Kansas-Nebraska Natural Gas Co., Inc. v. State Corp. Commission

• Decision Date: 25 April 1980
• Docket Number: No. 51519,KANSAS-NEBRASKA,51519
• Citation: 4 Kan.App.2d 674,610 P.2d 121
• Parties: NATURAL GAS COMPANY, INC., Appellant, v. STATE CORPORATION COMMISSION of the State of Kansas, Appellee.
• Court: Kansas Court of Appeals

Page 121

610 P.2d 121

4 Kan.App.2d 674

KANSAS-NEBRASKA NATURAL GAS COMPANY, INC., Appellant, v. STATE CORPORATION COMMISSION of the State of Kansas, Appellee.

No. 51519.

Court of Appeals of Kansas.

April 25, 1980.

Review Denied June 20, 1980.

Syllabus by the Court

1. Rules concerning the scope of review of an order of the Kansas Corporation Commission are stated and applied.

2. A determination that a rate order is reasonable precludes consideration of an allegation of confiscation. A court's scope of review of an administrative decision is the same regardless of the language used in challenging it.

3. The inclusion or exclusion of utility property in the rate base is a discretionary function and is based upon a factual determination of whether the property is used or required to be used in its services to the public within the State of Kansas.

4. The Kansas Corporation Commission did not abuse its discretion in excluding from the rate base (a) gas wells which were not connected to a gathering system within the test year, and (b) the balance of an advance payment owed to a subsidiary.

5. An order of the Kansas Corporation Commission establishing rates for a public utility is reviewed and it is held : (a) the order states sufficient facts and conclusions of law to permit meaningful review; (2) the accounting methods used by the Commission were supported by substantial competent evidence; and (3) the order is lawful and reasonable.

Larry D. Hall, Hastings, Neb., and Richard C. Byrd of Anderson, Byrd & Richeson, Ottawa, for appellant.

Elizabeth R. Herbert, Asst. Gen. Counsel, Kansas Corp. Commission, Topeka, for appellee.

Before FOTH, C. J., and ABBOTT and PARKS, JJ.

PARKS, Judge:

In July 1978, the appellant Kansas-Nebraska Natural Gas Company (referred to hereafter as K-N), a public utility operating within the State of Kansas, filed an application based on a test year ending December 31, 1977, for rates sufficient to produce increased revenue in the amount of $3,700,035. The Kansas Corporation Commission (KCC) considered the application and approved rates which increased revenues by $604,464. Rehearing was denied and K-N appeals.

It is undisputed that this court has exclusive jurisdiction to review orders of the KCC involving public utility rates (K.S.A.1979 Supp. 66-118a) and that we are limited to determining whether the order is lawful or reasonable (K.S.A.1979 Supp. 66-118d). Other well established rules regarding our scope of review are summarized in Midwest Gas Users Ass'n v. Kansas Corporation Commission, 3 Kan.App.2d 376, 380, 595 P.2d 735, rev. denied 226 Kan. --- (September 11, 1979), and Sekan Electric Coop. Ass'n v. Kansas Corporation Commission, 4 Kan.App.2d 477, 609 P.2d 188 (1980). In sum, to be lawful a KCC order must be made within the statutory authority of the Commission; to be reasonable it must be supported by substantial competent evidence.

I.

K-N contends that the KCC order is both unlawful and unreasonable. It further argues that the approved rates are confiscatory and violate its constitutional right to due process because they would not produce a reasonable return or just compensation upon the value of its property. K-N's argument relating to confiscation attempts to broaden our scope of review to include an independent judicial judgment on the facts as well as the law.

The statutory standard of K.S.A.1979 Supp. 66-118d requiring "reasonable" utility rates is higher than the constitutional standard for due process. In other words, a rate cannot be confiscatory if it is reasonable. Therefore, even if the scope of review is broader for a due process complaint, a determination that a rate order is reasonable would logically preclude consideration of an allegation of confiscation. In Power Comm'n v. Hope Gas Co., 320 U.S. 591, 64 S.Ct. 281, 88 L.Ed. 333 (1944), the U.S. Supreme Court said, "If the total effect of the rate order cannot be said to be unjust and unreasonable, judicial inquiry . . . is at an end." Hope, 320 U.S. at 602, 64 S.Ct. at 288. The Court also said, "Since there are no constitutional requirements more exacting than the standards of the Act, a rate order which conforms to the latter does not run afoul of the former." Hope, 320 U.S. at 607, 64 S.Ct. at 290. Accordingly, our review is limited to the statutory standard of K.S.A.1979 Supp. 66-118d.

II.

We now turn our attention to the general allegations of K-N that (1) the order lacks sufficient findings of fact and conclusions of law, (2) the KCC failed to consider all of its testimony, and (3) the KCC adopted an unduly strict accounting viewpoint.

K-N's argument that the KCC failed to comply with its own rule, K.A.R. 82-1-232(a)(3), is premised on the allegation that the order does not "contain a concise and specific statement of the relevant law and basic facts" which persuaded the Commission in making its decision. This rule is designed 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. Kansas Public Service Co. v. State Corporation Commission, 199 Kan. 736, 744-45, 433 P.2d 572 (1967). We have experienced no problem in determining what the KCC held or what matters it considered in reaching its conclusions. Instead, we found that the order 80 pages in length summarized the position of the Staff and K-N on each of the issues and accepted one position or the other in its conclusions. Thus we are permitted a meaningful review of the issues without having to search the record or to infer outside facts.

Concerning K-N's argument that the KCC disregarded its evidence in making its order, we note that some arguments presented by K-N were adopted by the Commission and that the position of both the K-N and Staff were set forth in the order on all disputed points.

K-N further alleges that the KCC placed undue emphasis on accounting evidence and failed to consider other important aspects of rate-making. This allegation may be answered by the following statement:

"The power of review does not give the courts authority to substitute their judgment for that of the commission. In reviewing the commission's order the facts that are considered and the relative weight to be given them in making a decision are matters left to the commission's discretion unless the commission has acted unlawfully or arbitrarily without supporting evidence. (Colorado Interstate Gas Co. v. State Corporation Comm., 192 Kan. 1, Syl. P 6, 386 P.2d 266.) If the order of the commission is based upon substantial and competent evidence the order will generally be considered reasonable." Central Kansas Power Co. v. State Corporation Commission, 206 Kan. 670, 675, 482 P.2d 1, 6 (1971). (Emphasis added.)

III.

Of more concern is K-N's contention that the "used or required to be used" standard was improperly applied by the KCC in determining the K-N rate base. K.S.A.1979 Supp. 66-128 provides a guideline for the determination of a rate base by prescribing that only property used or required to be used must be evaluated. It further states that property of any public utility which has not been completed and dedicated to commercial service shall not be deemed to be used or required to be used in its service to the public except that any property of a public utility, the construction of which will be completed in one (1) year or less, may be deemed to be completed and dedicated to commercial service.

Recently our Supreme Court interpreted K.S.A.1979 Supp. 66-128 to mean that the "inclusion or exclusion of CWIP (construction work in progress) in the rate base (is) a discretionary function of the Commission to be based upon a factual determination, from the evidence submitted, whether the requested CWIP was 'property . . . used or required to be used in its services to the public within the state of Kansas . . . .' (K.S.A. 66-128.)" Kansas City Power & Light Co. v. KCC, 224 Kan. 86, 88, 578 P.2d 254, 256 (1978). Thus, the KCC cannot automatically exclude construction work because it is not completed without also determining that it is not required to be used. The court further held that the inclusion of CWIP continues to be a discretionary matter for the Commission only to the extent that it will be completed in one year or less. Based on these rulings, we now turn to K-N's argument that the KCC improperly excluded two items from the rate base.

A. Gas Wells Completed but Not Connected.

K-N sought to have the expenses relating to 48 gas wells which were completed but not connected to a gathering system included in the rate base. The Staff recommended that the wells be excluded because they were not connected to a gathering system and were not used or required to be used to provide service to ratepayers at the end of the test year. K-N contended that the wells were required to be used for service because "they are an inventory of gas reserves which assures continued deliverability." The order in this case stated that K.S.A.1979 Supp. 66-128 "does not allow the inclusion in rate base of utility property merely because it is 'useful' in service of the public; with the exception of plant under construction to be completed within one year, only the property 'used or required to be used' in serving the public is to be included in rate base." The KCC then found that until such time as these wells are furnishing gas to applicant's gas system, the wells and their related equipment would not be included in applicant's rate base.

K-N argues that the KCC conclusion is unlawful and unreasonable because: (1) the order did not specify adequate findings of fact and conclusions of law; (2) the conclusion that the wells are "useful" is equivalent to a finding that they...