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 v. Missouri Public Service Commission Missouri Office of Public Counsel

IN THE MISSOURI COURT OF APPEALS
WESTERN DISTRICT
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 ) WD83159
INFRASTRUCTURE SYSTEM ) Consolidated with WD83162
REPLACEMENT SURCHARGE )
IN ITS SPIRE MISSOURI WEST ) FILED: September 1, 2020
SERVICE TERRITORY, )
Appellant-Respondent,
)
v. )
)
MISSOURI PUBLIC SERVICE )
COMMISSION, )
Respondent, )
)
MISSOURI OFFICE OF PUBLIC )
COUNSEL, )
Respondent-Appellant. )
Appeal from the Public Service Commission
Before Division Four: Cynthia L. Martin, C.J., and
Alok Ahuja and Thomas N. Chapman, JJ.
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
1 Spire was formerly known as Laclede Gas Company. It acquired Missouri
Gas Energy in 2013. Spire’s East service territory comprises the area formerly served by
Laclede Gas Company, while its West service territory was formerly operated by Missouri
Gas Energy.
2
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
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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
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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
5
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 components
and, therefore, there are no incremental costs of replacing the plastic.
However, this argument does not align with the statutory
requirements or the Court’s interpretation of those requirements and
is an inappropriate comparison. [¶] The ISRS [or Infrastructure
Surcharge] was not designed to allow early recovery of system-wide
replacement of infrastructure, only the replacement of worn out or
deteriorated infrastructure. Plastic components that are not otherwise
worn out or deteriorated cannot become ISRS eligible as part of a
systemic redesign.
Rather than employing Spire’s cost studies, the Commission determined the
plastic-related costs to be excluded from the Infrastructure Surcharge using the
percentage calculations it had ordered Staff to prepare.
Spire’s January 2019 applications also sought to include in its Infrastructure
Surcharge certain costs it had incurred under “blanket work orders.” As explained
in the Commission’s Report and Order, “[b]lanket work orders are work orders that
cover a large number of tasks which remain open for an extended period and
contain items that are not planned replacement projects.” In order to identify the
costs incurred under blanket work orders which were eligible for inclusion in its
Infrastructure Surcharge, Spire organized the tasks performed under the blanket
work orders into categories, and determined whether particular categories of tasks
were eligible for inclusion in the surcharge. The Report and Order explained that
6
Tasks [performed under blanket work orders] that Spire
Missouri considered ISRS eligible were mandated relocations,
replacements due to leak repairs and corrosion inspections, and
replacement of copper and cast iron pipe. ISRS ineligible items
included relocations at a customer’s request, replacements due to
excavation damage, replacement of plastic not related to a leak repair,
and installation of new services.
(Footnotes omitted.) The Report and Order noted that “Staff agreed with Spire
Missouri’s blanket work order task categorizations” and eligibility determinations,
and that “Public Counsel also indicated several times through its attorney and
witness at the hearing that it is not challenging the blanket work orders in this
case.” The Report and Order adopted Spire’s recommended approach for costs
incurred under blanket work orders.
Spire and OPC each appealed from the Commission’s Report and Order.
Their appeals were consolidated, and are both resolved by this opinion.
Standard of Review
We review the Commission’s order pursuant to § 386.510, RSMo Cum. Supp.
2019. Appellate review under § 386.510 is “two-pronged: first, the reviewing court
must determine whether the [Commission]’s order is lawful; and second, the court
must determine whether the order is reasonable.” In re Mo.-Am. Water Co., 516
S.W.3d 823, 827 (Mo. 2017) (citation and internal quotation marks omitted). “The
[Commission]’s order is presumed valid, and the appellant has the burden of
proving that the order is unlawful or unreasonable.” Id. (citation omitted).
Appellant must show the Commission’s order is unlawful or unreasonable “by clear
and satisfactory evidence.” In re Union Elec. Co., 422 S.W.3d 358, 364 (Mo. App.
W.D. 2013).
“The lawfulness of an order is determined by whether the [Commission] had
statutory authority to issue the order.” In re Rate Increase Request for Liberty Utils.
(Mo. Water), LLC, 592 S.W.3d 82, 87 (Mo. App. W.D. 2019) (citation and internal
quotation marks omitted). We review the lawfulness of the Commission’s order de
7
novo. Id. (citation omitted). The reasonableness of the Commission’s order is
determined by whether the order is “supported by substantial, competent evidence
on the whole record; the decision is not arbitrary or capricious; and [whether] the
Commission has . . . abused its discretion.” Spire I, 539 S.W.3d at 838 (citation and
internal quotation marks omitted).
“All factual findings of the Commission are presumed correct, and if
substantial evidence supports either of two conflicting factual conclusions, the Court
is bound by the findings of the administrative tribunal.” State ex rel. Aquila, Inc. v.
Pub. Serv. Comm’n, 326 S.W.3d 20, 22 (Mo. App. W.D. 2010) (citation and internal
quotation marks omitted).
The determination of witness credibility is left to the Commission,
which is free to believe none, part, or all of the testimony. It is only
where a Commission order is clearly contrary to the overwhelming
weight of the evidence that we may set it aside. Additionally, with
regard to issues within the Commission’s expertise, we will not
substitute our judgment for that of the Commission.
In re Kansas City Power & Light Co.’s Request for Auth. to Implement a Gen. Rate
Increase for Elec. Serv. v. Mo. Pub. Serv. Comm’n, 509 S.W.3d 757, 764 (Mo. App.
W.D. 2016) (citation and internal quotation marks omitted).
Discussion
We first address Spire’s challenges to the Commission’s Report and Order,
and then address the single Point raised in Public Counsel’s cross-appeal.
I.
Spire’s first Point argues that the Commission’s Report and Order is
unlawful, because it failed to permit Spire to include in its Infrastructure Surcharge
costs which Spire contends are statutorily eligible for such treatment. Because we
conclude that the Commission could properly determine that Spire’s cost studies did
8
not accurately identify its “costs for eligible infrastructure system replacements,”
§ 393.1012.1,2 we reject Spire’s first Point.
A.
We begin by describing the relevant statutory framework. As we discuss in
§ I.C below, the statutes governing gas utilities’ use of Infrastructure Surcharges
have been substantially amended, with an effective date of August 28, 2020. No
party to this appeal argues that the 2020 statutory amendments should apply here.
We therefore apply the statutes which were in effect at the time Spire incurred the
costs at issue, and when the Commission determined the eligibility of those costs for
inclusion in Spire’s Infrastructure Surcharge.
As a general proposition,
Utility rates are established periodically by proceedings before the PSC
known colloquially within the industry as “rate cases.” Rates are
based on the amount of revenue necessary to build, maintain, and
operate the utility plants and associated infrastructure (referred to as
“rate base”), plus a reasonable rate of return for utility company
investors. Unless otherwise provided for by law, [a regulated utility] is
not permitted to adjust the rate it charges customers until its next rate
case. Even if [the utility] found it necessary to build [new facilities]
years before its next rate case, unless expressly permitted to by
statute, it would not ordinarily be allowed to recoup its expense or earn
profit on that capital investment in the interim. This phenomenon is
referred to as “regulatory lag.”
Union Elec. Co. v. Mo. Pub. Serv. Comm’n, 591 S.W.3d 478, 482 (Mo. App. W.D.
2019) (citation omitted).
The statutes authorizing Infrastructure Surcharges create an exception to
this general ratemaking paradigm. Under § 393.1012.1, a gas utility is entitled to
petition the Public Service Commission, independent of a general rate case, to
establish an Infrastructure System Replacement Surcharge (or “ISRS”) to be
2 Unless otherwise indicated, statutory citations refer to the 2016 edition of the
Revised Statutes of Missouri.
9
charged to consumers “to provide for the recovery of costs for eligible infrastructure
system replacements.” The utility may change the rate of the surcharge up to twice
per year. § 393.1015.3. If the Commission determines that the utility’s application
complies with the relevant statutes, it “shall enter an order authorizing the
corporation to impose an ISRS that is sufficient to recover appropriate pretax
revenue” to recover its eligible infrastructure replacement costs. § 393.1015.2(4).
The relevant statutes provide that, in addressing a utility’s petition to
establish or change an Infrastructure Surcharge, “[n]o other revenue requirement
or ratemaking issues may be examined.” § 393.1015.2(2). The statutes specify that
Commission approval of a petition, and any associated rate
schedules, to establish or change an ISRS pursuant to the provisions of
sections 393.1009 to 393.1015 shall in no way be binding upon the
commission in determining the ratemaking treatment to be applied to
eligible infrastructure system replacements during a subsequent
general rate proceeding when the commission may undertake to review
the prudence of such costs. In the event the commission disallows,
during a subsequent general rate proceeding, recovery of costs
associated with eligible infrastructure system replacements previously
included in an ISRS, the gas corporation shall offset its ISRS in the
future as necessary to recognize and account for any such
overcollections.
§ 393.1015.8.
“Eligible infrastructure system replacements” are defined as
gas utility plant projects that:
(a) Do not increase revenues by directly connecting the
infrastructure replacement to new customers;
(b) Are in service and used and useful;
(c) Were not included in the gas corporation's rate base in its
most recent general rate case; and
(d) Replace or extend the useful life of an existing
infrastructure.
§ 393.1009(3). “Gas utility plant projects” is defined in relevant part as “[m]ains,
valves, service lines, regulator stations, vaults, and other pipeline system
10
components installed to comply with state or federal safety requirements as
replacements for existing facilities that have worn out or are in
deteriorated condition.” § 393.1009(5)(a) (emphasis added).
B.
This is not the first time that this Court has addressed the eligibility for
inclusion in an Infrastructure Surcharge of costs incurred through Spire’s strategic
replacement program. In Spire I, 539 S.W.3d 835, we addressed Spire’s effort to
recover costs incurred between March 1 and October 31, 2016, through an
Infrastructure Surcharge. We held that the Commission erred by permitting Spire
to include in its surcharge the entire cost of replacing segments of its existing gas
distribution system (including cast-iron, steel, and plastic pipes) as part of its
strategic replacement program. We held that, under the plain language of
§ 393.1009(5)(a), costs incurred to replace plastic pipe which was not itself worn out
or deteriorated, and which was not itself the subject of a governmental safety
mandate, was not eligible for inclusion in an Infrastructure Surcharge. We
emphasized that § 393.1009(5)(a) “clearly sets forth two requirements for
component replacements to be eligible for cost recovery under ISRS: (1) the
replaced components must be installed to comply with state or federal safety
requirements and (2) the existing facilities being replaced must be worn out or in a
deteriorated condition.” 539 S.W.3d at 839.
In Spire I, the Commission had justified Spire’s recovery of its entire
strategic replacement program costs on the theory that the plastic components of
the replaced system were “patches” which “constituted ‘an integral component of the
worn out and deteriorated cast iron and steel pipe.’” Id. We disagreed. We
emphasized that the Missouri Supreme Court “has found this [‘worn out or
deteriorated’] requirement to be mandatory and has interpreted it narrowly.” Id.
“This effort to assign ISRS eligibility to plastic pipes that are not worn out or
11
deteriorated by evaluating an entire neighborhood system as a singular unit finds
no support in the plain language of section 393.1009(5)(a).” Id. (footnote omitted).
We recognize that the replacement of worn out or deteriorated
components will, at times, necessarily impact and require the
replacement of nearby components that are not in a similar condition.
Our conclusion here should not be construed to be a bar to ISRS
eligibility for such replacement work that is truly incidental and
specifically required to complete replacement of the worn out or
deteriorated components. However, we do not believe that section
393.1009(5)(a) allows ISRS eligibility to be bootstrapped to components
that are not worn out or deteriorated simply because that are
interspersed within the same neighborhood system of such components
being replaced or because a gas utility is using the need to replace
worn out or deteriorated components as an opportunity to redesign a
system (i.e., by changing the depth of the components or system
pressure) which necessitates the replacement of additional
components.
Id. at 839-40 n.5.
On remand from our decision in Spire I, Spire presented cost studies to the
Commission which it had performed on ten sample work orders. According to Spire,
those cost studies showed that, in nine of the ten projects it analyzed, the
replacement of plastic pipe as part of a neighborhood-wide project actually
decreased Spire’s total cost, as compared to replacing only the metal components
and reusing the existing plastic piping. Spire therefore contended that, in the
majority of its strategic replacement projects, it had no plastic-related costs which
were ineligible for inclusion in its Infrastructure Surcharge. The Commission
declined to adopt Spire’s approach. The Commission concluded that Spire had
analyzed “far too few work orders” to permit the Commission “to extrapolate from
those nine work orders and reach a similar result in the hundreds of work orders
that Spire Missouri did not analyze.” In re Application of Laclede Gas Co. to
Change its Infrastructure Sys. Replacement Surcharge, GO-2016-0332 & GO-2016-
0333, 2018 WL 6724346, at *9 (Mo. P.S.C. Sept. 20, 2018).
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The Commission’s 2018 remand order also explained that Spire’s cost studies
were simply “irrelevant” to the question presented in an Infrastructure Surcharge
proceeding:
[Spire’s] argument improperly intermixes the issue of prudency, which
is determined in a general rate proceeding, with eligibility, which is
the appropriate determination in an ISRS proceeding. So, Spire
Missouri’s arguments regarding prudency, cost avoidance, and
economic efficiency are irrelevant to the Commission’s conclusion
in these cases.
Id. (emphasis added).
Despite its statement that Spire’s arguments concerning relative cost were
“irrelevant,” the Commission’s 2018 remand order contained the following dictum:
In the future, if Spire Missouri wishes to renew its argument
that plastic pipe replacements result in no cost or a decreased cost of
ISRS, it should submit supporting evidence to be considered, such as,
but not limited to, a separate cost analysis for each project claimed,
evidence that each patch was worn out or deteriorated, or evidence
regarding the argument that any plastic pipe replaced was incidental
to and required to be replaced in conjunction with the replacement of
other worn out or deteriorated components.
2018 WL 6724346, at *10.
Ultimately, in the remand proceeding the Commission adopted a
methodology proposed by Staff and Public Counsel to allocate project costs between
the surcharge-eligible replacement of worn out or deteriorated metal pipe, and the
replacement of ineligible plastic pipe. This methodology calculated the total length
of main and service lines replaced on a particular project, determined the
percentage of that total length consisting of plastic pipe, and then applied that
percentage to the total project cost. Id.
Spire and Public Counsel appealed to this Court. In “Spire II,” we affirmed
the Commission’s rejection of Spire’s incremental-cost arguments, and its reliance
on a percentage methodology to allocate project costs between the surcharge-eligible
and surcharge-ineligible components. In re Application of Laclede Gas Co. to
13
Change its Infrastructure Sys. Replacement Surcharge v. Mo. Pub. Serv. Comm’n,
593 S.W.3d 582 (Mo. App. W.D. 2019). We began our analysis by emphasizing that,
“[a]s the party that filed the ISRS applications, Spire bore the burden of proof in
this matter.” Id. at 595 (citing § 393.150.2). Spire II found that the Commission, as
fact-finder, was justified in rejecting Spire’s cost studies on the basis that they
reflected too small a sample size to be persuasive; we also noted that Spire had
presented no evidence that any of the plastic components it replaced were
themselves worn out or deteriorated, or that their replacement was incidental and
required to complete the replacement of worn out or deteriorated components. Id.
at 596.
We also found that, in the absence of any more probative evidence concerning
the ineligible costs associated with the replacement of plastic components, the
Commission was entitled to rely on the percentage methodology advocated by Staff
and Public Counsel:
We again stress that it was Spire’s burden to prove that some or
all of its plastic replacements were eligible for ISRS recovery. Spire
chose to rest on its theory that no ISRS collections should have been
disallowed because its replacement of ineligible plastics did not
increase ISRS costs. The PSC found that this theory was not
supported by sufficient data. Spire did not conduct a case-by-case
review to determine exactly which of its plastic replacements involved
components that were in fact worn out or deteriorated. The PSC was
therefore precluded from taking a more nuanced approach to the
disallowance issue than the percentage-based method advocated by the
OPC and Staff. We cannot conclude that the PSC erred in determining
that the percentage model constituted “the best evidence of a
methodology to calculate the costs of th[e] ineligible plastic pipe
replacements.” Given the lack of evidence adduced by Spire, the
percentage-based model was the only method the PSC could employ to
calculate the cost of ISRS-ineligible replacements, and thereby
calculate a disallowance in accordance with our opinion and mandate
in Spire I. The PSC’s calculation of Spire’s ISRS disallowance was
supported by substantial competent evidence and is not arbitrary or
unreasonable.
593 S.W.3d at 597.
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C.
In this proceeding, Spire does not dispute that costs which are attributable to
its replacement of plastic components are not eligible for recovery through an
Infrastructure Surcharge, since the plastic components are not themselves worn out
or deteriorated, and no governmental safety mandate compels their replacement.
Instead, Spire contends that it presented evidence that, on many of the replacement
projects it conducted, there was no incremental cost associated with the
replacement of plastic components. Spire argues that the Commission was
therefore statutorily required to permit Spire to include the entire cost of those
projects in its Infrastructure Surcharge.
On remand from our decision in Spire I, the Commission clearly stated its
conclusion that “Spire Missouri’s arguments regarding prudency, cost avoidance,
and economic efficiency are irrelevant to the Commission’s conclusion in” the
expedited Infrastructure Surcharge proceedings contemplated by §§ 393.1009-
393.1015. 2018 WL 6724346, at *9. It adhered to that decision in the Report and
Order under review here.
The Commission’s conclusion that Spire’s incremental-cost analyses are not
relevant in an Infrastructure Surcharge proceeding falls within its area of expertise,
and is entitled to deference from this Court.
Missouri courts have long recognized that when the decision
involves the exercise of regulatory discretion, the PSC is delegated a
large amount of discretion, and “many of its decisions necessarily rest
largely in the exercise of a sound judgment.” “Under these
circumstances, the reviewing court will not substitute its judgment for
that of the PSC on issues within the realm of the agency’s expertise.”
State ex rel. Sprint Mo., Inc. v. Pub. Serv. Comm’n, 165 S.W.3d 160, 164 (Mo. 2005)
(citations omitted). This deference is applicable to decisions involving the
establishment of utility rates: “The Commission has considerable discretion in rate
setting due to the inherent complexities involved in the rate setting process.” State
15
ex rel. Praxair, Inc. v. Pub. Serv. Comm’n, 328 S.W.3d 329, 339 (Mo. App. W.D.
2010) (quoting State ex rel. Office of Pub. Counsel v. Pub. Serv. Comm’n, 938 S.W.2d
339, 344 (Mo. App. W.D. 1997)). “Missouri courts long have recognized that
‘ratemaking is not an exact science,’ no methodology is statutorily prescribed or
limited, and ‘[t]he complexities inherent in a rate[-]of[-]return determination
necessarily require that the PSC be granted considerable discretion.’” State ex rel.
Office of Pub. Counsel v. Pub. Serv. Comm’n, 367 S.W.3d 91, 108 (Mo. App. S.D.
2012) (citations omitted).
In Spire II, we applied these deferential review standards to the precise issue
we face today. We emphasized that “‘[t]his court will not substitute its judgment for
that of the Commission,’” or “‘second-guess issues that are within the
[Commission]’s area of expertise,’” and that we would accordingly “afford deference
to the [Commission]’s chosen methodology for calculating an ISRS disallowance.”
593 S.W.3d at 596 (citations omitted).
The relevant statutes did not require the Commission to rely on Spire’s
incremental-cost analysis. The statutes specify that a utility may recover the
“costs” of eligible infrastructure replacement projects through an Infrastructure
Surcharge, without defining “costs,” or specifying how the eligible “costs” should be
determined. Section 393.1012.1 provides that a gas utility may seek Commission
approval of an Infrastructure Surcharge “that will allow for the adjustment of the
gas corporation's rates and charges to provide for the recovery of costs for eligible
infrastructure system replacements.” Similarly, § 393.1009(1)(a) and (c) provide
that the “appropriate pretax revenues” to be collected through an Infrastructure
Surcharge should provide for a rate of return on “the net original cost of eligible
infrastructure system replacements,” and for “[r]ecover[y] [of] all other ISRS costs.”
The relevant statutes do not otherwise define the “costs” of eligible
infrastructure replacements – thus giving the Public Service Commission
16
substantial discretion to select the appropriate method for determining the “costs”
which may be included in an Infrastructure Surcharge.
The fact is that without any better indication of meaning than
the unadorned term, the word “cost” in [a statute], as in accounting
generally, is “a chameleon,” a “virtually meaningless” term. . . .
[W]ords like “cost” “give ratesetting commissions broad methodological
leeway; they say little about the ‘method employed’ to determine a
particular rate.”
Verizon Commc’ns, Inc. v. FCC, 535 U.S. 467, 500-01 (2002) (citations omitted). In
Verizon, the Supreme Court of the United States held that use of the term “cost” in
a statute governing telecommunications rates was “simply too protean” to require
that a rate-setting agency consider historical investments in setting rates. Id. at
501.
The Supreme Court has also recognized that issues of cost-allocation – like
the issue presented here – are discretionary determinations frequently delegated to
expert administrative agencies like the PSC. In National Association of Greeting
Card Publishers v. U.S. Postal Service, 462 U.S. 810 (1983), a statute specified that
the Postal Rate Commission should set rates for different classes of mail based on
“the requirement that each class of mail or type of mail service bear the direct and
indirect postal costs attributable to that class or type plus that portion of all other
costs of the Postal Service reasonably assignable to such class or type.” Id. at 814
n.3 (quoting relevant statute). The Supreme Court held that this statute did not
mandate that the Rate Commission use any particular methodology to determine
which costs were “attributable” to particular classes of mail, but that the Rate
Commission instead had substantial discretion to choose how to allocate costs to
different mail categories.
The Court has observed that “[a]llocation of costs is not a matter
for the slide-rule. It involves judgment on a myriad of facts. It has no
claim to an exact science.” Generally, the legislature leaves to the
ratesetting agency the choice of methods by which to perform this
17
allocation, although if the statute provides a formula, the agency is
bound to follow it.
We agree with the Rate Commission's consistent position that
Congress did not dictate a specific method for identifying causal
relationships between costs and classes of mail, but that the Act
“envisions consideration of all appropriate costing approaches.” The
Rate Commission has held that, regardless of method, the Act requires
the establishment of a sufficient causal nexus before costs may be
attributed. . . .
....
[The relevant statute] requires that all “attributable costs” be
borne by the responsible class. In determining what costs are
“attributable,” the Rate Commission is directed to look to all costs of
the Postal Service, both “direct” and “indirect.” In selecting the phrase
“attributable costs,” Congress avoided the use of any term of art in law
or accounting. In the normal sense of the word, an “attributable” cost
is a cost that may be considered to result from providing a particular
class of service. On its face, there is no reason to suppose that [the
statute] denies to the expert ratesetting agency, exercising its
reasonable judgment, the authority to decide which methods
sufficiently identify the requisite causal connection between particular
services and particular costs.
462 U.S. at 825-27 (citations and footnotes omitted).
As the Supreme Court recognized, the word “cost” is a “chameleon,” which
can have multiple different meanings. On the one hand, several usages of the term
“cost” focus – like Spire’s cost studies – only on the additional increment of expense
associated with adding an additional service or unit of production onto an existing
activity. Terms like “incremental cost,” “marginal cost,” “differential cost,” or
“avoided cost” may seek to capture “cost” in this sense. On the other hand, other
well-established usages of the term “cost” determine the “cost” of a particular
activity by allocating to that activity a share of the total costs of the endeavor of
which the specific activity is a part (both fixed or sunk costs, and variable costs).
“Cost” in this sense may be reflected in terms like “total cost,” “average cost,” “full
cost,” or “absorbed/absorption cost.”
18
In its 2018 remand order, and again in this case, the Public Service
Commission has held that to determine the “costs” of plastic-pipe replacement
which must be excluded from Spire’s Infrastructure Surcharge, it is appropriate to
allocate a share of the total costs of the neighborhood-wide replacement project in
which the plastic-pipe replacement occurs. This is a well-established construction of
the term “costs.” The use of the term “costs” in the relevant statutes, without
further definition or explanation, did not prevent the Commission from adopting
this approach.3
Several considerations support the Commission’s interpretation of the “costs”
eligible for inclusion in an Infrastructure Surcharge. First, because the
Infrastructure Surcharge mechanism is an exception to Missouri’s general
prohibition on “single-issue ratemaking,” we held in Spire I that the statutory
eligibility criteria are mandatory, and must be narrowly construed. 539 S.W.3d at
838, 839. This consideration justifies the Commission in rejecting Spire’s
incremental-cost analysis, since under Spire’s analysis, it would be able to include
in an Infrastructure Surcharge all of the costs of a project, even though that project
included substantial replacement of ineligible plastic piping.
In Spire I, Spire argued that it was not appropriate to focus on whether
particular plastic components were “worn out or deteriorated.” Instead, it argued
“that the specific condition of the replaced plastic components is not dispositive and
3 Spire cites to the legislature’s reference to “avoided costs” in § 393.1075.2(6),
to argue that the Commission should have applied the same concept here. But
§ 393.1075.2(6) explicitly refers to “avoided costs,” while the Infrastructure Surcharge
statutes do not. See McAlister v. Strohmeyer, 395 S.W.3d 546, 552 (Mo. App. W.D. 2013)
(“’It is a settled canon of statutory construction that, where different language is used in the
same connection in different parts of an act, it is presumed that the legislative body
intended different meaning and effect.’” (citation omitted)). Spire also cites to the
Commission’s regulations governing utility resource planning, 20 CSR 4240-22.010 to -
22.080, which rely on avoided-cost principles. But the fact that avoided-cost concepts may
be well-suited to forward-looking managerial decisionmaking does not mean that the
Commission was required to use those same principles in this very different rate-setting
context.
19
that ISRS-eligibility should be determined based on the condition of the entire
neighborhood system.” 539 S.W.3d at 839. We disagreed, finding that Spire’s
“effort to assign ISRS eligibility to plastic pipes that are not worn out or
deteriorated by evaluating an entire neighborhood system as a singular unit finds
no support in the plain language of section 393.1009(5)(a).” Id. Spire’s incremental-
cost analyses essentially engage in the same “bootstrapping” as the arguments we
rejected in Spire I. Spire’s cost analyses focus on the aggregate cost of replacing “an
entire neighborhood system as a singular unit,” rather than seeking to identify and
isolate the cost of replacement of the plastic components themselves. As explained
in the Public Service Commission’s Brief, Spire’s incremental-cost analysis
“proceeds from an assumption that the entire cost to replace whole neighborhoods
can be attributed to the replacement of cast iron and steel” – even though
substantial quantities of ineligible plastic piping was replaced as part of the same
project. Spire seeks to resurrect an argument we rejected in Spire I.4
One of Spire’s own witnesses acknowledged that some “cost” is “inherent” in
the replacement of plastic piping, even in projects where there was no incremental
cost to replacing the plastic piping at the same time as metal piping.
Q. Okay. And let me look here. And are you in agreement
with what Mr. Pendergast said earlier, that basically the – the ISRS
costs that the Company is trying to recover don’t include a cost for the
plastic because it would have cost more if you had not replaced it – the
plastic?
4 In Spire I, the Commission had concluded that it was unnecessary to allocate
any cost to the replacement of plastic pipes as part of Spire’s strategic replacement
program, on the theory that the plastic piping constituted “an integral component” of a
neighborhood-wide distribution network which also included worn out or deteriorated metal
pipe. 539 S.W.3d at 839. We held that, under § 393.1009(5)(a), it was inappropriate to
“evaluat[e] an entire neighborhood system as a singular unit”; instead, the statute required
that the particular components being replaced satisfy the statutory eligibility criteria. Id.
at 839-40 & n.5. Spire I did not involve the Commission’s selection of a cost-allocation
methodology, but instead its refusal to conduct any cost-allocation whatsoever, based on an
erroneous interpretation of the governing law.
20
A. Well, there is a cost inherent to – you know, to replacing
all the pipe that’s involved in that. So there’s a cost involved with
the plastic. But what we’re saying is that it is, in most cases, cheaper
to replace it then what it would have cost us to re-use that plastic so
there’s an avoided cost. Not that there’s no cost, but it’s – it’s a less
cost than it would be to re-use it.
(Emphasis added.)
While Spire’s incremental-cost analysis may be relevant in a later rate case,
the Commission could rightfully determine that it was not the appropriate analysis
in the current proceeding. As the Commission recognized in its 2018 remand order,
consideration of incremental or marginal costs may be relevant in determining
whether Spire acted prudently in replacing plastic piping (which was not itself worn
out or deteriorated, and had remaining useful life) at the same time that it replaced
the worn out or deteriorated metal pipe. But such prudence issues are not
implicated in this Infrastructure Surcharge proceeding: the relevant statutes
specify that “[n]o other . . . ratemaking issues may be examined,” in a proceeding to
approve a change to an Infrastructure Surcharge, § 393.1015.2(2), and that the
approval of an Infrastructure Surcharge “shall in no way be binding upon the
commission . . . during a subsequent general rate proceeding when the commission
may undertake to review the prudence of such costs.” § 393.1015.8.
Finally, we note that in its most recent session, the General Assembly
enacted amendments to the Infrastructure Surcharge statutes which adopt the
result for which Spire is advocating. House Bill 2120, 100th General Assembly, 1st
Regular Session (2020), amends the definition of “gas utility plant projects” in
§ 393.1009(5), to include
any cast iron or steel facilities including any connected or associated
facilities that, regardless of their material, age, or condition, are
replaced as part of a qualifying replacement project in a manner that
adds no incremental cost to a project compared to tying into or reusing
existing facilities.
21
Under this amendment, which became effective on August 28, 2020, the cost of
replacing “connected or associated facilities” may be recoverable under an
Infrastructure Surcharge, without regard to whether the replaced piping is itself
worn out or deteriorated.
[I]n enacting a new statute on the same subject as that of an existing
statute, it is ordinarily the intent of the legislature to effect some
change in the existing law. “If this were not so the legislature would
be accomplishing nothing, and legislatures are not presumed to have
intended a useless act.”
State ex rel. Edu-Dyne Sys., Inc. v. Trout, 781 S.W.2d 84, 86 (Mo. 1989) (citing and
quoting Kilbane v. Dir. of Dep’t of Revenue, 544 S.W.2d 9, 11 (Mo. 1976)); see also,
e.g., State ex rel. Office of Pub. Counsel v. Mo. Pub. Serv. Comm’n, 331 S.W.3d 677,
690 (Mo. App. W.D. 2011). We recognize that a later statutory enactment may not
always be a reliable guide to the interpretation of the pre-amendment statute.5
Nevertheless, the General Assembly’s amendment to the definition of “gas utility
plant projects” provides some additional support for our conclusion that, prior to
this amendment, the Commission was not required to accept Spire’s incremental-
cost analysis.
Point I is denied.
II.
Spire’s second and third Points argue that the Commission’s rejection of its
incremental-cost studies, and its decision to instead use the percentage methodology
5 Although the Supreme Court’s decision in Edu-Dyne System states that the
purpose of a statutory amendment is “ordinarily” to change existing law, other cases
recognize that, “‘[w]hile an amendment to a statute must be deemed to have been intended
to accomplish some purpose, that purpose can be clarification rather than a change in
existing law.’” State ex rel. Outcom, Inc. v. City of Peculiar, 350 S.W.3d 57, 65 (Mo. App.
W.D. 2011) (quoting Andresen v. Bd. of Regents of Mo. W. Coll., 58 S.W.3d 581, 589 (Mo.
App. W.D. 2001)); accord, Self v. Midwest Orthopedics Foot & Ankle, P.C., 272 S.W.3d 364,
370 (Mo. App. W.D. 2008).
22
to identify surcharge-ineligible costs, was not supported by competent and
substantial evidence, and was arbitrary, capricious, or unreasonable.
In large measure, Spire’s second and third Points repeat many of the
arguments which we have addressed in § I, above. Spire also argues in both Points
that the Commission’s decision should be reversed because, in preparing and
submitting its 509 cost studies, Spire “kept faith with the explicit guidance given by
the PSC” in the 2018 remand order, and followed the “evidentiary roadmap”
specified by the Commission. Spire goes so far as to claim that “[t]he 2018 Order
identified no flaws in Spire’s cost analyses; to the contrary, rather than criticizing
these studies, the PSC wanted more of them, i.e., one for each project.” Spire
argues that the Commission “pulled the rug out from under” Spire after it dutifully
followed the Commission’s directions, and that the Report and Order constitutes “a
complete repudiation of the guidance [the Commission] had given the parties in the
2018 order.”
This argument rests on a highly selective reading of the Commission’s 2018
remand order. As we described above, the Commission’s order on remand from our
Spire I decision explicitly stated that the focus on incremental costs in Spire’s cost
studies was “irrelevant” to the cost-allocation issues involved in an Infrastructure
Surcharge proceeding:
[Spire’s] argument improperly intermixes the issue of prudency, which
is determined in a general rate proceeding, with eligibility, which is
the appropriate determination in an ISRS proceeding. So, Spire
Missouri’s arguments regarding prudency, cost avoidance, and
economic efficiency are irrelevant to the Commission’s conclusion
in these cases.
2018 WL 6724346, at *9 (emphasis added). As we recognized in Spire II, in its 2018
remand order the Commission found “that Spire had not even attempted to quantify
its ISRS costs attributable to the replacement of plastic components that were not
worn out or deteriorated, despite our previous holding that those costs were not
23
ISRS-eligible.” 593 S.W.3d at 596. While the remand order may also have offered
suggestions to Spire as to how it might make its cost studies more persuasive in a
future proceeding, Spire cannot plausibly argue that the Commission explicitly
endorsed its incremental-cost approach. We see no inconsistency – much less an
inconsistency that would warrant reversal – between the Commission’s 2018
remand order, and the Report and Order now under review.
Spire also argues at some length that the Commission acted without
substantial supporting evidence, and in an arbitrary and capricious manner, when
it determined the plastic-related costs which it would exclude from Spire’s
Infrastructure Surcharge using the percentage method. We have explained above
that the Commission acted within its authority in rejecting Spire’s incremental-
cost-based analysis. Having rejected Spire’s cost studies, the Commission found
itself in precisely the same position as in Spire II. As in Spire II, the percentage
methodology offered the only reasonably available method to determine the share of
the costs of Spire’s strategic replacement projects to allocate to the replacement of
plastic piping.
As we explained in Spire II, “it was Spire’s burden to prove that some or all of
its plastic replacements were eligible for ISRS recovery.” 593 S.W.3d at 597.
Because of Spire’s reliance on an incremental-cost analysis which the Commission
properly rejected,
[t]he PSC was therefore precluded from taking a more nuanced
approach to the disallowance issue than the percentage-based method
advocated by the OPC and Staff. We cannot conclude that the PSC
erred in determining that the percentage model constituted “the best
evidence of a methodology to calculate the costs of th[e] ineligible
plastic pipe replacements.” Given the lack of [competent] evidence
adduced by Spire, the percentage-based model was the only method the
PSC could employ to calculate the cost of ISRS-ineligible replacements,
and thereby calculate a disallowance in accordance with our opinion
and mandate in Spire I. The PSC’s calculation of Spire’s ISRS
24
disallowance was supported by substantial competent evidence and is
not arbitrary or unreasonable.
593 S.W.3d at 597.6
III.
Finally, Spire’s fourth Point argues that the Commission erroneously
concluded that it had no jurisdiction over Spire’s request to recover additional costs
for the October 2017 to June 2018 period which were not previously recovered in an
earlier Infrastructure Surcharge case.
In Spire’s January 2019 applications, it requested to recover costs through its
Infrastructure Surcharge which it had incurred in two different time periods:
(1) October 1, 2017, through June 30, 2018; and (2) July 1, 2018, through January
31, 2019. Spire had previously requested to recover the costs from the October 2017
through June 2018 time period in an earlier Infrastructure Surcharge proceeding.
In that earlier proceeding the Commission followed the approach from the 2018
remand order, and rejected Spire’s incremental cost analyses; instead, the
Commission excluded certain of Spire’s claimed costs using the percentage-based
analysis which we upheld in Spire II. In re Application of Spire Mo. Inc. to Change
its Infrastructure Sys. Replacement Surcharge in its Spire Mo. E. Serv. Territory,
Nos. GO-2018-0309 & -0310, 2018 WL 6724358, at *12 (Mo. P.S.C. Sept. 20, 2018).
The Commission’s decision in the earlier proceeding was pending on appeal at the
time of Spire’s January 2019 applications, see Nos. WD82303 and WD82373, and
ultimately resulted in our decision in Matter of Application of Spire Missouri Inc. to
Change its Infrastructure System Replacement Surcharge in its Spire Missouri East
6 At various points in its briefing, Spire complains that a percentage-based cost
allocation was only performed by Staff after the evidentiary hearings in this case, and in
response to the Commission’s request. While this may have been an unusual procedure,
Spire was given an opportunity to respond to the percentage-based cost analysis prepared
by Staff, and told the Commission that it had no objection to the accuracy of Staff’s
implementation of the percentage-based approach. Spire makes no argument that the
Commission was somehow legally precluded from proceeding in the fashion it did, or that
the procedures employed by the Commission could themselves somehow justify reversal.
25
Service Territory v. Office of Public Counsel, 593 S.W.3d 546 (Mo. App. W.D. Nov.
19, 2019).
Spire’s January 2019 applications again sought to recover costs it had
incurred between October 2017 and June 2018, “to the extent such costs were not
recovered in the Company’s immediately preceding ISRS proceedings . . . because of
what the Commission deemed to be insufficient evidence demonstrating their
eligibility.” Spire asserted in its applications that it “has now corrected this
deficiency using the roadmap for demonstrating eligibility provided by the
Commission in” the 2018 remand order, and repeated in its later order addressing
the 2017-18 costs. In its briefing to this Court, Spire asserts that, in the current
proceeding, it submitted to the Commission incremental-cost studies for each of “the
projects that had been subjected to the percentage method in the 2018 Case.”
In its Report and Order, the Commission dismissed the portions of Spire’s
January 2019 applications concerning costs incurred between October 2017 and
June 2018. The Commission found that it lacked jurisdiction to reconsider the
surcharge-eligibility of these costs, while its earlier decision addressing those same
costs was pending on appeal to this Court.
Spire argues that the Commission erred as a matter of law in concluding that
it had no jurisdiction to consider Spire’s new evidence concerning the costs it had
incurred between October 2017 and June 2018. It is unnecessary for us to address
this jurisdictional issue, however. Even if the Commission had jurisdiction to
consider new evidence concerning the October 2017 to June 2018 costs, we have
held in § I above that the Commission properly rejected Spire’s incremental-cost-
based analyses, and instead determined the amount of ineligible plastic-related
costs using a percentage-of-total-length methodology. Even if the Commission had
concluded that it had jurisdiction to reconsider its treatment of the October 2017 to
June 2018 costs, it had already applied the percentage-based methodology to those
26
costs. Spire has shown no basis to justify a different treatment of the October 2017
to June 2018 costs, even if the Commission had jurisdiction to reconsider the issue.7
Point IV is denied.
IV.
Finally, we turn to the single Point raised by the Office of Public Counsel in
its cross-appeal. Public Counsel argues that the Commission erroneously allowed
Spire to include in its Infrastructure Surcharge costs which it incurred under
blanket work orders, but which were related to plastic components which were not
worn out or deteriorated.
Blanket work orders are general work orders covering a large variety of tasks
which are not planned replacement projects. (Thus, blanket work orders do not
govern the neighborhood-wide projects performed under Spire’s systematic
replacement program.) Spire’s January 2019 applications divided the tasks
performed under blanket work orders into categories, and asserted that the cost of
tasks in certain categories were eligible for recovery through its Infrastructure
Surcharge. The surcharge-eligible tasks included: mandated relocations of gas
distribution infrastructure; replacements as a result of leak repairs and corrosion
7 Spire argues in its Brief that, even if we find that the Commission properly
applied a percentage-based methodology to costs incurred as part of Spire’s strategic
replacement program, a live issue still remains concerning the costs Spire incurred between
October 2017 and June 2018: the treatment of costs Spire incurred under blanket work
orders (a subject we discuss in greater detail in § IV, below). Spire argues that, in its prior
order, the Commission applied a percentage-based allocation methodology to costs incurred
under blanket work orders, but that Spire now seeks to have the Commission apply a task-
based allocation method to those costs. As noted in the text, however, Spire’s January 2019
applications sought to apply “the roadmap for demonstrating eligibility” first described by
the Commission in the 2018 remand order, to the costs Spire had incurred between October
2017 and June 2018. That “roadmap” did not involve a task-based allocation of costs
incurred under blanket work orders. See 2018 remand order, 2018 WL 6724346, at *5 ¶ 19
(noting that Staff applied percentage-of-total-length methodology to costs incurred under
blanket work orders); see also 2018 WL 6724358, at *6 ¶ 22 (noting that Staff applied the
same analysis to costs incurred between October 2017 and June 2018). We do not read
Spire’s January 2019 applications as seeking to apply a task-based allocation methodology
to costs incurred under blanket work orders between October 2017 and June 2018.
27
inspections; and the replacement of copper and cast-iron pipe. Tasks which Spire
acknowledged were not surcharge-eligible included: relocations at a customer’s
request; replacements following excavation damage; replacement of plastic
components not related to leak repair; and installation of new service.
The PSC’s Staff agreed with Spire’s task-based approach, and with its
categorization of tasks as surcharge-eligible and -ineligible. To calculate the
blanket work order costs to be included in Spire’s Infrastructure Surcharge, Staff
included 100% of the cost for surcharge-eligible tasks, and none of the costs of
ineligible tasks. Staff did so by calculating the percentage of ineligible tasks
performed under Spire’s blanket work orders, and then applying that percentage to
the total blanket work order costs.
In its Report and Order, the Commission noted that the Office of Public
Counsel “indicated several times . . . that it is not challenging the blanket work
orders in this case,” and that Public Counsel stated in its brief and in a recent filing
“that it was choosing not to pursue this issue.” Thus, the Commission concluded
“[t]here is agreement that the gas utility plant contained in Spire Missouri’s blanket
work orders and its work orders for relocations may be considered ISRS eligible for
purposes of this case.”
In its cross-appeal, Public Counsel argues that the Commission’s Report and
Order improperly permits recovery for surcharge-ineligible costs incurred under
Spire’s blanket work orders. Although not entirely clear, it appears that Public
Counsel challenges the use of a percentage-based methodology based on the number
of ineligible tasks performed under a blanket work order, rather than based on the
relative magnitude of the eligible and ineligible tasks (i.e., the amount of eligible
and ineligible piping replaced under the blanket work orders).8 To support this
8 As discussed in footnote 7, above, in prior proceedings the Commission
applied a percentage-of-total-length methodology to allocate the costs of tasks performed
28
argument, Public Counsel argues that the Commission erroneously permitted Spire
to recover the cost of “service[-line] renewals” in its Infrastructure Surcharge.
Specifically, it argues that it has identified ineligible service-line renewals within
the blanket work order costs which the Commission permitted Spire to recover.
We see several flaws in Public Counsel’s argument. First, although not
argued by Spire or by the Commission itself, we note that the Report and Order
states, on multiple occasions, that Public Counsel was “not challenging the blanket
work orders in this case.” Although no other party argues that Public Counsel
failed to preserve this issue, we seriously question whether it has standing to
challenge the Commission’s treatment of costs incurred under blanket work orders,
when it apparently chose not to challenge that issue before the Commission itself.
Even if the issue were preserved, however, Public Counsel has failed to
satisfy its burden to establish error. In the Report and Order, the Commission
states that “[a] ‘service renewal occurs when an existing service line is replaced in
its entirety with a new service line.’ Service renewals could be done at either the
request of the customer or in the course of a leak repair.” (Emphasis added;
footnotes omitted.) Thus, according to the Report and Order, service-line renewals
can be performed either at a customer’s request, or in repairing a leak. The Report
and Order also states that Spire and Staff indicated that the only blanket work
order costs for replacing plastic pipes which were included in Spire’s Infrastructure
Surcharge were the costs for “replacements due to leak repairs”; the Report and
under blanket work orders. But the Commission’s orders in the prior cases indicate that
documentation was not available to determine the relative length of plastic and metal pipe
actually replaced under the blanket work orders themselves. See 2018 remand order, 2018
WL 6724346, at *5 ¶ 19; 2018 WL 6724346, at *5 ¶ 18, *6 ¶ 22. Instead, Staff took the
relative percentages that it developed in reviewing the work performed as part of Spire’s
strategic replacement program, and simply applied the same percentages to the blanket
work order costs. Id. Public Counsel’s briefing does not make clear whether (unlike in the
prior cases) adequate documentation existed in this case to actually calculate the relative
lengths of plastic and metal pipe replaced under Spire’s blanket work orders.
29
Order specifically states that “replacement of plastic not related to leak repair” was
treated as an ineligible task, and that its cost was excluded from the surcharge.
Public Counsel’s Brief proceeds on the assumption that the costs of all
service-line renewals are ineligible for inclusion in an Infrastructure Surcharge. Its
Brief fails to address the Report and Order’s findings that service-line renewals can
be occasioned by both eligible and ineligible circumstances, and that only the costs
for plastic-pipe replacement related to leak repairs were included in Spire’s
Infrastructure Surcharge. Notably, Public Counsel concedes in its Brief that it does
“not challeng[e] the ISRS eligibility of” costs incurred under blanket work orders for
“such things as leak repairs” – yet these appear to be the only plastic-related
blanket work order costs which were included in Spire’s surcharge.
In light of Public Counsel’s failure to challenge the Commission’s findings
that it excluded the cost of ineligible plastic-pipe replacement under blanket work
orders from the Infrastructure Surcharge, we reject Public Counsel’s cross-appeal
Point without further discussion.9
Conclusion
The Commission’s Report and Order is affirmed.
_______________________________________
Alok Ahuja, Judge
All concur.
9 Spire filed a motion to strike portions of Public Counsel’s brief. That motion
is denied.
30