State ex rel. KCP & L Greater Missouri Operations Co. v. Missouri Public Service Commission
Docket: Nos. WD 75038, WD 75057, WD 75058
Court: Missouri Court of Appeals; May 14, 2013; Missouri; State Appellate Court
The appeal contests the May 4, 2011 Report and Order of the Public Service Commission (PSC), which was later clarified by an Order on May 27, 2011. The PSC mandated KCP&L Greater Missouri Operations Company (KCP&L-GMO) to file revised tariffs based on its findings. The parties appealing include KCP&L-GMO, AG Processing, Inc. (AGP), and the Office of the Public Counsel (OPC), with Dogwood Energy, LLC intervening.
KCP&L-GMO, a public utility regulated by the PSC, was formerly Aquila, Inc. and was acquired by Great Plains Energy, Inc. in 2008. The service area is divided into two rate districts: MPS and L.P., serving different parts of Missouri. KCP&L-GMO sought to implement a general rate increase of $75.8 million for the MPS district and $22.1 million for the L.P. district, initially proposing tariffs effective May 4, 2011, but later extending this to June 4, 2011.
Intervention requests from AGP, a major customer in the L.P. district, and Dogwood, a retail and wholesale power supplier, were granted. Public hearings and evidentiary hearings occurred from January to March 2011. The PSC issued its Report and Order on May 4, rejecting KCP&L-GMO's tariffs and requiring compliance tariffs to be filed by May 12, 2011. KCP&L-GMO submitted revised tariff sheets following the PSC's requests.
The PSC held a hearing on May 26, 2011, addressing various applications for rehearing and objections, leading to the May 27 Order of Clarification and Modification, requiring new tariff sheets and setting a deadline for objections. The PSC expedited the effective date for most parts of the compliance tariffs to June 4, 2011, under section 393.140(11).
The May 27 Order extended the effective date of the Fuel Adjustment Clause (FAC) tariffs to July 2, 2011. KCP&L-GMO filed revised compliance tariffs set to take effect on June 4, 2011, and FAC compliance tariffs effective July 1, 2011. Substitute tariff sheets were also filed on June 1, 2011. The Office of Public Counsel (OPC) raised objections to these compliance tariffs on June 1 and June 2, leading the Public Service Commission (PSC) to suspend the compliance tariffs until June 18, 2011, with a deadline for additional objections set for June 8. Further objections were filed by the OPC on that date. The PSC ultimately allowed the tariffs to go into effect on less than thirty days’ notice, with compliance tariffs effective June 25, 2011, and FAC tariffs effective July 2, 2011.
The PSC denied KCP&L-GMO’s request for a $97.9 million rate increase, approving a $59.4 million increase instead, allocating specific amounts to the MPS and L.P. rate districts. Petitions for review were filed in the Circuit Court of Cole County on June 24, June 30, and July 19, 2011; these cases were consolidated, and Dogwood's intervention was granted. On February 16, 2012, the circuit court upheld the PSC’s order as lawful and reasonable. Subsequently, KCP&L-GMO, AGP, and the OPC each appealed, with the appeals consolidated and Dogwood intervening as a respondent.
The appeals will be reviewed based on the PSC's decision, which is presumed lawful and reasonable unless proven otherwise. The burden of proof lies with the party challenging the PSC's order, and the reviewing court assesses whether the PSC had statutory authority for its order and whether its decision was supported by substantial evidence. The PSC must provide written findings of fact on all relevant matters.
On February 27, 2012, KCP&L-GMO filed new tariffs for revenue increases, and during oral arguments, it was acknowledged that the tariffs in question have been superseded by those approved in a January 9, 2013 Report and Order, raising the question of whether the current appeal should be dismissed as moot.
Mootness is a key consideration in appellate review, determining whether a decision is necessary based on intervening events that render the original controversy ineffective. A case is deemed moot when the court cannot provide effective relief, particularly when superseded tariffs have been replaced by new ones, which cannot be corrected retroactively. Although the parties request a review despite mootness, exceptions to this doctrine apply only if the issues are of general public interest, are likely to recur, and may evade future appellate review.
Certain issues in this case are considered moot and do not qualify for the exception; these include the OPC's point on unlawfully approved tariff sheets and KCP&L-GMO's points regarding the valuation of Crossroads Energy Center and its tax calculations. However, issues related to the PSC's lawful authority are deemed to have public interest and recurring nature, justifying a review of KCP&L-GMO's point on disallowed transmission costs and AGP's points regarding rate discrepancies.
KCP&L-GMO's appeal involves three issues linked to the PSC's determinations about Crossroads Energy Center, a 300 MW peaking plant in Mississippi. KCP&L-GMO aimed to recover costs for integrating Crossroads into its energy generation fleet. After acquiring Aquila, which previously relied on purchased power, KCP&L-GMO chose Crossroads as a cost-effective solution to meet its energy demands. The plant was later transferred to KCP&L-GMO's regulated books after GPE's acquisition of Aquila in 2008.
KCP&L-GMO challenges the PSC’s valuation of Crossroads at $61.8 million, arguing it is unlawful and unreasonable. However, this point is denied as moot due to a subsequent rate order that addressed additional relevant facts. In its second argument, KCP&L-GMO contends that the PSC wrongly disallowed transmission costs associated with delivering power from Crossroads to Missouri customers. KCP&L-GMO claims the PSC's findings are insufficient and inconsistent, particularly given that Crossroads was deemed the lowest cost option. The disallowance is also argued to violate the filed rate doctrine and the Supremacy Clause by trapping federally approved transmission costs.
KCP&L-GMO asserts that the PSC's findings lack necessary detail and do not adequately explain the rationale for disallowing these costs. The PSC’s rationale for excluding the transmission costs was based on the substantial difference in estimated monthly transmission costs from Crossroads ($406,000) compared to those from local power plants, which KCP&L-GMO does not incur. The PSC determined it would be unjust to burden ratepayers with these excessive transmission costs from a distant facility. The document cites relevant Missouri statutes and case law regarding the adequacy of findings of fact and the standard of review for the PSC’s decisions.
KCP&L-GMO contends that the PSC's disallowance of transmission costs related to the Crossroads power delivery is logically inconsistent with its finding that Crossroads was the prudent, lowest-cost option. While the PSC deemed KCP&L-GMO's integration of Crossroads into its generation fleet as prudent, it excluded additional transmission costs, which are significant at approximately $406,000 per month. The PSC identified that the natural gas supply for Crossroads, sourced from a different region, allows for price advantages. However, the high transmission costs from Mississippi to KCP&L-GMO’s service area negate these benefits. The PSC emphasized its obligation to ensure rates are just and reasonable, as per statutory requirements. It applies a 'prudence' standard to utility costs, which presumes costs are prudently incurred unless inefficiency is demonstrated. In this case, Staff raised serious doubts about the prudence of the transmission costs, suggesting that these costs warranted the exclusion of Crossroads from KCP&L-GMO’s service costs. For the PSC to deny recovery of costs, it must find both imprudence on the utility's part and resultant harm to ratepayers. The PSC concluded that the transmission costs from Crossroads greatly exceeded those from KCP&L-GMO’s local facilities, thus deeming it unjust and unreasonable to impose these costs on ratepayers. The PSC's decision was based on a prudence analysis that assessed both the prudence of including the costs and the potential harm to ratepayers, confirming the legality of its decision to deny the recovery of these transmission costs.
The Public Service Commission (PSC) determined that denying KCP&L-GMO recovery of transmission costs was reasonable. KCP&L-GMO utilizes transmission service from Entergy Services, which operates under a tariff approved by the Federal Energy Regulatory Commission (FERC). KCP&L-GMO argued that the PSC's disallowance of transmission costs violated the filed rate doctrine and the Supremacy Clause by improperly affecting the FERC-approved tariff. The filed rate doctrine mandates that state commissions must honor interstate rates filed with or set by FERC, preventing states from preventing a distributor from recovering FERC-approved costs.
The PSC clarified that its decision did not question the justness of Entergy’s transmission rates but deemed it unjust for KCP&L-GMO to benefit from cost savings at the Crossroads plant while passing unnecessary transmission costs to consumers. The PSC noted that there were alternative energy production options available to KCP&L-GMO within Missouri that did not incur transmission expenses. Although the PSC included Crossroads in KCP&L-GMO’s rate base, it disallowed costs associated with transmitting energy from Mississippi, placing the burden on KCP&L-GMO to manage the logistics of energy sourcing from a distant facility. Ultimately, while the PSC acknowledged the value of Entergy’s service, it found it unreasonable for KCP&L-GMO to charge ratepayers for transmission costs resulting from its decision to source energy from afar.
The Public Service Commission (PSC) disallowed KCP&L-GMO from charging ratepayers for Crossroads transmission costs, challenging the justification for such costs rather than their amount. Citing Nantahala, the Supreme Court ruled that the Federal Energy Regulatory Commission (FERC) orders regarding energy allocation must be followed, preventing state commissions from altering these allocations based on their determinations. However, the case at hand is distinguishable as there is no existing FERC allocation affecting KCP&L-GMO's procurement of power from Crossroads. Similarly, the Mississippi Power case, where the state commission could not override FERC's mandates regarding nuclear power costs, is not applicable since there’s no FERC requirement for KCP&L-GMO to acquire power from Crossroads. The Missouri Supreme Court affirms the PSC's authority to evaluate the reasonableness of rates and determine allowable operating expenses. The PSC's decision to disallow the Crossroads transmission expenses is deemed lawful, reasonable, and backed by sufficient evidence, leading to the denial of KCP&L-GMO’s appeal on this matter.
KCP&L-GMO's assertion regarding the calculation of Accumulated Deferred Income Tax (ADIT) is denied as moot due to a subsequent rate order with new facts. AGP's appeal, claiming the PSC improperly granted rate increases exceeding the utility's request, is assessed under the assumption that the PSC's rates are lawful and reasonable. AGP bears the burden of proof to demonstrate otherwise. Specifically, AGP contests a $7 million increase approved by the PSC for the L.P. service area, which exceeds KCP&L-GMO's requested $22.1 million. The PSC's authority allows it to conduct hearings on proposed rates, with due process requiring adequate notice and opportunity for parties to be heard. The PSC provided individual notices to KCP&L-GMO's customers about public hearings on the rate increase, detailing the proposed increases and inviting public input. The PSC's report indicates that the notice sufficiently informed ratepayers, satisfying due process requirements. AGP's argument that the PSC cannot approve rates beyond the utility's request is countered by the fact that the PSC's approved rates were lower than KCP&L-GMO’s initial proposal, suggesting that AGP's concerns relate more to the PSC's method of cost allocation than the overall rate increase.
KCP&L-GMO proposed allocating 41 MW of latan 2 to the L.P. service area and 112 MW to the MPS service area. In contrast, PSC Staff recommended 53 MW for L.P. and 100 MW for MPS, leading to a higher percentage rate increase for L.P. customers compared to KCP&L-GMO's proposal. The PSC Staff's analysis, presented in a Cost of Service Report before the evidentiary hearing, emphasized that their allocation was more just and reasonable as it aligned costs with the customers who initially supported the latan facility and required replacement capacity. The PSC determined that L.P. had greater base load energy needs than MPS, justifying a larger allocation of latan 2 to L.P. Additionally, the PSC found that KCP&L-GMO's approach would exacerbate the rate gap between L.P. and MPS, which Staff's proposal avoided. Consequently, the PSC allocated a greater portion of the overall rate increase to L.P. than KCP&L-GMO requested, ensuring both service areas received some latan 2 capacity. Although L.P. customers faced a larger percentage increase, they currently paid lower rates than MPS customers and were expected to benefit from lower-cost generation in the long run. Ultimately, the PSC granted a total rate increase of $38.5 million less than KCP&L-GMO's request, with a different allocation method. The PSC holds the authority to determine just and reasonable rates, and its decision on cost allocation was deemed reasonable and supported by the evidence. AGP’s argument regarding the phase-in of the rate increase was rejected, as the PSC's rate setting was not limited to KCP&L-GMO's request. Following this rate case, KCP&L-GMO's rate base increased significantly, from $190,457,404 to $422,039,507, due to the inclusion of latan 2.
L-GMO's L. P service area received a larger portion of a rate increase compared to KCP, with the PSC determining that a phased implementation of this increase was just and reasonable. Initially, rates for the L. P area were set at $22.1 million, as proposed by KCP, while L-GMO would recover the remaining increase plus carrying costs over two years. Under section 393.155.1, the PSC can phase in significant base rate increases over a reasonable period, allowing for deferred revenue recovery. This statute applies to L-GMO's case due to a significant change in its rate base from the addition of latan 2. The PSC's decision to phase in the rate increase aimed to mitigate rate shock for L. P customers and was influenced by AGP's suggestion during proceedings. AGP's appeal, claiming PSC error in adopting this phase-in, was denied as it constituted invited error. Additionally, the OPC's appeal regarding the PSC's approval of tariff sheets with insufficient lead time was deemed moot, as the tariff in question had been superseded by a later order. The OPC has a pending Writ of Mandamus related to this matter, with a preliminary writ issued by the court directing the PSC to respond.
The issue at hand is considered moot, as it is currently under appellate review in an ongoing case, which does not warrant an exception to the mootness doctrine. The Office of Public Counsel’s (OPC) point is denied, affirming that the issues on appeal are moot. The circuit court’s judgment supporting the Public Service Commission’s (PSC) May 4, 2011 Report and Order, later clarified by an order on May 27, 2011, is upheld. Judges Howard and Ahuja concur in part and dissent in part, respectively.
The court observed that facts and reasonable inferences are reviewed favorably towards the PSC's order. Although all parties were aware of the January 9, 2013 Report and Order, it was not brought to the court’s attention until shortly before oral arguments, raising concerns for timely disclosure in future cases.
Additionally, the income tax expense deducted in calculating the cost of service does not reflect KCP&L-GMO's actual tax payments but instead the amount that would have been paid under a straight-line depreciation method. The deferred tax reserve, which is unfunded and incurs no interest, is excluded from the rate base, benefiting ratepayers by not reflecting costs for the use of this reserve. The rates established by the PSC were lower than those initially sought by KCP&L-GMO.
AG Processing (AGP) disputes the PSC's cost allocation for Latan 2 between different rate districts, arguing that the PSC improperly substituted its judgment for that of utility management. However, the court finds AGP's reference to the Southwestern Bell case unpersuasive and inapplicable.
The Public Service Commission (PSC) ordered Southwestern Bell to provide service in an area where it previously had not, emphasizing that while the company uses its property for public service, it retains ownership and cannot be compelled to use its assets in ways it has not voluntarily agreed to. In the current case involving KCP&L-GMO, which serves customers in two rate districts, the PSC's ruling focused on determining the appropriate rates for the existing service area. The PSC holds the authority to set just and reasonable rates in these districts. AGP's argument against the PSC's authority to establish a phase-in exceeding the utility's request is based on a 1974 circuit court order, which it claims reflects Missouri law. However, the ruling clarifies that while lower courts are bound by such decisions, higher courts are not obligated to follow them, thus undermining AGP's position.
