Court of Appeals of Missouri, Western District, First Division
IN THE MATTER OF THE APPLICATION OF RATE INCREASE REQUEST FOR LIBERTY UTILITIES (MISSOURI WATER), LLC d/b/a
MISSOURI PUBLIC SERVICE COMMISSION, Respondent. LIBERTY UTILITIES, Respondent, ORANGE LAKE COUNTRY CLUB, INC., and SILVERLEAF RESORTS, INC., Appellants,
from the Missouri Public Service Commission
Edward R. Ardini, Jr., Presiding Judge, and Mark D. Pfeiffer
and Cynthia L. Martin, Judges.
D. Pfeiffer, Judge.
Lake Country Club, Inc. ("Orange Lake") and
Silverleaf Resorts, Inc. ("Silverleaf") appeal from
the Report and Order of the Missouri Public Service
Commission ("PSC") approving water and sewer
utility rate increases for Liberty Utilities (Missouri Water)
LLC ("Liberty"). We affirm.
and Procedural Background 
Missouri General Assembly created the PSC to serve as the
state administrative agency authorized to regulate public
utilities, including water corporations and sewer
corporations, operating within Missouri. §
386.040; § 386.250(3), (4). The PSC employs an
independent technical advisory staff ("Staff")
whose duty is to render advice and assistance to the PSC
commissioners and administrative law judges on technical
matters within their areas of expertise that may arise during
the course of proceedings before the PSC. § 386.135.4.
The Office of Public Counsel ("OPC") represents and
protects the interests of the public in any proceeding before
or appeal from the PSC. § 386.710.1(2).
is a public utility, water corporation, and sewer
corporation, as those terms are defined in section
386.020(43), (59), and (49), subject to regulation by the PSC
as provided in Chapters 386 and 393. Liberty provides water
service to approximately 2, 000 connections in Cape
Girardeau, Franklin, Jefferson, McDonald, Stone, and Taney
counties in Missouri, and provides sewer service to
approximately 400 connections in Cape Girardeau, Franklin,
Jefferson, Stone, and Taney counties in Missouri.
was the developer and manager of three vacation ownership
resort properties, one in each of Taney County, Stone County,
and Jefferson County, Missouri. Silverleaf was a property
owner at each of the three resorts and was a party to a water
and sewer service agreement with Liberty. Silverleaf and
Orange Lake were affiliate entities. Orange Lake was the
successor developer and manager for each of the homeowner
associations representing 36, 686 individual timeshare
vacation property owners at the three resorts served by Liberty.
December 15, 2017, Liberty filed a letter with the PSC
pursuant to 4 CSR 240-3.050 Small Utility Rate Case Procedure
(Nov. 30, 2015) ("SURP"), requesting a $995, 844
increase in its annual water system operating revenues and a
$196, 617 increase in its annual sewer system operating
revenues. On December 19, 2017, the PSC opened two cases,
WR-2018-0170 and SR-2018-0171, and Staff filed a "Small
Utility Rate Case Timeline" pertaining to the processing
of Liberty's revenue increase request. Liberty moved to
consolidate the two cases pursuant to 4 CSR 240-2.110(3)
(Nov. 30, 2015) as they involved related questions of law and
fact. The PSC granted Liberty's motion and ordered
consolidation of the cases. Pursuant to 4 CSR 240-2.075 (Nov.
30, 2015), Orange Lake and Silverleaf (collectively,
"Orange Lake") filed a joint motion to intervene,
which the PSC granted.
February 8, 2018, pursuant to 4 CSR-2.080, Orange Lake filed
a motion to dismiss, or in the alternative, to order Liberty
to file a tariff pursuant to section 393.140(11). Orange Lake
argued that Liberty did not fit the profile of a small
utility that SURP was designed to benefit and should be
ordered to pursue its proposed rate increases by filing a
tariff under the traditional statutory "file and
suspend" procedure of section 393.140(11). While Liberty
argued that it qualified for SURP because it had fewer than
8, 000 customers, Orange Lake contended that the 36, 686
timeshare owners were water and sewer customers within the
meaning of 4 CSR 240-3.010(7) (Apr. 30, 2008). On the other
hand, Staff calculated the number of customers by the number
of meters served by a utility, and based on Staff's
calculation, Liberty served 2, 364 customers (counting water
and sewer customers separately). On April 4, 2018, the PSC
issued its order denying Orange Lake's motion to dismiss,
finding that Orange Lake was Liberty's customer as Orange
Lake was financially responsible to the utility while the
individual timeshare customers were separately responsible to
the resort for utility services and maintenance fees and that
Liberty met the requirement of having less than 8, 000
customers to avail itself of SURP.
24, 2018, Staff filed a Partial Disposition Agreement and
Request for Evidentiary Hearing ("Partial Disposition
Agreement"). Staff, Liberty, and OPC reached agreement
on some of the issues raised by Liberty's rate increase
request and requested an evidentiary hearing on certain
unresolved issues, including return on equity and capital
structure. On June 13, 2018, the PSC issued a procedural
schedule, setting the dates to pre-file direct, rebuttal, and
surrebuttal testimony; designating August 3, 2018, as the
last day to request discovery; and scheduling the evidentiary
hearing for August 15-17, 2018.
30, 2018, Staff filed a motion to strike portions of the
pre-filed rebuttal testimony of Orange Lake's expert
witness, Mr. Stannard, for improperly including content from
Staff's settlement offer provided during the rate case
process. By an August 2, 2018 order, the PSC granted
Staff's motion to strike portions of Mr. Stannard's
rebuttal testimony referencing Staff's settlement offer.
August 3, 2018, Liberty and Staff filed a Non-Unanimous
Stipulation and Agreement ("Stipulation"), in which
they agreed and recommended, exclusive of rate case expense,
that the total overall annual revenue requirement for
Liberty's water system operations was $1, 690, 117,
representing an increase of $818, 800 (a 92.4% increase over
rate revenues authorized by current tariffs), and that,
exclusive of rate case expense, the total overall annual
revenue requirement for Liberty's sewer system operations
was $455, 163, representing an increase of $196, 782 (a 75.8%
increase over rate revenues authorized by current tariffs).
The parties agreed that Liberty would file proposed
compliance tariffs comporting with the terms of the
Stipulation at an agreed-upon rate design.
evidentiary hearing was conducted on August 16, 2018. The PSC
issued its Report and Order on October 24, 2018, with an
effective date of November 3, 2018. The PSC found that
Liberty's evidence failed to sustain its burden that its
originally requested increase of $995, 844 in annual water
system operating revenues and $196, 617 in annual sewer
revenues was just and reasonable. However, the PSC found that
Liberty did produce sufficient evidence to support that its
requested rate increase of $818, 800 for water operations and
$196, 782 for sewer operations in its joint position
statement was just and reasonable. On November 5, 2018,
Liberty filed compliance tariffs with an effective date of
December 5, 2018, to comply with the Report and Order. The
PSC approved Liberty's compliance tariffs by order on
November 28, 2018, with an effective date of December 8,
2018. On January 9, 2019, the PSC issued its order denying
Orange Lake's application for rehearing.
Lake timely appealed.
to section 386.510, the appellate standard of review of a
[PSC] order is two-pronged: first, the reviewing court must
determine whether the [PSC]'s order is lawful; and
second, the court must determine whether the order is
reasonable." Petition of Mo.-Am. Water Co. for
Approval to Change its Infrastructure Sys. Replacement
Surcharge v. Office of Pub. Counsel, 516 S.W.3d 823, 827
(Mo. banc 2017) (internal quotation marks omitted). "The
PSC's order is presumed valid, and the appellant has the
burden of proving that the order is unlawful or
unreasonable." Id. The lawfulness of an order
is determined by whether the PSC had statutory authority to
issue the order. Id. We review the issue of
statutory authorization or lawfulness de novo.
reasonableness challenge is an argument that the PSC's
Report and Order "is not supported by substantial,
competent evidence on the whole record; is arbitrary or
capricious; or constitutes an abuse of discretion."
Mo.-Am. Water Co.'s Request for Auth. to Implement a
Gen. Rate Increase for Water & Sewer Serv. Provided in
Mo. Serv. Areas v. Office of Pub. Counsel, 526 S.W.3d
253, 265-66 (Mo. App. W.D. 2017).
Orange Lake's first point, it asserts that the PSC erred
in permitting Liberty to initiate a rate case by sending a
letter rather than filing a tariff. Specifically, Orange Lake
contends that the SURP, which authorized such a procedure, is
unlawful in that it is not authorized by and conflicts with
the PSC's enabling statutes. Orange Lake argues that the
only mechanism for a utility to request a rate change is
through the file-and-suspend procedure set forth in section
a creature of statute, the Commission only has the power
granted to it by the Legislature and may only act in a manner
directed by the Legislature or otherwise authorized by
necessary or reasonable implication." Staff of Mo.
Pub. Serv. Comm'n v. Consol. Pub. Water Supply Dist. C-1
of Jefferson Cty., Mo., 474 S.W.3d 643, 649 (Mo. App.
W.D. 2015) (internal quotation marks omitted). "The
[PSC's] statutory authority is primarily expressed in
Chapters 386 and 393." Id.
has the statutory authority to regulate all public utilities
in Missouri, including water and sewer corporations like
Liberty. § 386.250(3), (4), (5). This includes the
authority to "determine and prescribe the just and
reasonable rates and charges" for public utility
services. § 393.140(5). The PSC also has the statutory
authority to adopt rules governing, among other things,
practice and procedure. § 386.410.1.
adopted the rule at issue in this case, 4 CSR 240-3.050 Small
Utility Rate Case Procedure (Apr. 30, 2008), effective May
30, 2008, for the purpose of "provid[ing] procedures
whereby certain small utilities may request increases in
their overall annual operating revenues, without complying
with the rules pertaining to general rate cases set forth
elsewhere in this chapter." The stated authorities under
which the PSC filed the rule were sections 386.040 RSMo 2000
(PSC established), 386.250 RSMo 2000 (PSC jurisdiction),
393.140 RSMo 2000 (PSC's general powers in respect to
gas, water, electricity, and sewer services), 393.290 RSMo
2000 (PSC's powers relating to other utilities made
applicable to heating companies), and 393.291 RSMo Supp. 2007
(steam heating companies permitted to file under small
company rate procedure promulgated by PSC). As in the prior
iterations of the rule, 4 CSR 240-3.050(2) (Apr. 30, 2008)
A small utility may initiate a rate case by filing a letter
requesting an increase in its overall annual operating
revenues with the secretary of the commission. A utility
filing such a request shall specify the amount of the revenue
increase that it is seeking, but shall not submit any
proposed tariff revisions with the request.
Missouri Supreme Court has recognized that there are
alternative procedures for utilities to initiate rate
increase proceedings. In State ex rel. Jackson County v.
Public Service Commission, 532 S.W.2d 20 (Mo.
banc 1975), the PSC issued a Report and Order authorizing an
electric utility company to increase its electric rates.
Id. at 21. Electricity consumers filed a petition in
the circuit court seeking review of the PSC's order and a
motion for reversal of the new rates. Id. In their
motion, the consumers asserted that the rate increase
initiated by the "file and suspend"
method and authorized by the PSC was a nullity
because a rate increase could only be considered under the
"complaint" method. Id. at 23. The circuit
court granted the motion for relief, and the PSC appealed.
Id. at 21. The Missouri Supreme Court rejected the
circuit court's conclusion that the "complaint"
method was the exclusive means for utilities to initiate rate
increase proceedings and held that electric rate increases
could be initiated by either the "file and suspend"
method or under the "complaint" method.
Id. at 28-29. As our Supreme Court observed,
"the experience in Missouri now covers over sixty years
and the 'file' method has been accepted and
consistently used throughout that time-absent the precise
attack now made." Id. at 28. The court further
noted "[e]ither procedure authorizes and, in fact,
contemplates that the [PSC] will protect not only the rights
of the consuming public but also the financial integrity of
the utilities-by public hearings, where
proper." Id. at 29.
the "file and suspend" method and the
"complaint" method, the experience in Missouri with
the small company rate increase procedure now covers decades
of use, and the "letter" method has also "been
accepted and consistently used throughout that time."
Id. at 28. The General Assembly recognized the
utility of SURP in the context of the PSC ordering a capable
public utility to acquire a ...