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Public Service Commission of Kentucky v. Shepherd

Court of Appeals of Kentucky

March 6, 2019



          Attorneys For Petitioner: John E.B. Pinney Nancy J. Vinsel Frankfort, Kentucky

          Attorneys For Real Party In Interest, Attorney General Of Kentucky: Andy Beshear Attorney General Kent A. Chandler Rebecca W. Goodman Lawrence W. Cook Justin M. McNeil Assistant Attorneys General Frankfort, Kentucky

          Attorney For Real Party In Interest, SierrA Club: Joe F. Childers, Jr. Lexington, Kentucky

          Attorneys For Real Parties In Interest, Metropolitan Housing Coalition; Association Of Community Ministries; And Community Action Council For Lexington-Fayette, Bourbon, Harrison, And Nicholas Counties, Inc.: Tom FitzGerald Frankfort, Kentucky Lisa Kilkelly Eileen Ordover Louisville, Kentucky Iris Skidmore Frankfort, Kentucky



          Glenn E. Acree Judge

         This matter comes before the Court on the Kentucky Public Service Commission's Petition for a Writ of Prohibition pursuant to CR[1] 81 and CR 76.36. The Commission argues the circuit court lacked subject matter jurisdiction to entertain an interlocutory appeal of its decision not to permit intervention by certain persons in a rate-making case. We are persuaded by that argument. Having reviewed the petition and responses, and being otherwise sufficiently advised, the Petition for a Writ of Prohibition is hereby GRANTED.

         I. BACKGROUND

         This case began when Louisville Gas & Electric Company ("LG&E") and Kentucky Utilities ("KU") filed rate adjustment applications with the Commission. Numerous persons moved to intervene in the administrative proceedings, including: the Metropolitan Housing Coalition ("MHC"), which represents the concerns of low-income ratepayers in the Louisville area; the Association of Community Ministries ("ACM"), which provides utility assistance to low-income individuals in the Louisville area; the Sierra Club, a conservation group; and the Community Action Council for Lexington-Fayette, Bourbon, Harrison and Nicholas Counties ("CAC"), which provides energy assistance to low-income residents in KU's service area. The Commission denied motions to intervene filed by these parties; they became the real parties in interest before the circuit court ("Real Parties").

         In denying intervention, the Commission found as to each of the Real Parties that their interests were already adequately represented by a party to the proceeding, including the Kentucky Attorney General whose office intervened as a matter of right pursuant to KRS[2] 367.150(8)(b). Still, each order denying intervention included language that, despite their non-party status in the administrative proceeding, each Real Party would "have ample opportunity to participate" by viewing all filings online, "filing comments as frequently as they choose" to be made a part of the record, and working with the Attorney General to provide testimony. Additionally, each denial stated: "if a formal evidentiary hearing is held, [Real Parties] will be provided an opportunity to present any information that they wish for the Commission's consideration in this matter."

         Desiring more than this limited participation, the Real Parties claimed a right under KRS 278.410 to an interlocutory appeal of the denial of leave to intervene. They filed civil actions (now consolidated) in the Franklin Circuit Court. On November 21, 2018, the circuit court entered a temporary injunction pursuant to CR 65.04 enjoining the Commission from preventing the Real Parties from "full[y] participat[ing] in the two underlying rate cases to which they have sought intervention," and "ORDERED [the Commission] to permit [Real Parties] participation as intervening parties under 807 KAR[3] 5:001, Section 4(11)[.]" On December 17, 2018, the Commission filed with this Court its Petition for a Writ of Prohibition, and the Real Parties filed responses.


         A writ of prohibition is an extraordinary remedy. As the Supreme Court of Kentucky described the standard for granting a writ:

A writ of prohibition may be granted upon a showing that (1) the lower court is proceeding or is about to proceed outside of its jurisdiction and there is no remedy through an application to an intermediate court; or (2) that the lower court is acting or is about to act erroneously, although within its jurisdiction, and there exists no adequate remedy by appeal or otherwise and great injustice and irreparable injury will result if the petition is not granted.

Hoskins v. Maricle, 150 S.W.3d 1, 10 (Ky. 2004). "This statement lays out what [the Supreme Court] described as two classes of writs, one addressing claims that the lower court is proceeding without subject matter jurisdiction and one addressing claims of mere legal error." Collins v. Braden, 384 S.W.3d 154, 158 (Ky. 2012). The Commission seeks a writ of the first class, asserting the circuit court is acting without subject matter jurisdiction.


         The circuit court claimed appellate jurisdiction in this case, stating "that the Commission's orders denying the Motions to Intervene are final and appealable as to these [Real Parties], and these orders may be properly presented to the [Circuit] Court at this time under KRS 278.410 and the Declaratory Judgment Act, KRS Chapter 418." (Opinion and Order entered November 21, 2018, at 7).

         Relying on the definition of a "final or appealable judgment" found in CR 54.01, the circuit court said, "there are no remaining issues for the Commission to decide as to MHC, ACM, CAC, and the Sierra Club." (Id. at 7-8). The circuit court ruled as a matter of law that, "In cases where the Commission's action regarding certain litigants is, as a practical matter, a final disposition of their right to participate in the proceedings, the statute clearly authorizes immediate judicial review. KRS 278.410." (Id. at 8).

         Cobbling together elements upon which to assert interlocutory appellate jurisdiction from an administrative proceeding, the court noted that "[a]lthough the Commission has not adopted the Kentucky Rules of Civil Procedure, the plaintiffs plainly satisfy the standard for intervention as a matter of right under CR 24, which is highly persuasive to the Court on this point." (Id.). The court went further, "tak[ing] notice of the collateral order doctrine, an exception to the final judgment rule in federal courts . . . [that] permits a court to hear interlocutory appeals of matters separable from and collateral to the rights asserted in the underlying action when those issues are 'too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole case is adjudicated." (Id.).

         IV. ANALYSIS

         We conclude the circuit court's reasoning for its exercise of interlocutory appellate jurisdiction is flawed. Not only is reliance on the Kentucky Rules of Civil Procedure misplaced, the circumstances of this case do not support application of the collateral order rule.

         However, the fundamental error in the circuit court's analysis is its presumption that the Real Parties have a right to intervene in the Commission's proceedings. We conclude such a right does not exist in the context of the Commission's "plenary authority to regulate and investigate utilities . . . ." Kentucky Public Service Comm'n v. Commonwealth ex rel. Conway, 324 S.W.3d 373, 383 (Ky. 2010).

         Consumers in a free market economy have no right, certainly not at common law, to dictate the rate at which a seller's product or service is sold. However, American capitalism is subject to regulation as authorized by the market participants themselves - the buyers and sellers, who are citizens all. These citizens empower representatives in state and federal governments to enact legislative schemes to protect consumers against the excesses of sellers who, for various reasons, find themselves in, and are tempted to take advantage of, a superior bargaining position. One such legislative scheme is KRS Chapter 278.

         Chapter 278 did not solve the utilities marketplace imbalance by empowering consumers with a statutory right to set their own utility rates. Through representatives, the people created the Public Service Commission and granted it "exclusive jurisdiction over the regulation of rates and service of utilities . . . ." KRS 278.040(2). The legislature saw to it that "the [Commission] had the plenary authority to regulate and investigate utilities and to ensure that rates charged are fair, just, and reasonable under KRS 278.030 and KRS 278.040." Commonwealth ex rel. Conway, 324 S.W.3d at 383 (emphasis added). In fact, "it was the intention of the Legislature to clothe the Public Service Commission with complete control over rates and services of the utilities . . . ." Southern Bell Tel. & Tel. Co. v. City of Louisville, 265 Ky. 286, 96 S.W.2d 695, 697 (1936). In summary, rather than granting consumer rights that did not exist at common law, the legislative scheme focuses on the other side of the transaction and suppresses the free market right of a utility to charge any rate the market will bear. In place of that suppressed right, the legislation still allows rate increases, but requires notice to the Commission and Commission approval. KRS 278.180.

         The Commission's plenary rate-making authority is considerable. It "is primarily a legislative function of the state, and the right is essentially a police power." Southern Bell, 96 S.W.2d at 697. That power is exercised when the commission "finds that any rate is unjust, unreasonable, insufficient, unjustly discriminatory or otherwise in violation of any of the provisions of this chapter, [at which time] the commission shall by order prescribe a just and reasonable rate to be followed in the future." KRS 278.270.

         Replacing the consumers' inferior negotiating position with this police power means "[c]onsumers of public utilities must rely on the Commission to protect them from unreasonable and unfair rates." Kentucky Industrial Utility Customers, Inc. v. Kentucky Public Service Commission, 504 S.W.3d 695, 705 (Ky. App. 2016). There is, of course, a tradeoff. The legislative scheme not only "strips consumers of the right to price shop[, ]" id., it limits consumer participation in rate-making to two possibilities: (1) any person may present a complaint to the Commission in an attempt to initiate a case, KRS 278.260; and (2) "[a] person who wishes to become a party to a case [already] before the commission may, by timely motion, request leave to intervene." 807 KAR 5:001 Section 4(11)(a).

         The Real Parties do not claim the right to judicial review pursuant to KRS 278.410 as persons who became parties after filing complaints. 807 KAR 5:001 Section 1(10)(a). However, understanding how one becomes a party to Commission proceedings, generally, facilitates our explanation why persons denied intervention, specifically, are not parties entitled to judicial review.

         Any person (broadly defined by KRS 278.010(2)) may present to the Commission "a complaint in writing . . . against any utility . . . [regarding] any rate in which the complainant is directly interested . . . ." KRS 278.260(1). The statutes make no distinction between formal and informal complaints, but the regulations do. Compare 807 KAR 5:001 Section 20 (Formal Complaints) with 807 KAR 5:001 Section 21 (Informal Complaints). The complaint need not be about a utility rate - applicable to all utility customers - but might be of a private nature and only between the complainant and the utility.[4] Either way, the Commission will entertain the complaint. But the legislation granting consumers the right to complain to the Public Service Commission guarantees nothing else.

         The complaint "provisions of KRS Chapter 278, KRS 278.260, KRS 278.270 and KRS 278.280, . . . do not mandate that a complaint compels a general rate case under KRS 278.190." Commonwealth ex rel. Conway, 324 S.W.3d at 378-79 (footnotes omitted). It has always been so. As our highest court long ago said, if a single complaint could compel Commission action, "the commission would be subjected to the whims and imaginative grievances of customers to such an extent that it would be so annoying that the intent and purpose of the law would be virtually destroyed, and the service to the general public would be thwarted if not destroyed." Smith v. Southern Bell Tel. & Tel. Co., 268 Ky. 421, 104 S.W.2d 961, 963 (1937). "The commission upon its own motion might hear and determine the complaint of an individual but the act [establishing the Commission's precursor] does not make it obligatory that it do so." Louisville Gas & Elec. Co. v. Dulworth, 279 Ky. 309, 130 S.W.2d 753, 755 (1939). It remains the prerogative of the ...

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