State Of Mo. Assoc. Natural Gas Co. v. Public Svc. Comm. Of State

Citation37 S.W.3d 287
Parties(Mo.App. W.D. 2000) . State of Missouri, ex rel., Associated Natural Gas Company, Respondent, v. Public Service Commission of the State of Missouri, Appellant. Case Number: WD58032 Missouri Court of Appeals Western District Handdown Date:
Decision Date28 November 2000
CourtCourt of Appeal of Missouri (US)

Appeal From: Circuit Court of Cole County, Hon. Thomas J. Brown, III

Counsel for Appellant: Thomas R. Schwarz, Jr.

Counsel for Respondent: Gary W. Duffy

Opinion Summary:

The Public Service Commission of the State of Missouri appeals the circuit court order reversing the Commission's Report and Order which required Associated Natural Gas Company to refund $254,476 to its customers. In accordance with the relevant rules and case law, this Court reviews the original decision of the Commission, and ANG filed the appellant's brief in this matter. The Commission found that ANG would double-recover $254,476 in costs associated with gas in storage if it were not ordered to refund that amount to its customers.

Division III holds:

(1) While both parties focus on the language of a specific tariff sheet in arguing whether the costs of gas in storage was previously recovered, the tariff sheet does not refer to gas in storage, and this Court cannot tell from the language of the tariff sheet whether the cost of gas placed in storage would have been recovered. Accordingly, this Court cannot find that the Commission's decision was improper based solely upon the language of the tariff sheet.

(2) As both parties relied on expert testimony regarding whether the cost of gas in storage had already been recovered, it was up to the Commission to assess the credibility of those experts, and the testimony of the expert witness presented by the Procurement Analysis Department was sufficient to support the Commission's decision.

(3) The fact that a different regulatory law judge aided the Commission in drafting its opinion from the regulatory law judge who conducted the hearing did not deprive ANG of due process. Under the relevant statutes and case law, the Commission does not have to hear live testimony in order to render its decision.

(4) The Report and Order issued by the Commission was adequate to apprise this Court of the facts on which the order was based, and accordingly, the Commissions findings were legally sufficient.

Opinion Author: Joseph M. Ellis, Judge

Opinion Vote: AFFIRMED. Smith, P.J., and Ulrich, J., concur.

Opinion:

The Public Service Commission of the State of Missouri (the Commission) appeals the order of the Circuit Court of Cole County reversing the Commission's Report and Order which required Associated Natural Gas Company (ANG) to refund $254,476 to its customers.

The case before the Commission1 arose from the Commission's regulatory process of reconciling "gas costs" and "gas revenues" for individual natural gas companies on an annual basis. Because ANG is a natural gas company subject to this process, it makes routine actual cost adjustment (ACA) filings with the Commission pursuant to the provisions of its Commission-approved tariffs. The ACA filings adjust ANG's recovery of its natural gas costs from its ratepayers to reflect the actual cost ANG incurred for natural gas for the time period in issue, usually a twelve-month period. In this case, ANG's filing involved the twelve-month period ending August 31, 1996.

After receiving ANG's filing for that period, the Commission ordered its Procurement Analysis Department (PAD) to conduct an audit of the ACA period of September 1, 1995, to August 31, 1996. On August 4, 1997, after reviewing ANG's billed revenues and gas costs, PAD submitted its recommendations to the Commission. In one of its recommendations, PAD recommended that ANG's cost figures be reduced by $254,476 to eliminate an alleged double recovery on its 1995-1996 ACA filing for gas that had been held in storage. PAD indicated that ANG would double-recover the costs of that gas as a result of a change in the methodology used in calculating ANG's actual cost adjustment from an "up-front" recovery method to an "as withdrawn/consumed" method. On September 4, 1997, ANG filed a response to PAD's recommendations. In that response, ANG challenged PAD's proposed reduction.2

Direct testimony on behalf of PAD and ANG was filed on November 24, 1997. Rebuttal testimony was filed on behalf of both parties on January 23, 1998. Surrebuttal testimony was filed on March 2, 1998. On April 7, 1998, a hearing was conducted on the matter to allow for cross-examination, and subsequently, the parties submitted briefs to the Commission.

On January 26, 1999, the Commission issued a Report and Order reciting the evidence presented by the parties and then stating:

ANG through the rebuttal testimony of Mark Kidd argued that what seemed to be a double recovery in fact was not so. ANG contended that it had injected and withdrawn essentially equal values of gas since 1982 when the ACA mechanism first went into effect. Therefore, ANG would have recovered essentially the same amount under the ACA mechanism whether it used the "as injected" or the "as withdrawn" method of accounting for the value of gas in storage. Therefore, there was no double recovery and ANG should be able to recover the value of gas as withdrawn after December 1, 1995 to the extent that the recovered gas was being taken from the balance that existed in 1982, when the ACA mechanism went into effect.

ANG's theory is premised on the existence of a pre-existing balance of gas in storage at the start of the ACA process in 1982. Staff did not attempt to refute ANG's calculations regarding the interaction between the "as injected" and "as withdrawn" methods. Instead, Staff argued that the value of the pre-existing balance of gas in storage had already been recovered by ANG prior to the inception of the ACA process.

As the basis for this theory, Staff cited the operation of tariff sheet 44, which was the PGA mechanism in effect for ANG for the period of June 2, 1978 to July 8, 1982. Staff argued that tariff sheet 44 allowed ANG to recover its storage withdrawal cost in an up-front fashion by charging its Missouri customers an estimated PGA rate which was based on the Company's average cost of gas -- determined by using the most recent supplier invoices -- to compute the appropriate adjustments to its rates. Staff pointed out that tariff sheet 44 does not state that ANG was to use the most recent supplier invoices less storage injections. Therefore, ANG would have been allowed to include the value of all gas purchased, whether stored or sold, in its PGA rates.

Staff's position is persuasive. From June 2, 1978 to July 8, 1982, tariff sheet 44 served as ANG's PGA Clause for the SEMO District and it controlled ANG's recovery treatment of storage injection and withdrawal costs during that period. As of July 8, 1982, the date tariff sheet 44 was canceled, ANG had fully recovered its storage costs incurred up to that date. In order to understand the fact of this recovery, it is important to understand that tariff sheet 44 operated in a pre-FERC Order 636 environment in which all components of gas supply and service were provided by the pipeline and appeared on the pipeline invoices.

Before the Federal Energy Regulatory Commission (FERC) issued Order 636, interstate natural gas pipeline companies provided local distribution companies with a bundled gas supply, transportation and storage. FERC Order 636 required interstate natural gas pipelines to unbundle their gas supply service from their transportation and storage services. Prior to FERC Order 636, components of gas supply service included fixed and variable storage charges, fixed and variable transportation charges, and all gas supply costs, irrespective of whether that gas supply flowed directly to the city gate or was injected into storage. Thus, fixed and variable storage charges would have been included on pipeline supplier invoices in the pre-Order 636 environment in which tariff sheet 44 operated. When ANG changed its recovery method for LNG and NGPL non-S2 gas on July 8, 1982, it had already recovered the gas cost associated with those volumes injected into storage prior to that date. To allow it to recover those costs again when the gas was removed from storage after December 1, 1995 would indeed result in double recovery.

The Commission concluded by stating that "Staff's proposal to reduce Associated Natural Gas Company's SEMO District gas costs by $254,476 to eliminate an alleged double recovery is affirmed."

After its application for rehearing was denied by the Commission, ANG filed a Petition for Writ of Review and Motion for Stay in the Circuit Court of Cole County. On November 19, 1999, the Circuit Court issued its Order and Judgment. The Circuit Court found that the Commission's conclusion regarding ANG's recovery of its storage costs was "contrary to both the law and the evidence."3 The Circuit Court reversed the Commission's Report and Order and remanded the case back to the Commission for further proceedings. The Commission appeals from the Circuit Court's decision.

Standard of Review

Where the circuit court reverses a decision rendered by the Public Service Commission, on appeal to this Court, we review the decision of the Commission, not the judgment of the circuit court. Deaconess Manor Ass'n v. Public Serv. Comm'n, 994 S.W.2d 602, 608 (Mo. App. W.D. 1999). Furthermore, under Rule 84.05(e), the party aggrieved by the agency decision is required to file the appellant's brief on appeal. Psychiatric Healthcare Corp. of Mo. v. Department of Social Services, 996 S.W.2d 733, 735 (Mo. App. W.D. 1999). Accordingly, ANG has filed the appellant's brief in this case.

"The PSC's order has a presumption of validity, and the burden is on the party attacking it to prove its invalidity." State ex rel. Midwest Gas Users' Ass'n...

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