State Ex Rel. Praxair Inc. v. Mo. Pub. Serv. Comm'n

• Decision Date: 30 August 2011
• Docket Number: No. SC 91322.,SC 91322.
• Citation: 344 S.W.3d 178
• Court: Missouri Supreme Court
• Parties: STATE ex rel. PRAXAIR, INC., AG Processing, Inc., a Cooperative, and Sedalia Industrial Energy Users' Association, Appellants,Office of the Public Counsel, Appellant,v.MISSOURI PUBLIC SERVICE COMMISSION, Great Plains Energy, KCP & L, KCP & L Greater Missouri Operations Co., Respondents.

344 S.W.3d 178

STATE ex rel. PRAXAIR, INC., AG Processing, Inc., a Cooperative, and Sedalia Industrial Energy Users' Association, Appellants,Office of the Public Counsel, Appellant,

v.MISSOURI PUBLIC SERVICE COMMISSION, Great Plains Energy, KCP & L, KCP & L Greater Missouri Operations Co., Respondents.

No. SC 91322.

Supreme Court of Missouri, En Banc.

July 19, 2011.Rehearing Denied Aug. 30, 2011.

David L. Woodsmall, Stuart W. Conrad, Finnegan, Conrad & Peterson LC, Jefferson City, for Praxair, AG Processing and Sedalia Industrial Energy Users' Association.Lewis R. Mills Jr., Jefferson City, for Office of the Public Counsel.Jennifer Heintz, Stephen C. Reed, The Commission in Jefferson City, for Public Service Commission.Karl Zobrist and Daniel Morris of SNR Denton U.S. LLP in Kansas City, for Great Plains Energy, KCP & L and KCP & L operations.Roger W. Steiner of the Kansas City Power & Light Company in Kansas City, for KCP & L and KCP & L operations.LAURA DENVIR STITH, Judge.

Praxair, Inc., AG Processing, Inc., a cooperative, and Sedalia Industrial Energy Users' Association (for convenience, collectively “Praxair”) appeal the Public Service Commission's (PSC's) approval of Great Plains Energy, Inc.'s acquisition of Aquila, Inc., a Missouri utility company. Praxair argues that the PSC improperly failed to consider Great Plains' allegedly inadequate gift policy, a policy that, Praxair asserts, should have caused the merger to be rejected. Further, Praxair argues that the regulatory law judge erred in precluding Praxair from making an offer of proof as to Great Plains' gift policy, as it prevents this Court from considering whether the gift policy was relevant and material to the merger decision.

While the Court agrees that section 536.070(7) ¹ gives the regulatory law judge the discretion to preclude a testimonial offer of proof when, as here, he finds the offered evidence to be “wholly irrelevant,” he erred in failing to allow a written offer of proof to be made as to Great Plains' gift policy. Were such an offer of proof not permitted, the decision to exclude evidence as “wholly irrelevant” itself would be wholly unreviewable by the courts, and, therefore, would violate article V, section 18 of the Missouri Constitution and section 386.510, both of which provide for judicial review of PSC decisions. Here, however, this Court directed the parties to file a written offer of proof and any response thereto directly in this Court. The Court finds that while the evidence as to Great Plains' gift policy should have been admitted, its exclusion was not prejudicial as the gift policy could not have substantially impacted the weight of the evidence evaluated to approve the merger.

The Office of Public Counsel separately appeals the denial of its motion to dismiss the application for approval of the merger. Public Counsel argues that the PSC decision cannot stand because certain of the PSC commissioners who heard the merger application had been subject to inappropriate ex parte contact with executives from Great Plains at various meetings held approximately three months prior to the filing of the application for approval of this merger. He argues that this created an appearance of impropriety and that an appearance of impropriety creates a basis for recusal under the Code of Judicial Conduct. Public Counsel argues that the Code of Judicial Conduct applies to PSC commissioners just as much as it applies to judges and that this Court should hold that it was improper for the commissioners to decide the merger question.

This Court agrees that a failure to recuse after ex parte meetings concerning specific cases that are to be filed before the PSC creates an appearance of impropriety and that the appearance of impropriety is a basis for recusal under the Code of Judicial Conduct. But, although the PSC commissioners act in a quasi-judicial capacity, they are not judges, but members of the executive branch of government. The Code of Judicial Conduct does not govern their actions. Due process considerations nonetheless require an impartial arbiter. Public Counsel does not suggest that the ex parte meetings resulted in actual bias, however, and presented no evidence that could support a finding of actual bias. Moreover, the record is clear that those involved believed that the contacts were not inappropriate and did not require recusal where no case had yet been filed. Public Counsel has not overcome the presumption that the PSC acted impartially.

The judgment is affirmed.

I. FACTUAL AND PROCEDURAL BACKGROUND

In late January 2007, a series of four or five meetings were held between members of the PSC and executives of Great Plains and the Kansas City Power and Light Company (KCPL), a subsidiary of Great Plains. Each meeting was held with just one or two commissioners attending, although ultimately, all five of the then- serving commissioners were present for at least one meeting. Two of the three commissioners who ultimately decided this case participated in these meetings. No notice was given to the public or to Public Counsel about these meetings, which were intended to allow the utility executives to notify the commissioners of the contemplated transaction and preview issues that would be raised by the impending joint application. Those involved believed that such meetings were not improper because until a proceeding was filed with the PSC, there was no ongoing case and, therefore, no prohibition against ex parte discussions.

On February 7, 2007, Great Plains and Aquila announced the planned merger. On April 4, 2007, Great Plains, KCPL and Aquila filed a joint application with the PSC requesting authority for a series of transactions by which Great Plains would acquire the stock of Aquila and operate Aquila as a separate, wholly-owned subsidiary. If approval were granted, Aquila and KCPL both would operate as subsidiaries of Great Plains.

Praxair intervened. Evidentiary hearings at the PSC began on December 3, 2007, but were halted at the request of Great Plains, KCPL and Aquila. Thereafter, one commissioner who had been present for at least one of the pre-filing meetings recused himself. On December 13, 2007, Public Counsel filed a motion to dismiss on the grounds that three of the remaining four commissioners then hearing the case had been present at one or more pre-filing meetings and should have recused themselves because of the alleged impropriety of those meetings. The PSC denied the motion on January 2, 2008.

The evidentiary hearings resumed on April 21, 2008 and, in non-consecutive sessions, concluded on June 11, 2008. Also in April 2008, Great Plains, KCPL and Aquila filed a motion to limit the scope of the proceedings. Among other things, they sought to preclude any evidence as to their gift and gratuity policies.

On April 24, 2008, the regulatory law judge who acted as presiding officer at the hearing ruled that evidence as to the gift and gratuity policies would be excluded.² He further found that the evidence was “wholly irrelevant” to the merger because the PSC does not dictate gift policies of utilities it regulates and, on that basis, precluded the parties from making an offer of proof as to the excluded gift and gratuities policy evidence.

On July 1, 2008, the PSC, with only three commissioners participating, issued its 285–page report and order approving the merger by a 2–1 vote. Two commissioners, only one of whom was present at a pre-filing meeting, voted to approve the merger. One commissioner, who also had been present at a pre-filing meeting, voted against approval. Praxair and Public Counsel timely filed applications for rehearing. On July 14, 2008, the July 1, 2008, report and order became effective.³ On August 5, 2008 the PSC denied all pending applications for rehearing.

Petitions for writs of review were filed in Cole County circuit court by Praxair and Public Counsel. After briefing and argument, the circuit court issued its judgment affirming the order. Praxair and the Public Counsel appealed. After opinion by the court of appeals, this Court granted transfer. Mo. Const. art. V, § 10.

II. STANDARD OF REVIEW

This Court reviews the decision of the PSC rather than that of the circuit court. Environmental Utilities, LLC v. Public Serv. Comm'n, 219 S.W.3d 256, 263 (Mo.App.2007). Under section 386.510, “the appellate standard of review of a PSC order is two-pronged: ‘first, the reviewing court must determine whether the PSC's order is lawful; and second, the court must determine whether the order is reasonable.’ ” State ex rel. AG Processing, Inc. v. Public Serv. Comm'n, 120 S.W.3d 732, 734 (Mo. banc 2003), quoting, State ex rel. Atmos Energy Corp. v. Public Serv. Comm'n, 103 S.W.3d 753, 759 (Mo. banc 2003). “The burden of proof is upon the appellant to show that the order or decision of the PSC is unlawful or unreasonable.” AG Processing, 120 S.W.3d at 734. The lawfulness of an order is determined “by whether statutory authority for its issuance exists, and all legal issues are reviewed de novo.” Id. “The decision of the [PSC] is reasonable where the order is supported by substantial, competent evidence on the whole record; the decision is not arbitrary or capricious or where the [PSC] has not abused its discretion.” Environmental Utilities, 219 S.W.3d at 265.

III. PARTIES ARE ENTITLED TO MAKE A WRITTEN OFFER OF PROOF EVEN AS TO EVIDENCE EXCLUDED AS “WHOLLY IRRELEVANT”

Great Plains and Aquila are regulated utilities that, under section 393.190.1, must obtain approval from the PSC for their proposed merger. As noted, there are two components to this review, lawfulness and reasonableness. Praxair contends on appeal that the PSC's order was unreasonable. “Reasonableness turns on the standard used to evaluate a merger subject to approval by the PSC, which is whether or not the merger would be ‘detrimental to the public.’ ” State ex rel. AG Processing, 120 S.W.3d at 735. In the...