Western Resources, Inc. v. Kansas Corporation Comm'n

• Decision Date: 08 March 2002
• Docket Number: No. 88,013.,88,013.
• Citation: 42 P.3d 162,30 Kan. App.2d 348
• Parties: WESTERN RESOURCES, INC., and KANSAS GAS AND ELECTRIC COMPANY, Petitioner/Appellants, v. THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS, Respondent/Appellee.
• Court: Kansas Court of Appeals

30 Kan. App.2d 348

42 P.3d 162

WESTERN RESOURCES, INC., and KANSAS GAS AND ELECTRIC COMPANY, Petitioner/Appellants, v. THE STATE CORPORATION COMMISSION OF THE STATE OF KANSAS, Respondent/Appellee.

No. 88,013.

Court of Appeals of Kansas.

Opinion filed March 8, 2002.

Martin J. Bregman, Executive Director, Law, of Western Resources, Inc., of Topeka; Michael Lennen, of Morris, Laing, Evans, Brock & Kennedy, Chartered, of Wichita; and James M. Fischer, of Fischer & Dority, P.C., of Jefferson City, Missouri, for appellants.

Caroline Ong, advisory counsel, and Susan B. Cunningham, general counsel, of the Kansas Corporation Commission, for appellee.

Walker Hendrix and Niki Christopher, for intervenor Citizens' Utility Ratepayer Board.

Kirk T. May and Matthew T. Geiger, of Rouse Hendricks German May PC, of Kansas City, Missouri, for intervenor The Goodyear Tire & Rubber Company.

Sarah J. Loquist and Thomas R. Powell, of Hinkle Elkouri Law Firm L.L.C., of Wichita, for intervenor Unified School District No. 259.

David J. Roberts and James P. Zakoura, of Smithyman & Zakoura, Chartered, of Overland Park, for intervenor Kansas Industrial Consumers.

Timothy E. McKee, of Triplett, Woolf & Garretson, LLC, of Wichita, Greg D. Ottinger, of Duncan & Allen, of Washington, D.C., Gary E. Rebenstorf, city attorney, and Joe Allen Lang, first assistant city attorney, for intervenor City of Wichita. Kevin M. Fowler and John C. Frieden, of Frieden, Haynes & Forbes, of Topeka, for intervenor City of Topeka.

Before RULON, C.J., LEWIS and KNUDSON, JJ.

KNUDSON, J.:

Western Resources, Inc. (WRI) and Kansas Gas and Electric Company (KGE) filed this joint petition for judicial review from a final order of the Kansas Corporation Commission (KCC) in an electric rate proceeding instituted by the utilities.

Jurisdiction is conferred upon this court under K.S.A. 2001 Supp. 66-118a(b) and in accordance with the Act for Judicial Review and Civil Enforcement of Agency Actions (KJRA), K.S.A. 77-601 et seq. In a separate but related appeal, KIC also filed a petition for judicial review from the KCC's order. See Kansas Industrial Consumers v. Kansas Corporation Comm'n, 30 Kan. App.2d 332, 42 P.3d 110 (2002).

On appeal, WRI and KGE contend the KCC erroneously interpreted or applied the law, the KCC's order was not supported by substantial competent evidence, and its decision was otherwise unreasonable, arbitrary, or capricious. We conclude the KCC acted within its authority, and there exists substantial competent evidence to support its findings and decisions to achieve just and reasonable utility rates.

The KCC Proceedings

In November 2000, WRI filed an application with the KCC seeking an approximate $92,000,000 rate increase for its electric service division. On the same date, KGE, a wholly owned subsidiary of WRI, also filed an application with the KCC for a rate increase of almost $58,000,000. Both applications were consolidated into the same agency docket, 01-WSRE-436-RTS.

Various parties intervened in the proceedings before the KCC. The intervenors included Citizens' Utility Ratepayers Board (CURB), Kansas Industrial Consumers (KIC), City of Wichita, City of Topeka, Unified School District No. 259 (U.S.D. 259), Midwest Energy, Inc., Empire District Electric Company (Empire), Kansas Municipal Energy Agency, The Goodyear Tire & Rubber Company (Goodyear), ONEOK, Inc. d/b/a Kansas Gas Service Company, and Southcentral Municipal Energy Agency. The KCC held evidentiary hearings on the applications from May 17, 2001, through June 4, 2001. Subsequently, all parties had the opportunity to file post-hearing trial briefs and reply briefs.

On July 25, 2001, the KCC issued a decision on the rate applications. Its order dealt with a wide variety of issues pertaining to the revenue requirements of WRI and KGE. The KCC ordered a decrease of KGE's revenue requirement by over $41,000,000 and increased WRI's revenue requirement by $18,470,583. Timely petitions for reconsideration attacking various portions of the initial order were filed by KIC, the KCC Staff, WRI and KGE, and the City of Wichita.

On September 5, 2001, the KCC issued its order on reconsideration. In this order, the KCC made various adjustments with respect to certain issues and clarified other points. The end result was a determination that WRI had an increased revenue requirement of $25,401,336 and KGE had a decrease in its revenue requirement of $41,062,598.

Timely petitions for reconsideration were filed from the order on reconsideration by KIC, WRI and KGE, and Goodyear. The petitions for reconsideration were denied in the KCC's final order of October 11, 2001. WRI and KGE filed this joint petition for judicial review.

Standard of Review

Pursuant to K.S.A. 66-118c, this court reviews an order of the KCC under the KJRA. In their brief, WRI and KGE contend the KCC erroneously interpreted or applied the law, the KCC's order was not supported by substantial evidence, and the KCC's decision was otherwise unreasonable, arbitrary, or capricious. Those claims of error are consistent with the jurisdictional grant of the KJRA. See K.S.A. 77-621.

On appeal, the KCC's findings are presumed valid, and its order may only be set aside if it is not supported by substantial competent evidence, is without foundation in fact, or is otherwise unreasonable, arbitrary, or capricious. Williams Natural Gas Co. v. Kansas Corporation Comm'n, 22 Kan. App.2d 326, 334-35, 916 P.2d 52, rev. denied 260 Kan. 1002 (1996). The legislature has vested the KCC with broad discretion in weighing the competing interests involved in setting public utility rates. Because discretion is delegated to the KCC, the courts do not have authority to substitute their judgment for that of the KCC. The courts also have recognized that the KCC's decisions involve complex problems of policy, accounting, economics, and other special knowledge to achieve just and reasonable utility rates. Consequently, a court may not set aside a KCC order merely because the court would have arrived at a different conclusion had it been the trier of fact. The court may reverse or nullify a KCC order only when the decision "`"is so wide of the mark as to be outside the realm of fair debate."'" Williams Natural Gas Co.,22 Kan. App. 2d at 335 (quoting Kansas Gas & Electric Co. v. Kansas Corporation Comm'n, 239 Kan. 483, 497, 720 P.2d 1063 [1986]).

Imputation of Off-System Sales Revenues

WRI and KGE first challenge the KCC's decision to impute revenues to the companies for additional off-system wholesale sales of electricity as a result of new generation facilities brought on line during or shortly after the test year. WRI and KGE contend the revenues attributed to those facilities were speculative and contrary to the record. WRI and KGE also contend the KCC's decision was not based upon substantial competent evidence and post-hearing evidence proffered by the applicants was improperly rejected.

The test year adopted by the KCC ended on September 30, 2000. In their applications, WRI and KGE requested that the KCC include in their rate base costs relating to new generation facilities incurred outside of the test year. The new facilities included three combustion turbine peaking units at the Gordon Evans site and a Purchase Power Agreement (PPA) under which WRI could purchase 200 megawatts of capacity from Westar Generating, Inc.'s State Line facility; Westar is a wholly owned subsidiary of WRI. These new facilities created about 514 megawatts of new capacity for WRI retail customers. Two of the three Gordon Evans units went into service during the test year; the third unit went into service in June 2001. Westar's State Line plant went into commercial service in June 2001. The KCC determined the increased capacity for WRI was a necessary and prudent investment and included the costs in WRI's rate base.

The above adjustment to rate base required the KCC to also consider whether the additional generation capacity would likely increase retail and off-system wholesale sales. The KCC agreed with WRI and KGE that the increase in retail customers was not sufficiently quantified. Next, the KCC noted the steady increase of wholesale sales in recent years and the marketing projections made by WRI and KGE to the financial analysts on Wall Street. Ultimately, the KCC added an additional $19,191,165 in revenue from off-system sales. The KCC's determination was based upon evidence that there would be 28,000 megawatt hours (MWh) available for off-system sales at $750 per MWh.

WRI and KGE challenged this adjustment in their petition for reconsideration. In their petition, WRI and KGE asked the KCC to consider additional evidence in the form of an affidavit with calculations from a WRI manager, Shane Mathis. In its subsequent order, the KCC declined to accept Mathis' affidavit, noting WRI and KGE had the opportunity to provide the information in a timely fashion as prefiled rebuttal evidence or during the hearing. The KCC also found that the determination there would be additional off-system sales was not speculative. However, the KCC did agree, "based on its familiarity with market conditions," the $750 per MWh was too high and reduced the adjustment to $12,794,600 based on a price of $500 per MWh. WRI and KGE filed a timely petition for reconsideration from this order that was denied by the KCC.

The KCC is to determine the reasonable value of property owned by a public utility which is used and required in its public operations. K.S.A. 2001 Supp. 66-128(a). Generally, property which has not been completed and dedicated to commercial service is not considered used and useful; however, the KCC has discretion to include the cost of uncompleted property in several circumstances. K.S.A. 2001 Supp. 66-128(b)(2). Moreover, we have previously recognized the KCC has discretion to include in rate calculations any costs and revenues not part of the test year if the...