State ex rel. off. of Public Counsel v. Mo. Public Serv.

• Decision Date: 22 December 2009
• Docket Number: No. WD 70647.,WD 70647.
• Parties: STATE ex rel. OFFICE OF the PUBLIC COUNSEL, Appellant, v. MISSOURI PUBLIC SERVICE COMMISSION and Laclede Gas Company, Respondents.
• Court: Missouri Court of Appeals

301 S.W.3d 556

STATE ex rel. OFFICE OF the PUBLIC COUNSEL, Appellant, v. MISSOURI PUBLIC SERVICE COMMISSION and Laclede Gas Company, Respondents.

No. WD 70647.

Missouri Court of Appeals, Western District.

December 22, 2009.

Motion for Rehearing and/or Transfer to Supreme Court Denied February 2, 2010.

Marc D. Poston, Jefferson City, MO, for Appellant.

Steven C. Reed, Counsel, Jennifer L. Heintz, Jefferson City, MO, Co-Counsel for Respondent, Public Service.

Michael C. Pendergast, St. Louis, MO, for Respondent, Laclede.

Before MARK D. PFEIFFER, P.J., JAMES EDWARD WELSH, and KAREN KING MITCHELL, JJ.

JAMES EDWARD WELSH, Judge.

This appeal involves a dispute over the interpretation and application of an administrative rule of the Public Service Commission, known as "the cold weather rule." See 4 C.S.R. 240-13.055. In this case, the Commission authorized Laclede Gas Company to defer for possible future recovery $2,494,311 as Laclede's cost of complying with an amendment to the Commission's cold weather rule, and the circuit court affirmed the Commission's order. The Office of the Public Counsel appeals asserting that the Commission erred in its order deferring Laclede's cold weather rule costs because the order is unlawful and unreasonable, violates the prohibition against retroactive ratemaking, and relies on an agreement that violates the prohibition in Missouri Constitution article I, section 13 against ex post facto and retrospective laws. We affirm.

History of the Cold Weather Rule

The purpose of the cold weather rule is set forth in 4 C.S.R. 240-13.055 and says: "This rule protects the health and safety of residential customers receiving heat-related utility service by placing restrictions on discontinuing and refusing to provide heat-related utility service from November 1 through March 31 due to delinquent accounts of those customers."

In 2005, the Commission amended the cold weather rule with an emergency amendment effective from December 26, 2005, through March 31, 2006.¹ The purpose of the 2005 amendment was to address a sharp rise in natural gas prices by lessening the payments required of residential customers to get gas service reconnected or to avoid disconnection. The 2005 amendment included a new Section (14) that required gas utilities to reconnect or reinstate delinquent customers with a payment of fifty percent of their outstanding balance or $500, whichever was less. This lowered the reconnection requirements that otherwise allowed gas utilities to require an eighty percent arrearage payment. The Commission's Emergency Statement stated in part: "As the heating season progresses, without this emergency relief, some customers will not be able to pay their bills in a timely manner, which may result in termination of heating service to their homes."² The 2005 amendment also included a utility cost recovery mechanism, explained in the Emergency Statement as "a mechanism whereby natural gas utilities subject to this amendment shall be able to recover all of the reasonably-incurred costs of complying with this amendment."³ The 2005 amendment's cost recovery mechanism included the following relevant provisions:

(F) A gas utility shall be permitted to recover the costs of complying with this rule as follows:

1. The cost of compliance with this rule shall include any reasonable costs incurred to comply with the notice requirements of this rule;

....

3. No gas utility shall be permitted to recover costs under this subsection that would have been incurred in the absence of this emergency amendment; ...

....

(G) A gas utility shall be permitted to recover the costs of complying with this rule through an Accounting Authority Order:

1. The commission shall grant an Accounting Authority Order, as defined below, upon application of a gas utility, and the gas utility may book to Account 186 for review, audit and recovery all incremental expenses incurred and incremental revenues that are caused by this emergency amendment. Any such Accounting Authority Order shall be effective until September 30, 2007.

2. The commission has adopted the Uniform System of Accounts in 4 CSR 240-4.040. Accounting Authority Orders are commission orders that allow a utility to defer certain expenses to Account 186 under the Uniform System of Accounts for possible recovery later. State ex rel. Office of the Public Counsel v. Public Service Commission, 858 S.W.2d 806 (Mo.App.1993); Missouri Gas Energy v. Public Service Commission, 978 S.W.2d 434 (Mo.App.1998).⁴

Laclede Gas Company and two other utilities sought review of the Commission's approval of the 2005 emergency amendment to the cold weather rule. The utility companies argued that the cost recovery mechanism in the 2005 amendment was unlawful because the utilities were entitled to "revenue neutrality" and that a Commission rulemaking could not cause the utility to incur expenses without allowing the utility to recover those expenses dollar for dollar. The Circuit Court of Cole County reversed the Commission's order, but this court affirmed the Commission's order and said:

The Utilities argue that "revenue neutrality" is required by the law of Missouri. We find no statute, rule, or case supporting the utilities assertion of revenue neutrality, i.e., that they have a property right to a defined level of revenue. ...

....

[A] Commission decision may permissibly affect revenue negatively because there is no requirement to provide a particular return on rates. Lightfoot [v. City of Springfield], 361 Mo. 659, 236 S.W.2d [348,] 352 [(Mo.1951)]. It is only required that the rate provides "a just and reasonable return." State ex rel. Midwest Gas Users' Ass'n. v. Pub. Serv. Comm'n, 976 S.W.2d 470, 480 (Mo.App. W.D.1998). In this case, the rate has not changed. The only result of this rule is the deferred collection of portions of the bill; the rate itself was not changed.

State ex rel. Mo. Gas Energy v. Pub. Serv. Comm'n, 210 S.W.3d 330, 334-35 (Mo.App. 2006).

Before this court issued its decision, the Commission proposed to amend the cold weather rule again in 2006 to make permanent certain provisions from Section (14) of the 2005 amendment which had expired on March 31, 2006.⁵ The permanent amendment was also aimed specifically at assisting customers that had fallen behind on their bills and were either disconnected or in threat of disconnection. The 2006 amendment made permanent the reduced initial payment a utility may charge during the winter for reconnection or reinstatement, which reduced the initial payment from eighty percent of arrears to the lesser of fifty percent of arrears or $500. It also included limitations on costs that could be recovered, which said in pertinent part:

(F) A gas utility shall be permitted to recover the costs of complying with this section as follows:

1. The cost of compliance with this section shall include any reasonable costs incurred to comply with the requirements of this section;

2. No gas utility shall be permitted to recover costs under this section that would have been incurred in the absence of this section, provided that the costs calculated in accordance with paragraph (14)(F)1 shall be considered costs of complying with this section;

....

4. No bad debts accrued prior to the effective date of this section may be included in the costs to be recovered under this section, provided that a gas utility may continue to calculate and defer for recovery through a separate Accounting Authority Order the costs of complying with the commission's January 1, 2006 emergency amendment to this rule upon the same terms as set forth herein. The costs eligible for recovery shall be the unpaid charges for new service received by the customer subsequent to the time the customer is retained or reconnected by virtue of this section plus the unpaid portion of the difference between the initial payment paid under this section and the initial payment that could have been required from the customer under the previously enacted payment provisions of section (10) of this rule, as measured at the time of a subsequent disconnection for nonpayment or expiration of the customer's payment plan.

4 C.S.R. 240-13.055(14). The prohibition against recovery of prior bad debts in 4 C.S.R. 240-13.055(14)(F)4 was a new provision not included in the 2005 amendment.

The 2006 amendment included the same Accounting Authority Order cost recovery deferral mechanism used in the 2005 amendment and established the procedure by which a gas utility was to be allowed to defer and recover the costs outlined above (G) A gas utility shall be permitted to defer and recover the costs of complying with this rule through a one (1)-term Accounting Authority Order until such time as the compliance costs are included in rates as part of the next general rate proceeding or for a period of two (2) years following the effective date of this amendment:

1. The commission shall grant an Accounting Authority Order, as defined below, upon application of a gas utility, and the gas utility may book to Account 186 for review, audit and recovery all incremental expenses incurred and incremental revenues that are caused by this section. Any such Accounting Authority Order shall be effective until September 30, of each year for the preceding winter;

2. Between September 30 and October 31 each year, if a utility intends to seek recovery of any of the cost of compliance with this section, the utility shall file a request for determination of the cost of compliance with this section for the preceding winter season. The request by the utility shall include all supporting information. All parties to this filing will have no longer than one hundred twenty (120) days from the date of such a filing to submit to the commission their position regarding the company's request with all supporting evidence. The commission shall hold a proceeding where the utility shall present all of its evidence concerning the...