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In re Application of Laclede Gas Co.

Court of Appeals of Missouri, Western District, Second Division

November 19, 2019

In the Matter of the Application of Laclede Gas Company to change its infrastructure system replacement surcharge in its Missouri Gas Energy Service Territory;
v.
The Missouri Public Service Commission, Respondent. In the matter of the application of Leclede Gas Company to change its infrastructure system replacement surcharge in its Laclede Gas Service Territory; the Office of Public Counsel; Appellant, Spire Missouri, Inc., Appellant,

          APPEAL FROM THE PUBLIC SERVICE COMMISSION

          Before Thomas H. Newton, Presiding Judge, Anthony Rex Gabbert, and Thomas N. Chapman, Judges.

          Thomas H. Newton, Presiding Judge.

         The Office of Public Counsel (OPC)[1] and Spire Missouri, Inc., a gas corporation and public utility, appeal a Public Service Commission[2]determination that it lacked the authority to require that Spire refund, or return to, ratepayers excess infrastructure surcharges[3] related to the company's 2017 neighborhood-replacement program after this Court found the same surcharges ineligible as to the company's 2016 infrastructure surcharges, reversing as unlawful a Commission ruling to the contrary. In re Laclede Gas Co. v. Office of Pub. Counsel, 539 S.W.3d 835 (Mo. App. W.D. 2017).[4] Having found the OPC's request for a ratepayer refund under a 2017 stipulation and agreement moot, the Commission also seeks to dismiss the appeal as moot, arguing that the company's 2017 general rate cases, which are currently pending before the Missouri Supreme Court, reset Spire's 2017 surcharges to zero and thus the excess surcharges are no longer eligible for recovery. We overrule the motion and have considered the matter on the merits. We reverse and remand for further proceedings.

         The Commission issued three separate orders following a consolidated hearing in August 2018 intended to allow the parties to introduce evidence on the methodology the Commission would use to determine how to place a value on those components of the neighborhood infrastructure Spire replaced-plastic mains and service lines-and which this Court determined were ineligible for recovery as infrastructure surcharges because the components were not worn out or deteriorated and no obligation had been placed on Spire to replace them by a government-mandated safety requirement. Id. at 840.[5] The consolidated hearing pertained to Spire's infrastructure surcharges for projects in 2016, 2017, and 2018, each of which arises in different proceedings that are procedurally distinguishable. This appeal focuses on the 2017 cases.

         When Spire sought surcharges for its 2017 infrastructure projects, the 2016 surcharge cases were pending before this Court. The OPC opposed some of the 2017 project costs for the same reason that it had opposed costs in the 2016 cases. The parties entered a stipulation and agreement as to the 2017 cases believing that a court ruling on the matter would be dispositive and that it would not be a productive use of the Commission's or the parties' resources "to litigate the Plastics Issue before the Commission again."[6] Under the agreement, which the Commission approved in April 2017, if this Court reversed the Commission's ruling on infrastructure cost-recovery eligibility as unlawful or unreasonable, "then the court's final decision shall be applied to the [2017 cases] in the same manner as it is applied to the [2016 cases], as applicable." Spire and Commission staff agreed not to challenge the OPC's right to request that the Commission determine the amount of the infrastructure-surcharge refund for the 2017 projects under the Court's ruling, but all signatories agreed "to make any argument they wish regarding the methodology, propriety, and quantification of such refund, if any."[7] After the Missouri Supreme Court denied transfer in March 2018 and our mandate issued in the 2016 cases, the Commission asked the parties to file recommendations about moving forward with the 2016 cases; the OPC addressed both the 2016 and 2017 cases in a single recommendation given the stipulation and agreement that related the 2017 cases to the outcome of the court appeal in the 2016 cases.

         Because Spire's 2017 general rate cases were not finalized until compliance tariffs were approved on April 4, 2018, the OPC requested in a March 2018 pleading titled "Public Counsel's Recommendation" that the Commission determine which infrastructure surcharges from Spire's 2016 and 2017 cases were ineligible for recovery and suggested that the Commission apply any over-collection to the rate base set in the 2017 general rate cases.[8] The OPC calculated those excess surcharges in the total amount of $4.9 million. Spire opposed the OPC's recommendation on procedural and evidentiary grounds. Commission Staff recommended that costs associated with the ineligible infrastructure surcharges be refunded to Spire's ratepayers in the company's 2018 infrastructure-surcharge cases. Staff calculated the excess surcharges at $3, 634, 344.

         The record does not show whether the refunds that OPC requested for the 2017 infrastructure surcharges were accounted for or incorporated in the 2017 general rate cases. We assume that the refunds were not accounted for because, as indicated above, after Spire's 2017 general base rates went into effect, the Commission ordered an August 2018 evidentiary hearing on the appropriate methodology for valuing the ineligible surcharges as to the 2016, 2017, and 2018 infrastructure-surcharge cases and thus would have had no basis to account for the ineligible surcharges in the 2017 general rate cases until after the hearing took place. The Commission then issued an "Order Denying Request to Modify Commission Order" on September 20, 2018, as to the 2017 surcharge cases at issue in this appeal. In that order, the Commission deemed the OPC's pleading-the "Recommendation"-a request to modify the 2017 final Commission order, which had approved the stipulation and agreement, and determined that it lacked the legal authority to order refunds of ineligible infrastructure-surcharge costs in the 2017 cases, citing statutes that it claimed do not allow the retroactive correction of superseded infrastructure-surcharge tariffs after a general rate case includes those infrastructure costs in the base rates. The Commission concluded that the "OPC's request to modify the final order approving the stipulation and agreement is moot and will be denied." The OPC filed an application for rehearing, which the Commission denied, and timely filed this appeal. Spire also filed an application for rehearing, which the Commission denied, and timely filed an appeal to argue that the Commission erred to the extent, if any, that it determined that any of the costs in the company's 2017 infrastructure-surcharge cases were ineligible for recovery due to the Commission's failure to issue findings of fact and conclusions of law to support that determination. We consolidated the appeals of the 2017 infrastructure-surcharge cases.

         MOOTNESS

         We have taken with the case the Commission's motion to dismiss for mootness and the motion to strike the OPC's brief for failure to comply with Rule 84.04. Spire has joined the Commission's motion to dismiss but only with the understanding that the Commission's disposition of the 2016 infrastructure-surcharge cases does not apply to the Commission order denying for mootness the OPC's request for refund in the 2017 infrastructure-surcharge cases. The company suggests that its right to challenge the Commission's decisions regarding ineligible infrastructure-surcharge costs in the 2016 cases will not be waived by a dismissal of the consolidated appeal here as the Commission did not rule on the merits of the infrastructure-surcharge costs in the 2017 cases and made no finding on the eligibility or amount of those costs, which would have to be determined on remand, if that occurs. We address the Commission's mootness argument first.

         According to the Commission, under In re Missouri-American Water Co. v. Office of Public Counsel, 516 S.W.3d 823 (Mo. banc 2017), once it granted Spire general base rate increases for 2017, it lost the authority to order a correction to the superseded 2017 infrastructure surcharges, which were required by statute to be reset to zero. Id. at 828 (citing section 393.1006.6(1) and stating, "superseded tariffs cannot be corrected retroactively.").[9] In that case, the OPC had challenged the Commission's authority to grant a petition for infrastructure surcharges, and the matter was pending on appeal when the water company filed a separate rate case. Id. at 826-27. Commission Staff and the water company "reached a stipulation and agreement establishing a new base rate that incorporated the costs of the [water company's] projects for all then-existing surcharges, including the surcharge at issue in this case." Id. at 827. Because the surcharge was reset to zero "once the new base rates went into effect[, ] . . . the surcharges that were the subject of the underlying interim rate case were no longer in effect by the time the appellate court issued its opinion." Id. According to our supreme court, the legal question underlying the infrastructure surcharges was therefore moot and did not fit within the public-interest exception to the mootness doctrine. Id. at 828-29.

         We do not find the water company case applicable to the matter at hand. Here, when our decision finding the costs to replace plastic mains and service lines ineligible for recovery in the 2016 infrastructure-surcharge cases became final, Spire's 2017 general base rates had not yet gone into effect. The Missouri Supreme Court denied transfer in the 2016 infrastructure-surcharge cases on March 6, 2018; our mandate issued on March 7, 2018, and the parties knew as early as November 21, 2017, when we issued the opinion, that the costs for plastic mains and service lines had been ruled ineligible for recovery as infrastructure surcharges. The Commission approved Spire's 2017 general rate cases on March 7, 2018, with an effective date of March 17, 2018, and compliance tariffs for those rate cases were approved April 4, 2018. Under section 393.1015.6(1), an infrastructure surcharge incorporated into a general rate case is reset to zero when the new base rates "become effective." Because the rates in the 2017 general rate cases did not go into effect until March 17, 2018, at the earliest, the 2016 and 2017 infrastructure surcharges had not been reset to zero when our eligible-costs decision and order for proceedings consistent with our opinion became final.[10] Further, the parties had signed a stipulation and agreement, approved by the Commission, that the final determination as to the appeal of the 2016 cases would be applied to the 2017 infrastructure-surcharge cases, subject only to a calculation of the refunds owed to Spire's ratepayers. While it may not be possible at this late date under the law to "correct" the 2017 infrastructure surcharges, which have now been reset to zero, excess charges may flow through and be returned to ratepayers by means of temporary rate adjustments. § 386.520.2. The matter is not moot.

         The Commission also argues that we should grant its motion to dismiss because the OPC and Spire "seek relief that is unauthorized under the exclusive and jurisdictional procedures of Sections 386.500 and 386.510." In its view, the OPC should have appealed the Commission order approving the stipulation and agreement to which OPC was a party because the Commission approved the 2017 infrastructure surcharge, including the costs of replaced plastic, in that order and it has deemed the OPC's "Recommendation" following our ruling in the 2016 infrastructure-surcharge cases as a request to modify that order. The Commission also contends that it cannot reach back and modify the order approving the stipulation to establish a 2017 infrastructure surcharge for an amount other than what was approved in that order, i.e., an amount that included the cost to replace plastic mains and service lines. Essentially, the Commission asks this Court to overlook our ruling that the Commission's approval of Spire's recovery of costs for the replacement of plastic components in 2016 was not permitted under the infrastructure-surcharge statute and that the Commission approved a stipulation under which the parties agreed that ratepayers could be refunded, or recover excess charges, in the 2017 cases if the courts finally ruled these costs ineligible in the 2016 cases. We do not believe that the law allows the Commission to move forward, particularly under the circumstances of this case, as if we had not spoken to the issue before the new base rates went into effect. We feel compelled to observe, as well, that the law does not contemplate the incorporation of ineligible costs previously reflected in an infrastructure surcharge into a utility company's base rates. § 393.1015.6(1) (pertaining to the incorporation in new base rates of "eligible costs previously reflected in an [infrastructure surcharge]" (emphasis added)). We overrule the motion to dismiss.

         As to the Commission's contention that the OPC's point is multifarious, even if we were to agree, we may still, in the exercise of our discretion, "attempt to resolve the issue on the merits." LaBarca v. LaBarca, 534 S.W.3d 329, 335 n.4 (Mo. App. W.D. 2017) (citation omitted); see also State ex re. Mo. Office of Pub. Counsel v. Pub. Serv. Comm'n, 293 S.W.3d 63, 70 (Mo. App. S.D. 2009) (declining to dismiss appeal for briefing deficiencies, court references the "substantial business and ...


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