Osage Util. Operating Co. v. Mo. Pub. Serv. Comm'n
| Decision Date | 09 March 2021 |
| Docket Number | WD 83837 |
| Citation | 637 S.W.3d 78 |
| Parties | In the Matter of the Application of OSAGE UTILITY OPERATING COMPANY, INC., to acquire certain water and sewer assets and for a Certificate of Convenience and Necessity; Public Water Supply District No. 5 of Camden County, Lake Area Waste Water Association, Inc., Missouri Water Association, Inc., and Cedar Glen Condominium Owners Association, Inc., Appellants; and Office of the Public Counsel, Intervenor-Appellant, v. MISSOURI PUBLIC SERVICE COMMISSION, Respondent; and Osage Utility Operating Company, Inc., Intervenor-Respondent. |
| Court | Missouri Court of Appeals |
Stephanie Bell, Jefferson City, MO, Counsel for Appellants.
Caleb Hall, Jefferson City, MO, Counsel for Intervenor-Appellant.
Shelley Brueggemann, Jefferson City, MO, Counsel for Respondent.
Jennifer Heintz, Jefferson City, MO, Co-Counsel for Respondent.
John Borgmeyer, Jefferson City, MO, Co-Counsel for Respondent.
Whitney Payne, Jefferson City, MO, Co-Counsel for Respondent.
Dean Cooper, Jefferson City, MO, Counsel for Intervenor-Respondent.
Jennifer Hernandez, Jefferson City, MO, Co-Counsel for Intervenor-Respondent.
Before Division One: Alok Ahuja, P.J., Thomas H. Newton, and Thomas N. Chapman, JJ.
This case is before the court on appeal of an order by the Missouri Public Service Commission ("Commission") approving a transfer of assets from Osage Water Company ("OWC") to Osage Utility Operating Company, Inc., ("Osage Utility") and granting a certificate of convenience and necessity to Osage Utility to provide water and sewer service to the OWC areas. The appellants in this case are Public Water Supply District No. 5 of Camden County ("PWSD"), Lake Area Waste Water Association, Inc., ("LAWWA"), Missouri Water Association, Inc., ("MWA" and together with PWSD and LAWWA, "the Joint Bidders") and Cedar Glen Condominium Owners Association, Inc., ("Cedar Glen" and, together with PWSD, LAWWA, and MWA, "Appellants"). The Office of Public Counsel ("Public Counsel") also appeals. Osage Utility intervened in the appeal as a respondent. Appellants raise four points on appeal. In their first point, they contend that the Commission's order was unlawful because the Commission lacks the authority to approve a sale unless the selling utility corporation is the party to apply for the Commission's approval. In their remaining points, they contend that the Commission's order was unreasonable because: the Commission arbitrarily failed to consider alternatives in determining whether the sale of OWC's assets to Osage Utility was detrimental to the public interest; the Commission's decision to approve the sale was not based on competent and substantial evidence; and competent and substantial evidence did not support the Commission's grant of a Certificate of Convenience and Necessity ("CCN") to Osage Utility. Public Counsel raises two points on appeal, the first of which makes arguments similar to Appellants’ first point. Public Counsel's second point asserts that the Commission arbitrarily disregarded evidence. Because we find that the Commission's order was both lawful and reasonable, we affirm.
The Public Service Commission is a Missouri agency responsible for regulating the conduct of certain utility providers, including water and sewer corporations. See § 386.250.1 Before a regulated utility can provide service, it must obtain a CCN from the Commission. See § 393.170. Before a regulated utility can sell assets that are necessary or useful to the public being served by the assets, the Commission must approve the transaction. See § 393.190. This appeal arises out of Osage Utility's2 application for approval to purchase the assets of the OWC and for a grant of the OWC's CCN, which the Commission approved.
In 1989, the Commission granted OWC a CCN to provide water and sewer service in the Lake of the Ozarks area. In 2002, the Commission determined that OWC had been effectively abandoned by its owners, and that OWC was unable or unwilling to provide safe and adequate service to its customers. In 2005, OWC was ordered into permanent receivership by the Circuit Court of Camden County, pursuant to section 393.145. The circuit court further ordered the receiver to liquidate the OWC assets. Over the years, the receiver marketed the OWC assets and received multiple bids, none of which resulted in a sale.
After being unable to liquidate the OWC assets, the receiver sought and received the circuit court's authorization to file for Chapter 11 bankruptcy. OWC filed for Chapter 11 bankruptcy in federal bankruptcy court. A bankruptcy trustee was appointed. In October of 2018, the bankruptcy trustee held an auction to liquidate the OWC assets. Central States, an affiliate of Osage Utility, negotiated an agreement with the trustee that gave Central States the right to match any bid at the bankruptcy auction. The Joint Bidders3 also submitted bids at the auction. The Joint Bidders had the highest bid at $800,000 until Central States matched that bid. Central States was declared the successful bidder and entered into a purchase agreement with OWC. The agreement was conditional upon Osage Utility obtaining regulatory approval from the Commission. The Joint Bidders were declared the First Back-Up Bidders and also entered into a purchase agreement with OWC. Under the terms of their agreement, if Osage Utility failed to purchase the OWC systems, the Joint Bidders would be obligated to purchase the OWC assets. The bankruptcy court approved both purchase agreements.
In December of 2018, Osage Utility filed an application with the Commission for approval of its acquisition of the OWC assets and CCN. Osage Utility filed an amended application in February of 2019. Opposing the transfer, the Joint Bidders and Cedar Glen4 filed motions for intervention, which were granted. Public Counsel was also a party to the case pursuant to section 386.710(2) and Rule 20 CSR 4240-2.010(10). Public Counsel also opposed the transfer.
Before the Commission, a hearing was held regarding Osage Utility's Application, during which all parties presented evidence and testimony. Thereafter, the Commission issued its Report and Order approving Osage Utility's application to acquire the OWC systems and granting Osage Utility a CCN.5 The Commission found that a transfer of the OWC assets would not be detrimental to the public interest after balancing the potential benefits and detriments of the transfer. During the hearing and in the briefs filed with the Commission, there was a dispute between the parties as to whether the Commission should evaluate Osage Utility's application against the current state of the OWC systems, or if Osage Utility needed to show that it was a better alternative to the Joint Bidders’ proposal. Other disputes were related to disparities between the financing plans and rate and repair estimates of Osage Utility and the Joint Bidders.
Commission Staff endorsed Osage Utility's application, finding it to be a comprehensive plan for bringing the system into compliance and providing safe and adequate service to the OWC service areas.6 The Commission found Osage Utility's planned improvements to be reasonable, and noted that any improvements would be evaluated for prudence and must be approved by the Commission before affecting consumer rates.
Staff did not feel comfortable endorsing the Joint Bidders’ proposal because it was "too incomplete." Staff analyzed the proposal of the Joint Bidders but did not perform in-depth cost studies or an in-depth review of the Joint Bidders’ proposal because Staff had only the application of Osage Utility before it, and Staff found that the Joint Bidders had not provided a complete cost estimate or a complete proposal. The Commission found that (among the Joint Bidders) MWA and LAWWA had not evaluated the necessary improvements in their service areas and did not present any estimates for improvements. The Commission found that PWSD (also amongst the Joint Bidders) presented a plan that was predicated on connecting Cedar Glen to the adjacent PWSD service territory, which would require laying pipe under U.S. Highway 54, but that PWSD had not obtained the necessary permissions and had only general estimates regarding the interconnection which could take more than two years to complete.
With respect to the rate estimates of Osage Utility and the Joint Bidders, the Commission stated:
During the hearing, an estimate of [proposed buyer] Osage Utility's combined rates for water and sewer service was presented based on the pro forma financial statements projecting revenues after Osage Utility's initial rate case and based on the improvements it identifies as needed. That estimated rate, if approved during a rate case, would be a significant increase for [proposed seller] Osage Water Company's customers and would be substantially more than the rates proposed by the Joint Bidders. If all these estimates and proposed rates were to become reality, the higher rates charged by Osage Utility could be a financial detriment to Osage Water Company's customers.
The Commission also recognized other potential benefits if the Joint Bidders were to become owners of the OWC assets, such as greater participation by customers due to the Joint Bidders’ organizational structures, the fact that the Joint Bidders had a local presence and the fact that residents represented by Cedar Glen preferred PWSD as their service provider.
However, the Commission found that Osage Utility's ownership would definitively provide many benefits over the current OWC systems, including providing stability and avoiding further delay. The Commission reiterated that Osage Utility's proposal was comprehensive, whereas the Commission did not have the opportunity to truly vet the Joint Bidders’ proposal due to its...
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