Court of Appeals of Missouri, Western District, Forth Division
IN THE MATTER OF THE APPLICATION OF LACLEDE GAS COMPANY TO CHANGE ITS INFRASTRUCTURE SYSTEM REPLACEMENT SURCHARGE IN ITS MISSOURI GAS ENERGY SERVICE TERRITORY AND IN THE MATTER OF THE APPLICATION OF LACLEDE GAS COMPANY TO CHANGE ITS INFRASTRUCTURE SYSTEM REPLACEMENT SURCHARGE IN ITS LACLEDE GAS SERVICE TERRITORY; PUBLIC SERVICE COMMISSION, Respondent,
THE OFFICE OF PUBLIC COUNSEL, Appellant.
FROM THE PUBLIC SERVICE COMMISSION
Mark D. Pfeiffer, Chief Judge, Gary D. Witt, Judge and Edward
R. Ardini, Jr., Judge.
R. ARDINI, JR., JUDGE.
Office of the Public Counsel ("OPC") appeals from
an order entered by the Missouri Public Service Commission
("Commission") granting Laclede Gas Company's
("Laclede") requests for increases to the
Infrastructure System Replacement Surcharges
("ISRS") for its Laclede Gas and Missouri Gas
Energy ("MGE") service territories. We reverse the
Commission's order to the extent that it allowed cost
recovery through adjustment to the ISRS rate schedules for
the replacement of plastic components that were not in a worn
out or deteriorated condition, and the case is remanded.
AND PROCEDURAL HISTORY
Commission is a state administrative agency that regulates
public utilities. §§ 386.040;
386.250. The Commission's Staff acts separately
and is a party to all cases before the Commission. In re
Laclede Gas Co., 504 S.W.3d 852, 856 (Mo. App. W.D.
2016). The OPC represents the public in all proceedings
before the Commission and all appeals of Commission orders.
§ 386.710. Laclede is a "gas corporation" and
"public utility" as defined in section 386.020 and
is engaged in the business of distributing and transporting
natural gas to customers within its Laclede Gas service
territory in eastern Missouri as well as in MGE's service
territory in western Missouri. Laclede is subject to the
jurisdiction of the Commission as provided in Chapters 386
case arises from Laclede's current programs for replacing
cast iron and unprotected steel gas mains and service lines.
Beginning in 2011, Laclede abandoned a previous strategy of
replacing only impaired gas mains and service lines and
implemented a new approach focused on replacing entire
neighborhood systems at one time, which in this case also
involved moving its main lines to more convenient locations,
changing system pressure, and moving or replacing service
lines. On September 30, 2016, Laclede filed petitions with
the Commission to recover costs associated with the
replacement of these neighborhood systems through an increase
to existing ISRS surcharges. The Commission Staff proposed
particular adjustments, which were accepted by Laclede.
Relevant to this appeal, the OPC objected to Laclede's
effort to secure cost recovery through ISRS surcharges for
costs associated with the replacement of plastic mains and
service lines that were not in a worn out or deteriorated
holding an evidentiary hearing, the Commission issued its
Report and Order, which concluded that "the plastic pipe
in this case was an integral component of the worn out and
deteriorated cast iron and steel pipe" and thus
"the cost of replacing it can be recovered" through
an increase to Laclede's existing ISRS surcharges. The
Commission's Order will be affirmed if it is lawful and
reasonable. In re Liberty Energy (Midstates) Corp.,
464 S.W.3d 520, 524 (Mo. banc 2015) (citations omitted). The
Commission's Order is lawful if it is authorized by
statute, and our review of this issue is de novo.
Id. (citations omitted). The Commission's Order
is reasonable if it "is supported by substantial,
competent evidence on the whole record; the decision is not
arbitrary or capricious; [and] where the [Commission] has not
abused its discretion." Id. (citations
omitted). The party appealing bears the burden of proving
that the Commission's Order is unlawful or unreasonable.
Id. (citations omitted).
single-issue ratemaking is generally prohibited, section
393.1012.1 authorizes a gas corporation to petition the
Commission for an increase to its ISRS surcharge to recover
the costs of "certain government-mandated infrastructure
replacement projects outside a general ratemaking case."
Laclede Gas Co. v. Office of the Pub. Counsel, 523
S.W.3d 27, 30 (Mo. App. W.D. 2017) (citations omitted).
"Pursuant to section 393.1009(3), 'eligible
infrastructure system replacements' [under section
393.1012.1 include] 'gas utility plant projects' that
meet certain specific criteria." Id. (citation
omitted). Eligible "gas utility plant projects"
costs that may be recovered through an ISRS surcharge
include: "(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." Id.; §
to this appeal, section 393.1009(5)(a) sets forth the
ISRS-eligibility requirements for replacement projects. Under
that provision, cost recovery through an ISRS surcharge is
available for "[m]ains, valves, service lines, regulator
stations, vaults, and other pipeline system components
installed to comply with state or federal safety
requirements as replacements for existing facilities
that have worn out or are in deteriorated
condition[.]" § 393.1009(5)(a) (emphasis
added). The OPC argues that the replacement costs of the
plastic mains and service lines are not ISRS-eligible under
this section because those components were not worn out or
deteriorated and, additionally, their replacement was not
done to comply with a government-mandated safety requirement.
response, Laclede and the Commission's Staff argue that
the plastic mains and service lines were previously installed
as "patches" to temporarily extend the life of
larger neighborhood cast iron and unprotected steel systems,
which the Commission found were worn out or deteriorated due
to their age. They also assert that the new neighborhood
systems are safer. Thus, they argue, costs associated with
replacing the entire neighborhood systems should be eligible
for recovery under ISRS. The Commission agreed, concluding in
its Order that "the plastic pipe in this case was an
integral component of the worn out and ...