State ex rel. Gs Tech. v. Public Service

• Decision Date: 16 September 2003
• Docket Number: No. WD 61290.,WD 61290.
• Citation: 116 S.W.3d 680
• Parties: STATE of Missouri ex rel. GS TECHNOLOGIES OPERATING CO., INC., d/b/a GST Steel Company, Appellant, v. The PUBLIC SERVICE COMMISSION OF the STATE OF MISSOURI, Respondent, Kansas City Power & Light, Defendant.
• Court: Missouri Court of Appeals

116 S.W.3d 680

STATE of Missouri ex rel. GS TECHNOLOGIES OPERATING CO., INC., d/b/a GST Steel Company, Appellant, v. The PUBLIC SERVICE COMMISSION OF the STATE OF MISSOURI, Respondent, Kansas City Power & Light, Defendant.

No. WD 61290.

Missouri Court of Appeals, Western District.

September 16, 2003.

As Modified on Denial of Rehearing October 28, 2003.

Paul S. Deford, Kansas City, MO, for appellant.

Lera L. Shemwell, Robert P. Gingrich, Jr., Jefferson City, MO, for respondent.

Before ELLIS, C.J., BRECKENRIDGE and SMITH, JJ.

PATRICIA BRECKENRIDGE, Judge.

G.S. Technologies Operating Co., d/b/a GST Steel Company (GST), appeals the Public Service Commission's decision that GST had failed to prove that Kansas City Power & Light Company's (KCPL) imprudence caused an explosion that destroyed one of KCPL's generating units, resulting in KCPL's providing inadequate and unreliable service to GST and charging GST unjust and unreasonable rates. On appeal, GST contends that (1) the Commission acted arbitrarily and capriciously and abused its discretion in deciding to give "little weight" to the testimony of GST's expert; (2) the Commission acted arbitrarily and capriciously and abused its discretion by failing to make findings on a theory of imprudence GST raised; (3) the Commission erred by placing the burden on GST to prove KCPL's imprudence and in failing to recognize a rebuttable presumption of KCPL's imprudence under the doctrine of res ipsa loquitur; and (4) the Commission acted arbitrarily and capriciously and abused its discretion in refusing to make findings on whether KCPL was required to use insurance proceeds to offset the cost of replacement power in calculating GST's rate.

This court finds that the Commission erroneously interpreted the law in evaluating the testimony of GST's expert and erred in failing to make findings on one of the theories of imprudence GST raised. Therefore, that portion of the judgment of the circuit court affirming the Commission's decision that the charges of KCPL to GST were at all times just and reasonable and that GST was not overcharged is reversed. The cause is remanded with directions to reverse the Commission's decision and remand to the Commission to reconsider the expert's testimony and the attachments to his testimony that were admitted without objection and make findings on GST's theory that KCPL was imprudent in how it responded to the flooding to determine whether the charges to KCPL were just and reasonable at all times. The Commission did not err in placing the burden of proof on GST to prove KCPL's imprudence, nor did the Commission err in determining that it was without power to determine whether KCPL should use insurance proceeds to offset the cost of replacement power in calculating GST's rate under KCPL and GST's special contract, so the portion of the circuit court judgment affirming these actions by the Commission is affirmed.

The judgment affirming the Commission's Report and Order is affirmed, in part, and reversed, in part, and remanded.

Factual and Procedural Background

On appeal from a decision of the Commission, this court views the evidence, and any inferences therefrom, in the light most favorable to the Commission's order.¹ State ex rel. Associated Natural Gas Co. v. Pub. Serv. Comm'n, 37 S.W.3d 287, 292 (Mo.App.2000). GST was a corporation engaged in manufacturing steel in Kansas City.² Specifically, GST manufactured grinding balls and rods for the mining industry and carbon wire rods. In its manufacturing process, GST consumed extremely large amounts of electricity, which it purchased from KCPL. GST had no other source of electricity available to it in Kansas City other than KCPL.

GST was KCPL's largest single-point retail customer. To acquire electric service at an advantageous price, GST entered into a special contract with KCPL, which was approved by the Commission. Under the special contract, GST was permitted to schedule production when KCPL's incremental costs were low. The contract also provided a formula for calculating the price GST was to pay for electricity. The contract price included a fixed component and a variable component. Factors affecting the variable component included KCPL's fuel costs, operations and maintenance expenses, and purchased power expenses.

Under the special contract, GST paid significantly less for electricity than it would have paid under KCPL's general service tariffs. Pursuant to the terms of the contract, GST was not subject to rate increases, nor did it benefit from rate decreases that applied to KCPL's regular Missouri retail customers. The special contract permitted GST to opt for service under any of KCPL's general service tariffs at any time, but GST never exercised this option.

KCPL provided power to GST and its other customers through its operation of seven fossil-fuel generating units, one nuclear generating unit, and several gas or oil peaking units. Among these units, KCPL uses the lower-cost generating units to provide power before using the higher-cost generating units. One of its more economical generating units was the Hawthorn Generating Station Unit No. 5 (Hawthorn 5), a coal-fired baseload³ generating unit that began providing service in 1956.

Hawthorn 5's eleven-story boiler was destroyed by an explosion that occurred at about 12:30 A.M. on February 17, 1999. This caused the immediate shutdown of the Hawthorn 5 unit. The staff of the Public Service Commission opened an investigation into the incident to determine the cause of the explosion and what action, if any, was needed. Meanwhile, to replace the power that had been generated by Hawthorn 5, KCPL relied upon more expensive system resources and purchased higher-priced replacement power on the energy market. KCPL did, however, receive $5 million in proceeds from an insurance policy covering its replacement energy expense in the event of an incident such as the Hawthorn 5 explosion. KCPL informed GST that the Hawthorn 5 outage would probably result in an increase in KCPL incremental costs and that these increased costs would be reflected in GST's rate under the special contract. The variable portion of GST's rate under the special contract did, in fact, rise by $3 to $4.2 million.

On May 11, 1999, GST filed a petition asking the Commission to continue its investigation into the Hawthorn 5 explosion and also to investigate the adequacy, reliability and prudence of KCPL's service to GST in general, both before and after the Hawthorn 5 explosion. In addition, GST asked the Commission to investigate the justness and reasonableness of the prices KCPL charged, particularly in light of the insurance proceeds KCPL received from the Hawthorn 5 explosion.

The Commission held an evidentiary hearing on April 17 and 18, 2000. The parties agreed that there were eight issues before the Commission. The issues which are the subject of this appeal were whether KCPL operated and maintained the Hawthorn 5 unit in a reasonable and prudent manner; whether KCPL's charges to GST were "just and reasonable"; and whether KCPL should have offset any of the costs of purchasing replacement power with the insurance proceeds it received as a result of the explosion of the Hawthorn 5 unit.

After receiving written and live testimony from the parties' witnesses, the Commission entered its Report and Order on July 13, 2000. In its Report and Order, the Commission stated that GST "failed to show that imprudence on the part of KCPL employees caused the explosion at Hawthorn 5 on February 17, 1999." The Commission was careful to point out, however, that it was not concluding that KCPL was not responsible for the Hawthorn 5 explosion but, rather, that it was "unable on this record to determine that issue." The Commission noted that it considered "the Hawthorn 5 explosion to be an open question, pending the conclusion of Staff's ongoing investigation." With regard to the reasonableness of KCPL's rates, the Commission concluded that KCPL's charges to GST were "just and reasonable." The Commission found that "[t]he charges were properly and correctly calculated under the special contract, which was freely negotiated by the parties and approved by the Commission." On the issue of whether KCPL should have reduced the costs of purchasing replacement power by the insurance proceeds it received as a result of the Hawthorn 5 explosion, the Commission found that it did not have the authority to "direct KCPL to recalculate its charges to GST for electrical service already rendered, or to be rendered, using insurance proceeds received with respect to the Hawthorn 5 explosion to reduce the cost of replacement power."

GST filed a petition for writ of review in the Cole County Circuit Court. Following oral argument, the court affirmed the Commission's decision on March 26, 2002. GST filed this appeal.

Standard of Review

On appeal, this court reviews the Commission's decision, and not the circuit court's judgment. State ex rel. Alma Tel. Co. v. Pub. Serv. Comm'n, 40 S.W.3d 381, 387 (Mo.App.2001). The Commission's decision is presumed valid, and the party attacking it has the burden of proving its invalidity. Id. To review the Commission's decision, this court uses a two-part test. This court first determines whether the Commission's order was lawful. Id. An order is lawful if there is statutory authority for its issuance. Id. at 387-88. "In determining whether the Commission's order is lawful, an appellate court must exercise unrestricted, independent judgment and correct erroneous interpretations of the law." Id. at 388.

If this court finds that the Commission's order was lawful, this court must then determine whether the order was reasonable. State ex rel. Midwest Gas Users' Ass'n v. Pub. Serv. Comm'n, 976 S.W.2d 470, 476 (Mo.App.1998). "`The reasonableness of the PSC's order depends on whether it was supported by competent and substantial evidence upon the whole record;...