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. Public Service Commission 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 ) WD83475 Consolidated with
INFRASTRUCTURE SYSTEM ) WD83476 and WD83477
REPLACEMENT SURCHARGE IN )
ITS SPIRE MISSOURI EAST ) OPINION FILED: October 20, 2020
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, )
)
Respondent, )
)
PUBLIC SERVICE COMMISSION, )
)
Respondent, )
v. )
)
OFFICE OF PUBLIC COUNSEL, )
)
Appellant. )
Appeal from the Public Service Commission
Before Division Four: Cynthia L. Martin, Chief Judge, Presiding, Gary D. Witt, Judge
and Anthony Rex Gabbert, Judge
The Office of Public Counsel ("Public Counsel") appeals from the Public Service
Commission's ("Commission") October 30, 2019 report and order ("Report and Order")
addressing Spire Missouri Inc.'s ("Spire") applications to change its infrastructure system
replacement surcharge ("ISRS") in Spire's East and West service territories to include
costs incurred from October 1, 2017, through June 30, 2018, and costs incurred from
February 1, 2019, through July 31, 2019.1 Public Counsel's appeal challenges the
Commission's decision to include the costs associated with the replacement of the cast
iron and steel mains and service lines in the calculation of the awarded ISRS. We affirm.
Regulatory and Procedural Background
Spire is a "gas corporation" and a "public utility" as those terms are defined in
section 386.020(18) and (43).2 Spire is an investor-owned gas utility that provides gas
services to two service areas, Spire East3 and Spire West.4 Spire is subject to the
jurisdiction of the Commission as provided in section 386.250(1). The Commission is a
creature of statute, created by the General Assembly to regulate public utilities, including
gas corporations, in Missouri. See section 386.040; section 386.250(1). The
Commission employs technical experts ("PSC Staff") who are responsible for
representing the Commission and the State of Missouri in all Commission investigations,
1
Spire initially appealed from the Commission's Report and Order but dismissed its appeal prior to
submission.
2
All statutory references are to RSMo 2016, as supplemented through July 15, 2019, the date Spire filed its
petitions to change its ISRS, unless otherwise indicated.
3
Spire East provides gas service in eastern Missouri to customers in the City of St. Louis and the Counties
of St. Louis, St. Charles, Crawford, Jefferson, Franklin, Iron, St. Genevieve, St. Francois, Madison, and Butler.
Spire East was formerly known as Laclede Gas Company.
4
Spire West provides gas service in western Missouri to customers in the counties of Barry, Barton, Bates,
Buchanan, Carroll, Cass, Cedar, Christian, Clay, Clinton, Cooper, Dade, DeKalb, Greene, Henry, Howard, Jackson,
Jasper, Johnson, Lafayette, Lawrence, McDonald, Moniteau, Newton, Pettis, Platte, Ray, Saline, Stone, and Vernon.
Spire West was formerly known as Missouri Gas Energy.
2
contested cases, and other proceedings unless PSC Staff files a notice of its intention not
to participate. Public Counsel is separate from the Commission and PSC Staff. Public
Counsel has statutory authority that gives it discretion to represent and protect the
interests of the public in any proceeding before or appeal from an order by the
Commission. Section 386.710. Public Counsel participated in this matter.
This appeal is the latest in a series of appeals concerning the proper method for
calculating Spire's ISRS, particularly with respect to Spire's program to replace cast iron
and steel pipes in Spire's gas distribution service areas. The General Assembly created
the ISRS mechanism in 2003 to permit gas corporations to recover costs associated with
eligible infrastructure system replacements outside a general ratemaking case. In Matter
of Application of Laclede Gas Co. to Change its Infrastructure Sys. Replacement
Surcharge in Its Laclede Gas Serv. Territory v. Office of Pub. Couns., 523 S.W.3d 27, 30
(Mo. App. W.D. 2017) (citing sections 393.1009, 393.1012, 393.1015). "Under the ISRS
statutes, in order for a gas company's infrastructure replacement costs to be recovered via
an ISRS, they must arise from an 'eligible infrastructure system replacement.'" Id.
(quoting In re Laclede Gas Co., 417 S.W.3d 815, 820-21 (Mo. App. W.D. 2014); citing
sections 393.1009(1) and 393.1012.1). "Eligible infrastructure system replacements" are
defined in section 393.1009(3) as "gas utility plant projects" that meet certain specified
criteria. Id. Section 393.1009(5) defines "gas utility plant projects" so that only three
categories of infrastructure replacements may be recovered by a gas corporation through
an ISRS: "(1) those costs associated with replacements; (2) those costs associated with
improvements and enhancements that defer replacements; and (3) those costs associated
3
with government-mandated relocations." Id. This appeal concerns costs associated with
the first category of gas utility plant projects: "[m]ains, valves, service lines, regulator
stations, vaults, and other pipeline system components installed to comply with state or
federal safety requirements as replacements for existing facilities that have worn out or
are in deteriorated condition." Section 393.1009(5)(a).
Historically, Spire used a piecemeal approach to replace its infrastructure,
replacing pipes when they were leaking or exhibiting obvious conditions that made
replacement or repair necessary. Spire abandoned that approach in approximately 2010
or 2011, implementing a systematic approach in which Spire replaces aging infrastructure
by replacing entire neighborhood distribution systems at a time ("systematic replacement
approach"). In doing so, Spire replaces aging cast iron and steel infrastructure by
bypassing them. The process also includes bypassing some plastic mains and service
lines, the replacement of which is generally not attributable to the age or condition of the
plastic pipes. Spire has consistently taken the position that bypassing and replacing
existing plastic infrastructure in this manner is the least costly approach to the
replacement of the aging cast iron and steel pipes.
We considered whether Spire could recover the cost of replacing plastic pipes in
its ISRS in In Matter of Application of Laclede Gas Co. to Change Its Infrastructure
System Replacement Surcharge in Its Missouri Gas Energy Service Territory v. Office of
Public Counsel, 539 S.W.3d 835 (Mo. App. W.D. 2017) ("Spire I"). There, Public
Counsel appealed from a report and order issued by the Commission that included the
cost to replace plastic mains and service lines in its calculation of an approved ISRS,
4
concluding that "the plastic pipe . . . was an integral component of the worn out and
deteriorated cast iron and steel pipe." Id. at 837.
We reversed the Commission's order to the extent that it allowed Spire to recover
the cost to replace plastic infrastructure that was not worn out or in a deteriorated
condition. Id. We remarked:
While Laclede's replacement strategy may laudably produce a safer system,
the question squarely before us is not whether its chosen approach is
prudent but rather whether the replacement of plastic components that were
not in a worn out or deteriorated condition are ISRS-eligible. In analyzing
that proposition, we cannot ignore the plain language of the statute for
"convenience, expediency[,] or necessity" to conclude that the costs are
eligible for recovery through the ISRS process.
Id. at 840 (quoting In Matter of Verified Application & Petition of Laclede Gas Co. v.
Off. of Pub. Counsel, 504 S.W.3d 852, 859 (Mo. App. W.D. 2016)). We held that, under
the plain language of 393.1009(5)(a), the costs incurred to replace plastic mains and
service lines that were not worn out or deteriorated could not be included in the ISRS
calculation. Id. at 839. We cautioned in a footnote:
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 [they] 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.
5
Id. at 839-40 n.5. We also noted that the Commission's report and order failed to identify
a "state or federal safety requirement" that either mandated the replacement of the plastic
infrastructure or mandated the replacement of neighborhood systems as a whole in
contravention of section 393.1009(5)(a). Id. at 840. We remanded the case to the
Commission for further proceedings consistent with the opinion. Id. at 841.
The case returned to our Court in In Matter of Application of Laclede Gas Co. to
Change Its Infrastructure System Replacement Surcharge in Its Missouri Gas Energy
Service Territory v. Missouri Public Service Commission, 593 S.W.3d 582 (Mo. App.
W.D. 2019) ("Spire II"). Before the Commission conducted any hearings on remand, it
approved a new general rate for Spire so that the ISRS rate was reset to zero, and the new
rate went into effect on April 19, 2018. Id. at 587-88. On remand, the question before
the Commission was whether customers were entitled to a refund for the collection of the
ISRS insofar as it included costs for the ineligible replacement of plastic infrastructure in
light of our opinion in Spire I. Id. at 588. Spire argued that, based on review of ten
replacement projects chosen by Public Counsel and Spire, use of the systematic
replacement approach had saved customers millions of dollars in comparison to the
piecemeal approach, and that as a result, customers were not entitled to a refund for
ineligible cost to replace plastic mains and service lines included in the ISRS. Id. The
Commission rejected Spire's position. Id. at 589-90. The Commission concluded that
Spire failed to present evidence that the replacement of plastic pipe "was incidental to
and required to be replaced in conjunction with the replacement of other worn out or
deteriorated components," and that Spire's analysis of ten work orders was "far too few"
6
to support its position that all of the projects would have yielded the same result. Id. The
Commission adopted a percentage calculation approach proposed by PSC Staff to
determine the cost of the ineligible plastic pipe replacement, and determined the amount
of $3,110,787 had been improvidently collected from customers in the ISRS. Id. at 590.
The percentage calculation approach to determining cost calculated the total length of
service lines and pipes replaced and retired, determined the total length of replaced and
retired plastic pipe, and then applied that percentage to the total cost of the project
("percentage methodology").5 Id. at 588.
Spire appealed the Commission's order, arguing that the Commission erred in
using the percentage methodology proposed by PSC Staff to determine the portion of the
collected ISRS attributable to the replacement of plastic components. Id. at 594. We
affirmed the Commission's decision, emphasizing that Spire, as the party who filed the
ISRS applications, bore the burden of proof. Id. at 595. We concluded that the
Commission, as the finder of fact, was entitled to reject Spire's cost studies on the basis
that the sample size was too small to extrapolate. Id. at 596. We then determined that we
would not substitute our judgment for that of the Commission insofar as its decision to
accept the percentage methodology proposed by PSC Staff. Id. at 597. We explained:
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
5
The Commission concluded, however, that it did not have the authority to issue refunds to customers
because we had not specifically instructed it to do so in Spire I. Spire II, 593 S.W.3d at 590. Public Counsel
appealed this decision, and we concluded that the Commission erred in refusing to issue refunds because Spire I
implicitly included an instruction to issue refunds in that it remanded the case for further proceedings consistent with
the opinion. Id. at 592-93.
7
 [Commission] 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 [Commission] was therefore precluded from taking a
more nuanced approach to the disallowance issue than the percentage-based
method advocated by [Public Counsel] and [PSC] Staff. We cannot
conclude that the [Commission] 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 [Commission] 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 [Commission's] calculation
of Spire's ISRS disallowance was supported by substantial competent
evidence and is not arbitrary or unreasonable.
Id.
The next in the series of ISRS cases before us was In Matter of Application of
Spire Missouri Inc. to Change Its Infrastructure System Replacement Surcharge in Its
Spire Missouri East Service Territory, 593 S.W.3d 546 (Mo. App. W.D. 2019) ("Spire
III").6 On June 7, 2018, Spire filed its first ISRS applications following Spire's latest
general rate cases in which the ISRS rate was reset to zero. Id. at 548. These
applications sought to recover costs incurred in connection with infrastructure system
replacements made from October 1, 2017, through June 30, 2018. Id. The Commission
again employed the percentage methodology to remove the cost to replace ineligible
plastic mains and service lines from Spire's ISRS recovery. Id. at 549. Both Public
Counsel and Spire appealed. Id.
Public Counsel argued on appeal that Spire failed to present sufficient evidence to
prove that replaced cast iron and steel mains and service lines were "worn out or [were]
6
We handed down the Spire II and Spire III decisions on the same day, but Spire II was filed in our Court
prior to Spire III.
8
in a deteriorated condition" as required by the statutory definition of "gas utility plant
projects" found in section 393.1009(5)(a). Id. at 550. Public Counsel asserted that the
only evidence presented to the Commission was that "old pipes can become worn out or
deteriorated and that many of the pipes at issue were old," without presenting evidence
that "the pipes at issue actually were worn out or deteriorated." Id. The Commission's
report and order found that "the cast iron and steel pipes were replaced to comply with
state or federal safety requirements and were worn out or in a deteriorated condition, so
they are eligible for recovery under ISRS." Id. at 554. The report and order also found,
however, "that Spire's work order authorization sheets did not explain if a main or service
line being replaced was worn out or deteriorated." Id.
Our review of the record revealed that "Spire's primary argument revolved around
the age of the facilities and the assumption that old facilities must be worn out or
deteriorated," but "[t]here was no evidence with respect to how long it takes cast iron and
steel to become worn out or deteriorated." Id. Spire's position was that it did not need to
present evidence of wear or deterioration if the pipe was subject to a state or federal
replacement requirement, a position that Spire I had rejected. Id. (citing Spire I, 539
S.W.3d at 838). We also cited Spire I to reject Spire's position that it was "cheaper,
faster, and more efficient to replace all the facilities at the same time in a neighborhood
by neighborhood approach," recognizing that prudency of the chosen replacement
strategy is not the relevant question in an ISRS proceeding. Id. at 554-55. Accordingly,
9
we granted Public Counsel's appeal,7 finding that the report and order was not supported
by competent and substantial evidence, and reversed the Commission's report and order
to the extent that it allowed ISRS recovery for infrastructure not shown to be worn out or
deteriorated. Id. at 555. We remanded the case for the purpose of removing the costs
incurred to replace cast iron and bare steel mains and service lines that were not shown to
be worn out or deteriorated from the ISRS calculation. Id.
While the Spire II and Spire III appeals were pending, Spire filed additional ISRS
petitions to recover costs incurred in two time periods: October 1, 2017, to June 30, 2018;
and July 1, 2018, to January 31, 2019. In Matter of Application of Spire Mo., Inc. to
Change Its Infrastructure Sys. Replacement Surcharge in Its Spire Mo. E. Serv. Territory,
Nos. WD83159 & WD83162, 2020 WL 5171137, at *1 (Mo. App. W.D. Sept. 1, 2020)
("Spire IV"). The Commission dismissed Spire's applications insofar as they sought to
recover costs from October 2017 through June 2018, reasoning that since its previous
determination of costs for the same time period was pending on appeal in Spire III, it had
no jurisdiction to hear new evidence and make a different decision concerning the costs.
Id. at *3. The Commission then considered the costs incurred from July 2018 to January
2019. Id. To support its request for an adjustment to its ISRS, Spire provided the
Commission with 509 cost studies, one for each project conducted pursuant to its
systematic replacement approach. Id. at *2.
These project-specific cost studies compared the costs of retiring and
replacing the plastic pipe as part of a neighborhood-wide project, with the
7
Given our disposition of Public Counsel's point on appeal, we did not reach Spire's points on appeal. Spire
III, 593 S.W.3d at 555.
10
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).
Id. The Commission rejected the cost studies, finding that they "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." Id. at
*3. Instead of using Spire's cost studies, the Commission adopted calculations prepared
by PSC Staff that excluded costs related to the replacement of plastic infrastructure using
the percentage methodology. Id. Spire appealed, and once again argued that the
Commission erred in failing to include the costs incurred in connection with Spire's
systematic replacement approach to replacing its infrastructure.8 Id. at *4.
In particular, Spire argued that, because it presented evidence that, on many of its
projects, there was no incremental cost associated with the replacement of the plastic
infrastructure ("incremental-cost analysis"), the Commission was statutorily required to
include the entire cost of those projects in its calculation of the company's ISRS. Id. at
*8. We disagreed, noting that the ISRS statutes' failure to include a definition of "costs,"
8
Public Counsel also appealed, but the topic of its appeal was the inclusion of costs that were incurred
under "blanket work orders," a topic not relevant to this appeal. Spire IV, 2020 WL 5171137, at **15-17.
11
or to specify how eligible "costs" should be determined, gave the Commission substantial
discretion to determine the methodology that should be employed to calculate "costs" that
can be included in the ISRS calculation. Id. at **8-9. The Commission's decision to use
the percentage methodology to attribute a portion of the costs to the replacement of
plastic infrastructure was well within its discretion. Id. at *10. We also rejected Spire's
argument that the Commission's guidance in previous reports and orders obligated Spire
to rely on its cost analyses. Id. at *13. And we found that once the Commission rejected
Spire's incremental-cost analysis, the Commission was in the same position as Spire II so
that its use of the percentage methodology was appropriate. Id. Finally, we found it
unnecessary to consider Spire's argument that the Commission erred in concluding that it
did not have jurisdiction to consider the applications' request to include costs from
October 1, 2017, to June 30, 2018, because even if the Commission had jurisdiction to
consider costs that were the subject of a pending appeal, the Commission did not err in
using the percentage methodology in the instant proceeding, and that was the same
methodology already applied by the Commission to those costs in the Spire III
proceeding. Id. at *15.
Spire II and Spire III were also pending on appeal when, on July 15, 2019, Spire
filed verified applications and petitions ("ISRS Petitions") in the instant case. Spire's
ISRS Petitions sought to adjust its ISRS in its Spire East and Spire West service
territories to reflect infrastructure replacement costs incurred during the period of
February 1, 2019, through May 31, 2019, with pro forma infrastructure replacement costs
updated for the months of June and July 2019. The ISRS Petitions also sought an
12
adjustment to its ISRS to recover infrastructure replacement costs incurred between
October 1, 2017, and June 30, 2018, to the extent that those costs were not approved for
recovery in previous ISRS cases after the Commission determined there was insufficient
evidence demonstrating their eligibility ("old ISRS costs"). Spire attached ISRS revenue
requirement calculations to its ISRS Petitions indicating a total annual revenue
requirement of $8,104,616 for Spire East and $6,294,574 for Spire West. Those
calculations included the old ISRS costs and estimates for June and July 2019. Spire later
updated the calculations with actual cost information from June and July 2019 resulting
in annual revenue requirements of $7,640,218 for Spire East and $6,424,114 for Spire
West.
On September 13, 2019, PSC Staff filed its recommendation that the Commission
reject Spire's ISRS revenue calculations and instead approve ISRS adjustments based on
PSC Staff's determination of the appropriate amount of ISRS revenues for Spire East and
Spire West ("the PSC Staff recommendation"). The PSC Staff recommendation asserted
that the Commission did not have jurisdiction to consider Spire's request for an
adjustment to its ISRS to recover infrastructure costs incurred between October 1, 2017,
and June 30, 2018, because the case in which the Commission initially rejected those
costs was pending before this Court in Spire III. The PSC Staff recommendation also
proposed that the Commission exclude the cost of ISRS-ineligible plastic from the cost of
the ISRS-eligible parts of the system, using the same percentage methodology employed
by the Commission in Spire II, Spire III, and Spire IV.
13
The same day as the PSC Staff recommendation was filed, Public Counsel filed its
objections to Spire's ISRS Petitions and requested that the Commission hold an
evidentiary hearing. Public Counsel objected to the ISRS Petitions insofar as they
requested an ISRS adjustment for cathodically protected 9 steel mains and service lines.
Public Counsel argued that there is no state or federal mandate to replace cathodically
protected steel pipes as required by section 393.1009(5)(a). Public Counsel further
objected to the ISRS Petitions arguing there was no evidence in the record to support a
finding that the cast iron and steel mains and service lines Spire replaced were worn out
or in deteriorated condition as required by section 393.1009(5)(a). Public Counsel finally
argued that the ISRS Petitions sought recovery for the replacement of plastic mains and
service lines that are ineligible for ISRS inclusion.
The Commission held an evidentiary hearing on the ISRS Petitions on October 2,
2019. The central issue before the Commission was whether all the costs included in
Spire's ISRS Petitions were eligible for inclusion in the calculation of the company's
ISRS.10 Spire had the same strategy for recovering all of the costs associated with its
systematic replacement of infrastructure. Spire did not argue that replaced plastic
infrastructure was worn out or in a deteriorated condition. Instead, Spire argued that it
was less costly to replace plastic components than to reuse them so that there was no
9
Spire's predecessor cathodically protected bare steel mains and service lines approximately thirty to forty
years after they were installed pursuant to the Commission's gas pipeline replacement rules at 20 CSR 4240-
40.030(15). Cathodic protection slows corrosion of steel infrastructure but does not repair or mitigate corrosion that
has already occurred and does not eliminate corrosion.
All regulatory references are to the version in effect at the time the ISRS Petitions were filed, July 15,
2019.
10
Also before the Commission was the issue of how income taxes should be calculated for the purpose of
determining Spire's ISRS revenue requirement. The parties filed a stipulation regarding the issue on the day of the
evidentiary hearing.
14
incremental cost incurred in replacing the plastic. To support its position, Spire
introduced project analyses for twelve randomly selected projects from the hundreds of
projects for which it was seeking ISRS recovery. Those twelve project analyses
compared the costs to replace the facilities under Spire's systematic replacement approach
with the estimated costs of a piecemeal approach, where it would have only replaced cast
iron or steel components. The twelve project analyses showed that the piecemeal
approach would be 11 to 198 percent more expensive than the systematic replacement
approach. Spire thus argued that the cost comparisons should be extrapolated to over the
entire ISRS request entitling Spire to all costs incurred in its systematic replacement
approach.
The Commission issued its report and order on October 30, 2019 ("Report and
Order"). The Report and Order dismissed the ISRS Petitions insofar as they requested
old ISRS costs, reasoning that the Commission did not have jurisdiction to reconsider
costs already determined and that were pending on appeal in Spire III. The Report and
Order then concluded that the costs associated with Spire's replacement of plastic
infrastructure were not eligible for inclusion in the ISRS calculation and employed the
percentage methodology previously used by the Commission to reduce the ISRS by
ineligible costs for plastic replacement. In reaching this decision, the Commission
concluded that the twelve project analyses that Spire presented to the Commission were
"too few . . . for the Commission to reasonably conclude that there was . . . no cost
associated with the retirement of the plastic facilities." With respect to the cast iron and
cathodically protected steel mains and service lines, the Commission concluded that both
15
types of metal infrastructure were replaced to comply with state or federal safety
requirements and that the evidence established that the replaced pipes were worn out or in
a deteriorated condition. The Report and Order then authorized Spire to establish an
ISRS sufficient to recover $4,763,180 for the Spire East territory and an ISRS sufficient
to recover $3,996,543 for the Spire West territory.
Public Counsel filed a timely application for rehearing, which the Commission
denied. Public Counsel appeals. Additional facts are discussed in the analysis portion of
the Opinion as necessary.
Standard of Review
Section 386.510 governs appellate review of the Commission's Report and Order.
The statute limits our review to determining whether the Commission's Report and Order
is lawful and reasonable. Section 386.510. We presume that the Commission's Report
and Order is valid, and Public Counsel, as appellant, bears the burden to prove by clear
and satisfactory evidence that the Report and Order is either unlawful or unreasonable.
Mo.-Am. Water Co. v. Mo. Pub. Serv. Comm'n, 602 S.W.3d 252, 257 (Mo. App. W.D.
2020). The lawfulness of the Commission's Report and Order concerns whether statutory
authority existed for its issuance, a legal issue that we review de novo. Id. The
reasonableness of the Report and Order, on the other hand, "concerns whether it is
'supported by substantial, competent evidence on the whole record and is not arbitrary,
capricious, or an abuse of discretion.'" Id. (quoting Mo. Am. Water Co. v. Pub. Serv.
Comm'n of Mo., 591 S.W.3d 465, 469 (Mo. App. W.D. 2019)). We view the evidence
16
and any reasonable inferences drawn therefrom in the light most favorable to the
Commission's Report and Order. Id.
Analysis
Public Counsel presents three points on appeal, all of which concern the
Commission's conclusion that the expenditures made by Spire to replace cast iron and
steel mains and service lines were eligible for inclusion in the calculation of the
adjustments to the ISRS for Spire East and to the ISRS for Spire West.
Section 393.1009(5)(a) describes two requirements for infrastructure replacement
to be eligible for cost recovery through an adjustment to an 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."
Spire I, 539 S.W.3d at 839. Public Counsel challenges the Commission's conclusion that
there was a state or federal safety mandate for Spire to replace cathodically protected
steel mains in its first point on appeal. Public Counsel's second and third points on
appeal concern whether the cast iron and steel mains and service lines replaced by Spire
were worn out or in a deteriorated condition.
Point One: State or Federal Safety Requirement to Replace Cathodically Protected
Steel Mains
Public Counsel's first point on appeal challenges the Report and Order's
conclusion that Spire was required by state law to replace cathodically protected steel
mains. The Commission recognized in its Report and Order that, because the steel mains
had been previously cathodically protected, 20 CSR 4240-40.030(15), which requires gas
17
corporations to "cathodically protect or replace" "unprotected steel transmission lines,
feeder lines, [and] mains," could not serve as the state or federal mandate for
replacement. Nevertheless, the Commission concluded that a state or federal mandate for
replacement of the cathodically protected bare steel pipes existed:
Spire Missouri installed the new pipeline components replacing
cathodically protected steel components in order to comply with the state
requirements of [s]ection 393.130, RSMo (requiring Spire Missouri to
provide safe and adequate service), 20 CSR 4240-40.030(17) (requiring
Spire Missouri to identify and implement measures to address risks), and 20
CSR 4240-40.030(13)(B) (requiring Spire Missouri to repair, replace, or
remove unsafe segments of pipeline from service).
In reaching that conclusion, the Report and Order cited Spire's distribution integrity
management plans ("DIMP") from December 2016 and May 2019, both of which
identified corrosion of cathodically protected steel mains as a risk to be addressed.
Public Counsel quarrels with the Commission's conclusion that these statutory and
regulatory provisions afford a legal mandate for replacement. Public Counsel asserts that
20 CSR 4240-40.030(17) merely requires Spire to develop and implement a distribution
integrity management program ("DIMP") that identifies the risk of failure of cathodically
protected steel mains and that reports how Spire manages the integrity of its
infrastructure, but Public Counsel argues that the regulation does not mandate
replacement of infrastructure. Public Counsel further argues that an examination of
Spire's May 2019 DIMP reveals that the DIMP did not include a replacement program for
cathodically protected steel mains. Public Counsel also dismisses section 393.130 and 20
CSR 4240-40.030(13)(B) as mandating replacement. Public Counsel argues that there
was no evidence presented that the cathodically protected bare steel mains were unsafe,
18
relying on testimony from Craig Hoeferlin ("Hoeferlin"), Spire's vice-president of
operations services, that the company's cathodically protected mains were safe to
transport natural gas. We disagree with Public Counsel's positions.
"The purpose of an ISRS surcharge is to allow a utility to 'timely recover its costs
for certain government-mandated infrastructure projects without the time and expense
required to prepare and file a general rate case.'" Spire I, 539 S.W.3d at 840 (quoting In
re Laclede Gas Co., 417 S.W.3d 815, 821 (Mo. App. W.D. 2014)) (emphasis omitted).
"ISRS-eligibility under section 393.1009(5)(a) is dependent on a project being imposed
on a gas utility by a government-mandated safety requirement . . . ." Id. In other words,
the ISRS mechanism incentivizes a gas utility to comply with government-mandated
safety requirements in order to maintain a safe distribution system for natural gas
proactively. That goal is precisely what section 393.130, 20 CSR 4240-40.030(13)(B),
and 20 CSR 4240-40.030(17), when considered together, mandate.
Section 393.130.1 provides that "[e]very gas corporation . . . shall furnish and
provide such service instrumentalities and facilities as shall be safe and adequate and in
all respects just and reasonable." Similarly, 20 CSR 4240-40.030(13)(B) mandates that
"[e]ach segment of pipeline that becomes unsafe must be replaced, repaired, or removed
from service." Related to the obligation to provide a safe distribution system for natural
gas is the gas utility's obligation to "develop and implement an integrity management
program that includes a written integrity management plan," or a DIMP. 20 CSR 4240-
40.030(17)(C). A DIMP must identify potential threats to the gas utility's distribution
pipeline, including corrosion and natural forces; must evaluate and rank the risks
19
associated with the gas distribution pipeline, including the likelihood of failure associated
with each potential threat; and must determine and implement measures to address those
risks. 20 CSR 4240-40.030(17)(D).
The Commission considered Spire's December 2016 DIMP and May 2019 DIMP.
In each DIMP, Spire identified corrosion of cathodically protected steel mains as a risk to
be addressed. The May 2019 DIMP ranked corrosion of cathodically protected steel
mains in the suburban Spire East territory as the 16th greatest risk and corrosion of
cathodically protected steel mains in the suburban Spire West territory as the 52nd
greatest risk. The May 2019 DIMP also ranked the risk of corrosion of cathodically
protected steel mains in urban and rural environments. The December 2016 DIMP also
included the risk of corrosion of cathodically protected steel mains but ranked the risk
lower than the May 2019 DIMP.
Public Counsel acknowledges that each DIMP noted cathodically protected steel
mains as a risk to be addressed. Nevertheless, Public Counsel argues that, because
Spire's DIMPs did not include the replacement of cathodically protected steel mains as
one of its replacement programs, 20 CSR 4240-40.030(17) cannot serve as the state
mandate for replacement. This argument overlooks that the obligation to evaluate and
rank risks to infrastructure found in 20 CSR 4240-40.030(17) must be read in conjunction
with the statutory mandate found in section 393.130 for gas utilities to ensure that their
natural gas distribution systems are safe and adequate, and the regulatory mandate found
in 20 CSR 4240-40.030(13)(B) to replace pipeline that has become unsafe.
20
Spire's evaluation of the risk posed by corrosion of cathodically protected steel
mains in its December 2016 DIMP and May 2019 DIMP was not the only evidence
relevant to the Commission's determination that Spire replaced the cathodically protected
steel mains pursuant to state safety mandates. The Commission also considered evidence
that the cathodically protected steel mains had become unsafe, and thus required
replacement. Hoeferlin testified that, prior to Spire's replacement efforts, the leakage rate
of cathodically protected steel facilities was thirty to forty times higher than the leakage
rate for plastic facilities. Hoeferlin explained that, due to Spire's accelerated efforts to
replace its cathodically protected steel pipes, the leakage rate of cathodically protected
steel pipes dropped to ten times the leakage rate for plastic pipes. Hoeferlin further
testified that hazardous leaks on cathodically protected steel pipes results can be
catastrophic, as natural gas escaping into homes, businesses, and sewers, which can easily
explode, resulting in injuries and fatalities. Hoeferlin testified that, because of the risks
posed by cathodically protected steel infrastructure, natural gas distributors and industry
professionals have advocated for the accelerated replacement of these pipes based on a
recognition that cathodic protection was merely a stopgap solution to the problems
associated with the corrosion of bare steel pipes.
The testimony of Robert Leonberger ("Leonberger"), an engineer and natural gas
expert who works for a consulting firm, underscored the need to replace all of the
cathodically protected steel mains. Leonberger, referencing his experience working on
pipeline safety for PSC Staff, testified that, at the time he was involved in drafting the
regulations thirty years ago, PSC Staff initially believed that steel mains should be
21
replaced but, in recognition of the enormity of the problem posed by steel and cast iron
infrastructure, the regulations were drafted to allow for cathodic protection of steel
infrastructure as an interim measure. Leonberger testified that he believed thirty years
ago, and still believes, that these cathodically protected steel mains should be replaced.
Hoeferlin's and Leonberger's testimony, along with Spire's December 2016 DIMP
and May 2019 DIMP, substantially and competently explain the risks posed by
cathodically protected steel mains. It is within the Commission's expertise, and therefore
within its exercise of regulatory discretion to determine, as it did in the Report and Order,
that the risks posed by cathodically protected steel mains necessitated their proactive
replacement so that Spire has a safe and adequate system for distributing natural gas to its
customers as mandated by section 393.130 and 20 CSR 4240-40.030(13)(B). See In
Matter of Verified Application & Petition of Laclede Gas Co., 504 S.W.3d at 859
(observing that "'Missouri courts have long recognized that when the decision involves
the exercise of regulatory discretion, the [Commission] is delegated a large amount of
discretion, and many of its decisions necessarily rest largely in the exercise of sound
judgment'" so that we "'will not substitute [our] judgment for that of the [Commission] on
issues within the realm of the agency's expertise'" (quoting State ex rel. Sprint Mo., Inc. v.
Pub. Serv. Comm'n, 165 S.W.3d 160, 164 (Mo. banc 2005))).
Contrary to Public Counsel's suggestion, Hoeferlin's testimony at the hearing that
Spire is providing safe and adequate service when transporting gas through
approximately 800 miles of its cathodically protected steel mains does not alter our
conclusion. Public Counsel suggests that this testimony nullified the evidence suggesting
22
a need to immediately replace cathodically protected steel. The Commission rejected this
argument, holding in its Report and Order that "Spire Missouri must not wait until its
system is leaking and exploding in order to comply with the law." We agree.
Substantial and competent evidence supports the conclusion that replacement of
Spire's cathodically protected steel mains was required by section 393.130, 20 CSR 4240-
40.030(13)(B), and 20 CSR 4240-40.030(17).11
Public Counsel's Point One is denied.
Points Two and Three: Cast Iron and Steel Mains and Service Lines as Worn Out or in
a Deteriorated Condition
Public Counsel's second and third points on appeal are related as both concern the
Commission's conclusion that the cast iron and steel mains and service lines replaced by
Spire were in a worn out or deteriorated condition as required by section 393.1009(5)(a).
Public Counsel's second point on appeal concerns the sufficiency of the evidence to
support the conclusion that the cast iron and steel mains and service lines replaced were
worn out or in a deteriorated condition. The third point on appeal asserts that the
Commission gave Spire an unlawful presumption of deteriorated condition based on the
type of material replaced, specifically cathodically protected steel.
Public Counsel made similar claims in Spire III. As discussed supra, in Spire III,
we addressed whether substantial and competent evidence supported the Commission's
conclusion that replaced cast iron and steel mains and service lines were "worn out or []
in [a] deteriorated condition" as required by section 393.1009(5)(a). 593 S.W.3d at 550.
11
These same statutes and regulations, along with 20 CSR 4240-40.030(15), provide the basis for
concluding that cast iron pipes are subject to state or federal mandate requiring replacement--a conclusion Public
Counsel does not challenge.
23
We concluded that Spire had not sustained its burden, and we reversed the Commission's
ISRS award, and remanded for further proceedings. Id. at 555. Public Counsel contends
that the evidence presented in this case on the issue of the deteriorated condition of
replaced pipe was no different than that presented in Spire III, requiring an identical
disposition. We disagree.
In Spire III, we noted that guidance has been provided by our Supreme Court with
respect to the meaning of "in a deteriorated condition":
"The definition of 'deteriorate' is 'to make inferior in quality or value,' 'to
grow worse,' and 'become impaired in quality, state, or condition.'" In
Matter of Verified Application & Petition of Liberty Energy (Midstates)
Corp., 464 S.W.3d 520, 525 (Mo. banc 2015) (quoting WEBSTER'S
THIRD NEW INTERNATIONAL DICTIONARY 616 (1993)). "Clearly,
this definition indicates that deterioration is a gradual process that happens
over a period of time rather than an immediate event." Id.
593 S.W.3d at 550. We then observed that Spire's approach to sustaining its burden to
prove that replaced pipe was in a deteriorated condition emphasized almost exclusively
"the age of the facilities and the assumption that old facilities must be worn out or
deteriorated," without presenting evidence as to "how long it takes cast iron and steel to
become worn out or deteriorated." Id. at 554. Further, "Spire seem[ed] to believe that it
[did] not need to present evidence that the pipes it replace[d] are worn out or deteriorated
because it consider[ed] any pipe subject to a state or federal replacement requirement to
be by definition worn out or deteriorated." Id. We summarized the evidence presented,
most of which involved blanket work orders used by Spire when there is a leak or some
other problem necessitating infrastructure replacement. Id. at 550-51. Hoeferlin testified
that he believed all cast iron and steel pipe was worn out or deteriorated, because "any
24
time there is a leak in the structures that are bare steel and cast iron that by definition the
structures are worn out and deteriorated." Id. at 551. We observed, however, that this
categorical characterization had been rejected by our Supreme Court. Id. at 554 (citing
Liberty Energy, 464 SW.3d at 525) (rejecting the position that a structure is worn out or
deteriorated merely because there is a leak as leaks can be caused by other factors or
events).
Hoeferlin also testified in Spire III in general terms about the graphitization
process that cast iron undergoes, making the cast iron easily susceptible to cracks, and
about the corrosion process that bare and unprotected steel undergoes. Id. at 551. Spire's
director of regulatory and finance generally testified that facilities included in blanket
work orders were worn out or deteriorated because "it [was] no longer in the safe
established condition to provide service." Id. However, a PSC Staff utility regulatory
auditor testified that nothing was provided in the blanket work order authorization sheets
to explain whether replaced mains or service lines were, in fact, worn out or deteriorated,
and that Spire did not provide any testing regarding the replaced mains and service lines
to show that they were worn out or deteriorated. Id. That PSC Staff utility regulatory
auditor also testified that some of the mains at issue had not reached their average service
life, and that PSC Staff does not agree that whether a facility is near the end of its useful
life should be considered when determining whether it is worn out or in a deteriorated
condition. Id. at 551-52.
After summarizing the evidence presented, including Spire's belief that it did not
have to prove that infrastructure replaced was, in fact, "worn out or [] in [a] deteriorated
25
condition" so long as the pipe was subject to a state or federal replacement requirement,
we concluded that Spire had not sustained its burden to establish that the pipe it replaced
was eligible for ISRS recovery because it was worn out or deteriorated. Id. at 554 (citing
Spire I, 539 S.W.3d at 838). We noted, for example, that there was no evidence
presented about how long it ordinarily takes cast iron and steel to become worn out or
deteriorated condition, and that in any event, the evidence suggested that wear and
deterioration differ by location. Id. Further, we rejected Spire's suggestion that the cost
efficiencies involved in systematic replacement of all facilities in a neighborhood at the
same time was sufficient to establish entitlement to an ISRS calculation. Id. at 555
(citing Spire I, 539 S.W.3d at 840). We thus reversed and remanded for removal of the
costs incurred to replace cast iron and bare steel mains and service lines not shown to be
worn out or deteriorated. Id.
Spire III effectively held that Spire could not rely on a presumption of pipe
condition to support an ISRS based solely on the age of pipe, or on a statutory or
regulatory obligation to replace pipe, or on generalized evidence about the process of
pipe corrosion to establish that replaced pipe was worn or deteriorated. On the other end
of the spectrum, however, we did not hold that every inch of pipe replaced had to be
demonstratively proven to be deteriorated.
The line between these two evidentiary extremes is imprecise, which supports
deferring to the factual findings of the Commission. The evidence presented to the
Commission in this case went beyond that presented to the Commission in Spire III, and
was sufficient to sustain Spire's burden. While some of the evidence presented to the
26
Commission in this case was similar to the evidence presented in Spire III, Spire appears
to now recognize that it is insufficient for purposes of establishing ISRS eligibility to take
the position that mains or service lines subject to a federal or state mandate for
replacement are by definition worn out or in a deteriorated condition. Instead, Spire
presented evidence in this case from which the Commission could reasonably conclude
that the cast iron and steel mains and service lines replaced were in a worn out or
deteriorated condition as required by section 393.1009(5)(a).
Hoeferlin testified that he has never encountered a replaced cast iron or bare steel
pipe that was not in a deteriorated condition. With respect to bare steel pipe, Hoeferlin
explained that the process of corrosion begins immediately upon installation of the pipe,
and that cathodic protection is, at best, a stop gap to delay further deterioration. Though
the rate of corrosion of steel pipe is not uniform, Hoeferlin testified that 100 percent of
Spire's cathodically protected steel pipe has reached the point where it is worn out or in a
deteriorated condition because it is "capable of performing its duty, but not as well as it
originally was when it was put in[;] it's becoming more and more deteriorated so it's not
performing as well." And as earlier summarized in discussing the statutory or regulatory
requirement to replace steel pipe, Hoeferlin testified that prior to Spire's replacement
efforts, the leakage rate of cathodically protected steel facilities was thirty to forty times
higher than the leakage rate for plastic facilities. Hoeferlin further testified that
hazardous leaks on cathodically protected steel pipes results can be catastrophic.
Hoeferlin testified that, because of the risks posed by cathodically protected steel
infrastructure, natural gas distributors and industry professionals have advocated for the
27
accelerated replacement of these pipes. Leonberger echoed this testimony, noting that
industry standards recognized the urgency of replacing steel pipes, as cathodic protection
had been intended, at best, as a stop gap measure to slow deterioration.
With respect to cast iron pipes, Spire submitted photographs that Hoeferlin
testified were consistent with the types of pipes that Spire is targeting with its
replacement program. The photographs showed gaping holes in the cast iron pipes.
Hoeferlin also brought two pipes as demonstrative exhibits to the hearing and
testified that the pipes are typical of the condition of the pipes that were being removed
and replaced by Spire. The first was a segment of a bare steel service line that was
installed in 1952 in the Spire West territory and later cathodically protected. The second
was a cast iron pipe that was installed in 1912 in the Spire East territory. The
Commission found Hoeferlin's testimony credible and persuasive, and specifically cited
to the photographs and demonstrative exhibits, in its Report and Order.
The arguments made by Public Counsel on appeal concern the credibility of
Spire's evidence. These are the same arguments Public Counsel made before the
Commission, through the testimony of John Robinette ("Robinette"), a utility engineering
specialist who works for Public Counsel, and who challenged the accuracy of Spire's
witnesses' testimony. But Public Counsel's arguments go to the weight to be afforded to
Spire's evidence, and not to its sufficiency to support the Commission's findings if
believed. By finding Hoeferlin's testimony credible and persuasive, the Commission
effectively rejected the Public's Counsel's contrary evidence and arguments presented
28
through Robinette. We defer to the Commission's determination of witness credibility.
Spire II, 593 S.W.3d at 596.
The Commission's credibility determination guided its decision that the cast iron
and steel mains and service lines Spire replaced were "worn out or in deteriorated
condition." Given Hoeferlin's testimony that 100 percent of cathodically protected steel
pipe is deteriorated and that he has never encountered a replaced cast iron or steel main or
service line that did not exhibit some sort of deterioration, and given the photographs and
demonstrative exhibits represented as typical of the condition of the replaced pipes at
issue, there was substantial evidence for the Commission to have reasonably concluded
that the cast iron and steel mains and service lines had been made "inferior in quality or
value," had "grow[n] worse," and had "become impaired in quality, state, or condition."
See Liberty Energy, 464 S.W.3d at 525. In contrast to Spire III, the Commission in this
case did not grant Spire an unlawful presumption of deterioration, and instead relied on
evidence it deemed credible that replaced cast iron and steel pipe was worn out or in a
deteriorated condition.
Public Counsel's Points Two and Three are denied.
Conclusion
The Commission's Report and Order is affirmed.
__________________________________
Cynthia L. Martin, Judge
All concur
29