very small and, by modern standards, its output of electricity was very modest. During the 1960s, several private companies developed nuclear reactors and marketed them to utilities at prices competitive with conventional generators. Between 1965 and 1975, the nuclear industry was perhaps the fastest growing major industry in the United States.

During the 1960s, KGE used natural gas to generate its electricity. Some time during the late 1960s, KGE was notified by its natural gas supplier that the utility's access to natural gas eventually would end. At that time, KGE was experiencing a growth in demand for electricity of approximately seven percent per year. KCPL, an electrical utility in northeast Kansas, was experiencing the same growth in demand. Both utilities, like many others around the country, faced the decision of whether to generate electricity from coal or from natural gas or from nuclear power. Studies were commissioned which suggested that nuclear power rather than coal or natural gas was the most cost efficient and environmentally sound alternative for expansion of electrical capacity. As a result, KGE and KCPL, and later KEPCo, decided to take the nuclear route. KGE and KCPL each took 47% shares in the project, and KEPCo took a 6% share.

In January of 1977, the Nuclear Regulatory Commission (NRC), the successor to the Atomic Energy Commission, issued a temporary work authorization permit for the construction of a nuclear facility on Wolf Creek in Coffey County. In May of 1977, major construction work began. It was estimated in February of 1973 that the cost of constructing the nuclear plant at Wolf Creek would be in the neighborhood of $525,000,000. The ultimate cost of construction amounted to about $3,000,000,000, almost a six-fold increase.

It is clear that three unforeseen events occurred during the mid-1970s which affected the relative attractiveness of the nuclear option and brought about a tremendous increase in the cost of construction. After several nuclear power plants were constructed, a series of accidents occurred which intensified the debate over the use of nuclear energy. At the Three Mile Island accident in March 1979, a mechanical malfunction, compounded with human errors, brought the Three Mile Island nuclear reactor close to a meltdown. This required the utilities to increase their efforts to improve plant safety. New safety equipment, which the NRC required, added millions of dollars to the costs of nuclear plant construction at Wolf Creek and elsewhere.

Another important factor was the change in "energy economics" that occurred during the 1970s. When OPEC in 1973-74 raised the price of oil, making nuclear power even more attractive, orders for nuclear reactors increased. A second oil shock occurred in 1979 when, following the overthrow of the Shah of Iran, the price of oil reached $40 per barrel. The American people responded to the oil crisis and an unexpected and dramatic decline in the demand for oil followed. The demand for energy also diminished. Electrical utilities, which had already implemented plans to substantially increase their supply of...