National-Southwire Aluminum Co. v. Big Rivers Elec. Corp.
| Decision Date | 26 January 1990 |
| Docket Number | Nos. 88-CA-1999-M,NATIONAL-SOUTHWIRE,88-CA-2001-MR,s. 88-CA-1999-M |
| Citation | 785 S.W.2d 503 |
| Parties | ALUMINUM COMPANY, Appellant, v. BIG RIVERS ELECTRIC CORPORATION; Public Service Commission of Kentucky; Alcan Aluminum Corporation; Green River Electric Corporation; Meade County Rural Electric Cooperative Corporation; Henderson-Union Rural Electric Cooperative Corporation; Jackson Purchase Electric Cooperative Corporation; Commonwealth Aluminum Corporation; Willamette Industries, Inc.; Utility Ratecutters of Kentucky, Inc.; Alumax Aluminum Corporation; Firestone Steel Products Company, a division of the Firestone Tire and Rubber Company; Attorney General of the Commonwealth of Kentucky, By and Through his Utility and Rate Intervention Division; City of Hawesville, Kentucky; Hancock County, Kentucky; and Southwire Company, Appellees. ALCAN ALUMINUM CORPORATION, Appellant, v. BIG RIVERS ELECTRIC CORPORATION; National-Southwire Aluminum Company; Public Service Commission of Kentucky; Green River Electric Corporation; Meade County Rural Electric Cooperative Corporation; Henderson-Union Rural Electric Cooperative Corporation; Jackson Purchase Electric Cooperative Corporation; Commonwealth Aluminum Corporation; Willamette Industries, Inc.; Utility Ratecutters of Kentucky Incorporated; Alumax Aluminum Corporation; Firestone Steel Products Company, a division of The Firestone Tire and Rubber Company; Attorney General of the Commonwealth of Kentucky, By and Through his Utility and Rate Intervention Division; City of Hawesville, Kentucky; Hancock County, Kentucky; and Southwire Company, Appellees. |
| Court | Kentucky Court of Appeals |
James Park, Jr., Katherine Randall, Brown, Todd & Heyburn, Lexington, Allison Wade, Booth, Wade & Campbell, and Caroline W. Spangenberg, Kilpatrick & Cody, Atlanta, Ga., for Nat.-Southwire Aluminum Co.
Lawrence E. Forgy, Jr., Stoll, Keenon & Park, Lexington and Richard G. Raff, Public Service Com'n of Kentucky, Frankfort, for Public Service Com'n of Kentucky.
Morton Holbrook, Ridley M. Sandidge, Jr., Lizbeth Ann Tully, Allen Holbrook, Holbrook, Wible, Sullivan & Helmers, P.S.C., Owensboro and Paul H. Keck, Michael F. Healy, and Douglas L. Beresford, Newman & Holtzinger, P.C., Washington, D.C., for Big Rivers Elec. Corp.
David C. Brown, Stites & Harbison, Louisville, and Mark R. Overstreet, Stites & Harbison, Frankfort, for Alcan Aluminum Corp.
James M. Miller, Holbrook, Wible, Sullivan & Helmers, P.S.C., Owensboro, for Green River Elec. Corp.
Frank N. King, Jr., Dorsey, Sullivan, King, Gray & Norment, Henderson, for Henderson-Union Rural Elec. Co-Op. Corp.
Paulette J. Taylor, San Mateo, Cal., William Vetter, Bethesda, Md., and Lindsey Ingram, Stoll, Keenon & Park, Lexington, for Alumax Aluminum Corp. and Commonwealth Aluminum Corp.
John S. Hoffman, Sheffer, Hoffman, Neel, Wilson & Thomason and A.M. Harvey John McCarty, Hawesville, for City of Hawesville, Ky.
Henderson, for Firestone Steel Products Co.
Harold W. Newton, Hawesville, for Hancock County.
James R. Watts, Brandenburg, for Meade County Rural Elec. Co-Op. Corp.
W. David Denton, Denton & Keuler, Paducah, for Jackson Purchase Elec. Co-Op. Corp.
Wells T. Lovett, Lovett & Lamar, Owensboro, for Willamette Industries, Inc.
Don Meade, Miller and Meade, Louisville, for Utility Ratecutters of Ky., Inc.
Frederic J. Cowan, Atty. Gen., Pamela Johnson and Paul E. Reilender, Jr., Asst. Attys. Gen., Utility & Rate Intervention Div., Frankfort, for Com. of Ky. thru Utility and Rate Intervention Div.
Before HOWERTON, C.J., and WEST and WILHOIT, JJ.
National-Southwire Aluminum Company (NSA) and Alcan Aluminum Corporation (Alcan) appeal from a judgment of the Franklin Circuit Court affirming an order of the Public Service Commission (PSC) in Case No. 9885. The order established fixed rates for all electric power sold by Big Rivers Electric Corporation (Big Rivers), except for the electricity sold to the two aluminum smelters. For them, the PSC established a variable electric rate, based on the fluctuating world price of aluminum. The two appeals have been consolidated for our review.
The two aluminum companies present nine allegations of error. While there are basic similarities in their arguments, each party has presented somewhat different claims of error, avoiding considerable duplication. NSA's lead argument is that the new electric rates were established to satisfy the debts of Big Rivers rather than to require its customers to pay for what was actually "used and useful" of Big Rivers' excessive generating capacity. NSA's remaining arguments are that the PSC's order is not supported by findings, that it resulted from external pressure from the Rural Electrification Administration (REA), that the order failed to follow or comply with an earlier order of the PSC, and that the variable rate is discriminatory.
Alcan's main arguments follow by attacking the use of a variable rate, which it claims (1) violates Kentucky statutes and (2) is discriminatory. Alcan also contends that the new order abandoned the standards established by the earlier PSC order without explanation or prior notice. The final argument is that the new rate abrogates Alcan's contract with the appellee, Henderson-Union Rural Electric Cooperative Corporation. When analyzing these issues, we will consolidate them as may be appropriate.
We have reviewed the essential portions of the enormous record in this case, and we have considered the excellent briefs and appendices furnished by all parties. We have also heard the oral arguments of counsel, of which we have the added benefit of a video tape recording for referral. After serious consideration of all of this data, a majority of this panel concludes that the judgment of the Franklin Circuit Court must be affirmed. The statutory duty of a reviewing court is to consider if an order of the PSC is unlawful or unreasonable. KRS 278.410. Lexington Telephone Co. v. Public Service Commission, 311 Ky. 584, 224 S.W.2d 423 (1949). Neither the Franklin Circuit Court nor this Court have found any clear and convincing proof that the PSC's order violated either standard.
Big Rivers is a non-profit, non-stock rural electric generation and transmission cooperative which serves approximately 75,000 customers in Western Kentucky. NSA In 1980, Big Rivers applied for a certificate of convenience and necessity to construct two new coal-fired generators to be known as Wilson 1 and 2. A certificate was issued authorizing construction of both plants, and construction began on D.B. Wilson 1 on June 20, 1980. REA funded the project. Anticipated growth in Western Kentucky did not rise as expected, and it was soon determined that the load requirements for Big Rivers' service area would not need the additional capacity of Wilson 2. That portion of the project was cancelled.
and Alcan are Big Rivers' two largest customers. At the time the PSC issued its order, the two smelters regularly purchased approximately 70 percent of Big Rivers' total electrical output, making NSA and Alcan dependent upon Big Rivers, and Big Rivers dependent upon the aluminum companies.
As Wilson 1 neared completion in April 1984, Big Rivers filed for a rate increase with the PSC in Case No. 9006. NSA and Alcan quickly claimed that any rate increase would jeopardize their continued ability to operate. Big Rivers withdrew that rate request; but, in November 1984, it again filed for a rate increase in Case No. 9163, offering to exclude the cost of Wilson 1 from the proposed increase. The two aluminum companies again opposed this proposal, and the PSC denied any increase.
Big Rivers was unable to pay its obligations to REA, and in January 1985, REA declared all outstanding debts to be due and demanded full payment. It also instituted foreclosure action in the U.S. District Court of the Western District of Kentucky. Big Rivers' debts were approximately 1.1 billion dollars.
In October 1985, NSA filed an action with the PSC requesting a decrease in electric rates. This case was assigned No. 9437. The electric rates in 1985 were approximately 26 mils per kilowatt hour. As Big Rivers had not been allowed any rate change for several years, and since its financial fortunes were sinking, it again filed for a rate increase on August 7, 1986. The two actions, one for an increase and one for a decrease, were consolidated and designated Case No. 9613.
Wilson 1 was now complete and in operation. The foreclosure action was also pending, and Big Rivers and its creditors were attempting to negotiate a debt restructuring plan which also became a focal point of the hearing before the PSC. The purpose of the workout plan was to reduce the amounts required for debt service, to provide rates that would preserve the economic viability for the smelters, and to lead to the settlement of the foreclosure action.
The PSC denied the rate relief requested in Case No. 9613 on March 17, 1987, but at the same time, it established a new case, No. 9885, to investigate Big Rivers' wholesale electric rates. Big Rivers began its efforts to prepare a revised workout plan with REA and to redetermine its needs for new rates.
On July 20, 1987, Big Rivers filed with the PSC its compliance report, a business plan, and a revised workout plan, together with suggested tariffs and supporting data, and it also suggested that a variable rate be determined for the two aluminum smelters. It is interesting to note that the original idea for the variable rate was suggested by experts on behalf of the aluminum companies. The new proposed workout plan between Big Rivers and its principal creditors (REA and two New York banks) was to expire on August 10, 1987. In this plan, the creditors agreed to a debt service shortfall of 350 million dollars. Interest rates were to be lowered and payments extended over a longer term.
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