State ex rel. Joplin v. Public Service Com'n

• Decision Date: 06 December 2005
• Docket Number: No. WD 64944.,WD 64944.
• Parties: STATE of Missouri EX REL., CITY OF JOPLIN, Missouri, Appellant, v. PUBLIC SERVICE COMMISSION OF the STATE OF MISSOURI; Missouri American Water Company; AG Processing, Inc., Respondents.
• Court: Missouri Court of Appeals

186 S.W.3d 290

STATE of Missouri EX REL., CITY OF JOPLIN, Missouri, Appellant, v. PUBLIC SERVICE COMMISSION OF the STATE OF MISSOURI; Missouri American Water Company; AG Processing, Inc., Respondents.

No. WD 64944.

Missouri Court of Appeals, Western District.

December 6, 2005.

Motion for Rehearing and/or Transfer to Supreme Court Denied January 31, 2006.

Application for Transfer Denied April 11, 2006.

COPYRIGHT MATERIAL OMITTED

James B. Deutsch, Marc H. Ellinger, Co-Counsel, Jefferson City, MO, for appellant.

Keith R. Krueger, Jefferson City, MO, for respondent Public Service Commission.

Dean L. Cooper, Jefferson City, MO, for respondent Missouri American Water.

Stuart W. Conrad, Kansas City, MO, for respondent AG Processing.

Before VICTOR C. HOWARD, P.J., JAMES M. SMART and THOMAS H. NEWTON, JJ.

THOMAS H. NEWTON, Judge.

The City of Joplin appeals a circuit court decision affirming the Public Service Commission's (Commission) ruling that a 2000 rate case involving the Missouri-American Water Company (Company) was mooted by new tariffs that Joplin agreed to and were approved by the Commission in 2004 while this case was pending. Because we find that the case fits within an exception to the mootness doctrine, we reverse and remand for the Commission to issue findings of fact and conclusions of law as ordered by the circuit court in 2001.

In August 2000 the Commission approved a Company rate plan that was designed to move from single tariff pricing (STP) toward district-specific pricing (DSP) across a number of Missouri districts. The Company was seeking to increase its annual revenues by 53.97%, or about $16.5 million, and improve its return on equity. The Company had previously been moving toward the STP method, where each district's customers pay for water service at the same rate schedule as customers in other districts, regardless of differences in the actual costs to provide that service to the various districts. DSP, in contrast, is a rate-allocation method under which different rate schedules are applied to customers in each of the various districts in a system served by a public utility and are based on the separately determined, specific costs of providing service in each district.

Under the tariffs approved by the Commission, the Joplin district and its ratepayers were to be charged under a "modified" DSP method that resulted in Joplin district ratepayers paying rates at existing levels under the STP method. Among other matters, the Commission's decision produced an acknowledged excess of revenue over actual costs of providing water service to the Joplin district. The surplus of some $880,000 per year from the Joplin district was purportedly applied to benefit ratepayers in other districts who were only charged for the actual costs of service and would otherwise have faced significant rate increases, characterized as shock rates, under the DSP method.¹ The Commission denied multiple applications for rehearing, including Joplin's.

Seven parties filed ten petitions for writs of review in three different counties, and, on May 31, 2001, the Missouri Supreme Court granted writs of prohibition to stop the proceedings in any county other than Cole. On October 3, the Cole County Circuit Court entered amended judgments on three writs of review, affirming in part the Commission's Report and Order and reversing the Commission's decision as to the Joplin rates. Specifically, the court stated:

[T]he Commission has identified no "principle" to support this decision not to set the Joplin District rates through the same method as the rest of the Company's Missouri system.² While the result is undisputed that the Joplin District pays $880,000 in excess of its cost of service in order to subsidize the other water districts, there is no factual or legal explanation for this unequal treatment of the Joplin District in the Commission's Order. The Commission cited no source for such principle in its briefs to this Court. Such a result, without explanation, violates the prohibition against granting undue or unreasonable preference to some rate payers and locales and against subjecting any ratepayers or locale to any undue or unreasonable prejudice or disadvantage in any respect whatsoever, Section 393.130.3, RSMo 2000.

. . . .

. . . [T]he Commission's conscious decision to treat differently the ratepayers in the Joplin District from those outside that district by requiring those customers to pay part of the cost of serving all other customers outside the Joplin District clearly requires justification in the evidence and in the decision. Because the [Commission's] decision states no such justification, and because [the Commission] cites no such evidence in the record, the Commission decision is unauthorized by law.

. . . .

The Commission is required by law to set forth specific findings of fact to permit effective judicial review by the reviewing Court in order to determine whether the Commission's decision was supported by substantial and competent evidence. Section 536.090, RSMo 2000. The lack of findings of fact and conclusions of law concerning the Joplin District rate design precludes any meaningful review of the Commission's decision by this Court.

The case was remanded for the Commission to set forth specific findings of fact and conclusions of law. With no change in the rates charged to Joplin district ratepayers, Joplin did not seek a stay of the 2000 rates nor did it request the establishment of a stay fund in which the district's ratepayers could have revenues impounded to await further Commission review or a final appellate court decision. § 386.520.³

Appeals were taken from the circuit court's decision, and this court dismissed the appeals on December 13, 2001, finding that the court's order was not final and thus not appealable. Our mandate was sent to the circuit court on February 28, 2002. This was the first date on which the Commission regained jurisdiction over the matter. Just five weeks later on April 3, before a pre-hearing conference could be held, several parties other than Joplin successfully filed a petition for writ of prohibition in circuit court seeking to disqualify the regulatory law judge who had been presiding in the case from conducting any further hearings. This court dissolved the writ a year later on April 1, 2003. State ex rel. AG Processing Inc. v. Thompson, 100 S.W.3d 915 (Mo.App. W.D.2003). Jurisdiction of the case was returned to the Commission thereafter on May 12. One week later, on May 19, the Company filed a second rate case, seeking a general 12.2% rate increase for water and sewer service that would produce some $20 million in additional gross annual water revenues excluding gross receipts and sales taxes.

The Commission took no further action on the 2000 rate case until after it approved a stipulation and agreement reached by the Company and most of the intervenors, including Joplin, as to the second rate case in April 2004. The second rate case had been consolidated with an excessive earnings complaint; Commission staff alleged that the Company was earning excessive water service revenues amounting to between $19 million and $21 million per year on a total company basis. The final rates approved were intended to be revenue neutral and included a 10% reduction for residential ratepayers in the Joplin district and a 1.38% increase for the district's commercial ratepayers.⁴ The Joplin rates were intended "to more accurately reflect the true cost of providing water service to these customer classes." The stipulation also included boilerplate text that limited application of the agreement as follows:

This Stipulation and Agreement is being entered into solely for the purpose of settling all Revenue Requirement issues in these cases. None of the signatories to this Stipulation and Agreement shall be deemed to have approved or acquiesced in any ratemaking or procedural principle, including, without limitation, any method of cost determination or cost allocation or revenue related methodology, and none of the signatories shall be prejudiced or bound in any manner by the terms of this Stipulation and Agreement in this or any other proceeding, whether this Stipulation and Agreement is approved or not, except as otherwise expressly specified herein.

Joplin did not file an application for rehearing regarding the 2003 rate case.

As for the 2000 rate case at issue herein, the Commission's Report and Order on Remand, issued on May 27, 2004, found that (i) the 2000 rates, which became effective September 20, 2000, were superseded by the rates approved in 2004; (ii) neither the Commission nor any court stayed the 2000 rates; (iii) the revenues produced by those rates were paid by the Company's customers directly to the Company; and (iv) none of the revenues were paid into the registry of any court. The Commission concluded, on the basis of these findings, that the Joplin district rate issue in the case was moot, because there was no decision the Commission could make that would have any practical effect on the controversy. According to the Commission,

In the present case, the excess revenue produced by the Joplin District was paid directly to [the Company], unconditionally, pursuant to tariffs approved by the Commission. This revenue became the property of [the Company] and no part of it can lawfully be refunded or returned to the ratepayers. Neither the Commission nor any court can retroactively determine what a just and reasonable rate for Joplin should have been. Therefore, the Commission determines that the Joplin issue is moot.

Thus, the Commission did not, as ordered by the circuit court in 2001, issue findings of fact and conclusions of law to support the 2000 tariffs, which had been found discriminatory and unlawful. The Commission denied Joplin's application for rehearing, and the circuit court, also finding the matter moot, upheld its decision in ...