Opposition Brief — American Electric Power Co. v. Kentucky Public Service Commission

Supreme Court, U.S.

FILED

©)

E 86-49 | AUG 29 1986 |

N JOSEPH F. SPANIOL, JR,

- |

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1986

AMERICAN ELECTRIC POWER

COMPANY, INC., et al.,

Petitioners,

Vv.

KENTUCKY PUBLIC SERVICE

COMMISSION, et al.,

Respondents.

BRIEF OF RESPONDENTS AIR PRODUCTS AND

CHEMICALS, INC., ET AL. IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF

APPEALS FOR THE SIXTH CIRCUIT

F. Bruce Abel*

Michael L. Kurtz

Steer, Strauss, White & Tobias

2208 Central Trust Tower

Cincinnati, Ohio 45202

(513) 621-1045

* Counsel of Record

COURT INDEX PRESS, INC 215 E. Ninth Street, Cincinnati, Ohio 45202 -- (513) 241-1450

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QUESTION PRESENTED

Should this Court grant Certiorari in a case where a

federal district court abstained under Burford and

Younger grounds where there was not a colorable

preemption claim at the time of the federal district court

decison and where a pending state court action involving

identical federal issues then proceeded to a final judg-

ment?

Il

STATEMENT REQUIRED BY RULE 28.1

Respondents are Air Products and Chemicals, Inc..,

Armco, Inc., Ashland Oil, Inc., Huntington Alloys,

Inc., Kentucky Electric Steel Company and Pickands

Mather & Co. These companies are all members of the

Kentucky Industrial Utility Customers (“KIUC”), a

group of industrial corporations organized to participate

in electric and gas utility matters in Kentucky.

Ill

TABLE OF CONTENTS

Page

EE I

Statement Required By Rule 28.1 ............... ul

Ee IV

I RPE OIE. ccc ccna Vil

eee l

EES a 3

Rockport Generating Facility................. 4

Proceedings In Lower Courts................. 7

Reasons For Not Granting The Writ ............. $

GE ee 15

Appendix

Kentucky Revised Statutes § 278.020 (Certificate

of convenience and necessity required for con-

struction or operation of utility; exceptions; ap-

proval of commission required for acquisition or

transfer of ownership of utility) ...............

Opinion of Kentucky Court of Appeals Reversing

and Remanding Rockport Certificate Case to

arte COINS. ee eee eee

Kentucky Revised Statutes § 278.410 (Action to

review order of aie institution; answer;

Opinion of Franklin Circuit Court Deciding Peti-

tioners’ Claims on the Merits .................

la

3a

10a

IV

TABLE OF AUTHORITIES

Cases: Page

Ada-Cascade Watch Co. v. Cascade Resource Re-

covery, 720 F.2d 897 (6th Cir. 1983)........... 8

Aluminum Co. of America v. Utilities Comm’n

of North Carolina, 713 F.2d 1024 (4th Cir.

1983), cert. denied ,465 U.S. 1052 (1984) ....... 9

Arkansas Elec. Coop. Corp. v. Arkansas Public

Service Comm'n, 461 U.S. 375 (1983) .......... 9

Baggett v. Department of Professional Regula-

tion, Bd. of Pilot Comm'rs, 717 F.2d 521 (11th

es SE a sa ope ae oe a REL aes Fs 9

Burford v. Sun Oil Co., 319 U.S. 315 (1943) ....8, 9, 10

Champion Intl Corp. v. Brown, 731 F.2d 1406

I hd Sooners eng We hia 9

Colorado River Water Conservation District v.

United States, 424 U.S. 800 (1976)............. 12

Coruzzi v. State of New Jersey, 705 F.2d 688 (3rd

ON OE a te oe re rs Fane ie eee 9

England v. Louisiana Medical Examiners, 375

i a StS gd aes a a's bcos wes 12

International Brotherhood of Electical Workers

v. Public Service Comm'n of Nevada, 614 F.2d

DU, IE ry a a oc she cit naw d oe 6s « 8

Kennecott Corp. v. Smith, 637 F.2d 181 (3rd

SE as waa cw aa ee eae ieee s 9

Kentucky West Virginia Gas Co. v. Pennsylvania

Public Utility Comm'n, 791 F.2d i111 (3rd

EU NS cans ah heen eal ewee rea ee rene: 12

Local No. 8-6, Oil, Chem. ¢¢ Atom Wkrs. v. Mis-

ee ee ee ere

Middlesex County Ethics Committee v. Garden

State Bar Association, 457 U.S. 423 (1982) ......

Middle South Energy, Inc. vy. Arkansas Public

Service Comm'n, 772 F.2d 404 (8th Cir. 1985) ..

Montana v. United States, 440 U.S. 147 (1979) ....

Ohio Power Co. v. FERC, 668 F.2d 880 (1982) ....

Penn General Casualty Co. v. Commonwealth of

Pennsylvania, ex rel. Schnader, 294 U.S. 189

CORE ico ets SUI pe Clee

Reed v. Allen, 286 U.S. 191 (1932) ..............

Small v. Reeves, 76S.W. 395 (Ky. 1903) .........

United States v. Alaska S. S. Co., 253 U.S. 113

fle Rep pice pastor grate tne Wes mat eit) se:

University of Tennessee v. Elliot, 106 S.Ct. 3220

IN ss Se cca Gg oh kao 0 ae SE 8-0

Vaughn’s Adm’r. v. Louisville & N.R. Co., 179

Se Ey ND Si vce ce Save wees ts

Younger v. Harris, 401 U.S. 37 (1971) ...........

Administrative Decisions:

AEP Generating Co., 29 FERC (CCH) § 61,002

ee ee

Oe eee

AEP Generating Co., 36 FERC (CCH) § 61,226

aan a eee Onn e RSs i

VI

Page

Kentucky Power Co., 36 FERC (CCH) § 61,227

SA Aeerer eres a es eet ek Pe Cet ll

Pennsylvania Power and Light Co., 23 FERC

(CCH) { 61,006 (1063) -........5..2..-.5.... 2

Southern Company Services, Inc., 26 FERC

(CCH) ¢ 61,360 (1064) .............0.52005-- 2

Statutes:

Kentucky Revised Statutes § 278.020............. 4

Kentucky Revised Statutes § 278.410(1) .......... 7

Kentucky Revised Statutes § 278.410(3) .......... 7

Vil

SUMMARY OF ARGUMENT

The sole issue presented by the Petitioners to the Sixth

Circuit Court of Appeals was whether the federal

district court correctly applied the Burford and Younger

abstention doctrines. The facts of this case are properly

characterized as a prudency of choice case involving two

distinct rates filed at the FERC and not as a case where

a state commission has refused to give effect to one filed

rate at the FERC.

There is no preemption issue which could serve as a

basis for denying abstention because the FERC

historically declines, and in this case has specifically

declined, to take jurisdiction on the prudency issue. All

of the cases which Petitioners have cited as being in con-

flict with the Sixth Circuit involved proceedings where a

colorable preemption argument was raised in federal

court; this case is thus distinguishable and does not con-

flict with the other circuits.

Whether or not abstention by the district court was

proper, Petitioners have fully and freely litigated all of

their federal claims in state court, rendering moot

through res judicata principles any issues which could be

decided by a federal district court.

OBES PCA AA APP PS SORE COEDS. 50!) ot

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1986

AMERICAN ELECTRIC POWER

COMPANY, INC., et al.,

Petitioners,

i

KENTUCKY PUBLIC SERVICE

COMMISSION, et al.,

Respondents.

BRIEF OF RESPONDENTS AIR PRODUCTS AND

CHEMICALS, INC., ET AL. IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF

APPEALS FOR THE SIXTH CIRCUIT

STATEMENT OF THE CASE

This case is depicted by American Electric Power

Company, Inc. (“AEP”) et al., Petitioners, as conflicting

with cases arising in the Third, Fifth, Eighth, Ninth,

Eleventh, and District of Columbia Circuits. (Petition at

2). The Kentucky Public Service Commission (“Ken-

tucky Commission”) is described as “parochial” and is

portrayed as refusing to give effect to “governing FERC

[Federal Energy Regulatory Commission] rate sched-

ules.” (Id.). However, we believe this case is unique

]

2

because there is no colorable preemption issue and the

case has already gone to a final judgment in a state ad-

ministrative proceeding and to a final judgment in state

court in a second, independent, proceeding. This

uniqueness prevents the Sixth Circuit’s decision from

even facially resembling decisions of the other circuits.

The Petitioners set up the problem as involving the

wrongful refusal of the Kentucky Commission to follow

one “filed rate” (Unit Power Agreement) at the Federal

Energy Regulatory Commission (“FERC”). Petitioners

also argue here that the Kentucky Commission had no

jurisdiction to interpret the basic FERC rate schedule

that applies to the AEP companies, the System Intercon-

nection Agreement.

The Petition provides no analysis of what it means to

have a “filed rate” at the FERC. The reader is thus left

with the erroneous impression that merely because the

FERC has accepted a rate for filing, then the FERC

takes jurisdiction over the question of whether the agree-

ment is prudent. However, the FERC has repeatedly

held that it will not rule on prudence. Southern Com-

pany Services, Inc., 26 FERC (CCH) § 61,360 at 61,

796 (1984); Pennsylvania Power and Light Co., 23

FERC (CCH) § 61,006 at 61,019 (1983).

Petitioners give only slight reference to the fact that in

determining not to grant costs based upon the Unit

Power Agreement, the Kentucky Commission did grant

costs based upon the AEP System Interconnection Agree-

ment. This Agreeinent requires payments based on

average costs of the Surplus Members and was recently

approved by the United States Sixth Circuit Court of Ap-

peals, after years of examination into the very issues

which are now again raised. Ohio Power Co. v. FERC,

668 F.2d 880 (6th Cir. 1982). Petitioners state:

3

“The Kentucky Commission took this action [ruling

on prudency] despite the fact that the Unit Power

Agreement is the ‘filed rate’ and that in Kentucky

Power's view the System Interconnection A,ree-

ment had required Kentucky Power to enter into

that Unit Power Agreement. In any event, FERC

has exclusive jurisdiction to construe the System In-

terconnection Agreement and to allocate low-cost

and higher-cost power supplies among the AEP

companies.” (Petition at 5) (Emphasis added).

In presenting their Statement of the Case, Petitioners

do not develop the factual background concerning the

System Interconnection Agreement nor do they point out

that from August 27, 1982 to August 2, 1984 Kentucky

Power itself elected to take the position that it was the

obligation of the Kentucky Commission to interpret the

System Interconnection Agreement and to follow it as

the filed rate.

Factual Background

The AEP System Interconnection Agreement was in-

itially approved by the Federal Power Commission (the

predecessor to FERC) in 1951 and has been amended

several times since. The Agreement requires those

members with less than their pro-rata share of total

system generating capacity (Deficit Members) to make

monthly payments to those members with more than

their pro-rata share of total system generating capacity

(Surplus Members). In return for making these monthly

payments to Surplus Members, Deficit Members are sup-

plied with electric power to meet their customers’ needs

from the AEP Pool. Kentucky Power is a Deficit

Member. At the present time and for the past several

4

years the AEP Pool has possessed huge amounts of excess

generating capacity so that there has been and there con-

tinues to be no drain on the AEP Pool by virtue of the

fact that Kentucky Power is a Deficit Member.

Rockport Generating Facility

Initially, it was planned that Indiana and Michigan

Electric Company (“I&M”), one of the AEP Member

Companies, would own 100% of the Rockport

Generating Units, described by Petitioners at page four

of their Petition. AEP subsequently concluded that

Rockport should be owned 50% by I&M, 15% by Ken-

tucky power, and 35% by AEP Generating Company,

another wholly-owned subsidiary of AEP. This decision

required the permission of the Kentucky Commission

under KRS 278.020 (“Certificate of convenience and

necessity required for construction or operation of utili-

ty; exceptions; approval of commission required for ac-

quisition or transfer of ownership of utility.” (App. 1a).

From 1978 through 1984 Kentucky Power fruitlessly

sought authorization from the Kentucky Commissioin to

purchase a 15% ownership interest in the Rockport

generating plants. In one instance the Commission’s

Order was appealed to, and remanded by, the Kentucky

Court of Appeals (App. 3a) solely to look at the System

Interconnection Agreement.

In this Order of August 27, 1982 the Court found:

“The integrated AEP System Pool Agreement is

crucial to the factual determination by the Commis-

sion.”

“In order to determine on appeal that Kentucky

Power is treated fairly in relation to the other

members of the AEP i it is necessary to have the

document of record .

5

“The testimony should then be tested against the

Agreement itself.” (App. 5a-6a).

Kentucky Power and AEP did not appeal this Order

and did not argue, as they do now, that the FERC has

exclusive jurisdiction to construe the System Intercon-

nection Agreement. They did not even allege that the

FERC had primary jurisdiction to interpret the Inter-

connection Agreement. Instead they made an election

dutifully to submit the System Interconnection Agree-

ment for analysis by the Kentucky Commission and pre-

sented live witnesses in support of their interpretation of

that Agreement in proceedings before the Kentucky

Commission. On August 2, 1984, the Kentucky Commis-

sion issued a Revised Order on Remand denying Ken-

tucky Power’s application to purchase Rockport. Ken-

tucky Power did not appeal the August 2, 1984 Order.

The same day Kentucky Power was denied authority

to own 15% of Rockport, it filed with the FERC a Unit

Power Agreement whereby it simply contracted to buy

15% of the output of Rockport from its sister company:

the AEP Generating Company. The unit Power Agree-

ment is the same as the outright purchase of an owner-

ship interest in Rockport since under either scenario

Kentucky Power would be financially responsible for

15% of all Rockport costs and entitled to receive 15% of

all Rockport power. The mere filing of this Unit Power

Agreement, Petitioners now argue, has the legal effect of

overturning the findings in the Kentucky Commission's

August 2, 1984 Order and a subsequent Order entered

December 4, 1984.

On October 1, 1984 the FERC issued an Order stating

that the Kentucky Commission had jurisdiction to con-

sider the appropriateness of Kentucky Power's acquisi-

tion of new facilities and that the regulatory roles of the

6

FERC and the Kentucky Commission did not conflict or

overlap. AEP Generating Co., 29 FERC (CCH)

§ 61,002 at 61,003 (1984).

On November 23, 1984 the FERC issued another Or-

der in the Kentucky Power Unit Power case clarifying

its prior Order and resolving questions regarding the ex-

tent of FERC’s jurisdiction in light of the extensive pro-

ceedings that had already occurred before the Kentucky

Commission. In AEP Generating Co., 29 FERC (CCH)

{ 61,246 at 61,501 (1984), the FERC held that its

jurisdiction was limited to determining only what a

reasonable rate for the sale of power from Rockport

would be in light of Rockport costs. The FERC further

declared:

“{I]n this proceeding we do not intend to make or

consider any findings concerning [Kentucky

Power's] prudence in entering the agreement, in

light of the availability of alternative power sup-

plies.” Id.

On December 4, 1984, the Kentucky Commission

issued an Order in a Kentucky Power rate case which

reaffirmed the conclusion in its August 2, 1984 Order

that Kentucky Power had continuing authority under

the terms of the System Interconnecton Agreement to

purchase additional capacity and energy to meet its

customers’ demands from the AEP Pool. The Kentucky

Commission held that Kentucky Power had acted im-

prudently in acquiring much more expensive capacity by

means of the Unit Power Agreement. The Kentucky

Commission partially denied Kentucky Power's request

to increase its rates to reflect the difference between the

cost of acquiring capacity from the AEP Pool under the

FERC approved AEP System Interconnection Agree-

7

ment and the cost of acquring Rockport capacity under

the terms of the Unit Power Agreement also then on file

at the FERC. However, the Kentucky Commission did

allow Kentucky Power an additional $14 million in rates

to account for the fact that Rockport was now a part of

the AEP Pool and that as a Deficit Member, Kentucky

Power had an obligation to make increased payments to

the AEP Pool.

Proceedings In Lower Courts

Petitioners filed this suit in federal district court on

December 12, 1984, eight days after the Kentucky Com-

mission entered its second Order interpreting the Inter-

connection Agreement and 112 days after the appeal

time had run from the Kentucky Commission’s first

Order interpreting the Interconnection Agreement.

However, another eight days after that, on December

20, 1984, Kentucky Power elected to submit the iden-

tical case to the Kentucky state courts by filing a com-

plaint in the Franklin Circuit Court which raised all

federal issues, state issues, and sought injunctive relief

under KRS § 278.410(3). (App. 9a).

The Franklin Circuit Court is a court of special exper-

tise in utility matters and all appeals from the Kentucky

Commission are required by Kentucky law to be heard

there. KRS 278.410(1). (App. 9a) Kentucky Power’s

state court action was filed without any motion or letter

reserving the federal issues for later determination in the

federal court. Similarly, no other party reserved the

federal issues for federal court.

This December 20, 1984 state court filing by Ken-

tucky Power was not at that time made under the duress

of an adverse ruling in federal court, but was made

8

totally voluntarily, since it was not until January 16,

1985 that the federal district court, noting the existence

of the ongoing state proceeding, abstained. The Sixth

Circuit Court of Appeals affirmed the district court by

Order issued March 24, 1986, again relying heavily on

the fact that there was an ongoing state proceeding.

All major procedural events took place in the Ken-

tucky state court (the full procedure in this case is in-

dicated by the attached docket sheet (App. 10a))

culminating in an Order upholding the Kentucky Com-

mission’s interpretation of the System Interconnection

Agreement and ruling on the federal claims of Kentucky

Power. (App. 16a).

REASONS FOR NOT GRANTING THE WRIT

A. Burford & Younger Abstention Doctrines

In Burford v. Sun Oil Co., 319 U.S. 315 (1943), this

Court set up two standards as a basis for abstention:

First, the presence of a complex state regulatory scheme

which would be disrupted by federal court review; and

second, the existence of a state-created forum with

specialized competence in the particular area. See Ada-

Cascade Watch Co. v. Cascade Resource Recovery, 720

F.2d 897 (6th Cir. 1983). “The purpose of Burford

abstention is to avoid federal intrusion into matters of

local concern and which are within the special com-

petence of local courts.” International Brotherhood of

Electrical Workers v. Public Service Comm'n of Nevada,

614 F.2d 206 (9th Cir. 1980). Burford abstention is par-

ticularly appropriate in light of the great interest that

states have in regulating retail utility rates within their

9

boundaries. See Arkansas Elec. Coop. Corp. v. Arkansas

Public Service Comm’n, 461 U.S. 375 (1983). While

“supremacy claims are ‘essentially one[s] of federal

policy’ so that ‘the federal courts are particularly ap-

propriate bodies for the application of preemption prin-

ciples,” Kenneccit Corp. v. Smith, 637 F.2d 181, 185

(3rd Cir. 1980), Burford abstention is proper where

detailed fact finding is required to evaluate a plaintiff's

claim of preemption. Aluminum Co. of America v.

Utilities Comm'n v. Utilities Comm’n of North Carolina,

713 F.2d 1024 (4th Cir. 1983), cert. denied, 465 U.S.

1052 (1984).

In order for abstention to be proper under Younger v.

Harris, 401 U.S. 37 (1971), a three-prong test must be

satisfied. “First, there must be an ongoing state judicial

proceeding. Second, the proceeding must implicate im-

portant state interests. Third, there must be an oppor-

tunity in the state proceeding to raise the federal con-

stitutional challenge.” Coruzzi v. State of New Jersey,

705 F.2d 688, 690 (3rd Cir. 1983). Just as with Burford

abstention, preemption is the critical element in deter-

mining whether Younger abstention is appropriate.

“The legitimate state interest contemplated by Younger,

see Middlesex County Ethics Committee v. Garden State

Bar Association, 457 U.S. 423 (1982), . . . does not exist

when the state action has been preempted or foreclosed

by the Constitution ” Middle South Energy, Inc. v.

Arkansas Public Service Comm’n, 772 F.2d 404, 417

(8th Cir. 1985); see also Champion Intl Corp. v.

Brown, 731 F.2d 1406 (9th Cir. 1984); Baggett v.

Department of Professional Regulation, Bd. of Pilot

Comm'rs, 717 F.2d 521 (11th Cir. 1983).

10

B. No Colorable Preemption Claim

The instant case does not present a colorable preemp-

tion claim which is the sine qua non to avoiding absten-

tion in the cases cited by Petitioners. Indeed this case

demonstrates that a high degree of cooperation and

respect existed between the federal and the state

regulatory agencies during the relevant time period.

Such cooperation and respect existed at no time in the

cases cited by Petitioners.

On December 4, 1984 the Kentucky Commission de-

termined that Kentucky Power had the option of obtain-

ing power under either of two rates on file at the FERC:

(1) obtaining it from the AEP Pool under the System In-

terconnection Agreement; or (2) obtaining it directly

from Rockport under the Unit Power Agreement. The

Kentucky Commission concluded that purchasing power

from the AEP Pool was the more prudent option. The

Kentucky Commission’s ruling or prudency could in no

way be deemed to conflict with the FERC since the

FERC specifically declined to rule on prudency and

there was thus no preemption question which could

serve as the basis for denying Burford or Younger absten-

tion.

To put it another way, since the FERC itself, while

acknowledging that there were two filed rates, quite

properly refused to make a value judgment comparing

the two FERC filings of Kentucky Power, this area of in-

quiry and determination — always a proper subject for

state commission review, in our view — was left rather

clearly to the state public service commission by the

FERC.

Viewed this way, the federal district court and the

Sixth Circuit Court of Appeals really had no underlying

federal case to hear at the time they ruled. Thus, the ap-

11

plication of the abstention doctrine by the federal courts

was proper as there was no preemption question as to

which regulatory body should rule on the prudency

issue.'

C. A Final State Court Judgment On All

Federal Issues Now Renders A Federal Ac-

tion At The District Court Moot.

In light of the unappealed administrative Kentucky

Commisison Order of August 2, 1984 and the separate

state court Order of March 24, 1986, (issued after brief-

ing and oral argument at the Sixth Circuit and issued the

s* ie day as the Sixth Circuit Court’s Order) a new issue

«as arisen: mootness. It would now be futile for this

Court to review the Sixth Circuit’s application of the

abstention doctrine. Decisions of this Court have ad-

dressed the ultimate question which is now presented:

whether a federal court that initially abstained from

hearing a case may then hear that same case after the

federal issues have been fully litigated and decided in

state court.”

1 By Orders issued August 20, 1986, in AEP Generating Co., 36 FERC

(CCH) § 61,226 (1986) and Kentucky Power Co., 36 FERC (CCH)

{ 61,227 (1986), the FERC has further elaborated upon its above stated

position that its role in the Kentucky Power Unit Power case would be

limited to determining whether the Rockport sale to Kentucky Power was at

a reasonable rate based on Rockport costs, and not whether there was a

more economical option available to Kentucky Power. The FERC may have

now attempted to examine whether Kentucky Power should be required to

purchase Rockport power. Notwithstanding the legal effect of these Orders

by the FERC, at the time the federal courts abstained, there was no valid

preemption claim.

2 At page 11 of its Petition, Kentucky Power attempted to address the

question of the effect of concurrent jurisdiction. In support of its implication

that it should be able to continue with its federal case even though there has

been a final decision in an identical state court proceeding which it in-

| ical

- ar

In England v. Louisiana medical Examiners, 375 U.S.

411 (1964), plaintiffs brought suit in federal district

court seeking an injunction and declaration that a cer-

tain state statute, as applied to them, violated the Four-

teenth Amendment. A three judge federal district court

invoked the principles of abstention.

Plaintiffs then brought suit in state court where they

also sought injunctive and declaratory relief and where

they unreservedly submitted their federal claim for deci-

sion. The state proceedings terminated with a decision

by the Louisiana Supreme Court declining to review an

intermediate appellate court’s holding that the statute

did not violate the Fourteenth Amendment. The plain-

tiffs them returned to federal district court, which

dismissed the complaint on the grounds that the Louisi-

ana state courts had passed on all the issues raised.

On direct appeal, this Court held (prospectively) that

a litigant in federal court who is remitted to a state court

under the doctrine of abstention may preserve his right

to return to federal court for the disposition of his

federal contentions only by refusing to litigate his federal

contentions in state court.

In England, the Court stated:

“_. . We now explicitly hold that if a party freely

and without reservation submits his federal claims

for decision by the state courts, litigates them there,

a

itiated, Kentucky Power cited Kentucky West Virginia Gas Co. v. Penn-

sylvania Public Utility Commission, 791 F.2d 1111 (3rd Cir. 1986) and Col-

orado River Water Conservation District v. United States, 424 U.S. 800

(1976). However, these cases involved situations where it was held that a

federal court maintained concurrent jurisdiction even though the same

claim was pending in a state court. In neither of these cases was there a final

judgment in state court. Thus, neither of these two cases have any bearing

here.

13

and has them decided there, then — whether or not

he seeks direct review of the state decission in this

court — he has elected to forego his right to return

to the district court.” Id. at 418-19.

The Franklin Circuit Court has already ruled on all

the claims voluntarily presented by Kentucky Power, in-

cluding its federal claims. Even if this Court now deter-

mined that abstention was improper on January 16,

1985, because all federal issues have since been passed

upon on March 24, 1986 in state court, upon remand,

the federal court would be forced to dismiss the action.

In light of the above, the federal district court is

bound by the doctrine of res judicata. This Court has

recently held that the findings of fact rendered in a state

administrative proceeding which was not appealed and

therefore was not reviewed by a state court should

nevertheless be given preclusive effect by a federal court.

University of Tennessee v. Elliot, 106 S.Ct. 3220, 3227

(July 7, 1986). Thus, the findings of fact made in the

August 2, 1984 Order of the Kentucky Commission,

which was not appealed by Kentucky Power, would be

binding on the federal court upon remand as a founda-

tion for its consideration of the constitutional issues.

3 On August 26, 1985, the Judge as well as all of the parties in the state

court case signed an Order uf Submission which submitted that case to the

Franklin Circuit Court for a final decision. (App. 15a) However, by letter

dated September 23, 1985, counsel for Kentucky Power indicated that its

federal claims were presented in state court only because of the federal

district court's abstention and that it planned to pursue its federal claims in

district court if it prevailed in its appeal to the Sixth Circuit. This letter re-

quest was objected to by counsel for the Kentucky Commission. The Ken-

tucky Power request was disregarded by the state court presumably because

it came after Kentucky Power had fully litigated and submitted all of its

claims to the court. Kentucky Power’s letter request was not made a part of

the official record of this case. (App. 15a).

14

Secondly, the March 24, 1986 ruling by the Franklin

Circuit Court, containing both findings of fact and con-

clusions of law relating to Kentucky Power’s constitu-

tional claims, would also be binding on a lower federal

court. When a suit is pending in a state and federal court

concurrently, both actions may proceed until a judg-

ment is obtained in one court which may then be plead-

ed as a bar under the res judicata doctrine. Penn

General Casualty Co. v. Commonwealth of Penn-

sylvania ex rel. Schnader, 294 U.S. 189 (1935).

The fact that the state court decision is currently be-

ing appealed does not prevent that judgment from being

pleaded as a bar because in Kentucky a judgment is final

until reversed or modified. Small v. Reeves, 76S.W. 395

(Ky. 1903); see also Vaughn’s Adm’r. v. Louisville &

N.R. Co., 179 S.W.2d 44) (Ky. 1944). Moreover, a

judgment which is on appeal can be plead as res judicata

and such pleading is binding on a second court even if

the judgment in the first case is later overruled. Reed v.

Allen, 286 U.S. 191 (1932). The Reed v. Allen rule has

been adopted by the RESTATEMENT (SECOND) OF

JUDGMENTS § 16 (1982).

Because the decision of the Franklin Circuit Court

and the findings of the Kentucky Commission are bind-

ing in federal court, there would remain for the federal

district court no “actual matters in controversy essential

to the decision of the particular case before it.” United

States v. Alaska S.S. Co., 253 U.S. 113, 116 (1920). The

duty of this Court “is to decide actual controversies by a

judgment which can be carried into effect, and not to

give opinions upon moot questions or abstract proposi-

tions, or to declare principles or rules of law which can-

not affect the matter in issue in the case before it.” Local

No. 8-6, Oil, Chem. & Atom Wkrs. v. Missouri, 361

15

U.S. 363, 367 (1960). Because Kentucky Power's federal

suit alieges the same claims that have already been

decided in state court, “considerations of comity as well

as repose militate against redetermination of the issues in

a federal forum at the behest of a plaintiff who has

chosen to litigate them in state court.” Montana v.

United States, 440 U.S. 147, 163 (1979). Kentucky

Power initiated this suit in federal as well as state court

and fully litigated all issues in state court. The decisions

of the Franklin Circuit Court and the Kentucky Com-

mission are now binding on all of the parties which

renders this Petition moot.

CONCLUSION

This case does not conflict with the decisions of the

other circuits because of the unique factual and pro-

cedural posture of the case which, unlike any of the cases

cited by Petitioners, presents no colorable preemption

claim. Because all of Petitioners’ federal claims have

already been decided, the issues in the Petition — i.e.,

whether the federal district court should have abstained

— are now moot.

For the reasons stated, the Petition for Writ of Cer-

tiorari should be denied.

Respectfully submitted,

F. Bruce Abel*

Michael L. Kurtz

Steer, Strauss, White & Tobias

2208 Central Trust Tower

Cincinnati, Ohio 45202

(513) 621-1045

Dated September 2,, 1986

* Counsel of Record

APPENDIX

278.020 Certificate of convenience and necessity re-

quired for construction or operation of utility; excep-

tions; approval of commission required for sincaane or

transfer of ownership of utility

(1) No person, partnership, public or private cor-

poration or combination thereof shall begin the con-

struction of any plant, equipment, property or facility

for furnishing to the public any of the services

enumerated in KRS 278.010, except retail electric sup-

pliers for service connections to electric-consuming

facilities located within its certified territory and or-

dinary extensions of existing systems in the usual course

of business, until such person has obtained from the

public service commission a certificate that public con-

venience and necessity require such construction. Upon

the filing of an application for such certificate, and after

any public hearing which the commission may in its

discretion conduct for all interested parties, the commis-

sion may issue or refuse to issue the certificate, or issue it

in part and refuse it in part. Unless exercised within one

(1) year from the grant thereof, exclusive of any delay

due to the order of any court or failure to obtain any

necessary grant or consent, the authority conferred by

the issuance of the certificate of convenience and necessi-

ty shall be void, but the beginning of any new construc-

tion or facility in good faith within the time prescribed

by the commission and the prosecution thereof with

reasonable diligence shall constitute an exercise of

authority under the certificate.

(2) No utility shall exercise any right or privilege

under any franchise or permit, after the exercise of that

right or privilege has been voluntarily suspended or

la

2a

discontinued for more than one (1) year, without first

obtaining from the commission, in the manner provided

in subsection (1) of this section, a certificate of con-

venience and necessity authorizing the exercise of that

right or privilege.

(3) No utility shall apply for or obtain any franchise,

license or permit from any city or other governmental

agency until it has obtained from the commission, in the

manner provided in subsection (1) of this section, a cer-

tificate of convenience and necessity showing that there

is a demand and need for the service sought to be

rendered.

(4) No person under the jurisdiction of the commis-

sion shall acquire or transfer ownership of or control, or

the right to control, any utility, by sale of assets, transfer

of stock or otherwise, or abandon the same, without

prior approval by the commission. The commission shall

grant its approval if the person acquiring the utility has

the financial, technical, and managerial abilities to pro-

vide reasonable service.

3a

OPINION RENDERED: August 27, 1982; 10:00 a.m.

NOT TO BE PUBLISHED

COMMONWEALTH OF KENTUCKY

COURT OF APPEALS

NO. 82-CA-267-MR

STEVEN L. BESHEAR, ATTORNEY GENERAL

COMMONWEALTH Or KENTUCKY

Appellant

¥.

PUBLIC SERVICE COMMISSION

COMMONWEALTH OF KENTUCKY AND

KENTUCKY POWER COMPANY

Appellee

Appeal From Franklin Circuit Court

Hon. Henry Meigs, Judge

Civil Action No. 81-CI-1349

REVERSING AND REMANDING

BEFORE: HAYES, Chief Judge, WHITE, and

WINTERSHEIMER, Judges.

WINTERSHEIMER, JUDCE. This appeal is from an

order issued December 2], 1981, which affirmed a deci-

sion of the Public Service Commission granting Ken-

tucky Power Company a certificate of convenience and

necessity to acquire a 15% interest in a power plant be-

ing built in Rockport, Indiana.

4a

The questions presented are whether the Commis-

sion’s findings of fact were sufficient to support its order;

whether the Commission was required to explain the

benefits of the integrated AEP system; whether the

Commission violated the statute by granting the com-

pany a certificate; and whether the order of the Com-

mission is contradictory.

This is the second appeal of this case. On February 4,

1981, the Kentucky Supreme Court remanded the mat-

ter to the Public Service Commission to comply with the

directions of the Court of Appeals. The original applica-

tion requested authority to purchase an undivided 15%

interest in a plant under construction by the Indiana and

Michigan Electric Company near Rockport, Indiana.

Kentucky Power is a wholly owned subsidiary of

American Electric Power system (AEP), and is one of

eight entities which comprise AEP. Kentucky Power has

its headquarters in Ashland, Kentucky. The power pool

is dispatched on an economic basis from a central facility

in Canton, Ohio.

At a hearing on September 3, 1981, the prepared

testimony of six company witnesses was presented em-

phasizing the benefits of membership in the AEP system.

Cross-examination followed. Neither the Consumer Pro-

tection Division nor the Commission staff offered any

witnesses in opposition to the company application. The

Commission determined that the company, by partici-

pating in the Rockport project, would be meeting its

obligations to the AEP system and the result would be

substantial benefits to the company and its customers.

The AEP interconnection agreement is not in the record.

The Franklin Circuit Court upheld the Commission

order. This appeal followed.

This Court reverses the decision of the circuit court

and remands this case to the Public Service Commission

5a

with directions that the Commission either deny the cer-

tificate or resume a review of the case for specific find-

ings of fact in regard to the net benefits, if any, con-

ferred by the AEP pool agreement in this instance.

We find it impossible as a reviewing Court to know

whether the Commission has acted properly in granting

this certificate. The power pool agreement is not in the

record of this case. Because the power pool agreement is

an integral and essential part of the proposed undertak-

ing, the utility's case is deficient to the extent that this

basic document is absent. The agreement is frequently

mentioned by company witnesses and protestants. The

Commission order refers to benefits and responsibilities

resulting from the integrated pool system. The rules of

evidence provide that when an agreement is central to a

controversy, the best evidence is the document itself.

In order to sustain an order of any administrative

agency, there must be specific findings of fact. See

Energy Regulatory Commission v. Kentucky Power

Company, Ky.App., 605 S.W.2d 46 (1980). When the

decision of a Regulatory Commission depends on a

determination of fact, the absence of basic evidentiary

facts is fatal to such a decision. Marshall County v. So.

Central Bell Telephone Co., Ky., 519 S.W.2d 616

(1975).

Upon remand, the Commission should have the agree-

ment filed in the record, allow full examination and

analysis by its staff and the parties to this matter, and

find the facts based on such consideration and other

evidence already in the record.

The integrated AEP system pool agreement is crucial

to the factual determination by the Commission. The

AEP power pool agreement is not an arms length trans-

action. Although the Consumer Protection Division did

not request the agreement prior to the hearing, they did

6a

raise the issue at the hearing but were not permitted to

develop the matter. We believe such denial was improvi-

dent. It is important for an administrative agency to

have all of the necessary facts and information that are

available to it to be included in its record. The adver-

sarial nature of hearings before the Public Service Com-

mission must give way to the controlling concern for all

the facts so that an impartial and proper determination

can be made. Technical questions as to the burden of

proof must be resolved in favor of full disclosure before

the Commission.

In order to determine on appeal that Kentucky Power

is treated fairly in relation to the other members of the

AEP pool, it is necessary to have the document of

record. It is not enough to have the agreement filed

elsewhere as with the FERC. It should be filed in this

case with the Kentucky Public Service Commission. The

testimony should then be tested against the agreement

itself. The result is entirely within the purview of the

Commission.

In view of our decision, we do not believe it is

necessary to address the other issues raised on appeal.

The order of the circuit court is reversed. This matter

is remanded with directions to return the case to the

Public Service Commission for a specific finding of fact

as to the AEP power pool agreement after it has been

placed of record.

ALL CONCUR.

ATTORNEYS FOR APPELLANT:

Steven L. Beshear

Attorney General

James D. Brannen

Assistant Attorney General

oe nee

wm

Ja

Sylvia L. Lovely

Assistant Attorney General

Consumer Protection Division

209 St. Clair Street

Frankfort, Kentucky 40601

ATTORNEYS FOR APPELLEES:

William K. Sawyer

Richard G. Raft

Public Service Commission

P.O. Box 615

Frankfort, Kentucky 40602

Lively M. Wilson

Bruce F. Clark

Stites, McElwain & Fowler

3400 First National Tower

Louisville, Kentucky 40202

COMMONWEALTH OF KENTUCKY

COURT OF APPEALS

CERTIFICATE

I, Jeanette Mulley, Chief Deputy Clerk, Court of Ap-

peals of Kentucky, do hereby certify that the foregoing

Opinion, rendered August 27, 1982, in the case of Steven

L. Beshear, etc., vs. Public Service Commission, etc., et

al., File No. 82-CA-267-MR, is a true and correct copy

as same appears on file in this Court.

DATE: August 5, 1986 /s) JEANETTE MULLEY,

CHIEF DEPUTY CLERK

8a

I, John P. Hayes, Chief Judge of the Court of Appeals

of Kentucky, do hereby certify that Jeanette Mulley,

whose signature is affixed to this certificate, is Chief

Deputy Clerk of the Court of Appeals, having been ap-

pointed on February 1, 1977.

DATE: August 5, 1986 —_/s/ JOHN P. HAYES,

CHIEF JUDGE

I, Jeanette Mulley, Chief Deputy Clerk of the Court

of Appeals, do hereby certify that John P. Hayes, whose

signature is affixed above is and has been a Judge of the

Court of Appeals of Kentucky since August, 1976.

DATE: August 5, 1986 —/s/ JEANETTE MULLEY,

CHIEF DEPUTY CLERK

Oe mec a A ee

9a

278.410 Action to review order of commission; in-

stitution; answer; injunction

(1) Any party to a commission proceeding or any

utility affected by an order of the commission may,

within twenty (20) days after being served with the

order, or within twenty (20) days after its application

for rehearing has been denied by failure of the commis-

sion to act, or within twenty (20) days after being served

with the final order on rehearing, when a rehearing has

been granted, bring an action against the commission in

the Franklin Circuit Court to vacate or set aside the

order or determination on the ground that it is unlawful

or unreasonable. Notice of the institution of such action

shall be given to all parties of record before the commis-

sion.

(2) The answer of the commission shall be served

and filed within twenty (20) days after service of the

complaint. The action shall then be at issue and stand

ready for trial upon ten (10) days’ notice to either party,

on the equity side of the docket of the court. The answer

need not deny verbatim the allegations of the petition,

but a general denial thereof on behalf of the commission

shall be sufficient.

(3) Injunctive relief may be granted by the circuit

court in the manner and upon the terms provided by

law.

10a

COMMONWEALTH OF KENTUCKY

COURT OF JUSTICE

FRANKLIN COUNTY CIRCUIT COURT

Judge William Graham

Case No. 84-CI-1760

Kentucky Power Company,

Plaintiff,

VS.

Kentucky Public Service Commission

and

Office of the Attorney General

Consumer Protection Division

Air Products and Chemicals, Inc.

Armco, Inc., Ashland Oil, Inc.

Huntington Alloys, Inc. and Ky. Electric Steel Co.

John Henry Ward, Bert Diamond, Sada Crum and

Concerned Citizens of Martin Co.

Blue Diamond Mining, Inc.,

Defendants.

CIVIL DOCKET ENTRIES

Date Proceeding

12-21-84 Complaint filed. Summons and 7 copies

issued to Parties by certifed mail by the office

of Bruce Clark

12-27-84 Certified receipt confirming service on

Thomas Emerson for Attorney General on

12/26/84.

Certified receipt confirming service on

Re PE a aE a RO RR Ce WO

eS AED lh natn

l- 2-85

1-18-85

1-28-85

lla

Richard Raff by signature of Joey Travhille

on 12/26/84.

Certified receipt confirming service on

Michael Beiting by signature of Carmilia

Booher on 12/26/84.

Certified receipt confirming service on Bruce

Abel on 12/26/84 by signature of Linda

Pitstick.

Answer of Blue Diamond Mining, Inc. filed.

Certified receipt confirming service on Fran-

cis J. Mellen by signature of Candy Hall on

12/28/84.

Certified receipt confirming service on An-

thony Martin on 12/27/84.

Certified receipt confirming service on David

Rubinstein by signature of Donna Blackburn

on 12/31/84.

Answer of the Attorney General filed.

Answer of the Defendant, John Henry Ward,

et al.

Answer of the Public Service Commission.

Answer of Air Products and Chemicals, Inc.,

Armco Inc., Ashland Oil, Inc., Huntington

Alloys, Inc. Ky. Electric Steel Co. and

Pickands Mather & Co. filed.

Notice, Motion, Order to set briefing

schedule.

Notice, Motion, Order for Temporary In-

junction.

Summary of Argument.

Memorandum in support of Plaintiff's Motion

for Temporary Injunction.

1-30-85

2- 4-85

2- 4-85

2- 4-85

2- 5-85

12a

Affidavit of Robert E. Matthews.

Affidavit of Gerald P. Maloney.

Affidavit of Joseph H. Vipperman.

Affidavit of Coulter R. Boyle, III.

Revised Order Scheduling Hearing.

Response to Motion for Temporary Injunc-

tion filed by Atty. Gen.

Memorandum in response to plaintiff's mo-

tion for temporary Injunction.

Response of Residential Intervenors to Motion

for Preliminary Hearing.

Motion for Protective Order.

Memorandum of Air Products and

Chemicals, Inc., Armco Inc., Ashland Oil,

Inc., Huntington Alloys, Inc., Ky. Electric

Steel Company and Picklands Mather & Co.

In Opposition to Motion for Preliminary In-

junction.

Appendix to Memorandum.

(Sealed Protective Order filed)

Memorandum of defendant Ky. Public Ser-

vice in opposition to motion for temporary in-

junction filed.

Proposed Findings of Fact and Conclusions of

law tendered by Kentucky Power Company.

Order filed that the motion for temporary in-

junction is denied.

Copies and certification mailed to David

Rubinstein, Anthony G. Martin, Francis J.

Mellen, Jr., Richard Northern, Michael R.

Beiting, Lively M. Wilson, Bruce F. Clark,

F. Bruce Abel, David F. Boehm, James J.

Ryan, Wm. M. Sawyer.

l3a

Order appointing Connie Sewell as the Of-

ficial reporter in the action.

Order setting out Briefing Schedule.

Agreed Order Dismissing Blue Diamond Coal

Is hereby dismissed as a party defendant.

Brief of Kentucky Power Company filed.

Entry of appearance fied by Wm. P. Curlin,

Jr., Hazelrigg & Cox as co-counsel for Ky. In-

dustrial Utility Customers.

Record before PSC filed. (2 boxes in back

room)

Motion for an extension of time to file brief.

Motion for an extension of time to file brief

filed by Ky. Industrial Utility Customers.

Order filed that Intervenors shall have 37

days from the date of the filing of Plaintiff's

brief in which to file a response. Copies to all

parties.

Brief of Appellees John Henry Ward, Et. al.

Brief of the Appellee Attorney General.

Answer brief of Ky. Industrial Utility Cus-

tomers filed.

Brief of defendants, Ky. Public Service Com-

mission and individually named Commis-

sioners filed.

Motion for extension of time filed by plain-

tiff.

Order extending time to file reply of plaintiff

to a» ’ ‘ncluding June 10, 1985.

secant eel

8-14-55

l4a

Order that the Defendant Ky. Public Service

Commission shall have.

Reply Brief of Kentucky Power Company

filed.

Transcript of Evidence.

Motion to strike limited portion of reply brief

of Ky. Power Co. filed.

Motion filed by plaintiff to set for oral argu-

ment.

Order setting for Oral Argument on July 19,

1985.

Pages substituted into the Reply Brief of

Plaintiff.

Supplemental Memorandum of Ky.

dustrial Utility Customers.

In-

Kentucky Power’s response to Supplemental

Memorandum of Kentucky Industrial Utility

Customers.

Order submitted to be tendered by defen-

dants.

Notice of Recent FERC Decision.

Opinion and order tendered by Kentucky

Power.

Joint response of Attorney General and

residential intervenors to notice of FERC

Decision.

Response of Ky. Industrial Utility Customers

to Notice by Ky. Power Company of Recent

FERC Decision.

8-16-85

8-26-85

8-29-85

9- 4-85

3-24-86

4-18-86

4-28-86

l5a

Kentucky Public Service Commission’s

response to notice of recent FERC Decision.

Order of submission filed. Record submitted

to Judge Graham.

Motion for leave to file additional authority

and statement of authority filed by plaintiff.

Response in opposition to plaintiff's motion

for leave to file statement of additional

authority filed by defendant PSC.

Judgment affirming the Order of the PSC in

Case No. 9061 and all relief sought by the

Plaintiffs herein is denied. Copies to all par-

ties.

Notice of appeal filed by Kentucky Power,

copies to Richard G. Raff, Pamela Johnson,

F. Bruce Abel, William P. Curlin, Anthony

G. Martin, Bruce Clark and John C. Scott.

Designation of record on appeal filed.

l6a

COMMONWEALTH OF KENTUCKY

FRANKLIN CIRCUIT COURT

DIVISION II

84-CI-1760

KENTUCKY POWER COMPANY

PLAINTIFF

v.

KENTUCKY PUBLIC SERVICE

COMMISSION, et al.

DEFENDANT

JUDGMENT

(Filed March 24, 1986)

This appeal is before the Franklin Circuit Court on

petition of the plaintiff Kentucky Power Company for

review of a rate order issued by the Kentucky Public Ser-

vice Commission on December 4, 1984. The plaintiff

Kentucky Power Company moved this Court for tem-

porary injunctive relief from that order, which motion

was denied on February 8, 1985. The case is now before

the Court for review of the merits of the Commission’s

order.

FACTUAL HISTORY

This appeal is merely one installment in a rather

lengthy controversy before the defendant Commission.

Kentucky Power is a wholly owned subsidiary of

American Electric Power Company, Inc. (AEP) and is

engaged in the business of supplying electric energy to

l7a

numerous Kentucky customers. The Kentucky Public

Service Commission is vested by Kentucky law with

jurisdiction over the company’s retail rates.

AEP is a utility holding company and the parent com-

pany of numerous utility companies which provide elec-

tric energy in several States. The AEP system is a fully

integrated interstate utility system.

Beginning around 1978, Kentucy Power sought per-

mission to buy a 15% undivided ownership interest in

two large electricity generating plants under construc-

tion by Indiana and Michigan Electric (another AEP

subsidiary) in Rockport, Indiana. These efforts were not

approved by the Public Service Commission or by the

Kentucky Appellate Courts.

In September 1981, the Public Service Commission

reversed itself and approved Kentucky Power's effort to

purchase part of the Rockport plant. On appeal, the

Kentucky Court of Appeals reversed that order of the

Commission, directing the Commission to make specific

findings of fact and to determine other issues. Additional

hearings were held by the PSC and again in March 1983,

the Commisison approved the purchase of a 15% in-

terest in Rockport by Kentucky Power. That decision by

the PSC was reconsidered and new evidence was

presented to the Commission. On August 2, 1984, the

PSC issued a revised order reversing its previous stand

and denying Kentucky Power’s application to purchase

the 15% share of Rockport. That order was not ap-

pealed.

Before the last decision by the PSC, Kentucky Power,

Indiana and Michigan, and AEP Generating Company

entered into a unit power agreement whereby Kentucky

Power agreed to buy 15% of the output of Rockport;

this agreement represented the financial equivalent of

Kentucky Power owning 15% of Rockport. This agree-

18a

ment required the rate approval of the Federal Energy

Regulatory Commission (FERC). FERC approved the

rates, subject to refund.

A. 9 basis for its decision the PSC had ruled that Ken-

tucky Power could meet its capacity needs by buying

surplus power available to it from the AEP power pool.

This was possible because the pool had excess capacity,

even without the Rockport plant. The PSC concluded

that it was cheaper for Kentucky Power to purchase the

needed power from the pool under the Interconnection

Agreement as opposed to ownership of Rockport. The

Commission found that Kentucky Power had a contrac-

tual right to purchase from the pool under the Intercon-

nection Agreement.

On December 4, 1984, the PSC ruled that Kentucky

Power acted imprudently in entering the unit power

agreement to purchase 15% of the power from Rockport

when the same amount of power could be purchased

under the pool agreement at a substantially lower cost.

This ruling was appealed to this Court.

By order of February 8, 1985, this Court denied the

plaintiff Company’s motion for injunctive relief on the

Rockport issue.

Another issue before the Court involves the construc-

tion of a transmission line called the Hanging Rock-

Jefferson Line. Kentucky Power, along with its sister

companies, Appalachian Power Company, Columbus

and Southern Ohio Electric, Indiana and Michigan

Electric Company and Ohio Power Company, are all

members of the AEP system. The AEP system is highly

interconnected through utilization of transmission lines.

In 1974, Kentucky Power applied to the Commission

for a certificate authorizing construction of a 155 mile

transmission line in Kentucky at a cost of $55 million.

The transmission line would connect the Hanging Rock

A Pn sneer

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mated. es

19a

substation of Ohio Power Company with the Jefferson

substation of Indiana and Michigan Electric Company

(Hanging Rock-Jefferson line) and would not have any

outlets in Kentucky. Kentucky Power told the Commis-

sion that other members of the AEP system would pay

95% of the line’s construction, operation and mainten-

ance costs. A certificate was granted on that basis.

In 1983, Kentucky Power told the Commission that

the Hanging Rock-Jefferson line would be completed in

1984 at a cost of $123 million and that none of the other

members would pay for any of its costs. The Commis-

sion then initiated Case No. 8904 to investigate Ken-

tucky Power’s need for the transmission line and its cost

responsibility. |

During the course of that investigation the AEP

system filed with the FERC a Transmission Agreement

whereby AEP subsidiaries whose investment in transmis-

sion facilities was below a specified level would pay rates

to those subsidiaries whose investment exceed the

specified level. Pursuant to this FERC agreement, Ken-

tucky Power’s transmission investment entitles it to

receive revenues from its sister utilities; there are no

rates to be paid by Kentucky Power.

The Commission’s order in Case No. 8904 found that

while the Hanging Rock-Jefferson line did provide some

reliability benefits to Kentucky Power and its customers

under certain extreme conditions of low probability, it

was built primarily to enable the system to transfer large

quantities of power from Ohio to Indiana, i.e., bulk

power transfers in interstate markets. The Commission

further found that the transmission line greatly exceeded

Kentucky Power’s intrastate needs and consequently, on-

ly a portion of the investment should be included in

retail rate base. Utilizing an allocation formula similar

to the AEP system’s allocation of generating capacity

20a

under the Pool Agreement, the Commission found that

only 44% of the investment in the Hanging Rock-

Jefferson transmission should be included in retail rate

base and only 44% of the operating and maintenance ex-

penses should be charged to retail customers. Kentucky

Power’s rates in Case No. 9061 were based on the 44%

limitation as ordered in investigative Case No. 8904.

FINDINGS OF FACT

(1) The AEP Interconnection Agreement does not

contain any provisions that would require KPC to buy

power from the Rockport plant at incremental cost for

purposes of meeting Kentucky Power Company’s (KPC)

internal demand.

(2) The AEP Interconnection Agreement specifically

allows KPC to purchase needed power from the AEP

pool at the embedded cost of power generated by the

pool.

(3) The record in the proceedings before the Public

Service Commission clearly demonstrates that it is less

expensive to purchase power from the pool than it is to

purchase power pursuant to AEP’s proposed unit power

agreement.

(4) The Unit Power Agreement between AEP Co.,

and KPC is the equivalent of the purchase by KPC of

15% of the Rockport plant.

(5) In its Order of October 1, 1984, in Docket No.

ER 84-579-000, the FERC found that “. . . Kentucky

Commission has jurisdiction to consider the ap-

propriateness of KEPC’s acquisition of new facilities

..,” and that there is “. . . no overlap or conflict . . .”

between the regulatory roles of FERC and the Kentucky

Commission.

(6) In its Order of November 23, 1984, in Docket

2la

No. ER 84-579-000, FERC found that State commis-

sions, as well as FERC, have legitimate concerns“. . . in

determining whether purchases reflect prudently in-

curred expenses for purposes of determining the pur-

chaser’s rates for sales to others.” FERC further found

that “. . . in this proceeding, we do not intend to make

or consider any findings concerning KEP Company’s

prudence in entering the agreement, in light of the

availability of alternative power supplies.”

CONCLUSIONS OF LAW

(1) PSC acted within its statutory authority in deny-

ing recovery of the Unit Power Agreement costs in light

of the contractual right of KPC to purchase power at

embedded cost from the AEP pool. See K.U. v. PSC,

Ky. 252 SW 885 (1952).

(2) No confiscation occurs when the PSC rejects for

ratemaking purposes excessive or imprudently incurred

expenses. :

(3) The mere filing of a rate schedule for a Unit

Power Agreement with FERC does not preempt the PSC

from considering the prudence of KPC in entering into

the agreement in light of alternative power supplies, and

from denying recovery of excessive costs when they are

imprudently incurred.

(4) FERC’s interpretation of its authority under the

Federal Power Act is entitled to great weight, and suffi-

cient cause to question FERC’s interpretation has not

been shown.

(5) The PSC Orders complained of are not clearly in

conflict with the Federal Power Act.

(6) The Commission’s fixing of a value of the Hang-

ing Rock-Jefferson line for retail rate making was just

and reasonable and supported by the evidence.

22a

(7) There has been no showing by clear and convinc-

ing evidence that the Order of the Commission was

unreasonable or unlawful. The Order is supported by

substantial evidence in the record.

(8) There is no evidence in the record that the rates

set by the Commission are confiscatory.

JUDGMENT

WHEREFORE, the Court ORDERS AND AD-

JUDGES that the Order of the Public Service Commis-

sion in Case No. 9061 is hereby AFFIRMED and all

relief sought by the plaintiffs herein is DENIED.

This is a final and appealable judgment and there is

no just cause for delay.

SO ORDERED THIS 21 day of MARCH, 1986.

/s) WILLIAM L. GRAHAM

Judge, Franklin Circuit Court

ee ee