State ex rel. Riverside Pipeline Company, L.P. v. Public Service Commission, No. WD 63093 (MO 10/19/2004), WD 63093
| Decision Date | 19 October 2004 |
| Docket Number | No. WD 63093,WD 63093 |
| Parties | STATE OF MISSOURI ex rel. RIVERSIDE PIPELINE COMPANY, L.P., MID-KANSAS PARTNERSHIP, and MISSOURI GAS ENERGY, Respondents, v. PUBLIC SERVICE COMMISSION OF THE STATE OF MISSOURI, Appellant. |
| Court | Missouri Supreme Court |
Appeal from the Circuit Court of Cole County, Missouri, The Honorable Thomas J. Brown, III, Judge.
Gregory L. Musil, Overland Park, KS, Charles Brent Stewart, Columbia, MO, Attorneys for Respondents Riverside Pipeline and Mid-Kansas Partnership.
Brian T. McCartney, Jefferson City, MO, Attorney for Respondent Missouri Gas Energy.
Cliff Snodgrass, Jefferson City, MO, Attorney for Appellant PSC.
Before Ulrich, P.J., and Lowenstein and Smith, JJ.
On January 15, 1990, Western Resources, Inc. (Western) entered into two separate contracts with Mid-Kansas Partnership (MKP) and Riverside Pipeline Company, L.P. (Riverside): (1) a sales agreement with MKP; and (2) a transportation agreement with Riverside; to supply and transport natural gas to Western's distribution system serving the Kansas City, Missouri, metropolitan area. In July of 1993, Western agreed to sell its Missouri natural gas properties to Southern Union Company (Southern Union). Missouri Gas Energy (MGE), a division of Southern Union, took over operations of the distribution system on February 1, 1994. Along with the other assets and liabilities of Western, the agreements with MKP and Riverside were assigned to Southern Union as part of the sale. On February 24, 1995, MGE entered into a sales agreement with MKP and a transportation agreement with Riverside to continue supplying and transporting natural gas to the Kansas City Metropolitan system. These agreements and the two agreements which Western entered into with MKP and Riverside, and assigned to Southern Union, are referred to by the parties as the "Missouri Agreements."
Western and MGE are both public utilities regulated by the Public Service Commission (PSC). On June 25, 1996, the PSC, as part of its Actual Cost Adjustment (ACA) process, established Case No. GR-96-450 to determine whether MGE had over-recovered or under-recovered its allowable costs for obtaining natural gas from its suppliers for the ACA period of July 1, 1996 through June 30, 1997. Natural gas distribution companies, such as MGE, as part of their rates, are allowed by the PSC to recoup from their customers the reasonable costs associated with obtaining natural gas from their suppliers. State ex rel. Associated Natural Gas Co. v. Pub. Serv. Comm'n, 954 S.W.2d 520, 523 (Mo. App. 1997).
The adjustment of rates, based on the costs incurred in obtaining natural gas, is done pursuant to a two-step process. Id. In the first step, pursuant to an automatic rate adjustment clause in the PSC-approved rate schedule, a regulated company is allowed to automatically pass on to its customers the wholesale cost of gas. Id. This adjustment is known as a purchased gas adjustment (PGA), which is required to be reported annually to the PSC. In the second step, the ACA, the PSC reviews the required ACA filings of the company, including its PGA filings, to determine: (1) the actual costs that the company should be allowed to recoup; and, (2) based on that determination, whether it has over-recovered or under-recovered its allowable costs for the ACA period under review. Id. In determining what costs of a company can be recouped from its customers as reasonable, the PSC employs a "prudence" standard. Id. Hence, the PSC, as part of its ACA process, conducts a prudence review of the company's contracts with its suppliers to determine whether it was prudent for the company to enter into the contracts and based thereon, whether the costs associated with the contracts should be disallowed in whole or part.
In addition to establishing Case No. GR-96-450, the PSC had previously established cases for the ACA periods of July 1, 1992 — June 30, 1993; July 1, 1993 — June 30, 1994; July 1, 1994 — June 30, 1995; and July 1, 1995 — June 30, 1995. On June 1, 1998, the Staff of the PSC (Staff), as part of the ACA review in Case No. GR-96-450, challenged the prudence of the MKP sales agreement, recommending that $4,532,449.60 of the costs associated therewith, for the ACA period under review, be disallowed. That recommended amount was later lowered to $3,490,082.81. The Staff had previously challenged the prudence of the Missouri Agreements in the other cases, recommending the disallowance of certain costs associated with the agreements for the ACA periods under review. Given their financial interest in Case No. GR-96-450, MKP and Riverside were allowed to intervene. They had a financial interest in the outcome of the prudence review in Case No. GR-96-450 inasmuch as they had agreed in their respective sales and transportation agreements with MGE that they would reimburse it for any amounts that it paid to MKP an Riverside under the agreements that were ultimately disallowed by the PSC in MGE's recovery of costs as part of the ACA process.
In May of 1996, MKP, Riverside, MGE, Western, the Staff, and the Office of Public Counsel (OPC), "along with others," entered into a "Stipulation and Agreement" (Stipulation), to "resolve certain disputes [then pending] between the parties." These disputes involved actual and potential disallowances by the PSC for the ACA periods from July 1, 1992, to June 30, 1996, concerning the Missouri Agreements. The Stipulation provided, inter alia, that pursuant to an agreed upon schedule set forth therein, MKP, Riverside, and Western would pay $3,992,500 to MGE, $ 2,842,500 of which was to be paid by MKP and Riverside. In accordance with the reimbursement provisions of the Missouri Agreements, these payments were intended to indemnify MGE for credits that would be due its ratepayers as a result of the PSC's disallowing costs associated with MGE's agreements with MKP and Riverside, pursuant to a prudence review of the execution of the agreements done in conjunction with its ACA process. As the Stipulation provided, MGE was "simply [a] conduit[] for the delivery of these funds to [its] ratepayers." In return for the payments by MKP, Riverside and Western, MKP and Riverside contend that it was agreed that the Missouri Agreements would not be subject to any further ACA prudence reviews by the PSC. The Stipulation was approved by PSC on June 11, 1996.
In order to short circuit the PSC's ACA prudence review of the MKP sales agreement in Case No. GR-96-450 and avoid any possible resulting disallowance, MKP and Riverside filed two motions to dismiss, one on July 31, 1998, alleging that the review was precluded by the Stipulation. Both motions were denied by the PSC on September 29, 1998. In response, MKP and Riverside filed applications for rehearing with the Commission. They also filed a petition for a writ of prohibition in the Cole County Circuit Court, seeking to prevent the PSC from conducting the prudence review in Case No. GR-96-450. The circuit court granted a preliminary writ, which the PSC moved to quash on the ground that it should be given the opportunity to rule in the first instance on the meaning of the Stipulation. On December 2, 1998, the circuit court sustained the PSC's motion to quash the preliminary injunction, finding that the PSC "should, in the first instance, determine it has jurisdiction of the cause after hearing evidence and argument of the parties before it." On December 22, 1998, the PSC denied MKP and Riverside's applications for rehearing without any further evidence or argument.
On January 15, 1999, MKP and Riverside, in accordance with § 386.510,1 filed a petition for a writ of review in the circuit court, seeking review of the PSC's order of September 29, 1998, denying its motion to dismiss or limit the proceedings. The court found that the PSC had "acted unlawfully and/or unreasonably when it failed to make any finding that the 1996 Stipulation and Agreement was ambiguous, yet interpreted the Stipulation and Agreement without hearing any testimony or otherwise receiving any evidence to determine the intent of the parties to the Stipulation and Agreement." The circuit court remanded the case to the PSC for further action in accordance with its order, "including the interpretation of the 1996 Stipulation and Agreement in accordance with the rules of construction and the need for a sufficient and appropriate evidentiary basis for resolution of any language found to be ambiguous."
Although the circuit court reversed the decision of the PSC and remanded the case for further proceedings to, inter alia, interpret the Stipulation and determine whether it barred the prudence review in Case No. GR-96-450, MKP and Riverside, nonetheless, filed a notice appeal to this court, in accordance with §386.540, challenging the PSC's decision denying MKP's and Riverside's motion to dismiss or limit the proceedings. In State ex rel. Riverside Pipeline Co., L.P. v. Public Service Commission, 26 S.W.3d 396, 400 (Mo. App. 2000), this court found that the PSC's decision denying the motion to dismiss or limit was not a final decision subject to judicial review by the circuit court, in accordance with § 386.510, such that it and, consequently, this court lacked jurisdiction to review.2
MKP and Riverside having been unsuccessful in their attempt to have this court interpret the Stipulation in an effort to block the prudence review in Case No. GR-96-450, the case proceeded to a five-day evidentiary hearing before the PSC in September of 2001. On March 12, 2002, the PSC issued its report and decision, in which it declared that the Stipulation was ambiguous such that it could not determine whether it barred the prudence review in Case No. GR-96-450, as contended by MKP and Riverside. However, as to the merits, it rejected the Staff's recommendation to disallow a portion of the costs associated with MGE's sales agreement with...
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