State ex rel. Ashcroft ex inf. Pelzer v. Public Service Com'n

• Decision Date: 24 July 1984
• Docket Number: No. WD,WD
• Court: Missouri Court of Appeals
• Parties: STATE of Missouri ex rel., John ASHCROFT, Attorney General, ex inf., John A. PELZER, Commissioner of Administration, Appellant, v. PUBLIC SERVICE COMMISSION of the State of Missouri, Respondent, and Missouri Power & Light Company, Intervenor/Respondent. and STATE of Missouri ex rel. John C. DANFORTH, Attorney General, Relator/Appellant, v. PUBLIC SERVICE COMMISSION of the State of Missouri, Respondent, and Missouri Power & Light Company, Intervenor/Respondent. 34535.

Page 660

674 S.W.2d 660

STATE of Missouri ex rel., John ASHCROFT, Attorney General,

ex inf., John A. PELZER, Commissioner of

Administration, Appellant, v. PUBLIC SERVICE COMMISSION of the State of Missouri, Respondent, and Missouri Power & Light Company, Intervenor/Respondent.

and

STATE of Missouri ex rel. John C. DANFORTH, Attorney General, Relator/Appellant, v. PUBLIC SERVICE COMMISSION of the State of Missouri, Respondent, and Missouri Power & Light Company, Intervenor/Respondent.

No. WD 34535.

Missouri Court of Appeals,

Western District.

July 24, 1984.

John Ashcroft, Atty. Gen., William Clark Kelly, Shelly A. Woods, Asst. Attys. Gen., Jefferson City, for appellant.

Gary W. Duffy, Hawkins, Brydon & Swearengen, P.C., Jefferson City, for intervenor-respondent Mo. Power & Light Co.

Eric Kendall Banks, Asst. General Counsel, Jefferson City, for Mo. Public Service Com'n.

Before SOMERVILLE, P.J., and CLARK and LOWENSTEIN, JJ.

CLARK, Judge.

The State of Missouri as appellant seeks review in this consolidated action of proceedings separately presented to the Public Service Commission regarding late payment charges imposed on state accounts owed to respondent electric utility companies. The question presented is whether the state as sovereign may be involuntarily subjected to added charges for failure to make timely payment of bills for electric services consumed.

A common issue in the first point of the case applicable to both respondents arises from different procedural origins. As to Missouri Power and Light, hereafter MPL, a proposed tariff was filed by MPL with the commission amending its rate to large governmental users to include a late payment charge of one percent a month applied to accounts unpaid twenty days after billing. The commission approved the late payment charge but directed amendment of the period from twenty to forty days. As an intervenor in the case, the state filed a writ of review in the circuit court and now appeals the judgment which affirmed the decision of the commission.

In the case of Kansas City Power and Light, hereafter KCPL, its tariff provides no special government rate. The rate for all non-residential accounts does include a late payment charge which it has applied to delinquent accounts owed by the state. In a complaint filed with the commission, the state raised the issue of whether the late payment charge could be imposed. The commission found that the charge was valid under the KCPL tariff, a writ of review was taken by the state and this appeal is prosecuted from the adverse decision by the circuit court.

The state contends in its first point that the commission erred in concluding the late payment charge was an element of the utilities' rate structure and was not interest. The classification of the charge as interest is of significance to the state because it claims immunity from assessment of interest on its bills unless the charge has been countenanced by an act of the legislature or by the terms of a lawful contract. The state argues that the public service commission order is unlawful if the effect of the order approving late payment charges on utility bills is to impose interest expense on public funds not otherwise provided in the contracts for the services.

We first note the scope of appellate judicial review in this case, particularly because the state's first challenge is to the validity of the commission's finding that the late payment item in the utilities' rate structure was not interest. The review by this court is of the order entered by the commission and accords no deference to the determination made by the circuit court. State ex rel. Public Water v. Public Service Commission, 600 S.W.2d 147 (Mo.App.1980). On appellate review, the commission order enjoys a presumption of validity and as to matters of reasonableness, the court may not substitute its judgment for that of the commission if the commission order is supported by substantial and competent evidence on the record as a whole. State ex rel. Utility Consumers Council v. Public Service Commission, 585 S.W.2d 41 (Mo. banc 1979). The court is not authorized to weigh the evidence heard by the commission. The findings of the commission are prima facie correct and the challenger carries the burden of making a convincing showing that those findings are not reasonable and lawful. State ex rel. Inman Freight System, Inc. v. Public Service Commission, 600 S.W.2d 650 (Mo.App.1980).

The principal point of controversy before the commission and here was and is whether the charges in question imposed by the utility on the bill of a customer not paid by the due date are the equivalent of and should be identified as interest. The state's argument assumes, although no Missouri cases are cited to support the proposition, that if the late payment charge were correctly identified for what it is, a charge for the use of money, the state would be entitled to escape payment of those charges on its electric utility bills. It assumes avoidance of interest charges on overdue accounts is a perquisite of the sovereign.

The practice in utility rate making of accounting for the expense of delinquent accounts is common and assumes a variety of forms. In some instances it may involve a discount for prompt payment, in others, a gross-net rate differential or, as here, it may take the form of a penalty for tardy payment. In whatever form, however, the charge is attributable to direct costs incurred by the utility on those accounts of customers who fail to make timely payment of their bills. The evidence to this effect was uncontroverted and the commission order so found.

It necessarily follows that expenses imposed on the utility by customers who pay late will be reflected in the operating costs of the company. As the court observed in State ex rel. Utilities Commission v. North Carolina Consumers Council, Inc., 18 N.C.App. 717, 198 S.E.2d 98 (1973), the cost of collecting past due accounts is an operating expense which has an influence on the fair rate of return a company should earn and, in turn, is a factor taken into account in setting rates. If a utility is denied the opportunity to charge late payment customers, those who pay their bills promptly will be indirectly penalized by sharing collection costs entirely disassociated from their own accounts and the service they consume.

The subject was considered in Coffelt v. Arkansas Power & Light Co., 248 Ark. 313, 451 S.W.2d 881 (1970) where a class action was brought to determine if late payment charges were interest and therefore subject to usury legislation. The court held the charge not to be interest but a method of preventing discrimination among customers of the utility. The court stated:

"The late charge, far from being an exaction of excessive interest for the loan or forbearance of money, is in fact a device by which consumers are automatically classified to avoid discrimination. Its effect is to require delinquent rate payers to bear, as nearly as can be determined, the exact collection costs that result from their tardiness in paying their bills." Id. 451 S.W.2d at 884.

Other decisions have uniformly supported the view that late payment charges included in regulated utility rate structures are not the equivalent of interest charged for the use of money. Tennyson v. Gas Service Company, 506 F.2d 1135 (10th Cir.1974); Ferguson v. Electric Power Board of Chattanooga, Tennessee, 378 F.Supp. 787 (E.D.Tenn.1974); Jones v. Kansas Gas and Electric Co., 222 Kan. 390, 565 P.2d 597 (1977); State ex rel. Guste v. Council of City of New Orleans, 309 So.2d 290 (La.1975). Appellant cites no case authority supporting its claim that late charges are to be equated with interest and independent research has disclosed none.

The...