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In re Application of Laclede Gas Co.

Court of Appeals of Missouri, Western District, Second Division

March 28, 2017


         Appeal from the Public Service Commission

          Before: Cynthia L. Martin, Presiding Judge, Lisa White Hardwick, Judge and Alok Ahuja, Judge.

          Cynthia L. Martin, Judge.

         The Office of Public Counsel ("OPC") appeals from the Missouri Public Service Commission's ("Commission") report and order approving two petitions filed by Laclede Gas Company ("Laclede") to change Infrastructure System Replacement Surcharges ("ISRS") in its Laclede Gas service territory and in its Missouri Gas Energy ("MGE") service territory. OPC argues that the report and order is unlawful and unreasonable because Laclede's petitions included estimated costs for two months of infrastructure improvements, and the actual cost information for these improvements was not submitted until after Laclede's petitions were filed. OPC asserts that this violated ISRS filing requirements, prevented meaningful review of the ISRS petitions, and violated OPC's ability to protect the public's right to due process. We affirm.

         Procedural and Regulatory Background

         Laclede is a public utility incorporated under the laws of the State of Missouri that transports and distributes natural gas to customers in eastern Missouri through its Laclede Gas division, and to customers in western Missouri through its MGE division. Laclede operates as a "gas corporation" and "public utility" as those terms are defined in section 386.020.[1] Laclede is subject to the jurisdiction of the Commission as provided in Chapters 386 and 393.

         The Legislature created the Commission to serve as the state administrative agency tasked with the regulation of public utilities, including gas corporations, in Missouri. State ex rel. MoGas Pipeline, LLC v. Mo. Pub. Serv. Comm'n, 366 S.W.3d 493, 496 (Mo. banc 2012) (citing section 386.040; section 386.250(1)). The Commission employs technical experts ("PSC Staff") who are responsible for representing the Commission and State of Missouri in all Commission investigations, contested cases, and other proceedings unless PSC Staff timely files a notice of its intention not to participate in a proceeding. OPC is separate from the Commission and PSC Staff. OPC has the statutory authority to represent and protect the interests of the public in any proceeding before the Commission or any appeal from an order by the Commission. Section 386.710.

         The Legislature created ISRS to allow for single-issue ratemaking so that gas corporations could recover the costs associated with certain government-mandated infrastructure replacement projects outside a general ratemaking case. See sections 393.1009, 393.1012, 393.1015.

Under the ISRS statutes, in order for a gas company's infrastructure replacement costs to be recovered via an ISRS, they must arise from an "eligible infrastructure system replacement." See [sections] 393.1009(1) and 393.1012.1. Pursuant to section 393.1009(3), "eligible infrastructure system replacements" are "gas utility plant projects" that meet certain specific criteria. "Gas utility plant projects" are defined in section 393.1009(5) as projects that consist of materials or components "installed to comply with state or federal safety requirements as replacements for existing facilities that have worn out or are in deteriorated condition, " "projects extending the useful life or enhancing the integrity of pipeline system components undertaken to comply with state or federal safety requirements, " and "[f]acilities relocations required due to construction or improvement of a highway, road, street, public way, or other public work."

In re Laclede Gas Co., 417 S.W.3d 815, 820-21 (Mo. App. W.D. 2014) (footnote omitted). In other words, there are three categories of infrastructure replacement costs that a gas corporation may recover through an ISRS: (1) those costs associated with replacements; (2) those costs associated with improvements and enhancements that defer replacements; and (3) those costs associated with government-mandated relocations.

         To establish or change an ISRS, the gas corporation must "file a petition and proposed rate schedules with the commission." Section 393.1012.1. The petition and proposed rate schedules must be accompanied by "supporting documentation regarding the calculation of the proposed ISRS, " and the gas corporation must serve OPC with a copy of the petition, proposed rate schedules, and supporting documentation. Section 393.1015.1(1). The required supporting documentation is outlined in 4 CSR 240-3.265(20). Most applicable to this appeal are 4 CSR 240-3.265(20)(K) and (L), which provide in relevant part:

(K) For each project for which recovery is sought, the net original cost of the infrastructure system replacements (original cost of eligible infrastructure system replacements, including recognition of accumulated deferred income taxes and accumulated depreciation associated with eligible infrastructure system replacements which are included in a currently effective ISRS), the amount of related ISRS costs that are eligible for recovery during the period in which the ISRS will be in effect, and a breakdown of those costs identifying which of the following project categories apply and the specific requirements being satisfied by the infrastructure replacements for each:
(L) For each project for which recovery is sought, the statute, commission order, rule, or regulation, if any, requiring the project; a description of the project; the location of the project; what portions of the project are completed, used and useful; what portions of the project are still to be completed; and the beginning and planed end date of the project.

PSC Staff uses the supporting documentation required by 4 CSR 240-3.265(20) to "examine information of the gas corporation to confirm that the underlying costs are in accordance with the provisions of sections 393.1009 to 393.1015, and to confirm proper calculation of the proposed charge." Section 393.1015.2(2). Following its review of the petition, proposed rate schedules, and supporting documentation, PSC Staff "may submit a report regarding its examination to the commission not later than sixty days after the petition is filed." Id. The Commission may then hold a hearing on the petition and must "issue an order to become effective not later than one hundred twenty days after the petition is filed." Section 393.1015.2(3).

         On February 1, 2016, Laclede filed two petitions ("ISRS Petitions") seeking to adjust the ISRS to reflect infrastructure replacement costs between September 1, 2015, and February 29, 2016, in its Laclede Gas and MGE service territories. The ISRS Petitions attached actual cost information and supporting documentation for projects completed between September 1, 2015, and December 31, 2015. The ISRS Petitions estimated expenditures for projects in January and February 2016, and thus did not attach supporting documentation for these expenditures.

         Laclede supplemented the ISRS Petitions with actual cost information and supporting documentation for the January 2016 infrastructure replacement costs on February 9, 2016, and did the same for the February 2016 infrastructure replacement costs on March 9, 2016. PSC Staff filed its recommendation approving the ISRS requests on April 1, 2016, sixty days after Laclede filed the ISRS Petitions.

         OPC opposed the ISRS Petitions. In its motion for an evidentiary hearing, OPC explained:

OPC opposes the proposed ISRS increases because Laclede seeks to include infrastructure replacement costs that were not incurred at the time the petitions were filed and were not properly documented with the petitions. Laclede's attempt to supplement its petitions with millions of dollars in costs not originally included is unlawful. Accordingly, such costs are not eligible for ISRS surcharge recovery in this ISRS petition but may be included in ...

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