Sims and Moremen, JJ., dissenting. Duncan, J., did not participate in the consideration of the case.
CULLEN, Commissioner. East Kentucky Rural Electric Cooperative Corporation (East Ky.) made application to the Public Service Commission of Kentucky, under KRS 278.020, for a certificate of convenience and necessity authorizing construction of a steam generating plant, and transmission lines, for the purpose of supplying electric energy to the distribution systems of the local rural electric cooperative corporations (co-ops) throughout the state. The application was opposed by Kentucky Utilities Company (K. U.), Louisville Gas and Electric Company (L. G. & E.) and Union Light, Heat and Power Company (Union), which companies are now engaged in supplying electric energy to the co-ops and to other distribution systems and consumers in Kentucky.
The Public Service Commission granted a certificate authorizing East Ky. to construct a steam generating plant consisting of two 20,000 Kilowatt (KW) units, and to construct 597 miles of transmission lines, and further authorized East Ky. to borrow $12,265,000 from the Federal Rural Electric Administrator, to finance the construction. K. U., L. G. & E. and Union brought an action in the Franklin Circuit Court, under KRS 278.410, to set aside or vacate the order of the commission. The circuit court sustained the order, and the plaintiff utilities have appealed to this Court.
After the appeal was submitted, the appellants moved that the appeal be dismissed on the ground that the case had become moot by reason of the failure of East Ky. to begin construction within one year from the date the certificate was granted, as required by KRS 278.020. The appellees moved to strike the appellants' motion. The appellees' motion is sustained, for reasons stated at the end of this opinion.
East Ky. is a cooperative membership corporation organized under the provisions of Chapter 279, KRS, for the purpose of producing and transmitting electric energy. Its membership consists of 18 distribution co-ops now operating local facilities for the distribution of electric energy, serving 90,000 consumers in 84 counties.
At the present time, the co-ops receive their electric energy from K. U., L. G. & E., Union, and Kentucky-West Virginia Power Company. K. U. supplies all of the energy received by thirteen of the co-ops, and part of that received by two. L. G. & E. supplies all of the energy received by one of the co-ops, Union supplies part of the energy received by one, and Kentucky-West Virginia supplies all of the energy received by two and part of the energy received by one.
The record indicates that the sales of energy to the co-ops represent the following percentages of the total energy sales of the four utilities: K. U., 6 to 7 percent; L. G. & E., 0.4 percent; Union, 2 percent; Kentucky-West Virginia Power Company, 1.6 percent. The record further shows that 25 percent of the total power supply of K. U. is purchased from out-of-state generating companies, and all of the power of Union is similar imported power.
Although the immediate application of East Ky. was only for a certificate authorizing construction of a generating plant with a capacity of 40,000 KW and the construction of 597 miles of transmission lines, to serve the load centers of thirteen of the co-ops, plans submitted in connection with the application, outlining the ultimate proposed operations of East Ky., call for the construction of two additional 40,000 KW generating units, and 858 additional miles of transmission lines, resulting eventually in a system with a total generating capacity of 120,000 KW and with a total of 1455 miles of transmission lines, to serve all of the co-ops. These plans contemplate an increase in the number of consumers of the co-ops from the present 90,000 to approximately 150,000. It is recognized that the ultimate plans of East Ky. cannot be carried out without additional loan commitments from the Federal Rural Electric Administrator, and without further certificates of convenience and necessity from the Kentucky Public Service Commission. It is stated in the briefs that since the commencement of this action in the circuit court, East Ky. has applied for a certificate authorizing construction of an additional portion of its proposed system, and for authority to borrow an additional $11,687,000 from R. E. A.
The determination of the Public Service Commission to issue a certificate to East Ky. necessarily was based upon a finding that public convenience and necessity required the construction of the proposed facilities of East Ky., because the statute requires such a finding as a prerequisite to the issuance of a certificate. KRS 278.020. We will address our attention to the question whether the Commission gave proper consideration to the essential elements that enter into the matter of convenience and necessity.
At the outset, we think it should be made clear that the question is not simply whether the public convenience and necessity require more service, but rather whether the public convenience and necessity require a new service system or a new service facility. See Whittaker v. Southeastern Greyhound Lines, 314 Ky. 131, 234 S.W.2d 174.
We think it also should be made clear that there is no rule in this jurisdiction giving to an existing utility the absolute right, or imposing upon it the absolute duty, to make its service adequate, before a new utility will be permitted to enter the field. Some of the decisions of this Court, particularly the decision in City of Olive Hill v. Public Service Commission, 305 Ky. 249, 203 S.W.2d 68, have been sought to be construed to lay down such a rule. However, an examination of the opinion in the Olive Hill case will disclose that the reason for denial of a certificate to the new utility was to prevent unnecessary duplication of plants, facilities and service, and 'ruinous' competition, and the basis of the decision was that the nature and extent of the inadequacy of service was not such as to establish the necessity for a new service system.
We think it is obvious that the establishment of convenience and necessity for a new service system or a new service facility requires first a showing of a substantial inadequacy of existing service, involving a consumer market sufficiently large to make it economically feasible for the new system or facility to be constructed and operated.
Second, the inadequacy must be due either to a substantial deficiency of service facilities, beyond what could be supplied by normal improvements in the ordinary course of business; or to indifference, poor management or disregard of the rights of consumers, persisting over such a period of time as to establish an inability or unwillingness to render adequate service.
The above two factors have relation to the need of particular consumers for service. However, our concept of the meaning of 'public convenience and necessity,' as expressed in our decisions in previous cases, embodies the element of absence of wasteful duplication, as well as a need for service. See City of Olive Hill v. Public Service Commission, 305 Ky. 249, 206 S.W.2d 68; Whittaker v. Southeastern Greyhound Lines, 314 Ky. 131, 234 S.W.2d 174; Cannonball Transit Co. v. Sparks Bros. Bus Co., 255 Ky. 121, 72 S.W.2d 1021; Cardinal Bus Lines v. Consolidated Coach Corp., 254 Ky. 586, 72 S.W.2d 7; and Utter v. Black, 305 Ky. 136, 202 S.W.2d 425. Therefore, a determination of public convenience and necessity requires both a finding of the need for a new service system or facility from the standpoint of service requirements, and an absence of wasteful duplication resulting from the construction of the new system or facility.
At first impression, it might appear that the two requirements are in reality only one, because there could not be a need for a new service system or facility if the construction of the system or facility would result in wasteful duplication. This impression would be correct if 'duplication' is considered as having only the meaning of an excess of capacity over need. However, we think that 'duplication' also embraces the meaning of an excessive investment in relation to productivity or efficiency, and an unnecessary multiplicity of physical properties, such as right of ways, poles and wires. An inadequacy of service might be such as to require construction of an additional service facility to supplement an inadequate existing facility, yet the public interest would be better served by substituting one large facility, adequate to serve all the consumers, in place of the inadequate existing facility, rather than constructing a new small facility to supplement the existing small facility. A supplementary small facility might be constructed that would not create duplication from the standpoint of an excess of capacity, but would result in duplication from the standpoint of an excessive investment in relation to efficiency and a multiplicity of physical properties.
The general findings of fact made by the Public Service Commission in the case before us seem to recognize that a determination of convenience and necessity requires a showing of absence of duplication as well as a need for service, but, as will presently be developed, we think that the Commission erroneously ascribed a limited meaning to the term 'duplication.' The findings were:
'1. That public convenience and necessity require the construction, operation and maintenance of the proposed generating and transmission facilities applied for in the application.
'2. That the proposed construction does not duplicate present generating and transmission facilities owned by the protesting utilities.
'3. That the proposed generating and transmission facilities, when constructed, can deliver energy to the member RECC's at a cost at least as low as their present purchase cost.'
From the written opinion filed by the Public Service Commission, it is apparent that the finding of public convenience and necessity (No. 1 above) was addressed to the matters of inadequacy of present service and of present service facilities, and the economic feasibility of the proposed plans of East Ky. As hereinbefore explained, those matters have to do with the need for a new service system. We are of the opinion that the record supports the ...