Spire Mo., Inc. v. Mo. Pub. Serv. Comm'n

607 S.W.3d 759

In the Matter of the Application of SPIRE MISSOURI, INC., to Change Its Infrastructure System Replacement Surcharge in Its Spire Missouri East Service Territory; in the Matter of the Application of Spire Missouri, Inc., to Change Its Infrastructure System Replacement Surcharge in Its Spire Missouri West Service Territory, Appellant-Respondent,

v.MISSOURI PUBLIC SERVICE COMMISSION, Respondent,Missouri Office of Public Counsel, Respondent-Appellant.

WD 83159

C/w WD 83162

Missouri Court of Appeals, Western District.

Filed: September 1, 2020

Shelley E. Brueggemann, John D. Borgmeyer, and Jennifer L. Heintz, Jefferson City, MO, for Respondent Public Service Commission.

Rick E. Zucker and Michael Pendergast, St. Charles, MO; Jeremiah W. (Jay) Nixon, Gabriel E. Gore, John J. Rehmann, II, Matthew J. Aplington, and Goldie T. Bockstruck, St. Louis, MO, for Appellant-Respondent Spire Missouri, Inc.

John A. Clizer, Jefferson City, MO, for Respondent-Appellant Office of the Public Counsel.

Before Division Four: Cynthia L. Martin, C.J., and Alok Ahuja and Thomas N. Chapman, JJ.

Alok Ahuja, Judge

Spire Missouri, Inc. appeals from a Report and Order issued by the Public Service Commission. The Report and Order addressed Spire's applications to adjust the Infrastructure System Replacement Surcharge for its East and West service territories, to reflect costs Spire incurred between October 2017 and January 2019. The Commission granted Spire's applications in large measure. It found, however, that it had no jurisdiction to address part of Spire's applications because the applications concerned costs which were the subject of a pending appeal in this Court. The Commission also found that certain of Spire's claimed costs were not eligible to be included in an Infrastructure Surcharge, because they related to Spire's replacement of plastic piping which was not worn out or deteriorated.

Spire appeals. The Office of Public Counsel cross-appeals, arguing that the Commission's Report and Order allows Spire to include certain ineligible costs in its Infrastructure Surcharge. We affirm.

Factual Background

On January 14, 2019, Spire filed applications with the Commission in which it requested an increase in the Infrastructure Surcharge it was permitted to charge customers, to reflect the cost of pipeline replacement projects it had conducted in its East and West service territories.¹ Spire's applications sought to adjust its Infrastructure Surcharge to recover costs incurred during two separate time periods: October 1, 2017, through June 30, 2018; and July 1, 2018, through January 31, 2019.

By statute, "[g]as corporations are permitted to recover certain infrastructure system replacement costs outside of a formal rate case through a surcharge on their customers’ bills." In re Verified Application & Petition of Liberty Energy (Midstates) Corp. , 464 S.W.3d 520, 522 (Mo. 2015). As explained in § I of the Discussion which follows, this Court has held that Spire is entitled to include in its Infrastructure Surcharge only the cost of replacing worn or deteriorated cast iron or bare steel pipes to comply with state or federal safety requirements. We held that Spire is not entitled to include in its Infrastructure Surcharge the cost for replacing newer plastic piping which is not itself worn or deteriorated, and which is not subject to a governmental safety mandate.

Until approximately ten years ago, Spire replaced older cast iron or steel pipes in a piecemeal fashion. Beginning in approximately 2010 or 2011, Spire implemented a strategic program to redesign and replace its gas distribution facilities on a system-wide basis. Under its new strategic replacement program, Spire abandons existing distribution facilities on a neighborhood-wide basis, and bypasses and replaces the existing piping with smaller-diameter plastic pipes operating at a higher pressure than the old system. In re Application of Laclede Gas Co. to Change its Infrastructure Sys. Replacement Surcharge v. Office of Pub. Counsel , 539 S.W.3d 835, 837 (Mo. App. W.D. 2017) (" Spire I ") (noting the gas utility's new strategy "focused on replacing entire neighborhood systems at one time"). The Commission found that, under its strategic replacement program, Spire was replacing between 60 and 65 miles of cast-iron piping in its Missouri East service territory per year, and approximately 120 miles of such piping in its Missouri West territory.

Most of the costs Spire sought to recover in its January 2019 applications arose from its strategic replacement program. By retiring existing piping in place and replacing it on a neighborhood-wide basis, this systematic program replaces worn out or deteriorated cast-iron or steel pipes, and newer plastic piping, in a single project. Because we have held that only the cost of replacing the metal piping is eligible for inclusion in Spire's Infrastructure Surcharge, its strategic replacement program gives rise to cost-allocation issues.

To comply with our prior decisions holding that the cost of replacing plastic pipe must be excluded from the Infrastructure Surcharge, Spire supported its January 2019 applications with cost studies for each individual project conducted pursuant to its strategic replacement program – 509 separate cost studies in all. These project-specific cost studies compared the costs of retiring and replacing the plastic pipe as part of a neighborhood-wide project, with the cost of reusing the existing plastic pipe (while replacing only the worn out or deteriorated metal pipe). Where one of its cost studies showed that the cost of replacing plastic piping was less than the cost of replacing only the metal pipe, Spire sought to recover the entire cost of the specific project through its Infrastructure Surcharge. Spire justified the recovery of the entire project cost by arguing that replacing the plastic piping added no incremental cost to the particular project, and actually resulted in a cost savings for ratepayers compared to replacing the metal pipe alone. On the other hand, when its cost analysis showed that it was more expensive to replace the plastic pipe than to reuse the existing pipe on a particular project, Spire excluded the increased cost from its Infrastructure Surcharge request (on the theory that the increased incremental cost was attributable solely to the replacement of plastic components which were not eligible for inclusion in the surcharge).

The PSC's Staff agreed with Spire's cost-allocation approach. It argued, however, that the Commission lacked jurisdiction to adjust Spire's Infrastructure Surcharge for costs incurred between October 1, 2017, and June 30, 2018, because the Commission had addressed those same costs in an earlier proceeding, and the Commission's Report and Order addressing Spire's prior surcharge-adjustment request was pending on appeal in this Court. See Nos. WD82302 and WD82373.

The Office of Public Counsel (or "OPC") objected to Spire's applications, and requested an evidentiary hearing.

The Commission held an evidentiary hearing on April 3 and 4, 2019, in which Spire, PSC Staff, and OPC participated. Following the hearing, the Commission ordered Staff to perform calculations allocating the costs of Spire's strategic replacement projects based on the relative length of the cast-iron or steel pipes replaced in a particular project, as compared to the length of plastic piping replaced in the project. In its final Report and Order, the Commission explained that it requested these percentage-based calculations because "no party had provided a calculation as to what that party believed was the specific cost of the replacement of ineligible plastic mains and service lines to be removed from Spire's" surcharge-adjustment request, "even though all parties to the case had access to the work orders and other information necessary to identify that cost."

Staff filed the requested report on April 25, 2019, and a correction on April 29. Spire filed a response on April 30, 2019. While Spire disagreed that the percentage-of-total-length methodology accurately represented the cost attributable to replacing plastic pipe, it agreed that Staff "has accurately calculated the amounts to be excluded from [its surcharge-adjustment] request in accordance with the Commission's directive."

The Commission entered its final Report and Order addressing Spire's January 2019 applications on August 21, 2019. Consistent with Staff's recommendation, the Commission dismissed the portions of Spire's applications which sought to recover costs incurred from October 2017 through June 2018. The Commission reasoned that it had previously addressed the surcharge-eligibility of "the same costs from the same time period"; because its earlier decision was then pending on appeal, the Commission held that it did not have jurisdiction to hear new evidence and make a different decision concerning those costs.

The Report and Order then turned to the costs incurred between July 2018 and January 2019. The Commission's Report and Order found that "[t]here was little, if any, evidence that the non-cast iron or bare steel components (plastic components) were in a worn out or deteriorated condition. In fact, the evidence generally showed that the plastic pipe was not worn out or in a deteriorated condition." The Report and Order found that "the plastic components, whether part of the mains or service lines, are not being replaced because they are themselves in worn out or deteriorated condition, but because they are part of the systematic replacement of all the pipe."

The Report and Order rejected Spire's cost studies. It found that Spire's analyses failed to properly allocate the costs of neighborhood-wide pipe replacement projects between the replacement of deteriorated metal piping, and the replacement of plastic piping.

Spire Missouri argues that the costs to replace the plastic components were less than the costs of reusing the plastic

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