State ex rel. Mo. Office of Public Counsel v. Public Serv. Com'n.

Decision Date28 August 2009
Docket NumberNo. SD 29297.,No. SD 29320.,No. SD 29308.,No. SD 29278.,SD 29278.,SD 29308.,SD 29297.,SD 29320.
Citation293 S.W.3d 63
PartiesSTATE of Missouri ex rel. MISSOURI OFFICE OF the PUBLIC COUNSEL, Relator-Appellant, v. PUBLIC SERVICE COMMISSION OF the STATE of Missouri, Respondent-Respondent. Missouri Gas Energy, a Division of Southern Union Company, Plaintiff-Appellant, v. Public Service Commission of the State of Missouri, Defendant-Respondent.
CourtMissouri Court of Appeals

& England, P.C., Jefferson City, MO, and Douglas S. Evans, Evans & Green, L.L.P., Springfield, MO, for appellant, Missouri Gas Energy (Nos. SD29297 & SD29320).

Jennifer Heintz and Peggy A. Whipple, Jefferson City, MO, for respondent, Public Service Commission of the State of Missouri.

GARY W. LYNCH, Chief Judge.

The Office of Public Counsel ("OPC") and Southern Union Company ("Southern Union") separately appeal from the circuit court's affirmance of a Public Service Commission ("the Commission") Report and Order ("the Order"). The resolutions of both appeals are consolidated in this opinion.

OPC raises three points of Commission error: (1) the Order as related to the adopted rate design does not contain sufficient findings of fact and conclusions of law, is not supported by competent and substantial evidence, and is arbitrary, capricious, and an abuse of the Commission's discretion; (2) the Order permits Southern Union to recover the cost of software no longer being used to provide service to its customers, in violation of section 393.1301; and (3) the Order permits Southern Union to recover costs that cannot be attributed to compliance with the Cold Weather Rule Emergency Amendment, in violation of 4 C.S.R. 240-13.055.

In its appeal, Southern Union also raises three points of Commission error: (1) the Order retains the use of a 30-year weather normalization methodology, when the competent and substantial evidence supports a 10-year rolling method; (2) the Order retains the use of Southern Union's actual capital structure, when a hypothetical capital structure more aligned with the interests of its operating division, Missouri Gas Energy ("MGE"), should have been used; and (3) the Order improperly includes in the capital structure calculation the debts of one of Southern Union's subsidiary companies, creating an unlawful and unreasonable confiscatory rate.

Finding no merit in any of the parties' points, this Court affirms the Commission's Order.

Factual and Procedural Background

MGE is an operating division of Southern Union,2 and has conducted business in Missouri since 1994. Southern Union "owns and operates assets in the regulated and unregulated natural gas industry and is primarily engaged in the gathering, processing, transportation, storage, and distribution of natural gas in the United States." Over the last few years, Southern Union has been in the process of transforming itself from primarily a natural gas distribution utility to a more diversified natural gas service provider, and is currently viewed in the financial sector as a midstream natural gas company, i.e., a middleman of sorts between the producers of natural gas and those who deliver it to consumers. MGE operates as a local distribution company that purchases natural gas from a supplier, transports it through interstate pipelines to Missouri, and then sells it to both residential and commercial customers. MGE's territory covers the western third of Missouri, including Kansas City, St. Joseph, Joplin, and Monett, and consists of approximately 500,000 customers. As an operating division of Southern Union, MGE has no capital structure of its own, and does not have investors in its own right.

On May 1, 2006, Southern Union filed tariff sheets with the Commission asking for an annual revenue increase of approximately $41 million, to be accomplished via a number of significant changes to the utility's rate design and Commission-authorized rate of return. The tariff carried an effective date of June 2, 2006. On May 12, 2006, the Commission suspended the tariff until March 30, 2007, the maximum suspension allowed by law.

On July 13, 2006, the Commission established the test year for this case as the 12-month period ending December 31, 2005, with an update period for known and measurable changes through June 30, 2006. All parties to the case then settled on a further true-up period ending October 31, 2006, for the purpose of updating particular cost components. Finally, the Commission determined a procedural schedule for the case, with the hearing set to begin January 8, 2007.

Local public hearings regarding the rate case were held in Kansas City, Joplin, Republic, Warrensburg, Nevada, St. Joseph, and Slater, Missouri. At these hearings, the Commission heard comments from MGE customers regarding the request for a rate increase. Additionally, Southern Union, OPC, and the staff of the Commission3 ("Staff") pre-filed direct, rebuttal, and surrebuttal testimony from their respective witnesses. During the actual hearing, which ran from January 8 through January 17, 2007, all three entities also entered into evidence true-up testimony; the true-up hearing was ultimately deemed unnecessary and was canceled with the consent of all involved.

Following the evidentiary hearing, the Commission issued the Order on March 22, 2007, with an effective date of March 30, 2007. In the Order, the Commission granted, inter alia, Southern Union's requests to (1) change the fundamental structure of its rates from the traditional volumetric design to a straight-fixed variable ("SFV") design; (2) amortize the cost of software no longer serving as the primary software for everyday operations of the company; and (3) recover costs lost to Southern Union due to compliance with the Cold Weather Rule Emergency Amendment. The Commission denied, however, inter alia, Southern Union's requests to (1) use a rolling, 10-year heating degree day average when calculating cost of service instead of the traditional static 30-year average; (2) employ a hypothetical capital structure in determining an appropriate rate of return; and (3) exclude the debt of Panhandle Eastern Pipeline ("Panhandle"), a subsidiary company of Southern Union, from the calculation of Southern Union's percentage of long-term debt in determining the appropriate capital structure. Both OPC and Southern Union filed applications for rehearing, which were denied, and both then filed petitions for writ of review with the Greene County Circuit Court. That court found the Order to be just and reasonable, and this appeal followed. All other pertinent facts are set out infra.

Standard of Review

"In an administrative appeal, we review the agency's findings and decisions and not the circuit court's judgment." State ex rel. Mo. Gas Energy v. Pub. Serv. Comm'n, 186 S.W.3d 376, 381 (Mo.App.2005) (citing Friendship Village of S. County v. Pub. Serv. Comm'n of Mo., 907 S.W.2d 339, 344 (Mo.App.1995)). Our review consists of two parts: first, we determine whether the Commission's order is lawful; second, we determine if the order is reasonable and supported by "competent and substantial evidence upon the whole record." Id. In reaching a conclusion on the issue of lawfulness, this Court "exercise[s] unrestricted, independent judgment and correct[s] any erroneous interpretations of law." Id. We must also examine "whether the Commission had the statutory authority to act as it did" in issuing its order. Union Elec. Co. v. Pub. Serv. Comm'n, 136 S.W.3d 146, 152 (Mo.App.2004). In assessing an order's reasonableness, this Court determines whether "(i) the order is supported by substantial and competent evidence on the whole record, (ii) the decision is arbitrary, capricious or unreasonable, or (iii) the Commission abused its discretion." Mo. Gas Energy, 186 S.W.3d at 382 (citing Friendship Village, 907 S.W.2d at 344-45).

In our review, there is a presumption that the Commission's order is valid, and the burden rests on the party challenging it to prove its invalidity. Mo. Gas Energy, 186 S.W.3d at 381-82 (citing Friendship Village, 907 S.W.2d at 344)). We view all evidence, as well as all reasonable supporting inferences, in the light most favorable to the Commission's order. Friendship Village, 907 S.W.2d at 345. "[I]f substantial evidence supports either of two conflicting factual conclusions, `[we are] bound by the findings of the administrative tribunal.'" State ex rel. AG Processing, Inc. v. Pub. Serv. Comm'n, 120 S.W.3d 732, 735 (Mo. banc 2003) (quoting Amway Corp. v. Dir. of Revenue, 794 S.W.2d 666, 668 (Mo. banc 1990)). The determination of witness credibility is solely within the discretion of the Commission, "`which is free to believe none, part, or all of [a witness's] testimony.'" Mo. Gas Energy, 186 S.W.3d at 382 (quoting Commerce Bank, N.A. v. Blasdel, 141 S.W.3d 434, 456-57 n. 19 (Mo.App. 2004)). Essentially, this Court will not re-weigh the evidence to reach its own conclusion. State ex rel. Assoc. Natural Gas Co. v. Pub. Serv. Comm'n, 706 S.W.2d 870, 874 (Mo.App.1985). "It is only where a Commission order is clearly contrary to the overwhelming weight of the evidence that we may set it aside." Mo. Gas Energy, 186 S.W.3d at 382 (citing Friendship Village, 907 S.W.2d at 345). Finally, "where a decision rests on the exercise of regulatory discretion, we will not substitute our judgment for that of the Commission, particularly on issues within its area of expertise." Id.

Discussion

OPC and Southern Union each present three points for our review in their respective appeals. Each point will be addressed in the order presented, beginning with OPC's appeal.

A. OPC's Appeal — Nos. SD29278 and SD29308

I. Commission's Adoption of...

To continue reading

Request your trial
12 cases

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT