Spire Mo., Inc. v. Pub. Serv. Comm'n of State
| Decision Date | 15 March 2019 |
| Docket Number | No. SD35485,No. SD35549 Consolidated,SD35485,SD35549 Consolidated |
| Parties | SPIRE MISSOURI, INC., f/k/a LACLEDE GAS COMPANY, Appellant, v. PUBLIC SERVICE COMMISSION OF THE STATE OF MISSOURI, Respondent. and OFFICE OF PUBLIC COUNSEL, Intervenor. |
| Court | Missouri Court of Appeals |
APPEAL FROM THE PUBLIC SERVICE COMMISSION OF THE STATE OF MISSOURI
AFFIRMED
Spire Missouri, Inc., f/k/a Laclede Gas Company ("Spire Missouri"),3 appeals from two Orders rendered by the Public Service Commission of the State of Missouri ("PSC"). In three points on appeal, Spire Missouri asserts the PSC erred in ordering that $3.6 million in relocation proceeds received from the sale of one of its facilities be used to reduce rates; in denying Spire Missouri approximately half of its rate case operating expenses; and eliminating $28.8 million of its pension asset. Finding no merit to these points, we affirm the Orders of the PSC.
Factual and Procedural History
Parties
The PSC is the state agency responsible for the regulation of public utilities, including gas corporations, in Missouri. See §§ 386.130 and 386.250.4 Spire Missouri5 is an investor-owned gas corporation regulated by the PSC. It has two retail service areas in the state: Spire Missouri East ("Spire East"),6 formerly known as Laclede Gas Company, serving approximately 630,000 customers on the Eastern side of the state; and Spire Missouri West (Spire West), formerly known as Missouri Gas Energy, serving approximately 500,000 customers on the Western side of the state.
The Office of Public Counsel ("OPC") represents the public in cases before the PSC and on appeal from PSC orders and decisions, including the present case. § 386.710.1(2).
PSC Proceedings
Spire Missouri filed tariffs to implement general rate increases for gas service in its Eastern and Western service areas. Along with the proposed tariffs, Spire Missouri also provided written testimony and other documentation in support of the proposed tariffs.
The test year established for this rate case was the 12-month period ending on December 31, 2016, to be updated for known and measurable changes through June 30, 2017. The updated test year would be further trued up for known and measurable revenue, rate base, and expense items through September 30, 2017.
The PSC consolidated the Spire East rate case7 and the Spire West case8 for hearing purposes, but the cases remained separate as the two service areas do not have the same rates. The parties filed written direct, rebuttal, and sur-rebuttal testimony for the case in chief, and direct and rebuttal true-up testimony.
The PSC held local public hearings in Spire Missouri's Eastern and Western service areas. An evidentiary hearing was held at the PSC's primary office in Jefferson City.
PSC's Amended Report and Order
The PSC issued its Order establishing new rates for the Spire East service area on March 7, 2018. On the same day, the PSC issued its Order establishing new rates for the Spire West service area. Both Orders became effective on March 17, 2018. In those Orders, the PSC made factual findings regarding issues on appeal.
Ratemaking Treatment of Forest Park Property Transaction
Spire East owned and operated three large service centers for several decades. One of the service centers was located near Forest Park in the City of St. Louis (the "Forest Park property"). The Forest Park property provided some services, such as gas procurement, gas controls, and diversion, not otherwise provided by other service center locations.
After the acquisition of the Spire West service area, Spire Missouri undertook certain company restructuring. The major restructuring elements in the St. Louis area were the sale of the Forest Park property, the termination of the lease for the main corporate office at 720 Olive Street, the lease of new offices at 700 and 800 Market Street, and the construction of a new satellite operation facility on Manchester Avenue.
To obtain additional negotiating leverage for the potential sale of the Forest Park property, Spire East acquired two adjacent parcels of land in January 2013. The cost of the adjacent parcels was $450,000, plus additional expenses. These properties were included in the sale of the Forest Park property.
On June 27, 2013, Spire East entered into an agreement to sell the Forest Park property to The Cortex Innovation Community in St. Louis ("Cortex"), an urban redevelopment corporation. As part of the process, Cortex obtained an appraisal of the Forest Park property, which found that the market value of the property, with all of its buildings and structures, was $6.89 million; the appraised market value for the property—with all of the buildings demolished and removed—was $7.44 million.
Cortex purchased the Forest Park property, including the buildings, other improvements, and the additional parcels of land for $8.3 million. Cortex paid an additional $5.3 million for employee and equipment expenses. The sale closed in May 2014.
Spire East's profit from the $8.3 million sale price of the Forest Park property (previously included in rate base) after subtracting the $1.8 million net book value of the buildings and $700,000 for the land, was $5.8 million. Of that amount, Spire East used $1.95 million for the purchase of furniture and fixtures at the new offices located at 700 and 800 Market Street, recording these purchases at a "zero" net book value.
Spire East reported its moving and relocation expenses, but the expenses were not tracked by specific move. With the exception of a lease expense for one temporary location at a cost of $200,000, it was unclear which expenses were used for moving Forest Park employees and equipment, and which were used for moving employees and equipment from Olive Street to the Market Street location.
Spire East did not seek PSC authorization prior to the sale of the Forest Park property.9 At the time of the sale, the Forest Park property was necessary and useful to the provision of utility service. PSC Staff ("the Staff") argued that the gain from the sale of the Forest Park property should be shared with ratepayers because Spire East sold utility property needed for the provision of public service, which had to be replaced with a new facility at a higher cost.
Staff proposed that $3.6 million (the $5.7 million relocation proceeds, less documented moving expenses and the $1.95 million in capital expenditures for furniture and fixtures) be used to offset the cost of the more expensive Manchester facility. The PSC found that: (1) Staff's proposal was just and reasonable; (2) ratepayers should not continue to pay for property replaced with a more expensive property; and (3) the sale of the Forest Park property was not purely a land transaction, but was necessary for the provision of Spire Missouri's utility service. At the time ofthe Forest Park property sale, the buildings on the land were in the Spire East's rate base and had an undepreciated net book value of $1.8 million. The PSC found that when the buildings were sold, any return on building costs should have been removed from rates at the time of the sale. The PSC did not authorize the sale, and there was no adjustment to rates made at the time of the sale.
Spire East's recording of the sale transaction reduced the building asset account by $3.3 million. However, the PSC found that the reduction of the depreciation reserve by the same amount did not allow for the recognition of the $1.8 million loss on the retirement of the Forest Park buildings, and misrepresented the effect of the sale on the utility's depreciation reserve.
The PSC ordered Spire East to account for the sale of the Forest Park transaction in accordance with the FERC's USoA10 by increasing its accumulated depreciation reserve by the $1.8 million loss on the retirement of the Forest Park buildings; that neither a return of the $1.8 million undepreciated value of the Forest Park buildings, nor any return on the $1.8 million would be included in rates going forward; and that the remainder of the $5.8 million gain belonged to the shareholders.
The PSC found that Spire East partially replaced the Forest Park property with the Manchester facility; that while the Manchester facility might be less expensive to operate than the Forest Park facility, it was a more expensive capital asset than the Forest Park property; that the rates established in this case included this more expensive capital asset; and that it was appropriate for the PSC to order a portion of the $5.7 million in relocation costs be used to offset the higher costs of this partial replacement facility.
The PSC also found that while the actual expenses incurred to relocate Forest Park employees could not be determined from the evidence presented, the $200,000 lease expense and the $1.95 million capital contributions should be deducted from the $5.7 million total before the remainder was used to offset the construction cost of the new Manchester facility.
The PSC ordered Spire East to create a regulatory liability to record the rate base offset of the relocation expense, amortized over five years, effective on the date of the rates set in this case.
Rate Case Expense
Rate case expense is the sum of the costs a utility incurs in preparing, filing, and litigating a rate case.
Spire Missouri's witness on rate case expense testified that the company enters into a rate case with an estimate of its rate case expenses, but that Spire Missouri had no firm ceiling or other mechanism in place to limit those expenses.
When Spire Missouri filed its rate cases, it budgeted rate case expense of $994,447, with $596,668 budgeted in Spire East's rate case, and $397,779 budgeted in Spire West's rate case. Spire Missouri's anticipated annual expense to be recovered from these rate cases over the proposed amortization period11 was $198,889 for Spire East, and $132,593 for Spire West.
By the time of hearing, Spire Missouri's estimated rate case expense had...
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