NORTHERN KENTUCKY WATER DISTRICT VS. PUBLIC SERVICE COMMISSION , ET AL.
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RENDERED: DECEMBER 11, 2009; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2008-CA-002284-MR
NORTHERN KENTUCKY WATER DISTRICT
v.
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE THOMAS D. WINGATE, JUDGE
ACTION NO. 06-CI-01121
PUBLIC SERVICE COMMISSION;
CRESTBROOK PROPERTIES, LLC; AND
GREATER CINCINNATI NORTHERN
KENTUCKY APARTMENT ASSOCIATION
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE: STUMBO, THOMPSON, AND WINE, JUDGES.
STUMBO, JUDGE: The Northern Kentucky Water District (hereinafter NKWD)
appeals the Franklin Circuit Court’s ruling that the Public Service Commission
(hereinafter PSC) had jurisdiction over the regulation of cross-connections.1 The
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Cross-connections are prohibited in Kentucky. 401 KAR 8:020 §2(2). Cross-connections are
physical connections or arrangements “between two (2) otherwise separate systems, one (1) of
which contains potable water and the other being either water of unknown or questionable safety,
or steam, gas, or chemicals, whereby there may be flow from one (1) system to the other, the
direction of flow depending on the pressure differential between the two (2) systems.” 401 KAR
Water District argues that the Division of Water (hereinafter DOW), a part of the
Energy and Environment Cabinet, has jurisdiction over cross-connections. The
Appellees argue that the PSC has jurisdiction because the PSC has exclusive
jurisdiction over issues concerning the rates and services of public utilities. For the
following reasons we affirm the circuit court.
On July 1, 1997, NKWD filed a proposed revision to its existing
policy regarding cross-connections with the PSC. This policy was again modified
in June of 2000. The proposed policy established standards for eliminating crossconnections and required all new and existing commercial, industrial, multi-family,
and government customers to meet these standards. The policy stated that NKWD
would begin compliance inspections of these customers based on meter size and
water usage. The customers with the largest meter and largest usage would be
inspected first. Any existing customers who failed to meet the standards would be
given a reasonable amount of time to comply before NKWD discontinued water
service.
Crestbrook Properties, LLC owns multi-family residences in
NKWD’s utility service area. In October of 2000, NKWD sought the installation
of backflow prevention devices, which are one method for eliminating crossconnections, at properties owned by Crestbrook. When Crestbrook refused to
install the devices, NKWD brought an action in Kenton Circuit Court to compel
the installation. Crestbrook brought a counterclaim against NKWD in which it
8:010(14).
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asserted the cross-connection policy violated the equal protection clause, the
Kentucky Constitution, and KRS 278.170 which states in pertinent part
[n]o utility shall, as to rates or service, give any
unreasonable preference or advantage to any person or
subject any person to any unreasonable prejudice or
disadvantage, or establish or maintain any unreasonable
difference between localities or between classes of
service for doing a like and contemporaneous service
under the same or substantially the same conditions.
While this action was pending, Crestbrook filed a formal complaint
with the PSC. Shortly after filing the complaint with the PSC, the Kenton Circuit
Court granted summary judgment for NKWD and ordered Crestbrook to comply
with the cross-connection policy. Crestbrook appealed, which led to the PSC
holding its proceedings in abeyance until the resolution of the appeal suspending
all discovery. A previous panel of this Court held that the Kenton Circuit Court
erred in granting summary judgment. The Court stated that Crestbrook should not
be forced to comply with the policy until the PSC determined whether it was
reasonable and not discriminatory.
After the ruling from the Court of Appeals, the PSC held a hearing on
August 6, 2002. Crestbrook argued that the cross-connection policy constituted
selective enforcement of the regulatory prohibition on cross-connections in that
NKWD inspected commercial, industrial, multi-family, and government structures
for cross-connections, but not single-family residences. Crestbrook argued that no
reasonable distinction existed between multi-family and single-family structures
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and NKWD’s enforcement of the cross-connection policy against multi-family
structures and not single-family structures was discriminatory.
Crestbrook also argued that the degree of hazard and the type of crossconnection present should be considered in determining if a backflow device
should be installed. Crestbrook noted that these were not mentioned in the policy
and that NKWD did not explain why larger water meters alone increased the
probability of water contamination due to cross-connections.
NKWD argued that its practices were reasonable and that the larger
the meter the more likely cross-connection contamination could occur.
Commercial, industrial, multi-family, and government structures generally had
larger meters than single-family residences.
On July 17, 2003, the PSC entered an order on Crestbrook’s
complaint. The PSC concluded that multi-family residences do not pose a greater
threat than single-family residences. It found that the classification was arbitrary
and put a significant burden on the owners of multi-family residences that the
owners of single-family residences did not have to bear. The PSC stated both
multi-family and single-family residences engage in low hazard activities and that
NKWD should amend its policy to treat all residential structures equally.
On July 9, 2004, NKWD filed revised cross-connection rules with the
PSC. On August 5, 2004, the PSC suspended the proposed revisions so it could
investigate the reasonableness of the revisions. The PSC allowed Crestbrook and
the Greater Cincinnati Northern Kentucky Apartment Association, which also
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owned multi-family residences in NKWD’s service area, to intervene in the case
and also incorporated the record of the 2001 case into the record of this new
proceeding.
NKWD’s new policy required single-family residences to adhere to
the cross-connection rules. It also stated that it was going to use meter size as a
factor in deciding which structures to inspect first, meaning that those structures
with larger meters would be inspected first for cross-connections.
The PSC was concerned that NKWD continued to use meter size as a
basis upon which to implement the cross-connection policy. NKWD responded by
stating it needed some logical means to identify and select customers for
enforcement. NKWD continued to argue that there was a correlation between
meter size and degree of hazard of contamination.
On July 12, 2006, the PSC rejected the revised policy. It found that
using meter size to determine which structures to inspect first would still
discriminate against multi-family structures since they would have larger meters.
In essence, the new policy would have the same discriminatory effect as the first
policy. The PSC ordered NKWD to submit a revised cross-connection policy.
NKWD then brought action for review of the July 12, 2006, Order in
Franklin Circuit Court. On November 12, 2008, the Franklin Circuit Court found
in favor of the PSC and dismissed NKWD’s complaint. This appeal followed.
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The essence of this appeal is NKWD’s argument that the DOW is the
agency that should determine whether the cross-connection policy is reasonable
and that the PSC does not have jurisdiction to decide the issue.
The DOW is an agency of the Environmental and Public Protection
Cabinet. The Environmental and Public Protection Cabinet’s jurisdiction is set
forth in KRS Chapter 224. Title 401 of the Kentucky Administrative Regulations
sets forth the applicable regulations dealing specifically with water. The PSC is a
statutorily formed administrative agency with jurisdiction over rates and services
of utilities, including water. KRS 278.040; see generally KRS Chapter 278. Title
807 of the Kentucky Administrative Regulations sets forth the regulations for the
PSC. Specifically, 807 KAR 5:066 deals with water.
“The [Commission] acts as a quasi-judicial agency
utilizing its authority to conduct hearings, render findings
of fact and conclusions of law, and utilizing its expertise
in the area and to the merits of rates and service issues.”
Simpson County Water Dist. v. City of Franklin, 872
S.W.2d 460, 465 (Ky. 1994). “The jurisdiction of the
commission shall extend to all utilities in this state.”
KRS 278.040(2). Further, “[t]he commission shall have
exclusive jurisdiction over the regulation of rates and
service of utilities[.]” Consequently, the standard of
review for an order entered by the Commission is
necessarily circumscribed. “In all trials, actions or
proceedings arising under the preceding provisions of
this chapter or growing out of the commission’s exercise
of the authority or powers granted to it, the party seeking
to set aside any determination, requirement, direction or
order of the commission shall have the burden of proof to
show by clear and satisfactory evidence that the
determination, requirement, direction or order is
unreasonable or unlawful.” KRS 278.430. The orders of
the Commission “can be found unreasonable only if it is
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determined that the evidence presented leaves no room
for difference of opinion among reasonable minds.”
Kentucky Indus. Utility Customers, Inc. v. Kentucky
Utilities Co., 983 S.W.2d 493, 499 (Ky. 1998) (citing
Energy Regulatory Com’n v. Kentucky Power, 605
S.W.2d 46 (Ky. App. 1980)).
Although the Commission is granted sweeping authority
to regulate public utilities pursuant to the provisions of
KRS Chapter 278, it is nonetheless a creature of statute.
Therefore, it “has only such powers as granted by the
General Assembly.” PSC v. Jackson County Rural Elec.
Co-op., Inc., 50 S.W.3d 764, 767 (Ky. App. 2000).
Whether the Commission exceeded the scope of its
authority is a question of law that we scrutinize closely
and review de novo. Com., Transportation Cabinet v.
Weinberg, 150 S.W.3d 75 (Ky. App. 2004). Cincinnati
Bell Telephone Co. v. Kentucky Public Service Com’n,
223 S.W.3d 829, 836 (Ky. App. 2007). Finally, as
always, we review questions of law de novo. City of
Greenup v. Public Service Com’n, 182 S.W.3d 535, 539
(Ky. App. 2005).
Commonwealth, ex rel. Stumbo v. Kentucky Public Service Com’n, 243 S.W.3d
374, 378 (Ky. App. 2007).
NKWD argues that the DOW should have jurisdiction of the crossconnection issue, because the PSC has not enacted any regulations that specifically
discuss cross-connections, while the DOW does have such provisions. We
disagree.
The only DOW regulation pertinent to cross-connections is 401 KAR
8:020 §2(2), which generally prohibits cross-connections. Neither the DOW nor
PSC have enacted regulations specifically on the establishment or implementation
of cross-connections. However, the PSC does have extensive regulations
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concerning its jurisdiction over utilities and their services. It is undisputed that
NKWD is a utility.
Notwithstanding any of the provisions of KRS Chapter
74, any water district; combined water, gas, or sewer
district; or water commission, except a joint commission
created under the provisions of KRS 74.420 to 74.520,
shall be a public utility and shall be subject to the
jurisdiction of the Public Service Commission in the
same manner and to the same extent as any other utility
as defined in KRS 278.010 . . . . [Emphasis added]
KRS 278.015.
The trial court based its decision on a determination that crossconnections were an aspect of service of the utility. “Service” is defined by KRS
278.010(13) as:
any practice or requirement in any way relating to the
service of any utility, including the voltage of electricity,
the heat units and pressure of gas, the purity, pressure,
and quantity of water, and in general the quality,
quantity, and pressure of any commodity or product used
or to be used for or in connection with the business of
any utility, but does not include Voice over Internet
Protocol (VoIP) service.
Additionally, 807 KAR 5:066 §3(1), a regulation promulgated by the PSC, states
that all utilities furnishing water must comply with all requirements of the Natural
Resources Cabinet, which includes the DOW and its prohibition of all crossconnections.
KRS 278.040 states:
(1) The Public Service Commission shall regulate
utilities and enforce the provisions of this chapter . . .
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(2) The jurisdiction of the commission shall extend to all
utilities in this state. The commission shall have
exclusive jurisdiction over the regulation of rates and
service of utilities, but with that exception nothing in this
chapter is intended to limit or restrict the police
jurisdiction, contract rights or powers of cities or political
subdivisions.
(3) The commission may adopt, in keeping with KRS
Chapter 13A, reasonable regulations to implement the
provisions of KRS Chapter 278 and investigate the
methods and practices of utilities to require them to
conform to the laws of this state, and to all reasonable
rules, regulations and orders of the commission not
contrary to law.
Further, KRS 278.170 states:
(1) No utility shall, as to rates or service, give any
unreasonable preference or advantage to any person or
subject any person to any unreasonable prejudice or
disadvantage, or establish or maintain any unreasonable
difference between localities or between classes of
service for doing a like and contemporaneous service
under the same or substantially the same conditions . . .
(4) The commission may determine any question of fact
arising under this section.
Additionally, KRS 278.260(1) states:
The commission shall have original jurisdiction over
complaints as to rates or service of any utility, and upon a
complaint in writing made against any utility by any
person that any rate in which the complainant is directly
interested is unreasonable or unjustly discriminatory, or
that any regulation, measurement, practice or act
affecting or relating to the service of the utility or any
service in connection therewith is unreasonable, unsafe,
insufficient or unjustly discriminatory, or that any service
is inadequate or cannot be obtained, the commission shall
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proceed, with or without notice, to make such
investigation as it deems necessary or convenient. The
commission may also make such an investigation on its
own motion. No order affecting the rates or service
complained of shall be entered by the commission
without a formal public hearing.
Finally, KRS 278.280(1) states:
Whenever the commission, upon its own motion or upon
complaint as provided in KRS 278.260, and after a
hearing had upon reasonable notice, finds that the rules,
regulations, practices, equipment, appliances, facilities or
service of any utility subject to its jurisdiction, or the
method of manufacture, distribution, transmission,
storage or supply employed by such utility, are unjust,
unreasonable, unsafe, improper, inadequate or
insufficient, the commission shall determine the just,
reasonable, safe, proper, adequate or sufficient rules,
regulations, practices, equipment, appliances, facilities,
service or methods to be observed, furnished,
constructed, enforced or employed, and shall fix the same
by its order, rule or regulation.
Cross-connections are prohibited because they can potentially pollute
the public water system. Also, new and current NKWD customers must comply
with the cross-connection policy in order to receive water. As the trial court held,
the cross-connection policy fits into the definition of service because it is a practice
and requirement that deals with the purity, pressure, and quality of water. As can
be seen from the cited statutes above, the PSC has sweeping jurisdiction when it
comes to utilities and their services, especially when a policy or regulation relating
to a service is unreasonable or discriminatory, which was precisely the issue in the
case sub judice. The DOW can prohibit cross-connections, but as they ultimately
fall under the definition of “service,” the PSC determines if the cross-connection
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regulations are appropriate. NKWD cannot demonstrate by clear evidence that this
is not an issue for the PSC to determine.
NKWD also argues that the circuit court’s opinion violates KRS
13A.100 because the PSC has not enacted any specific regulations concerning
cross-connections. We disagree. KRS 13A.100 states:
Subject to limitations in applicable statutes, any
administrative body which is empowered to promulgate
administrative regulations shall, by administrative
regulation prescribe, consistent with applicable statutes:
(1) Each statement of general applicability, policy,
procedure, memorandum, or other form of action that
implements; interprets; prescribes law or policy;
describes the organization, procedure, or practice
requirements of any administrative body; or affects
private rights or procedures available to the public . . . .
PSC’s administrative regulation 807 KAR 5:066 §3(1) requires all utilities to
adhere to any requirements set forth by the DOW. The DOW prohibits crossconnections and the PSC ensures that utilities conform to this prohibition in a
reasonable and nondiscriminatory manner.
Additionally, the primary issue here is not whether Crestbrook had
cross-connections that needed to be eliminated, but whether NKWD’s crossconnection policy was unreasonable and discriminatory. This falls directly within
the purview KRS 278.170, KRS 278.260, and KRS 278.280.
NKWD also argues that it cannot conform to both the PSC’s order to
change its cross-connection policy and the DOW’s regulation prohibiting crossconnections. In short, NKWD alleges that if it can’t use meter size in its policy,
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then it can’t follow DOW’s regulation prohibiting cross-connections. This
argument is without merit. NKWD must develop some other method for
implementing its cross-connection policy without relying on meter size. The PSC
has twice ordered NKWD to remove meter size from its policy because it was
being used in a discriminatory manner.
In its final argument, NKWD claims it was not afforded due process
when the PSC rejected the revised cross-connection policy on July 12, 2006,
without a hearing. Again we must disagree. The issue of meter size in the
regulation was determined in 2003, when the PSC rejected NKWD’s first crossconnection policy.
When the revised policy came up for review, the PSC allowed the
record from the previous policy determination to be entered into the current record
and considered for the revised policy determination. Once the PSC determined
NKWD had again utilized meter size in its revised policy, it entered a show cause
order directing NKWD to show in writing why the revised policy should not also
be rejected, thus giving NKWD an opportunity to be heard.
We find that NKWD was afforded ample due process because the
same issue was at the center of both policy reviews: whether the use of meter size
in determining the order in which service connections are reviewed was
discriminatory. The PSC incorporated the record from the first policy
determination, complete with discovery, briefs, a hearing, and expert witnesses.
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Also, the PSC allowed NKWD the opportunity to show cause as to why the revised
policy should not be rejected.
We therefore hold that NKWD did not provide clear and satisfactory
evidence that the orders of the PSC were unreasonable or unlawful. We affirm the
order of the Franklin Circuit Court.
ALL CONCUR.
BRIEFS FOR APPELLANT:
John N. Hughes
Frankfort, Kentucky
BRIEF FOR APPELLEE,
PUBLIC SERVICE COMMISSION
OF KENTUCKY:
David S. Samford
Gerald E. Wuetcher
John E.B. Pinney
Frankfort, Kentucky
BRIEF FOR APPELLEE,
CRESTBROOK PROPERTIES, LLC:
Mark W. Dobbins
Sandra F. Keene
Louisville, Kentucky
NO BRIEF FILED FOR APPELLEE,
GREATER CINCINNATI
NORTHERN KENTUCKY
APARTMENT ASSOCIATION
Attorney:
Richard L. Norton
Cincinnati, Ohio
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