Staff of the Mo. Pub. Serv. Comm'n v. Consol. Pub. Water Supply Dist. C-1 of Jefferson Cnty.

• Decision Date: 17 November 2015
• Docket Number: WD 78507
• Citation: 474 S.W.3d 643
• Parties: Staff of the Missouri Public Service Commission, Respondent, v. Consolidated Public Water Supply District C–1 of Jefferson County, Missouri, Appellant.
• Court: Missouri Court of Appeals

474 S.W.3d 643

Staff of the Missouri Public Service Commission, Respondent,

v.Consolidated Public Water Supply District C–1 of Jefferson County, Missouri, Appellant.

WD 78507

Missouri Court of Appeals, Western District.

OPINION FILED: November 17, 2015

John D. Borgmeyer, Jefferson City, MO, for Respondent.

Bianca L. Eden, Hillsboro, MO, for Appellant.

Before Division One: Anthony Rex Gabbert, Presiding Judge, Victor C. Howard, Judge and Cynthia L. Martin, Judge

Cynthia L. Martin, Judge

Consolidated Public Water Supply District C–1 of Jefferson County, Missouri ("CPWSD") appeals from the Public Service Commission's ("Commission") report and order ("Report and Order") which concluded that CPWSD and the City of Pevely ("Pevely") violated section 247.172¹ by failing to submit to the Commission for approval a written contract addressing the provision of water services, and which ordered CPWSD and Pevely to submit a territorial agreement to the Commission for approval. CPWSD argues that section 247.172 did not apply to its agreement with Pevely, and that in any event, the Commission lacked jurisdiction and statutory authority to determine whether the agreement violated section 247.172 and to order CPWSD and Pevely to submit a territorial agreement for Commission approval.

Because the Commission has no statutory authority to determine whether an agreement between a public water supply district and a municipally owned utility is unlawful and has no authority to order a public water supply district and a municipally owned utility to submit an agreement regarding the provision of water services to the Commission for approval, the Report and Order was entered in excess of the Commission's authority and is vacated.

Factual and Procedural Background

CPWSD is a public water supply district formed pursuant to Chapter 247 for the purpose of supplying potable water to residents within its boundaries.² CPWSD's boundaries are located within Jefferson County.

Pevely is a city of the fourth class located in Jefferson County. Pevely provides its residents potable water as a municipal service. Pevely's municipal boundaries are located entirely within Jefferson County.

Pevely annexed unincorporated land into its municipal boundaries in or around 2006. As a result of this, and of earlier annexations, portions of Pevely's municipal boundaries overlap with portions of CPWSD's water service boundaries.

In 2006, CPWSD filed suit in Jefferson County, seeking to enjoin Pevely from providing water services to those areas where the two entities' boundaries overlap. On November 12, 2007, CPWSD and Pevely entered into a contract titled "Territorial Agreement Between the Consolidated Public Water Supply District No. C–1 of Jefferson County, Missouri, and the City of Pevely, Missouri" ("Territorial Agreement"). The stated purpose of the Territorial Agreement was to resolve CPWSD's lawsuit by serving as "a permanent determination as to which party shall provide water service to the areas specifically described in [the Territorial] Agreement." The Territorial Agreement stated the parties' intent "not [to] be in competition with each other for the purposes of providing water service."

The Territorial Agreement authorized Pevely to continue providing water service to "Hunters Glen subdivision, Tiara at the Abbey subdivision, and Vinyards at Bushberg subdivision." For all other areas where Pevely's boundaries overlapped with CPWSD's boundaries, Pevely "agree[d] to cease all plans to extend water service within the current geographic boundaries of [CPWSD]." According to the Territorial Agreement, "[a]ny future development which is within corporate boundaries of both [Pevely] and [CPWSD], including the development presently known as Valle Creek Condominiums, shall be served by [CPWSD] unless the rights to serve such development are assigned in writing to [Pevely] by [CPWSD]." (Emphasis added.) CPWSD and Pevely agreed that "all other territory within [CPWSD's] boundaries shall remain the exclusive territory of [CPWSD]."

Although the Territorial Agreement identified Valle Creek Condominiums as an area where CPWSD would provide water service, the property was not yet connected to CPWSD's water mains.³ The property was connected to Pevely's water mains. On June 30, 2008, CPWSD entered into an agreement ("Main Extension Agreement") with H and H Development Company, the developer of Valle Creek Condominiums ("Developer"). The Main Extension Agreement provided that the Developer would pay to connect Valle Creek Condominiums to CPWSD's water main. The Main Extension Agreement contemplated that in the interim, Valle Creek Condominiums would receive water service from Pevely, though that service would be metered by CPWSD. Though Pevely was not a party to the Main Extension Agreement, Pevely verbally agreed to continue to provide water service to Valle Creek Condominiums to permit the Developer time to connect to CPWSD's water main. Pursuant to the Main Extension Agreement and the verbal agreement, the Developer received monthly bills for water service from CPWSD, and CPWSD reimbursed Pevely semiannually for the water provided by Pevely.

The Main Extension Agreement required the Developer to connect to CPWSD's water main by February 1, 2009, or failing that, to reach an acceptable agreement with CPWSD by March 1, 2009, to complete the project in some other manner. In the absence of timely connection or an alternative agreement, the Main Extension Agreement provided that "the water service line from Pevely's water main [would] be terminated on that date[, CPWSD's] water meters will be removed, and the Developer will make other provisions to legally serve Valle Creek Condominiums customers at that time."

The Developer did not connect to CPWSD's water main by February 1, 2009, and no alternative agreement was reached with CPWSD by March 1, 2009. CPWSD did not, however, remove its water meters, and Pevely did not take any immediate action to discontinue performance of the verbal agreement reached with CPWSD.

That changed on August 28, 2012, when Pevely accused CPWSD of being in violation of the Territorial Agreement because CPWSD had failed either to extend its service to Valle Creek Condominiums or to notify Pevely of its inability to do so. Pevely advised that it would be removing CPWSD's meters from the Valle Creek Condominiums and installing its own meters to enable direct billing of the Developer for the provision of water services. In October 2012, Pevely removed CPWSD's meters from the Valle Creek Condominiums.

On November 1, 2012, CPWSD filed suit against Pevely in Jefferson County, alleging breach of the verbal agreement to provide temporary service to Valle Creek Condominiums metered by CPWSD.⁴ In April 2013, CPWSD removed Pevely's meters and reinstalled its own meters. Thereafter, CPWSD once again billed Valle Creek Condominiums directly for water service, even though the water continued to be provided through Pevely's water main. CPWSD also sent a letter to John Holborow ("Holborow"), the court-appointed receiver for the Developer,⁵ demanding that the work contemplated by the Main Extension Agreement be complete within 180 days or water service would be terminated.

Holborow contacted the Commission. In a letter to the Commission, Holborow expressed his concerns:

Does [CPWSD] have the right to cut service as long as all the bills are being paid[?] Is ther [sic] precedent or a law in place to block this?

As the receiver I am charged with protecting, preserving and managing the asset. What do I need to do to prevent [CPWSD] from disconnecting the water service? Is there a dispute or claim we can file to prevent this form [sic] occurring?

Obviously, there is no developer and no promise of a future developer at this point, and there is no money to install the pipe as [CPWSD] want[s] us to do.

In investigating Holborow's letter, the Staff of the Missouri Public Service Commission ("PSC Staff") learned about the Territorial Agreement which had never been submitted to the Commission for approval.

The PSC Staff filed a complaint with the Commission against CPWSD and Pevely on July 19, 2013. The complaint alleged that the Territorial Agreement was subject to the requirements of section 247.172, and that CPWSD and Pevely violated the statute by failing to submit the Territorial Agreement to the Commission for approval. The complaint sought declarations to that effect and the imposition of penalties. CPWSD and Pevely filed a joint motion to dismiss the complaint for lack of jurisdiction, which the Commission denied. Following an evidentiary hearing and briefing from the parties, the Commission issued its Report and Order. The Report and Order declared CPWSD and Pevely to have violated section 247.172; ordered CPWSD and Pevely to "submit a territorial agreement for Commission approval no later than February 27, 2015;" and directed PSC Staff to notify the Commission "so that the Commission may consider further action" should CPWSD and Pevely fail to do so. Pevely filed a notice of its intention to comply with the Report and Order, but CPWSD filed an application for rehearing. The Commission denied CPWSD's request for rehearing.

CPWSD appeals.

Standard of Review

When considering a challenge to an order by the Commission, we presume the Commission's order was valid so that the appellant has the burden of proving the order's invalidity. Big River Tel. Co. v. Sw. Bell Tel. Co., 440 S.W.3d 503, 508 (Mo.App.W.D.2014). Appellate review of an order by the Commission requires consideration of a two-prong test: (1) whether the Commission's order was lawful; and (2) whether the Commission's order was reasonable. In re Verified Application & Petition of Liberty Energy Corp., 464 S.W.3d 520, 524 (Mo. banc 2015). We do not reach the issue of reasonableness of the Commission's order unless we conclude that the order was lawful. Id. "The lawfulness of the [Commission's] order is determined by whether...