CITY OF RUSSELLVILLE, KENTUCKY v. PUBLIC SERVICE COMMISSION OF KENTUCKY; EAST LOGAN WATER DISTRICT, INCORPORATED; AND NORTH LOGAN WATER DISTRICT
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RENDERED:
February 18, 2005; 10:00 a.m.
NOT TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2003-CA-002132-MR
CITY OF RUSSELLVILLE, KENTUCKY
v.
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE WILLIAM L. GRAHAM, JUDGE
ACTION NO. 02-CI-01177
PUBLIC SERVICE COMMISSION
OF KENTUCKY;
EAST LOGAN WATER DISTRICT,
INCORPORATED; AND
NORTH LOGAN WATER DISTRICT
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
DYCHE, GUIDUGLI AND McANULTY, JUDGES.
GUIDUGLI, JUDGE: The City of Russellville appeals from an
opinion and order of the Franklin Circuit Court affirming a
final order of the Kentucky Public Service Commission.
The
Public Service Commission’s order voided a rate increase on the
sale of water by Russellville to various water districts.
For
the reasons stated herein, we affirm the opinion and order of
the Franklin Circuit Court.
The City of Russellville provides water service to
local retail customers and to several water districts.
On May
24, 1999, the city council of Russellville passed an ordinance
seeking to increase its water and sewer service rates.
On March
20, 2001, it filed a cost-of-service study with the Public
Service Commission (“PSC”) for the purpose of justifying a rate
increase from $1.55 to $2.45 per 1,000 gallons of water sold.
The water districts to which Russellville sold water received a
copy of the study and a letter advising them of the proposed
change.
On April 23, 2001, the PSC sent to Russellville a
letter acknowledging receipt of the study.
The letter included
a copy of the study stamped with language indicating that the
rate increase had been approved.
A subsequent e-mail from the
PSC to Russellville confirmed that Russellville was authorized
to implement the proposed rate increase on or after April 21,
2001.
On July 9, 2001, the water districts filed a complaint
with the PSC alleging that Russellville failed to comply with
PSC regulations for rate increases.
They also alleged that the
proposed rate was violative of the parties’ contract and did not
represent the actual cost of service.
Pending resolution of the
complaint, the water districts established an escrow account
into which the proposed increase was paid.
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On October 5, 2001,
the PSC rendered an order stating that “it appears that
Russellville’s April 21, 2001 rate increase is filed pursuant to
KRS 278.180.”
On July 3, 2002, the PSC rendered a final order
voiding the $2.45 rate.
As a basis for the order, the PSC
opined that Russellville failed to comply with KRS 96.355(1)(a),
which it interpreted as requiring Russellville to enact an
ordinance or otherwise approve the rate before filing a rate
change (the “ordinance theory”).
Russellville appealed to the Franklin Circuit Court.
Upon taking proof, the court concluded that the PSC improperly
interpreted KRS 96.355(1)(a) as requiring a city to follow
specific procedural guidelines before filing for a rate change.
It went on to find unlawful the PSC’s requirement that
Russellville enact an ordinance precisely identifying the
proposed rate increase before applying for the increase, since
no PSC regulation exists which requires this action.
However,
the circuit court affirmed the final order of the PSC based upon
several other legal reasons which will be addressed below.
This
appeal followed.
Russellville argues that the trial court erred in
affirming the PSC’s order voiding the rate increase.
While
noting that the trial court properly found the PSC’s “ordinance
theory” to be unsupported by the law, it argues that the court
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incorrectly concluded that the water districts were denied due
process of law.
Russellville also maintains that the new rate
became effective on April 21, 2001, and cannot be changed
retroactively by the PSC.
In support of this argument, it
points to the “filed rate doctrine”, which precludes a
collateral attack on rates filed with a regulatory agency.
It
seeks an order reversing the order of the Franklin Circuit Court
and finding the April 21, 2001, rate to be effective until it
was lawfully replaced by another rate on July 3, 2002.
Having closely examined the record and the law, we
find no basis for reversing the order of the Franklin Circuit
Court.
On Russellville’s first claim of error, i.e., that the
trial court erred in concluding that the water districts were
denied due process of law, we find no error.
The trial court
found that Russellville failed to comply with the notice
provisions of KRS 278.180 and 807 KAR 5:011(8), and that these
violations resulted in harm to the water districts because they
apparently did not believe that $2.45 per 1,000 gallons was the
filed rate.
KRS 278.180 states,
(1) Except as provided in subsection (2) of
this section, no change shall be made by any
utility in any rate except upon thirty (30)
days' notice to the commission, stating
plainly the changes proposed to be made and
the time when the changed rates will go into
effect. However, the commission may, in its
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discretion, based upon a showing of good
cause in any case, shorten the notice period
from thirty (30) days to a period of not
less than twenty (20) days. The commission
may order a rate change only after giving an
identical notice to the utility. The
commission may order the utility to give
notice of its proposed rate increase to that
utility's customers in the manner set forth
in its regulations.
(2) The commission, upon application of any
utility, may prescribe a less time within
which a reduction of rates may be made.
807 KAR 5:011 also sets forth a number of notice requirements,
including the requirement that the districts receive notice of
their right to intervene before the PSC to challenge the
proposed rate.
The circuit court concluded that Russellville’s notice
to the water districts was not adequate and did not comport with
the statutory and regulatory requirements.
This conclusion is
presumptively correct, and the burden rests with Russellville to
overcome it.
(1964).
City of Louisville v. Allen, Ky., 385 S.W.2d 179
They have not met this burden.
Though they cite to
minutes of meetings indicating that the districts were aware of
the possibility of a rate change, and contend that any statutory
and regulatory violations were minor oversights, they do not
direct out attention to anything in the record upon which we may
conclude that the circuit court erred in determining that the
statutory and regulatory notice requirements were not satisfied.
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And as the PSC properly notes, Russellville makes no claim that
it filed the requisite information.
As such, we find no error
on this issue.
Russellville also argues that the rate approved by the
PSC to be effective on April 21, 2001, was at all relevant times
the “filed rate” and could not be changed retroactively by the
PSC.
It maintains that in June, 2001, the PSC accepted a formal
tariff setting forth this rate, and that its October 5, 2001,
order recognized that the rate was the filed rate for the
service.
Russellville relies on the filed rate doctrine, which
precludes a collateral attack on rates filed with a regulatory
agency.
It argues that this doctrine requires a rate challenge
to have effect, if at all, prospectively and not retroactively.
It argues that the PSC had no legal basis for its July 3, 2002,
final order voiding the $2.45 rate, since the new rate already
was final and therefore not subject to retroactive change.
Having thoroughly reviewed this matter and especially,
the oral arguments presented herein, it is obvious that the PSC
and its employees are primarily responsible for the dilemma we
find here.
Russellville failed to comply with statutory and
regulatory notice requirements.
But the PSC erred in giving
Russellville the perception that is proposed rate increase would
be certified and would become the “filed rate.”
The PSC tariff
review branch erred in issuing the April 21, 2001, letter which
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indicated “an accepted copy [of Contract filing No. C 62-6416 of
wholesale rate increase to the districts] is enclosed for your
files” because the letter also indicated that the “file tariff”
pages setting out the rates to be charged to the districts were
not attached.
Without the “file tariff” pages enclosed,
Russellville had failed to comply with the statutory and
regulatory notice requirement and its proposed rate increase
could not be approved.
The PSC compounded it error by issuing
the October 5, 2001, order which stated in relevant part:
Upon review of the record, it appears
that Russellville’s April 21, 2001 rate
increase is the filed rate pursuant to KRS
278.160. Moreover, even if the technical
notice requirements upon which [the water
districts] rely apply to a city, failure to
comply with them would not render a rate
unfair, unjust, and unreasonable.
Nevertheless, because [the water districts]
object to the rate itself, as well as to the
form of the notice they received, the
disputed amounts should not at this time be
paid directly to Russellville, particularly
as it has suggested the creation of an
escrow account. (Emphasis added).
Russellville maintains that once the PSC accepted and
approved its request as the “filed rate”, then nothing could be
done to retroactively invalidate that rate.
It relies heavily
on Chandler v. Anthem Ins. Companies, Inc., 8 S.W.3d 48
(Ky.App., 1999), to argue that once a rate becomes the filed
rate then that rate is not subject to collateral attack or
retroactive change even if procured by unfair, false, misleading
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or deceptive practices.
In the Anthem case, this Court defined
filed rate and explained some of its history as follows:
The insurance companies maintain that,
even if the Attorney General’s allegations
are true, the “filed rate doctrine” shields
them from liability. In general terms, the
filed rate-or filed tariff-doctrine provides
that tariffs duly adopted by a regulatory
agency are not subject to collateral attack
in court. This preclusion is said to ensure
both that regulatory rates are
nondiscriminatory (rate-payers who bring
suit will not obtain rates more favorable
than those who do not), and that the
agency’s “primary jurisdiction” in the area
of its expertise is upheld. Woodland Ltd. v
NYNEX Corp., [27 F.3d 17 (2nd Cir. 1999)].
The doctrine received one of its earliest
expressions in Keogh v. Chicago &
Northwestern Ry., 260 U.S. 156, 43 S.Ct. 47,
67 L.Ed. 183 (1922). In that case, a
Minnesota manufacturer and shipper sought
damages from an association of railroads for
having collusively set excessive shipping
fees in violation of the antitrust laws.
The Supreme Court ruled that, even if the
alleged conspiracy could be proved, the
shipper had no cause of action for damages
because the Interstate Commerce Commission
had approved the allegedly excessive rates
and had determined them to be reasonable and
non-discriminatory. To recognize the
plaintiff’s claim, Justice Brandeis
explained, would require a court to secondguess the Commission and would thus tend to
undermine the regulatory scheme adopted by
Congress.
The legal rights of shipper as
against carrier in respect to a
rate are measured by the published
tariff. Unless and until
suspended or set aside, this rate
is made, for all purposes, the
legal rate, as between carrier and
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shipper. The rights as defined by
the tariff cannot be varied or
enlarged by either contract or
tort of the carrier.
Keogh v. Chicago & Northwestern Ry., supra,
at 163, 43 S.Ct. at 49, 67 L.Ed. 183 at
(citation omitted). The purpose of the
field rate doctrine, in other words,
Is to preserve the authority of
the legislatively created agency
to set reasonable and uniform
rates and to insure that those
rates are enforced, thereby
preventing price discrimination.
Sun City Taxpayers’ Association v. Citizens
Utilities Company, 847 F.Supp. 281, 288
(1994) (citations omitted).
The filed rate doctrine, therefore,
Prohibits a ratepayer from
recovering damages measured by
comparing the filed rate and the
rate that might have been approved
absent the conduct in issue.
Id. at 288.
. . .
We agree with the appellees that the
filed rate doctrine although not heretofore
applied in Kentucky by name, has
nevertheless been recognized in Kentucky in
principle. See Boone County Sand and Gravel
Company, Inc. v. Owen County Rural Electric
Cooperative Corporation, Ky.App., 779 S.W.2d
224 (1989) (holding that the appellant was
liable for undercharges based upon the filed
rate despite the appellee’s apparent
negligence in not charging the correct
amount); see also Big Rivers Electric
Corporation v. Thorpe, 932 F.Supp. 460, 46465 (W.D.Ky.1996) (noting in the context of
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regulated utilities, that Kentucky’s
statutory and case law “clearly set[s] forth
the underlying principles of the filed rate
doctrine ...”).
Anthem, 8 S.W.3d at 51-53.
The Anthem Court concluded that the
filed rate doctrine bars ratepayers from seeking damages for
approved but allegedly improper rates.
We believe the real issue herein is whether or not
Russellville’s proposed rate increase became the filed rate.
If
it did, then the districts are bound by it even though it was
improperly granted by the PSC.
But our review does not lead us
to the conclusion that the proposed rate actually became the
filed rate.
The April 21, 2001, letter clearly states that the
filed tariff pages setting out the rates to be charged was not
attached.
The statutory and regulatory scheme requires the
tariff pages to be included for any increase request.
Thus, we
deem the April 21, 2001, letter as notice that the rate increase
would be accepted if and when Russellville complied with all
mandatory regulations.
Also, the October 5, 2001, order does
not state that the April 21, 2001, rate increase is the filed
rate pursuant to KRS 278.160, but only that it appears to be
such.
By using the word “appears” the order has no binding
effect in effectuating the filed rate.
We believe the use of
the word “appears” clearly reflects the PSC admission of its
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mistake in issuing the letter prior to receiving the filed
tariff pages and prior to Russellville’s full compliance with
the applicable laws and regulations.
While we acknowledge that
the PSC and not Russellville caused this regrettable situation
in which either Russellville or the districts will suffer a
substantial economic loss, we believe Russellville’s failure to
comply with its statutory and regulatory obligations and its
failure to file the required tariff pages cannot be ignored.
Had Russellville filed the necessary tariff pages with its
application and then the PSC issued the April 21, 2001, letter
without additional conditions to be fulfilled, the result would
have been different.
For the foregoing reasons, we affirm the opinion and
order of the Franklin Circuit Court affirming the final order of
the Kentucky Public Service Commission.
ALL CONCUR.
BRIEF AND ORAL ARGUMENT FOR
APPELLANT:
BRIEF FOR APPELLEE, PUBLIC
SERVICE COMMISSION:
Charles Robert Hedges
Russellville, KY
Deborah T. Eversole
John E. B. Pinney
Public Service Commission
Frankfort, KY
ORAL ARGUMENT FOR APPELLEE,
PUBLIC SERVICE COMMISSION:
John E. B. Pinney
Public Service Commission
Frankfort, KY
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BRIEF FOR APPELLEES, EAST
LOGAN AND NORTH LOGAN WATER
DISTRICTS:
John N. Hughes
Frankfort, KY
ORAL ARGUMENT FOR APPELLEES,
EAST LOGAN AND NORTH LOGAN
WATER DISTRICTS:
John Hughes
Frankfort, KY
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