In re Questar Gas Co.

• Decision Date: 12 October 2007
• Docket Number: No. 20060280.,No. 20060279.,20060279.,20060280.
• Citation: 2007 UT 79,175 P.3d 545
• Parties: In the Matter of the Application of QUESTAR GAS COMPANY to Adjust Rates for Natural Gas Service in Utah. Roger Ball, Claire Geddes, Bud Allen, Madonna Allen, Sue Ashdown, Carol Bee, et al., Petitioners, v. Public Service Commission, Questar Gas Company, the Committee for Consumer Services, and the Division of Public Utilities, Respondents.
• Court: Utah Supreme Court

175 P.3d 545

2007 UT 79

In the Matter of the Application of QUESTAR GAS COMPANY to Adjust Rates for Natural Gas Service in Utah Roger Ball, Claire Geddes, Bud Allen, Madonna Allen, Sue Ashdown, Carol Bee, et al., Petitioners, v. Public Service Commission, Questar Gas Company, the Committee for Consumer Services, and the Division of Public Utilities, Respondents.

No. 20060279.

No. 20060280.

Supreme Court of Utah.

October 12, 2007.

Rehearing Denied January 4, 2008.

Janet I. Jenson, Salt Lake City, for petitioners.

Mark L. Shurtleff, Att'y Gen., Michael L. Ginsberg, Patricia E. Schmid, Reed T. Warnick, Paul H. Proctor, Asst. Att'ys Gen., Sander J. Mooy, Salt Lake City, for Public Service Commission, Committee for Consumer Services, Division of Public Utilities.

C. Scott Brown, Colleen Larkin Bell, Gregory B. Monson, Richard R. Hall, Salt Lake City, for Questar Gas Co.

DURRANT, Justice:

INTRODUCTION

¶ 1 The Petitioners, including Roger Ball and Claire Geddes, seek review of two orders entered by the Utah Public Service Commission (the "Commission"). The first order denied Ball and Geddes's request to intervene in the Commission's proceedings involving Questar Gas Company's ("Questar") application to recover some of the costs of operating a carbon dioxide ("CO₂") processing plant. The second order approved a Gas Management Cost Stipulation (the "Stipulation") entered into by Questar, the Committee for Consumer Services ("Consumer Services"), and the Division of Public Utilities (the "Division") that allows partial recovery for a limited time of Questar's CO₂ processing costs. We now affirm the Commission's first order and dismiss the petition for review as to the second order.

BACKGROUND

¶ 2 This is the third time we have addressed issues relating to the recovery of gas management and CO₂ processing costs incurred by Questar and its affiliates.¹ We quote liberally from these previous cases in reciting the facts relevant to this case.

I. QUESTAR I

¶ 3 In 1998, Questar, a regulated public utility, entered into a contract with its unregulated affiliate, Questar Pipeline, to construct a processing plant that would reduce the CO₂ in coal seam gas, otherwise known as coal bed methane ("CBM").² Questar Pipeline was transporting CBM in steadily increasing quantities and needed the CO₂ processing plant to address safety risks to Questar customers.³ CBM has a low heat content that cannot be used safely in most homes unless special adjustments are made to appliances or CO₂ is first removed from the gas at a processing facility.

¶ 4 On November 25, 1998, Questar submitted an application to the Commission for approval of the contract and requested authorization to transfer the costs of constructing and operating the CO₂ plant directly to ratepayers.⁴ In its December 3, 1999 order, the Commission denied Questar's request on the basis that these costs were not the kind of expenses allowed under Utah Code section 54-7-12(3)(d)(i), which is known as the pass-through statute.⁵ The Commission also noted that Questar bears the burden of establishing the prudence of its contract with Questar Pipeline because of their affiliate relationship.⁶ The Commission did not address whether Questar's decision to enter into the contract with Questar Pipeline was prudent; rather, the Commission determined that, even assuming the prudence of the contract and the reasonableness of its terms, Questar had failed to present substantial evidence that the resulting rates would be just and reasonable.⁷

¶ 5 In Questar Gas Company v. Public Service Commission (Questar I), we set aside the Commission's December 3, 1999 order, holding that Questar's ability to recover costs was not limited to the pass-through statute.⁸ We based our decision on the Commission's own prior practice, noting that the Commission, when reviewing past requests for cost recovery, determined whether the resulting rates were "just, reasonable and cost justified" and whether their approval was "in the public interest."⁹ Also, based on the Commission's finding "that it was impossible to make a [prudence] determination because the record was insufficient and could not be created," we limited our holding to the question of the procedure Questar should have followed to recover processing costs incurred between June 1999 and August 2000.¹⁰ We remanded the case to the Commission for further consideration in accordance with the appropriate cost recovery procedure.¹¹

II. QUESTAR II

¶ 6 On December 17, 1999, over a year before we issued Questar I, Questar filed a general rate proceeding with the Commission, which included a request under Utah Code section 54-7-12(3)(a) for interim rate relief of over $7 million annually to cover the CO₂ plant operating costs.¹² Questar did not, however, seek approval of its contract with Questar Pipeline.¹³ The Commission held a hearing to consider this request for interim rate relief and granted the request on January 25, 2000.¹⁴ Consumer Services petitioned the Commission for rehearing regarding the interim rate increase, arguing that the increase was not legally proper, factually supported, or in the public interest.¹⁵ By declining to respond to Consumer Services' request, the Commission affirmed its January 25 order.¹⁶

¶ 7 On June 2, 2000, Questar and the Division filed a stipulation that resolved between them the issues of cost recovery and ratemaking treatment of gas processing costs and provided that annual CO₂ plant costs in the amount of $5 million should be passed on to ratepayers.¹⁷ Although Consumer Services objected to the cost recovery stipulation, the Commission approved the stipulation on August 11, 2000.¹⁸

¶ 8 In approving Questar's cost recovery, the Commission determined that it need not rule on whether Questar's decision to contract with its affiliate Questar Pipeline was prudent.¹⁹ The Commission acknowledged that Questar's prudence in this matter remained "the most troubling question" and that the burden to demonstrate prudence was on Questar.²⁰ But the Commission relied on a "safety exception" to excuse Questar from its burden to demonstrate the prudence of its contract and CO₂ processing costs.²¹ The Commission determined that "once coal seam gas became a persistent threat to the [heat level] of [Questar's] gas supply, customer safety was threatened and an effective response was mandatory."²² The Commission reasoned that it could decide the legitimacy of recovering CO₂ plant processing costs from ratepayers without determining whether the underlying affiliate contract was prudent because Questar had not specifically applied for a decision on the affiliate issue.²³ The Commission then accepted the argument that $5 million per year, or 68 percent of the costs of CO₂ processing, represented a "fair and reasonable settlement of the cost recovery issue."²⁴

¶ 9 In Committee of Consumer Services v. Public Service Commission (Questar II), we held that the Commission had abused its discretion by failing to follow its established practice of requiring a prudence review of rate increases and affiliate transactions.²⁵ We stated that by approving the cost-recovery stipulation without considering the prudence of the underlying source of the costs— the contract between Questar and Questar Pipeline—the Commission had abdicated its responsibility to find the necessary substantial evidence in the record in support of the proposed rate increase.²⁶ We did not determine, however, whether Questar was prudent in entering the affiliate contract and incurring the CO₂ processing costs.

¶ 10 On remand, the Commission found in an August 30, 2004 order (the "2004 Order") that Questar had failed to meet its burden of proving the prudence of its rate increase and affiliate transaction. As a result, the Commission barred the cost recovery that Questar sought during the period from June 1999 to May 2004. The Commission also found that Questar's actions did not produce any unique economic benefits to Utah ratepayers justifying a cost recovery. By its own terms, however, the 2004 Order did not foreclose the issue of whether Questar could seek recovery of future CO₂ processing costs. Indeed, the 2004 Order anticipated opening another docket to develop a long-term plan to deal with the hazards of CBM and Questar's obligation to provide safe and cost-effective services to its customers. This plan was further supported by the Commission's October 20, 2004 order (the "Clarification Order"), which stated that the 2004 Order "does not preclude Questar from seeking recovery of CO₂ processing costs in other dockets." The Clarification Order merely reiterated that any future cost recovery would be subject to the appropriate prudence review.

III. QUESTAR'S APPLICATION FOR FUTURE COST RECOVERY

¶ 11 As contemplated in the 2004 Order, the Commission opened a new docket and Questar explored a long-term plan to deal with CBM issues. Between October 2004 and January 2005, Questar explored at least fourteen options to deal with CBM, including those recommended by Consumer Services and the Division. During that time, Questar conducted six technical conferences, examining both the cost and the efficiency of the various alternatives. By January 31, 2005, Questar had narrowed down the preferable alternatives for dealing with CBM to CO₂ removal and precision blending of gas streams. In the short term, these two alternatives were essentially identical; however, if Questar's CO₂ plant were operated year round and used to process third-party gas, Questar could generate revenue from the third-party processing to offset other CO₂ processing costs and reduce the costs passed on to ratepayers. As a result, Questar concluded that continued operation of the CO₂ plant would provide the most prudent and cost-effective outcome. On January 31, 2005, Questar filed an application with the Commission seeking future recovery of CO₂ processing costs beginning February 1, 2005.

IV. THE...