Court of Appeals of Missouri, Western District, Second Division
IN THE MATTER OF THE APPLICATION OF SPIRE MISSOURI INC TO CHANGE ITS INFRASTRUCTURE SYSTEM REPLACEMENT SURCHARGE IN ITS SPIRE MISSOURI EAST SERVICE TERRITORY;
THE OFFICE OF PUBLIC COUNSEL, Appellant; IN THE MATTER OF THE APPLICATION OF SPIRE MISSOURI INC TO CHANGE ITS INFRASTRUCTURE SYSTEM REPLACEMENT SURCHARGE IN ITS WEST SERVICE TERRITORY; MISSOURI PUBLIC SERVICE COMMISSION, Respondent, SPIRE MISSOURI INC., Appellant.
from Public Service Commission
Thomas H. Newton, Presiding Judge, Anthony Rex Gabbert,
Judge, Thomas N. Chapman, Judge.
Anthony Rex Gabbert, Judge.
Office of Public Counsel and Spire Missouri, Inc. appeal the
Report and Order of the Public Service Commission of the
State of Missouri. In three points on appeal, Spire Missouri,
Inc. claims the Public Service Commission erred in
disallowing $4, 100, 000 in Infrastructure System Replacement
Surcharges. In one point on appeal, the Office of Public
Counsel claims the Public Service Commission erred in
allowing Spire to collect costs it incurred to replace cast
iron and bare steel mains and service lines. The
Commission's Report and Order is reversed and the case is
Public Service Commission of the State of Missouri
("PSC") is a state administrative agency that
regulates public utilities. §§ 386.040;
386.250. Spire Missouri, Inc.
("Spire") is an investor-owned gas utility providing
retail gas service to large portions of Missouri through its
two operating units or divisions, Spire Missouri East and
Spire Missouri West. Spire is a "gas corporation"
and a "public utility" as defined in section
386.020. The Office of Public Counsel ("OPC") may
represent and protect the interests of the public in any
proceeding before or appeal from the PSC.
7, 2018, Spire filed an application and petitions with the
PSC to change its Infrastructure System Replacement
Surcharges ("ISRS") in its East and West service
territories. Spire requested an adjustment to its ISRS rate
schedules to recover costs incurred in connection with
infrastructure system replacements made during the period
that ran from October 1, 2017 through April 30, 2018, with
pro forma ISRS costs updated through June 30, 2018. The PSC
issued notice of the applications and provided an opportunity
for interested persons to intervene. No intervention requests
August 6, 2018, the Staff of the PSC ("Staff")
filed its reports proposing a number of corrections and
adjustment's to Spire's calculations. Staff
recommended that the PSC reject the original tariff sheets
and approve ISRS adjustments for Spire based on Staff's
determination of the appropriate amount of ISRS revenues.
Staff later provided corrections and information for the
updated months of May and June 2018.
August 16, 2018, Spire filed a motion objecting to
Staff's recommendations and requesting an evidentiary
hearing. The OPC filed a motion to dismiss Spire's
applications. The PSC held an evidentiary hearing on August
found the following in its Report and Order: The last general
rate cases applicable to Spire were decided by the PSC by
order issued on March 17, 2018, with new rates effective
April 19, 2018. As part of those general rate cases,
Spire's existing ISRS were reset to zero. The ISRS
filings at issue in this case are Spire's first ISRS
filings since the last general rate case.
393.1009 through 393.1015 permit gas corporations to recover
certain infrastructure system replacements costs outside of a
formal rate case through a surcharge on its customers'
bills. Historically, Spire has used a piecemeal approach to
pipe replacement by replacing pipes when they were failing or
about to fail. In 2010, Spire changed to what it contends is
a more systematic and economical approach where it retires
pipes in place and installs new plastic pipes often in a
different location. The new location is more accessible and
more efficient to maintain than the location of old pipes
which were often under streets.
current neighborhood replacement program replaces or retires
in place and no longer uses cast iron, steel, and plastic
pipes. Most of the cast iron pipes being replaced are over a
hundred years old. Cast iron pipes are unsafe to use because
they undergo a process called graphitization in which the
iron leeches out making the pipe subject to cracking and
leaking. The steel pipe being replaced is bare and not
cathodically-protected so those pipes corrode relatively
quickly and need to be replaced.
the plastic pipes that Spire replaced or retired in place are
not worn out or in a deteriorated condition. Spire did not
conduct a review to determine if that plastic pipe was worn
out or deteriorated before replacing it. The polyethylene
plastic pipe that Spire uses should last indefinitely.
Spire's work order authorization sheets did not explain
if a main or service line being replaced was worn out or
deteriorated. Spire did not provide sufficient information
for Staff to determine whether any plastic pipe being
replaced was incidental to and required to be replaced in
conjunction with the replacement of other worn out or
deteriorated components. Spire has not attempted to calculate
the amount of plastic pipe replaced that was worn out or in a
deteriorated condition. Some of Spire's blanket work
order involved replacing or repairing plastic pipes that were
not worn out or deteriorated.
Matter of Application of Laclede Gas Co. to Change Its
Infrastructure Sys. Replacement Surcharge in Its Missouri Gas
Energy Serv. Territory v. Office of Pub. Counsel, 539
S.W.3d 835 (Mo. App. W.D. 2017) ("2016 ISRS Case"),
this court reversed the PSC's order that the plastic pipe
was an integral component of the worn out and deteriorated
cast iron and steel pipe and that the cost could be recovered
through an increase to the existing ISRS surcharges. Based on
the opinion in the 2016 ISRS Case, Staff developed a
methodology to remove the cost of the replacement of
ineligible plastic mains and service lines from Spire's
ISRS cost recovery.
found in its Report and Order that Staff witnesses provided
credible testimony on the correct methodology for determining
the cost of ineligible plastic pipe replacements and that
Staff's evidence on this issue was the best evidence
presented at the hearing. Staff made appropriate adjustments
to Spire's ISRS request based on the plastic pipe
replaced and calculated a revised ISRS revenue requirements
("Adjusted ISRS"). The Adjusted ISRS recommended by
Staff resulted in Spire collecting ISRS revenues in the
amount of $2, 607, 610 for its East service territory and $5,
411, 793 for its West service territory.
appeals by Spire and OPC follow. Spire seeks an additional
$4, 100, 000 in ISRS revenues. OPC maintains the matter
should be remanded with instructions to remove from the ISRS
revenue awarded the cost incurred to replace cast iron and
bare steel mains and service lines.
Commission's Order will be affirmed if it is lawful and
reasonable." Id. at 837. "The
Commission's Order is lawful if it is authorized by
statute, and our review of this issue is de
novo." Id. at 838. "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. (internal quotation marks omitted). "The
party appealing bears the burden of proving that the
Commission's Order is unlawful or unreasonable."
of the Public Counsel - Point I
sole point on appeal, the OPC claims the PSC erred in
authorizing Spire to collect the costs it incurred to replace
cast iron and bare steel mains and service lines. It claims
the decision was not supported by substantial and competent
evidence and is subject to review under section 386.510. The
OPC maintains that Spire failed to present sufficient
evidence to prove that the cast iron and based steel mains
and service lines were "worn out or  in [a]
deteriorated condition" as required under the definition
of "Gas utility plant projects" found in section
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., 539 S.W.3d at 838 (internal
quotation marks 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. "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. (citing §393.1009(5)). "Significant to
this appeal, section 393.1009(5)(a) sets forth the
ISRS-eligibility requirements for replacement projects."
Id. "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[.]'" Id.
(quoting § 393.1009(5)(a) (emphasis added)).
393.1009(5)(a), supra, clearly sets forth two
requirements for component replacements to be eligible for
cost recovery under ISRS: (1) the replaced components must be
installed to comply with state or federal safety requirements
and (2) the existing facilities being replaced must be worn
out or in a deteriorated condition." Id.
"The definition of 'deteriorate' is 'to make
inferior in quality or value,' 'to grow worse,'
and 'become impaired in quality, state, or
condition.'" In Matter of Verified Application
& Petition of Liberty Energy (Midstates) Corp., 464
S.W.3d 520, 525 (Mo. banc 2015) (quoting WEBSTER'S THIRD
NEW INTERNATIONAL DICTIONARY 616 (1993)). "Clearly, this
definition indicates that deterioration is a gradual process
that happens over a period of time rather than an immediate
event." Id. (holding that utility plant
projects which were damaged by a third party's negligence
are not eligible for an ISRS surcharge because such damage is
not from structures being worn out or deteriorated).
"[O]ur Supreme Court has found this requirement to be
mandatory and has interpreted it narrowly." Laclede
Gas Co., 539 S.W.3d at 839.
the OPC argues in this appeal that the evidence presented was
that old pipes can become worn out or deteriorated and that
many of the pipes at issue were old. It argues that no
evidence was presented that the pipes at issue actually were
worn out or deteriorated. Thus, the OPC concludes the
statutory requirements for ISRS have not been satisfied.
Hoeferlin, Spire's Vice President of Operations Services,
testified that blanket work orders are designed to charge for
routine situations where there is a leak or other problem
with the facility that needs to be replaced. Instead of being
a planned project, it is something Spire came across on
something like a leak survey or a leak crawl. He testified
that no review was conducted to determine if the plastic that
was retired was worn out or deteriorated. Instead, "[a]
review was done to determine what was the most efficient way
to install the new system." Hoeferlin later testified
blanket work orders are reviewed by engineering staff and
accounting staff to make sure everything included would be
covered by ISRS. He believed that all cast iron and all the
steel was worn out and deteriorated. He stated that any time
there is a leak in the structures that are bare steel and
cast iron that by definition the structures are worn out and
also testified that "most" of the cast iron being
replaced is over a hundred years old. He described a process
called graphitization where the iron has leached out so the
cast iron is mainly carbon. That makes it so the cast iron
can crack very easily and that leads to leaks. The steel that
Spire replaced was bare and unprotected and could corrode
very easily. He testified that "unprotected steel does
corrode relatively quickly, so that's why it needs to be
replaced. Cast iron really doesn't corrode. It's a
different type of corrosion. It's graphitization where
the iron leaches out and then it becomes very brittle. So
those two types of materials, for lack of a better term, do
corrode, that's why they need to be replaced."
Buck, Spire's Director of Regulatory and Finance,
testified that facilities included in the blanket work orders
are worn out or deteriorated. He defined worn out or
deteriorated: "For purposes of my answer that means it
is no longer in the safe established condition to provide
service." It includes situations where a fitting gets
loose. He did not do the analysis to determine what was
replaced specifically under the blanket works orders,
however. He left that to the engineers. He stated that ...