SWKI-Seward West Central, Inc. v. Kansas Corporation Comm'n

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NOT DESIGNATED FOR PUBLICATION

No. 116,795

IN THE COURT OF APPEALS OF THE STATE OF KANSAS

SWKI-SEWARD WEST CENTRAL, INC.
and
SWKI-STEVENS SOUTHEAST, INC.,
Appellants,

v.

KANSAS CORPORATION COMMISSION,
Appellee,

and

ANADARKO NATURAL GAS COMPANY LLC,
Intervenor/Appellee.


MEMORANDUM OPINION

Appeal from Shawnee District Court; LARRY D. HENDRICKS, judge. Opinion filed January 12,
2018. Reversed and remanded with directions.

Timothy J. Sear, of Polsinelli PC, of Overland Park, and Frank A. Caro, Jr., Anne E. Callenbach,
and Andrew O. Schulte, of the same firm, of Kansas City, Missouri, for appellants.

Brian G. Fedotin, deputy general counsel and chief appellate counsel, for appellee Kansas
Corporation Commission.

James P. Zakoura and Joseph L. McEvoy, of Smithyman & Zakoura, Chartered, of Overland
Park, for intervenor/appellee Anadarko Natural Gas Company LLC.

Before POWELL, P.J., MALONE, J., and LORI A. BOLTON FLEMING, District Judge,
assigned.
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POWELL, J.: SWKI-Seward West Central, Inc. (SWKI-SWC) and SWKI-Stevens
Southeast, Inc. (SWKI-SE) (collectively the SWKIs) appeal from an order of the Kansas
Corporation Commission (Commission) dismissing their administrative complaint filed
against Anadarko Natural Gas Company LLC (Anadarko). The SWKIs' complaint
asserted that Anadarko had failed to file their natural gas sales contracts executed in 1998
and 2002 with the Commission as required by K.S.A. 66-109 and K.S.A. 66-117 and that
these contracts—and the rates contained in them for the sale of natural gas—were never
approved by the Commission. Based on Anadarko's failure to comply with these statutes,
the SWKIs contend that according to the filed rate doctrine, it was unlawful for Anadarko
to charge them for any of the natural gas provided to them. The Commission dismissed
the complaint, holding that because the SWKIs had not otherwise claimed that the rates
they were charged for natural gas were unreasonable, they had failed to state a claim
upon which relief could be granted. Alternatively, the Commission held that even if they
had stated a valid claim, the SWKIs were not entitled to any relief because they had not
been damaged by Anadarko's action. The district court denied the SWKIs' petition for
judicial review. For reasons we will more fully explain below, because we agree with the
SWKIs that they have stated a cognizable claim for relief and that the Commission erred
in summarily denying them relief, we reverse and remand for further proceedings.

FACTUAL AND PROCEDURAL BACKGROUND

Since before the 1930s, regulated utilities such as natural gas providers and
pipelines have been required to comply with a myriad of statutes and regulations to
ensure that regulatory agencies have sufficient information to oversee the monopolistic
utilities' operations and pricing. See Federal Power Commission v. Natural Gas Pipeline
Co. of America, 315 U.S. 575, 582-83, 62 S. Ct. 736, 86 L. Ed. 1037 (1942) (upholding
constitutionality of Natural Gas Act of 1938, 15 U.S.C. § 717 et seq.); The State, ex rel.,
v. Flannelly, 96 Kan. 372, 381-82, 152 P. 22 (1915) (receivers managing assets and sales
of natural gas company constitute a public utility subject to supervision of state utilities
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commission). This appeal raises the question of whether a regulated utility's customers
may file and pursue a complaint with the Commission seeking a refund of payments
made to the utility based upon rates which allegedly failed to comply with procedural
requirements adopted by the Legislature and the Commission to ensure the regulator has
sufficient information to exercise its oversight functions.

Here, SWKI-SE and SWKI-SWC entered into natural gas purchase agreements in
1998 and 2002 with entities related to Anadarko for natural gas carried on the Hugoton
Residue Delivery System (HRDS). The SWKIs are nonprofit public utilities with
certificates of convenience and necessity issued by the Commission to provide natural
gas to their customers. Because this case comes to us from the Commission's dismissal
for failure to state a claim, we assume the facts as alleged by the SWKIs are true. See
Cohen v. Battaglia, 296 Kan. 542, 545-46, 293 P.3d 752 (2013). Taking the facts alleged
by the SWKIs as true and as reflected in the record on appeal, we summarize the rather
tortured relationship between the parties.

In 1994, Anadarko Gathering Company (AGC) obtained a limited certificate of
convenience from the Commission, permitting it to provide natural gas service to specific
customers in southwest Kansas and to take over another related company and its
contracts. As part of its certificate, AGC was permitted to enter into individual customer
contracts with its predecessor's customers. AGC was required to file its exact rates, rules,
and regulations with the Commission under its own name; those rates, rules, and
regulations were required to be identical to that of its predecessor.

After SWKI-SE was approved to operate by the Commission in 1998, it entered
into a contract to purchase all the raw, untreated natural gas it needed from Anadarko
Energy Services Company (AESC), a company related to Anadarko and AGC. The
contract specified the process to calculate the price of gas sold and provided a delivery
surcharge; the contract operated on a month-to-month basis subject to termination by
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either party with 30 days' written notice. Each party had the right, upon reasonable notice,
to examine the books and records of the other to verify the accuracy of any charges or
payments made by the other; absent a specific objection, all payments made were
considered final, and any right to an adjustment would lapse after two years unless a
specific objection was made. The contract also contained an arbitration clause requiring
any disputes arising from the contract to be settled by arbitration.

In 1999, AGC filed an application with the Commission to transfer its limited
certificate to operate to Anadarko. Anadarko and AGC asked the Commission to approve
the assignment of the existing contracts and rate schedules on file with the Commission
with AGC's existing customers to Anadarko. Anadarko also requested permission to file
additional contracts for Commission approval. In May 2000, the Commission approved
the transfer of AGC's certificate to Anadarko and the customer-specific rate schedules
from AGC. The Commission also permitted Anadarko to obtain new contracts with new
customers but required the utility to "file all Customer Specific Certificates and Contract
Rate Schedules for review and approval of the Commission consistent with applicable
Kansas statutes and regulations." The proposed tariff under the order specifically
provided that "[n]o service under any such Contract shall be effective until such Contract
has been filed with and approved by the Kansas Corporation Commission." Several
months thereafter, Anadarko sent correspondence to the Commission's staff identifying
and including copies of individual contracts with its customers. According to a report
from the Commission's staff, this correspondence included the contract between AESC
and SWKI-SE.

After SWKI-SWC received its certificate of convenience from the Commission, it
entered into a natural gas purchase agreement with Anadarko in June 2002. This contract
was strikingly similar to the SWKI-SE contract; it included the provisions for calculating
the cost of gas sold, the month-to-month contract provision, the right to examine books,
and an arbitration clause.
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In 2007, various Anadarko-related companies entered into an agreement with
TKO Energy Services, LLC to transfer some of its customers' contracts to them; the
SWKIs' contracts were not included in the customers transferred to TKO. Shortly
thereafter, Anadarko filed a petition with the Commission seeking approval of its transfer
of 55 natural gas contracts to TKO, and TKO filed an application for a certificate of
convenience and necessity to serve those 55 natural gas customers. Attached to TKO's
application was a list of customers that Anadarko was retaining; this list identified the
SWKIs' contracts as among those retained by Anadarko.

At no time during the exercise of their respective contracts with the Anadarko
companies did the SWKIs ever file a complaint about Anadarko's operations, the quality
of the gas provided, or the rates charged by Anadarko. The SWKIs made payments as
required under these contracts without dispute. This changed in 2013.

In 2013, Anadarko and Black Hills Energy (Black Hills) filed a joint application
with the Commission seeking approval of Anadarko's sale of its assets and assignment of
its customer contracts in exchange for a portion of its service territory. The SWKIs'
contracts were among the contracts Anadarko sought to transfer to Black Hills, and Black
Hills' existing tariff rates would have resulted in an increase in the SWKIs' cost to
purchase natural gas. During the Commission's docket considering Anadarko's and Black
Hills' application, the Commission's staff reported that they could not find any
Commission order approving the gas sales contracts Anadarko sought to transfer. The
SWKIs, having intervened in the docket, also received a copy of the staff report.

Immediately thereafter, the SWKIs filed a complaint with the Commission against
Anadarko, asserting that Anadarko provided gas to them based upon contracts which
Anadarko never filed with the Commission and which the Commission never approved.
The SWKIs also claimed the price they paid Anadarko under the contracts was
significantly higher than that charged to Anadarko's other customers and that the charges
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were unlawful because their contracts had not been filed with or approved by the
Commission. Given the Commission's power to establish a lawful rate and order refunds
of overcharges, the SWKIs specifically requested the Commission to find that all rates
charged by Anadarko were unlawful, void, and subject to refund, with interest.

Anadarko responded to the SWKIs' complaint by filing an answer and a motion to
dismiss, asserting that over the 10-plus years of each contract, the contract price for gas
had not changed and the SWKIs had never complained to Anadarko or the Commission
about the price or any of the services Anadarko provided under the contracts. Anadarko
disputed the SWKIs' claims that "cost-based rates" meant they were overcharged because
the contracts did not use cost-based rates and explained at length that the original
contracts were predicated on its Limited Certificate of Convenience which permitted
individual contracts. Anadarko also pointed to evidence from the Anadarko/Black Hills
docket which, at a minimum, inferred that the Commission's staff had been provided the
contracts or the Commission had other documents in its files showing that the contracts
had been filed. Anadarko argued that in the absence of any objection by the SWKIs or the
Commission, the contracts should be deemed approved.

In its motion to dismiss, Anadarko asserted, among other defenses, that the
SWKIs' complaint failed to state a claim upon which relief could be granted. Anadarko
claimed the 1998 contract was executed at a time when the Commission lacked
jurisdiction over the contract and that when Anadarko transformed from a gathering
system to a transporter in approximately 2000, its contracts, including the contract with
SWKI-SE, had been filed with the Commission. Because the Commission did not
suspend the contracts, Anadarko argued, the contracts were deemed approved under
K.S.A. 66-117. Anadarko also contended the SWKIs' complaint was inconsistent with the
position they took in the Black Hills' docket, where they requested that any order
approving the transfer of their contracts to Black Hills barred Black Hills from changing
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the rates set forth in the original contracts until such time as Black Hills filed a new rate
case.

After a pretrial conference, the parties agreed that several threshold issues existed.
First, the Commission had to address whether it had jurisdiction to determine the merits
of the SWKIs' complaint against Anadarko. Second, the Commission had to determine
whether it had authority to order a refund or award damages to the SWKIs. Finally, the
Commission was required to determine the legal effect of gas sales contracts which may
have not been filed with the Commission.

The Commission issued its order in January 2015, and first determined that K.S.A.
2016 Supp. 66-154a applied to the complaint because Anadarko, as a natural gas pipeline,
qualified as a common carrier. Under that statute, the Commission concluded that it could
only investigate a complaint when the complainant asserted claims that "an unfair, unjust,
unreasonable or unjustly discriminatory or unduly preferential rate or charge has been
exacted." K.S.A. 2016 Supp. 66-154a. Similarly, the Commission found that the SWKIs'
reliance on K.S.A. 66-1,205 faced the same result as that statute also refers to complaints
which assert "that any rates or rules and regulations . . . are in any respect unreasonable,
unfair, unjust, unjustly discriminatory or unduly preferential, or both." K.S.A. 66-
1,205(a).

Although the SWKIs' original complaint asserted they were charged significantly
higher rates than other Anadarko customers, the SWKIs advised the Commission that
both they and Anadarko had performed their obligations under their respective contracts
and that their complaints were based solely on Anadarko's failure to file the contracts
with the Commission. Accordingly, the Commission found that the SWKIs' failure to
allege that Anadarko's rates were "unfair, unjust, or discriminatory" meant the complaint
failed to state a claim under either K.S.A. 2016 Supp. 66-154a or K.S.A. 66-1,205(a).

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Despite finding that the SWKIs' complaint had failed to state a claim upon which
relief could be granted, the Commission alternatively concluded that even if the SWKIs'
complaint was sufficient, any claim for a refund would be limited to three years' charges
under K.S.A. 66-154c or based solely on the difference between a reasonable rate and
any unjust rate found to have been charged. The Commission's initial order did not
address the SWKIs' reliance on the common-law "filed rate doctrine" in its pleadings and
briefs.

The Commission's order then proceeded to discuss the administrative fines
recommended by its staff for Anadarko's failure to file the SWKIs' contracts with the
Commission. Contemporaneously to the present case, the Commission's staff issued a
report on the investigation it started in the Black Hills docket, and that report was filed in
this proceeding. The report recommended that substantial fines be assessed against
Anadarko and that refunds be made to the SWKIs. Anadarko and the Commission's staff
ultimately reached a settlement limited to resolving the civil penalty claims only. As a
result, the settlement agreement was also filed in this proceeding. The Commission
reviewed the proposed settlement agreement reached between its staff and Anadarko
resolving this disputed issue and approved the settlement which reduced Anadarko's civil
penalties and allowed Anadarko to avoid any admission that it or its related companies
violated of any state or federal law or regulations.

The SWKIs timely sought reconsideration of the Commission's order dismissing
their complaint and renewed their arguments disagreeing with the Commission's
interpretation of K.S.A. 66-1,205 and its application of K.S.A. 2016 Supp. 66-154a to
their complaint against Anadarko. Moreover, they once again argued that in accordance
with the filed rate doctrine, the Commission's "approval" of Anadarko's rates now—when
the contracts had not been filed previously—constituted prohibited retroactive
ratemaking. The SWKIs also asserted that the Commission's order lacked adequate
findings of fact to support its decision and failed to address its arguments about the filed
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rate doctrine. Finally, the SWKIs argued that if their complaint was deficient,
Commission regulations required that they be permitted to amend their complaint under
K.A.R. 82-1-220.

The Commission issued an order denying reconsideration, finding that because the
SWKIs never alleged unjust rates, the complaint failed to state a claim under its
regulations. The Commission also noted that the SWKIs had failed to seek
reconsideration of its order approving the settlement agreement between the
Commission's staff and Anadarko.

On March 27, 2015, the SWKIs filed a timely petition for judicial review of the
Commission's order in the Stevens County District Court alleging the Commission had
misinterpreted and misapplied the law, that its order was not supported by substantial
competent evidence, and that the decision was otherwise arbitrary and capricious.
Anadarko was allowed to intervene in the action, and it promptly moved to change venue
to the Shawnee County District Court pursuant to K.S.A. 77-609(b). Although the SWKIs
opposed the venue motion, the Stevens County District Court transferred the case to
Shawnee County.

After considering the parties' arguments and briefs, the district court denied the
petition for judicial review. After setting forth the facts, the district court applied the
summary judgment standard, noting that a motion to dismiss should be treated like a
motion for summary judgment when more than just the pleadings are considered. After
recognizing there was a factual dispute as to whether Anadarko's contracts had been
properly filed with the Commission, the district court evaluated the Commission's
interpretation of K.S.A. 66-109, 66-117 and 66-1,203.

The court made essentially three key legal conclusions. First, the court found that
K.S.A. 66-109 did not create a private cause of action allowing entities to file a claim
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with the Commission unless the complaining party asserted it had been subjected to
unfair rates. Second, the court found that while K.S.A. 66-117 permitted private entities
to join Commission proceedings, the statute did not allow a private cause of action
permitting a customer to challenge a utility contract other than as an intervenor. The court
also found that K.S.A. 66-1,203 does not provide a private cause of action absent a claim
of "unjust, unreasonable, unjustly discriminatory or unduly preferential" actions by the
natural gas utility. Third, the court concluded that the doctrine of retroactive ratemaking
only applied when a public utility adjusts an established rate and that refunds were only
available when there was a claim of unfairness in the rates or fees.

The SWKIs timely appeal.

The SWKIs challenge the Commission's final order pursuant to the Kansas
Judicial Review Act (KJRA), K.S.A. 77-601 et seq., which defines the scope of judicial
review of a state agency action including decisions of the Commission. K.S.A. 2016
Supp. 77-603(a); Ryser v. Kansas Bd. of Healing Arts, 295 Kan. 452, 458, 284 P.3d 337
(2012). The SWKIs assert the Commission (1) failed to address an issue requiring
resolution; (2) erroneously interpreted or applied the law; (3) acted based upon a
determination of fact that is not supported by substantial evidence when viewed in light
of the record as a whole; (4) failed to follow its own procedures; and (5) acted in a
manner that is otherwise unreasonable, arbitrary, or capricious. See K.S.A. 2016 Supp.
77-621(c)(3)-(5), (7), and (8).

I. DO KANSAS UTILITY STATUTES PERMIT CUSTOMERS TO FILE COMPLAINTS
AGAINST A UTILITY THAT FAILS TO COMPLY WITH STATUTES EVEN IF THERE ARE NO
ALLEGATIONS OF DISCRIMINATORY OR UNFAIR PRICING AND PRACTICES?

In a combination of various arguments, the SWKIs contend the Commission and
the district court erred in finding that their complaint failed to state a claim as a matter of
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law under K.S.A. 2016 Supp. 66-154a and K.S.A. 66-1,205. First, the SWKIs argue that
the common carrier statute, K.S.A. 2016 Supp. 66-154a, does not apply to Anadarko
because Anadarko is a natural gas utility and that no party ever claimed Anadarko was a
common carrier or that it charged for transportation of natural gas. The SWKIs also
contend the Commission and district court misinterpreted K.S.A. 66-1,205 because it was
interpreted to effectively ignore the recognized filed rate doctrine.

We have the authority to grant relief from an agency action if we determine that
the Commission erroneously interpreted or applied the law. K.S.A. 2016 Supp. 77-
621(c)(4). Because the SWKIs argue, in part, that the Commission improperly interpreted
several relevant statutes, it raises questions of statutory interpretation which we review de
novo. See Midwest Crane & Rigging, LLC v. Kansas Corporation Comm'n, 306 Kan.
845, 848, 397 P.3d 1205 (2017). In addition, because the doctrine of operative
construction no longer applies in Kansas, we need not give deference to the
Commission's interpretation of the statutes in question. 306 Kan. at 848-49.

A. K.S.A. 2016 Supp. 66-154a

The SWKIs first challenge the Commission's reliance on K.S.A. 2016 Supp. 66-
154a, asserting that this statute is inapplicable to its contracts with Anadarko. That statute
states:

"No common carrier shall charge, demand or receive . . . an unreasonable,
unfair, unjust or unjustly discriminatory or unduly preferential rate or charge for the
transportation of property, . . . or for any service afforded by it in the transaction of its
business as a common carrier; and upon complaint in writing made to the corporation
commission that an unfair, unjust, unreasonable or unjustly discriminatory or unduly
preferential rate or charge has been exacted, such commission shall investigate such
complaint, and if sustained, shall make a certificate under its seal setting forth what is,
and what would have been, a reasonable and just rate or charge for the service rendered,
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which shall be prima facie evidence of the matter therein stated." (Emphasis added.)
K.S.A. 2016 Supp. 66-154a.

The term "common carrier" includes "all freight-line companies, equipment companies,
pipe-line companies, and all persons and associations of persons, whether incorporated or
not, operating such agencies for public use in the conveyance of persons or property
within this state." K.S.A. 2016 Supp. 66-105.

Although the Commission found that Anadarko was a common carrier because it
transported gas along a pipeline, there is no evidence in the record that Anadarko was
acting as a common carrier with respect to its contracts with the SWKIs. Under those
contracts, Anadarko (and its related companies) were only obligated to sell natural gas to
the SWKIs at specified sites for a specified rate. While Anadarko charged a monthly
delivery charge in addition to the charge for natural gas, there is little in the record to
support any claim that Anadarko's contracts with the SWKIs involved the transportation
of any natural gas from one location to another on the SWKIs' behalf. Thus, it appears
that the Commission erred in relying on K.S.A. 2016 Supp. 66-154a in evaluating
Anadarko's obligations to the SWKIs.

B. K.S.A. 66-1,205

On the other hand, the SWKIs do not dispute that K.S.A. 66-1,205 applies to their
complaint filed with the Commission. In fact, the SWKIs rely on this statute, in addition
to others, in support of their complaint against Anadarko. The SWKIs do contest,
however, the Commission's interpretation of this statute in a manner justifying the
dismissal of their complaint.

K.S.A. 66-1,205(a) states in relevant part:

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"Upon a complaint in writing made against any natural gas public utility . . . that
any rates or rules and regulations of such natural gas public utility are in any respect
unreasonable, unfair, unjust, unjustly discriminatory or unduly preferential, or both, or
that any rule and regulation, practice or act whatsoever affecting or relating to any
service performed or to be performed by such natural gas public utility for the public, is
in any respect unreasonable, unfair, unjust, unreasonably inefficient or insufficient,
unjustly discriminatory or unduly preferential, . . . the commission may proceed, with or
without notice, to make such investigation as it deems necessary." (Emphasis added.)

Here, the Commission dismissed the SWKIs' written complaint on the basis that
they failed to allege that Anadarko's rates were unreasonable, unjust, or discriminatory.
The Commission based its determination on the SWKIs' failure to claim in the Black
Hills' docket that Anadarko's performance under the natural gas purchase contracts was
deficient or incompetent and Anadarko's failure to claim that the SWKIs' payments were
inadequate. In their original complaint, the SWKIs stated that Anadarko's gas rates were
not "cost-based" and higher than those charged to other customers; at the subsequent
prehearing conference, however, the SWKIs did not specifically assert that Anadarko's
rates were discriminatory or unfair in the sense that they were unreasonably high as
compared to the market price for natural gas. Instead, the SWKIs' sole basis for claiming
that Anadarko's rates were improper was because they were never filed with or approved
by the Commission prior to the Black Hills proceeding. The SWKIs emphasize that the
filing and approval of individual contracts was required both by Anadarko's tariff and by
the conditions imposed by the Commission on Anadarko's certificate of convenience.

The SWKIs, rather than focusing on the language of the statute, simply invoke the
common-law "filed rate doctrine" as the basis to dispute the Commission's interpretation.
This argument is misplaced, at least to a degree, because the common law can be
overridden by any inconsistent legislative enactment. See, e.g., City of Haven v. Gregg,
244 Kan. 117, 122-23, 766 P.2d 143 (1988). In Kansas, the filed rate doctrine is codified
in K.S.A. 66-109, which forbids common carriers and public utilities to "charge, demand,
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collect or receive a greater or less compensation . . . than is specified in the printed
schedules or classifications" required by the Commission. As the SWKIs have noted,
Kansas follows the filed rate doctrine to the extent a public utility charges a rate in excess
of the filed rates and tariffs. See Sunflower Pipeline Co. v. Kansas Corporation
Commission, 5 Kan. App. 2d 715, 722-23, 624 P.2d 466, rev. denied 229 Kan. 671 (1981)
(pipeline that charged fees in excess of filed rates required to provide refunds, even if
filed rates were unreasonably low).

The question remains, however, whether the complaint procedure provided in
K.S.A. 66-1,205 applies when a party complains that a public utility failed to comply
with K.S.A. 66-1,203, which requires natural gas utilities to publish and file with the
Commission all schedules of rates and contracts for services.

The most fundamental rule of statutory construction is that the intent of the
Legislature governs if that intent can be ascertained. See Hoesli v. Triplett, Inc., 303 Kan.
358, 362, 361 P.3d 504 (2015). Our duty is first to attempt to ascertain legislative intent
through the statutory language enacted, giving common words their ordinary meanings.
Ullery v. Othick, 304 Kan. 405, 409, 372 P.3d 1135 (2016). When a statute is plain and
unambiguous, we are not to speculate about the legislative intent behind that clear
language and must refrain from reading something into the statute that is not readily
found in its words. Hoesli, 303 Kan. at 362.

The Commission is given authority to investigate complaints filed by third parties
when a public utility's rates or regulations are "in any respect unreasonable, unfair,
unjust, unjustly discriminatory or unduly preferential, or both." K.S.A. 66-1,205(a). As
such words are left undefined by the Legislature, we look to their common and ordinary
meaning. "Unfair" has been defined as "[n]ot honest, impartial or candid; unjust." Black's
Law Dictionary 1760 (10th ed. 2014). "Unjust" has been defined as "[c]ontrary to justice;
not fair or reasonable." Black's Law Dictionary 1771 (10th ed. 2014). Likewise,
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"unreasonable" is defined as "[n]ot guided by reason; irrational or capricious." Black's
Law Dictionary 1772 (10th ed. 2014). Kansas caselaw, frequently in the regulatory field,
has often equated "unreasonableness" in rates to unlawful rates. See Kansas Gas &
Electric Co. v. Kansas Corporation Comm'n, 239 Kan. 483, 490, 720 P.2d 1063 (1986)
(reasonable rates are those that are not "'so unreasonably low or so unreasonably high as
to be unlawful'") (quoting Southwestern Bell Tel. Co. v. State Corporation Commission,
192 Kan. 39, Syl. ¶ 17, 386 P.2d 515 [1963]); Western Resources, Inc. v. Kansas
Corporation Comm'n, 30 Kan. App. 2d 348, 357, 42 P.3d 162, rev. denied 274 Kan. 1119
(2002) (same).

Moreover, while it is true that an agency's regulations cannot exceed its statutory
authority, see Ryser, 295 Kan. at 464-65, the Commission's own regulations appear to be
contrary to the Commission's position before us as they presume a broad reading of its
statutory authority under K.S.A. 66-1,205. The SWKIs' complaint was filed pursuant to
K.A.R. 82-1-220, which states:

"(a) Any person may initiate a complaint proceeding by filing a formal complaint
with the commission in which the rates, joint rates, fares, tolls, charges, regulations,
classifications, or schedules of any public utility, motor carrier, or common carrier are
alleged to be unreasonable, unfair, unjust, unjustly discriminatory, or unduly preferential,
or that allege that any service performed or to be performed is illegal, unreasonably
inadequate, inefficient, or unduly insufficient, or cannot be obtained.

"(b) Formal complaints shall be submitted in writing and shall comply with the
requirements of these regulations. Formal complaints shall meet the following conditions:

(1) Fully and completely advise each respondent and the commission as to the
provisions of law or the regulations or orders of the commission that have been or are
being violated by the acts or omissions complained of, or that will be violated by a
continuance of acts or omissions;

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(2) set forth concisely and in plain language the facts claimed by the complainant
to constitute the violations; and

(3) state the relief sought by the complainant.

"(c) Commission action required upon the filing of a formal complaint. A formal
complaint shall, as soon as practicable, be examined by the commission to ascertain
whether or not the allegations, if true, would establish a prime facie case for action by the
commission and whether or not the formal complaint conforms to these regulations."
(Emphasis added.)

The regulation also defines a "complainant" as

"any party who complains to the commission of either of the following:

"(1) Anything done or failed to be done in contravention or violation of either of
the following:

(A) The provisions of any statute or other delegated authority administered by the
commission; or

(B) any orders or regulations issued or promulgated by the commission under
statute or delegated authority.

"(2) any other alleged wrong over which the commission may have jurisdiction."
K.A.R. 82-1-204(d).

A complaint which reports that a public utility's rates or regulations are unlawful is
consistent with asserting that such rates are unreasonable, unfair, or unjust. This broad
reading of K.S.A. 66-1,205 is also consistent with K.S.A. 66-1,207 which, like many
similar statutes governing the Commission's authority, requires that statutory provisions
granting the Commission power "shall be liberally construed, and all incidental powers
17
necessary to carry into effect the provision of this act are expressly granted to and
conferred upon the commission." K.S.A. 66-1,207 (powers relating to natural gas
utilities); see also K.S.A. 66-101g (liberal construction of statutes regulating electric
public utilities); K.S.A. 66-1,194 (liberal construction of statutes regulating
telecommunications carriers). Accordingly, we hold the Commission erred in concluding
that the SWKIs, by alleging that Anadarko's contracts were illegal for having failed to file
them with the Commission, had failed to state a claim upon which relief could be
granted.

II. ARE THE SWKIS ALLOWED TO RECOVER THE TOTAL OF ALL PAYMENTS THEY
MADE TO THE ANADARKO-RELATED COMPANIES?

The bulk of the SWKIs' legal arguments focus on the filed rate doctrine, well
recognized at common law and by many regulatory agencies. Because the SWKIs
contend the filed rate doctrine controls the interpretation of the statutes in dispute, our
standard of review remains de novo. See Midwest Crane & Rigging, LLC, 306 Kan. at
848.

A. The Filed Rate Doctrine

At its very basic level, the filed rate doctrine "forbids a regulated entity to charge
rates for its services other than those properly filed with the appropriate federal
regulatory authority." Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571, 577, 101 S. Ct.
2925, 69 L. Ed. 2d 856 (1981). In other words, when a regulated business receives
approval from a regulatory agency to charge specific rates and use specific rules for
dealing with its customers, the business cannot unilaterally change those rates or rules
without first obtaining consent from the relevant regulatory agency. If a business charges
customers more than its approved rates without regulatory approval, it is in violation of
18
its contract with the customer and the utility is obligated to refund the overcharges. See
Arkansas Louisiana Gas Co., 453 U.S. at 577-78.

The filed rate doctrine serves a two-fold purpose. First, it protects the regulatory
agency's primary jurisdiction to determine the reasonableness of rates charged by
regulated industries. Second, the doctrine ensures that regulated companies charge only
those rates which the agency has approved. Arkansas Louisiana Gas Co., 453 U.S. at
577-78. Thus, courts lack authority to impose or enforce a different rate than that
approved by the regulatory agency because the agency possesses primary jurisdiction to
resolve such issues. The doctrine also prohibits agencies from retroactively substituting a
new rate, even if the prior approved rate was unreasonably high or low. 453 U.S. at 578.
As noted in another context,

"'[t]he [Interstate Commerce] Act altered the common law by lodging in the Commission
the power theretofore exercised by courts, of determining the reasonableness of a
published rate. If the finding on this question was against the carrier, reparation was to be
awarded the shipper, and only the enforcement of the award was relegated to the courts.'
[Citation omitted.]" Maislin Industries, U.S. v. Primary Steel, 497 U.S. 116, 129, 110 S.
Ct. 2759, 111 L. Ed. 2d 94 (1990).

See also Amundson & Assocs. Art Studio v. National Council on Comp. Ins., 26 Kan.
App. 2d 489, 497-98, 988 P.2d 1208, rev. denied 268 Kan. 885 (1999) (applying filed
rate doctrine in insurance contract dispute).

Kansas has long followed the filed rate doctrine when utilities vary their charges
or services from the rates and standards approved by the Commission. For example, the
SWKIs rely heavily on Sunflower Pipeline Co., 5 Kan. App. 2d 715. In that case,
Sunflower had filed its rates with the Commission for the sale of natural gas. While those
filed rates were in effect, Sunflower entered into private contracts with some of its
customers to sell natural gas for 40 cents more per mcf than the rates approved by the
19
Commission. Sunflower did not apply for a rate increase with the Commission, nor did it
send the contracts with the higher rates to the Commission. When a customer complained
to the Commission, it issued an order directing Sunflower to show cause why it should
not be ordered to refund all excess charges to its customers. After a hearing, the
Commission ordered Sunflower to refund all charges in excess of those on file with the
Commission (approximately $136,000) to all of its retail customers, plus interest. 5 Kan.
App. 2d at 716.

On appeal, Sunflower argued the refunds were unreasonable because a sudden
increase in the price of gas after its original rates were approved caused Sunflower to
operate at a deficit. Sunflower also argued that paying refunds, even over the two-year
period prescribed, would cause the company to operate at a deficit. Citing K.S.A. 66-108
[now K.S.A. 66-101c]—which requires public utilities to file their rates with the
Commission—and K.S.A. 66-109—which forbids variations from the filed rates—our
court upheld the Commission's order. 5 Kan. App. 2d at 718-19. The court rejected
Sunflower's economic argument noting that in the face of net losses, the utility's only
option was to apply for a rate increase with the Commission. Although the court
recognized there was no express authority for the Commission to order refunds, it found
the Commission's broad powers to regulate utilities included the incidental power to
order the return of overcharges in excess of filed rates. 5 Kan. App. 2d at 719-20. The
court further concluded that the full refund ordered by the Commission was appropriate
under existing legal standards, even if the existing approved rate was unreasonably low. 5
Kan. App. 2d at 721.

Ultimately, the court found that less than full refunds would amount to improper
retroactive ratemaking by the Commission and that the contracts for charges in excess of
the filed charges were void. 5 Kan. App. 2d at 722. The court, however, remanded the
case for the Commission to fully consider the impact on the utility of requiring the
refunds to be completed within two years because the Commission did not expressly
20
consider the pipeline's continued ability to provide services under the financial strain
imposed by the refund order. 5 Kan. App. 2d at 723.

However, the filed rate doctrine does not just protect consumers—it protects both
the regulated business and its customers by not allowing "either a shipper's ignorance or
the carrier's misquotation of the applicable rate to serve as a defense to the collection of
the filed rate." Maislin Industries, 497 U.S. at 120-21. Kansas courts also have
recognized that a customer cannot enforce a contract that grants it special rates or
privileges that are not consistent with the regulated business' filed rates. Mollohan v.
Railway Co., 97 Kan. 51, 56, 154 P. 248 (1916) (dismissal of customer's claim for
damages for railroad's breach of promise to make unscheduled stop to offload customer's
cattle).

B. Application of the Doctrine to Unfiled Contracts or Tariffs

In all the Kansas cases and the majority of cases cited by the SWKIs, the filed rate
doctrine was applied when the Commission had approved a regulated entity's practices
and rates, and then the entity violated the approved standards. The SWKIs assert,
however, that the filed rate doctrine also applies when a regulated entity operates without
a certificate of convenience or otherwise timely fails to file for approval of its rates.

The SWKIs primarily rely on Michigan Elec. Transmission Co. v. Midland
Cogenerations Venture, Ltd. Partnership, 737 F. Supp. 2d 715 (E.D. Mich. 2010), and
Carolina Power & Light Company, 87 FERC ¶ 61,083, 1999 WL 219889 (1999), in
support of their argument that the filed rate doctrine requires the refund of all revenues
under a contract when the utility has not filed any rate application or contracts with the
appropriate regulator. Given the complicated context of those cases and the actual rulings
on the issues, while they partially support the SWKIs' claim for relief, they fail to support
the SWKIs' claim for a full refund.
21
1. Michigan Electric Transmission Company

In Michigan Electric, the Michigan Electric Transmission Company (METC) filed
suit against Midland Cogeneration Venture LP, a power generating company, seeking
recovery on substantial funds in connection with its operations of certain electrical
transmission facilities. METC was a public utility subject to regulatory standards of the
Federal Energy Regulatory Commission (FERC). Midland moved to dismiss the lawsuit,
claiming it was barred by the filed rate doctrine.

The case arose after FERC began to approve "market based" tariffs for qualifying
utilities; these tariffs permitted the seller of electricity to freely negotiate contracts with
buyers. In these circumstances, the seller did not need to immediately file its contracts
because it could rely on the prior market-based tariff on file. At the same time, FERC
required electric utilities to "unbundle" their operations—meaning they had to offer
generation and transmission services separately—and permit others to use their
transmission operation on an open-access, nondiscriminatory basis.

Midland produced electric energy in a form used for industrial and commercial
purposes. Midland entered into an agreement in 1986 with Consumers Power Company
in which Consumers agreed to purchase electricity generated by Midland. In order to
obtain Midland's electricity, however, Consumers was required to connect some of its
own transmission facilities to Midland's. To establish this connection, Midland and
Consumers entered into a facilities agreement, detailing each party's duties with respect
to the construction, operation, and maintenance of the necessary transmission facilities
and equipment needed for Consumers to consummate the purchase of Midland's power.
In the facilities agreement, Midland agreed to reimburse Consumers for all of its direct
and indirect costs, including property taxes, incurred by Consumers in owning and
operating the new connection facilities. The facilities agreement also provided that the
22
contract could not be assigned without the consent of Midland. The facilities agreement
was never filed with the FERC.

Several years after the agreement between Midland and Consumers was executed,
Consumers filed an application with the FERC seeking approval to transfer its
transmission assets to METC, a newly created subsidiary, essentially separating the
company's generation and transmission operations. These parties advised FERC they
anticipated that after approval of the asset transfer, METC would assume all transmission
agreements Consumers had with its customers. They further represented to FERC that
METC would provide the same open-access transmission services at the same rates
specified in Consumers' filed transmission tariffs. While some customers intervened in
the asset transfer proceeding, Midland did not. After a hearing, FERC approved the
proposed transfer of Consumers' transmission facilities to METC. Its order specifically
noted that the transfer included all of Midland's transmission assets "'and all related
jurisdictional transmission tariffs, contracts, books and records.'" 737 F. Supp. 2d at 725.

Midland made payments under the facilities agreement to Consumers and then to
METC. More than four years after FERC approved the asset transfer agreement, Midland
stopped paying METC under the facilities agreement. METC then filed the lawsuit to
collect on funds due under the facilities agreement. In response to METC's claims,
Midland alleged that METC's state law contract claims violated the filed rate doctrine
because Consumers never filed the facilities agreement with FERC. Midland also alleged
that METC lacked standing to sue because the facilities agreement was not assignable
and the attempted transfer of the facilities agreement from Consumers was invalid.

After expounding a great deal on the general nature of the filed rate doctrine, the
court noted that the dispute focused on whether Consumers' and METC's filings in the
asset transfer proceeding satisfied FERC's requirement that contracts such as the facilities
agreement be filed with the agency. 737 F. Supp. 2d at 729-31. In response, METC cited
23
FERC's policy that if a contract is filed after service had commenced but the rates were
found by FERC to be reasonable, it would require the utility to refund only "'the time
value of the revenues collected . . . for the entire period that the rate was collected without
Commission authorization.'" (Emphasis added.) 737 F. Supp. 2d at 731. Because of
FERC's case-by-case approach and the possibility that FERC could find that Midland's
contract was sufficiently filed in the asset transfer proceeding, the court rejected the claim
that METC's petition failed to state a claim for relief. 737 F. Supp. 2d at 731. As a result
of the lack of any FERC decision on whether the contract was adequately filed and
whether the rates were reasonable, the court directed the parties to file briefs addressing
the question of whether the issues should be deferred to FERC under the primary
jurisdiction doctrine. 737 F. Supp. 2d at 732-33.

In its review, FERC found the facilities agreement and related agency agreement,
although untimely filed, were valid and enforceable. See Michigan Electric Transmission
Company, LLC, 138 FERC ¶ 61,202, 61,916, 2012 WL 955330 (2012). FERC found that
Consumers was entitled to recover the rates in the facilities agreement for the entire
period the contract existed and rejected Midland's reliance on the filed rate doctrine as a
basis to prevent METC from collecting under the facilities agreement because the United
States Supreme Court had recognized that FERC had the authority to waive the
requirement to timely file rate contracts. FERC also stated that its practice of permitting
late-filed agreements to be effective (with a time-value remedy for the late filing) was
reasonable in light of the consensual bilateral contract involved. 138 FERC at ¶ 61,916-
17.

2. Carolina Power & Light Company

Carolina Power & Light Company (CPL) had two tariffs with FERC. One was a
cost-based power sale tariff (PST), and one was an open access transmission tariff
(OATT). In June 1998, CPL filed two customer service agreements under the PST and
24
two customer service agreements under the OATT. Under FERC regulations at the time,
a regulated utility was required to file the agreement with FERC 60 days before
commencing the contract services. See 16 U.S.C. § 824d(d) (1994); 18 C.F.R. §§ 35.3(a),
35.11 (1998). Because CPL had already commenced service under the various contracts,
it requested FERC to waive the 60-day prior notice requirement, asserting that its failure
to timely file the contracts was due to a failure in its administrative oversight during a
period of rapid increase in the company's workload as a result of the OATT. In
accordance with its practice, FERC reviewed the contracts and, having found them
reasonable, approved them; however, it ordered CPL to reimburse the customers the
"time value of revenues collected" under the contract for the time period before the
contracts became effective. (Emphasis added.) 87 FERC at ¶ 61,355.

These cases support the proposition that in the absence of a filed rate, should the
appropriate regulatory agency deem the rate reasonable, the time value of the money
collected from the unfiled rate is a permissible remedy available under a regulatory
agency's broad powers to set and approve rates.

While Kansas law requires all public utility rates to be filed and approved by the
Commission and regulated utilities and common carriers are to be prohibited from
charging a rate other than the rate on file with the Commission, none of these statutes
expressly provide for consequences if they are violated. See K.S.A. 66-117; K.S.A. 66-
109; K.S.A. 66-1,203. It was the Sunflower panel that recognized this lack of explicit
authority but held that under K.S.A. 66-101—which granted the Commission "'full
power, authority and jurisdiction to supervise and control the public utilities . . . doing
business in the state'"—the Commission had the statutory authority "as a means of . . .
enforcing its power to regulate rates" to determine appropriate remedies for violations of
approved tariffs, including ordering refunds to customers charged rates higher than those
authorized by the utility's filed tariff. 5 Kan. App. 2d at 719-20. Similarly, we hold here
that in instances where a reasonable rate goes unfiled, the Commission has the statutory
25
authority to order a remedy, a remedy which may include the time value of money paid
by the customer pursuant to an unfiled rate.

C. Retroactive Ratemaking

Finally, the SWKIs claim that permitting Anadarko to keep any portion of the
illegal revenue it received based on the unfiled contracts would constitute retroactive
ratemaking because it would retroactively authorize Anadarko to charge for an
unapproved contract. Kansas has long recognized the well-established principle that
retroactive ratemaking is prohibited. See, e.g., Kansas-Nebraska Natural Gas Co. v. State
Corporation Commission, 217 Kan. 604, 615, 538 P.2d 702 (1975); Kansas Gas &
Electric Co. v. Kansas Corp. Comm'n, 14 Kan. App. 2d 527, 532-33, 794 P.2d 1165, rev.
denied 247 Kan. 704 (1990). Kansas courts have also recognized that the ban against
retroactive ratemaking is more than a matter of policy; the ban is necessary to protect the
vested rights of private litigants. Kansas Gas & Elec. Co., 14 Kan. App. 2d at 533.

"Retroactive ratemaking ordinarily occurs when a 'utility is required to refund
revenues collected, pursuant to the then lawfully established rates, for such past use.'
Kansas Pipeline Partnership v. State Corp. Com'n, 24 Kan. App. 2d 42, 57, 941 P.2d 390
(1997) (citation omitted). The same principles are involved, however, when a utility
raises its rates without prior approval of the state regulatory agency. In Kansas, the ban
on retroactive ratemaking has both a statutory and constitutional basis. K.S.A. 66-109
prohibits departures from KCC-established rates even if such rates are unreasonably low.
See Sunflower Pipeline Co., 5 Kan. App. 2d at 718-19. A rate fluctuation also implicates
due process concerns by infringing on certain vested rights. As the Kansas Supreme
Court noted:

"'[W]hen a rate has been the subject of a deliberate inquiry in which the
carriers, the shippers and the commission's own experts have
participated, . . . any rate so prescribed by the commission and put into
effect by the carriers may be confidently collected and retained by them
26
. . . , without misgiving that at some future time a further hearing of the
commission may be had and more evidence taken and a different
conclusion reached, and those rates condemned as unreasonable . . . .
Such a method of regulating public utilities has none of the earmarks of
due process of law nor the simplest notions of justice. Kansas Gas &
Elec. Co., 14 Kan. App. 2d at 533 (quoting State ex rel. Boynton v.
Public Serv. Comm'n, 135 Kan. 491, 504, 11 P.2d 999 [1932]).'" United
Cities Gas Co. v. Brock Exploration Co., 995 F. Supp. 1284, 1293 (D.
Kan. 1998).

Under the unique circumstances presented in this case and the clear inequities
which would result from granting the SWKIs' request for a full refund for all amounts
paid under what are presumed to be contracts unfiled for nearly 20 years, given the fact
that the SWKIs do not allege that the rates they paid were otherwise unreasonable apart
from their illegality, given that Anadarko was already forced to pay fines in connection
with its alleged failure to file the contracts, and given the Commission's broad statutory
authority to order a remedy, we cannot say that any vested rights are implicated by a
Commission remedy authorizing payments to the SWKIs in an amount less that the full
amounts paid under the contracts as allegedly required by the filed rate doctrine. See
generally Genstar Chemical Ltd. v. I.C.C., 665 F.2d 1304, 1309 n.3 (D.C. Cir. 1981)
(Commission has broad authority "to fashion appropriate remedy."). The SWKIs have no
basis to complain that they are harmed by paying for the gas they accepted from
Anadarko and its related companies over the years simply because of poor record-
keeping by the Commission or ineffective management at Anadarko resulting in the
missing filings. This notwithstanding, given that the Commission has the authority and
the discretion to order an appropriate remedy under the circumstances, it must exercise
that discretion by evaluating what remedy would be appropriate. Instead, the Commission
abused its discretion by summarily rejecting the SWKIs' requested remedy out of hand.
See Harrison v. Tauheed, 292 Kan. 663, 672, 256 P.3d 851 (2011) (abuse of discretion
27
occurs if discretion is guided by erroneous legal conclusion or goes outside framework of
or fails to consider proper statutory limitations or legal standards).

Accordingly, we reverse the Commission's order finding that the SWKIs had
failed to state a valid claim for relief and remand for additional proceedings to determine
if the contracts were ever filed and approved by the Commission. If not, the Commission
is directed to determine, in its discretion, if the SWKIs are entitled to a remedy for
Anadarko's violations.

Reversed and remanded with directions.