Opinion
NO. 2011-CA-001714-MR
07-12-2013
JESSAMINE-SOUTH ELKHORN WATER DISTRICT APPELLANT v. FOREST CREEK, LLC AND PUBLIC SERVICE COMMISSION OF KENTUCKY APPELLEES
BRIEF FOR APPELLANT: Bruce E. Smith, Esq. Nicholasville, Kentucky BRIEF FOR APPELLEE: Helen C. Helton Gerald E. Wuetcher Counsel for Public Service Commission of Kentucky Frankfort, Kentucky
NOT TO BE PUBLISHED
APPEAL FROM JESSAMINE CIRCUIT COURT
HONORABLE C. HUNTER DAUGHERTY, JUDGE
ACTION NO. 10-CI-01394
OPINION
REVERSING
BEFORE: MOORE, NICKELL, AND TAYLOR, JUDGES. MOORE, JUDGE: The Jessamine-South Elkhorn Water District (JSEWD) petitioned the Jessamine Circuit Court for a declaration of rights regarding an agreement it had entered into with Forest Creek, LLC. The Public Service Commission of Kentucky (the Commission) filed a motion to intervene and to dismiss arguing that because it had exclusive statutory jurisdiction over utility rates and services, the circuit court therefore did not have subject matter jurisdiction. The circuit court granted the Commission's motion to intervention and dismiss based on lack of subject matter jurisdiction. JSEWD filed a timely notice of appeal. Upon review, we reverse.
Forest Creek has not participated in this appeal.
I. FACTUAL AND PROCEDURAL BACKGROUND
Forest Creek, a developer, filed a request for an extension of water service with JSEWD. Extension of service is governed by JSEWD Rule 26, which provides:
Neither party contests that JSEWD Rule 26 has been approved by the commission prior to Forest Creek's request for an extension of service.
Any person desiring an extension to the District's system shall request in writing, in a form approved by the District, for such extension. Any requested extension may be provided under one of the following options.
Option I - District shall construct such extension under authority and procedure as stipulated in Public Service Commission Regulation 807 KAR[ ] [5:066 Section 11]. Any extension made under this option shall be subject to refund as outlined in said regulation.
Option II - Applicant may construct and donate to District, the extension, as a contribution in aid of construction, meeting all District's specifications and approval. District reserves right to stipulate applicable engineering, legal and administrative factors. Applicant shall pay all cost of district as a contribution in aid of construction. Any extension made under this option shall not be eligible for refund.
The applicant or group of applicants shall have the right to elect the option by which said extension shall be made. In either case applicant must execute a contract and agreement for line extensions of form approved by District.
Kentucky Administrative Regulation.
Forest Creek elected to proceed under Option II and entered into an Interim Water Service Agreement with JSEWD on May 2, 2007. On or about August 11, 2010, Forest Creek requested that JSEWD permit it to proceed under extension Option I, rather than under its original election of Option II. JSEWD rejected Forest Creek's request. On December 17, 2010, JSEWD filed a petition for declaration of rights seeking a judgment that the agreement entered into by JSEWD and Forest Creek was an enforceable contract and compelling Forest Creek to proceed under Option II. Forest Creek filed an answer citing the affirmative defenses of contributory negligence, estoppel, failure of consideration, fraud, illegality, latches, waiver, failure to exhaust administrative remedies, and failure to state a claim upon which relief can be granted. Forest Creek also filed a counterclaim seeking judgment against JSEWD for improper assessment of legal and engineering fees, requesting to be permitted to proceed under Option I, requesting that review of any remaining plans to be conducted by a third-party engineer, and requesting various additional damages.
The Commission filed a motion to intervene and motion to dismiss arguing that because it had exclusive statutory jurisdiction over utility rates and services, the circuit court therefore did not have subject matter jurisdiction over this action. Specifically, the Commission stated that the claims made by JSEWD and Forest Creek require "a review and interpretation of the provisions of [JSEWD]'s filed tariff, the Commission's regulations, and the provisions of KRS[ ] Chapter 278. . . . Moreover, as the agency that promulgated and enforces 807 KAR 5:066 - the Commission's water extension regulation, the Commission is uniquely suited to determine whether Rule 26 and the Agreement's provisions are consistent with that regulation and thus enforceable." The Commission also argued that it possessed exclusive jurisdiction because it may "compel reasonable extensions of service. KRS 278.280(3)." The circuit court granted the Commission's motion to intervene and dismissed the action for lack of subject matter jurisdiction.
Kentucky Revised Statute.
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II. STANDARD OF REVIEW
We conduct a de novo review of a circuit court's determination that it lacks subject matter jurisdiction. Harrison v. Park Hills Bd. of Adjustment, 330 S.W.3d 89, 93 (Ky. App. 2011) (quoting Appalachian Regional Healthcare v. Coleman, 239 S.W.3d 49, 53-54 (Ky. 2007)).
III. ANALYSIS
The sole question on appeal is whether the circuit court correctly determined that the issues raised in JSEWD's petition and Forest Creek's counterclaim fall within the Commission's exclusive jurisdiction.
Kentucky Revised Statute 278.040(2) provides:
The jurisdiction of the commission shall extend to all utilities in this state. The commission shall have exclusive jurisdiction over the regulation of rates and service of utilities, but with that exception nothing in this chapter is intended to limit or restrict the police jurisdiction, contract rights or powers of cities or political subdivisions.
Thus, the Commission's exclusive jurisdiction is applicable only to the "regulation of rates and services." KRS 278.040(2). "Unless exclusive power is given to the commission, the authority conferred upon it does not deprive the courts of jurisdiction over the same matters, and an application to the commission is not a prerequisite to an action before the court to obtain relief with respect thereto." Louisville Gas & Electric Co. v. Dulworth, 279 Ky. 309, 130 S.W.2d 753, 755 (1939) (internal quotations omitted).
Likewise, the Commission does not possess the power to limit the contract rights of a political subdivision, such as a water district, regarding matters unrelated to rates or services. KRS 278.040(2); see also Louisville Extension Water Dist. v. Diehl Pump & Supply, 246 S.W.2d 585, 586 (Ky. 1952) (Water district is a political subdivision). And, where issues of rates or services are not implicated, matters of contract interpretation and enforceability are more appropriately addressed by the court. See Carr v. Cincinnati Bell, Inc., 651 S.W.2d 126, 128 (Ky. App. 1983) (no authority that commission possesses power to adjudicate contract claims for unliquidated damages); Simpson County Water Dist. v. City of Franklin, 872 S.W.2d 460, 464 (Ky. 1994) (Issue of contract interpretation, not involving changes in rates, are "well within the court's expertise and not that of utility regulatory agencies").
To determine whether the Commission's jurisdiction over this case is exclusive, we must evaluate whether the claims asserted fall within the definition of "rates" or "services."
Rate means any individual or joint fare, toll, charge, rental, or other compensation for service rendered or to be rendered by any utility, and any rule, regulation, practice, act, requirement, or privilege in any relating to such fare, toll, charge, rental, or other compensation, and any schedule or tariff or part of a schedule or tariff thereof.KRS 278.010(12).
The Commission asserts that the issue of rates is implicated because, as JSEWD represents, JSWED could be forced to raise rates in order to absorb the cost if required to proceed with the extension under Option I. However, the mere possibility of raising rates in the future does not bring this matter within the exclusive jurisdiction of the Commission. Rather, the question posed is solely one of contract enforceability, i.e., whether Forest Creek can now elect to proceed under Option I after having entered into an agreement to proceed under Option II. Moreover, a rate change would only be at issue if it is determined that the Interim Agreement is unenforceable, thus permitting Forest Creek to elect under Option I. Thus, the possibility that JSEWD may seek approval for an increase in rates due to additional expenditures under Option I is purely speculative. A court, or other adjudicative body, is not required to address the collateral effect of the terms of an agreement for which it has only been asked to determine the enforceability thereof. Therefore, the questions presented do not invoke the Commission's exclusive jurisdiction.
The Commission also argues that the JSEWD's practices concerning the extension of service fall within the broad definition of "service."
Service includes any practice or requirement in any way relating to the service of any utility, including the voltage of electricity, the heat units and pressure of gas, the purity, pressure, and quantity of water, and in general the quality, quantity, and pressure of any commodity or product used or to be used for or in connection with the business of any utility . . . .KRS 278.010 (13).
The Commission argues that the question of the enforceability of the Interim Agreement involves issues regarding services because 1) the alleged irrevocability of the agreement imposes an additional condition of service not previously approved by the Commission and 2) the agreement was not filed with the Commission pursuant to 807 KAR 5:011 Section 13.
Regarding the Commission's first contention, pursuant to 807 KAR 5:066 Section 11, a party seeking extension of service must be reimbursed under the procedures delineated therein. In addition, the water district is permitted to make extensions under "different arrangements if such arrangements have receive[d] the prior approval of the commission." 807 KAR 5:066 Section 11(4). As previously discussed, JSEWD implemented Option I, pursuant to 807 KAR 5:066 Section 11, and Option II appears to have been implemented under the "different arrangements" provision. There is no allegation that Option II was not approved by the Commission. Although the Commission asserts that it is necessary to review Option II to ensure consistency with its regulations, the Commission fails to present any argument that persuades us that Option II was incompatible with its regulations regarding rates and services.
More importantly, the validity of JSEWD Rule 26 which outlines both Option I and Option II is also uncontested. Rule 26 clearly requires that after exercising the right to elect under the aforementioned options, the "applicant must execute a contract and agreement for line extensions of form approved by District." The Commission's argument that irrevocability would constitute an additional condition of service not previously approved by the Commission is incongruous with this requirement. Rule 26 (as previously approved by the Commission) clearly denotes that both parties would enter into a contract for an extension of service. By definition, a contract is a "binding agreement between two or more persons." See Black's Law Dictionary 271 (Eleventh Ed. 2005) (emphasis added).
That is not to say, however, that the enforceability of the Interim Agreement can be resolved in such a perfunctory manner. Forest Creek raised a number of defenses and in its answer which must be evaluated by the circuit court to determine whether the contract is valid and enforceable; namely, the affirmative defenses of contributory negligence, estoppel, failure of consideration, fraud, illegality, latches, waiver, failure to exhaust administrative remedies, and failure to state a claim upon which relief can be granted. However, these defenses do not require interpretation of any statute or regulation under the Commission's purview but instead involve only basic issues of contract law which are more appropriately addressed by the circuit court. See Carr, 651 S.W.2d at 128; see also Simpson County Water Dist., 872 S.W.2d at 464.
The Commission also argues that this matter falls within its exclusive jurisdiction because KRS 278.280(3) permits it to compel a district to make any reasonable extension of service. However, KRS 278.280(3) further indicates that the Commission may do so only after a person has petitioned the Commission for such relief. Although Forest Creek has filed a petition with the Commission seeking a reasonable extension of service after the commencement of this action, it did not seek the same relief before the circuit court. Our review is limited to whether the claims brought before the circuit court invoke the exclusive jurisdiction of the Commission. Therefore, this provision cannot serve a jurisdictional basis where no such relief was requested.
We therefore conclude that the issues presented sub judice do not involve the regulation of rates or services so as to bring this action under the exclusive jurisdiction of the Commission and sole issue presented is a question of the enforceability of the Interim Agreement. This clearly falls within the circuit court's realm of expertise, rather than that of the Commission. Accordingly, we reverse.
ALL CONCUR. BRIEF FOR APPELLANT: Bruce E. Smith, Esq.
Nicholasville, Kentucky
BRIEF FOR APPELLEE: Helen C. Helton
Gerald E. Wuetcher
Counsel for Public Service
Commission of Kentucky
Frankfort, Kentucky