Office of the Public Counsel v. Missouri Public Service Commission
2013 Mo. LEXIS 45
| Mo. | 2013Background
- Atmos Energy (regulated Missouri gas utility) used affiliate Atmos Energy Marketing (AEM) to bid on and supply gas for the Hannibal service area during the 2007–2008 PGA/ACA period; AEM submitted the lowest bids and won two contracts.
- PSC staff audited Atmos’ ACA filing and proposed a $308,733 disallowance equal to AEM’s profit, citing noncompliance with PSC affiliate-transaction rules (4 CSR 240-40.015–.016) for failure to document fair market price and fully distributed cost (FDC).
- The PSC applied its longstanding "presumption of prudence," concluding staff failed to rebut prudence and thus rejected the staff disallowance; OPC (Office of Public Counsel) appealed after rehearing denial.
- Key regulatory rule: when a regulated gas corporation purchases from an affiliate it must pay no more than the lesser of fair market price or the utility’s fully distributed cost and must maintain supporting books and records.
- The Supreme Court held that the presumption of prudence is inappropriate for affiliate transactions because of heightened risk of self-dealing and because it conflicts with the affiliate-transaction rules; it reversed and remanded for PSC to apply the proper standard and develop the record on fair market price/FDC.
Issues
| Issue | Plaintiff's Argument (OPC) | Defendant's Argument (PSC/Atmos) | Held |
|---|---|---|---|
| Whether the PSC may apply a presumption of prudence to utility–affiliate transactions | Presumption is improper for affiliate deals due to self-dealing risk; affiliate rules require affirmative proof and documentation by utility | PSC argued longstanding presumption applies and rules do not change statutory burden of proof | Court: Presumption of prudence is inapplicable to affiliate transactions; reverse |
| Which party bears evidentiary burdens for affiliate transactions | Utility must show it paid ≤ fair market price or FDC and must maintain documentation | PSC said presumption shifts burden to staff to rebut prudence | Court: Statute places burden on utility to prove costs just and reasonable; affiliate rules require documentation; PSC cannot shift burden via presumption |
| Whether PSC lawfully rejected staff’s $308,733 disallowance | OPC: PSC failed to enforce asymmetrical pricing standard and neglected required FDC/fair-market analysis | PSC: Bidding process established fair market price; staff didn’t rebut presumption | Court: PSC’s reliance on presumption prevented required inquiry; order unlawful and unreasonable; remand |
| Scope of remand/remedial relief | OPC: Remand to require PSC to apply affiliate rules and develop FDC/fair-market record | Atmos/PSC: Existing record and bidding suffice to establish compliance | Court: Remand for PSC to determine compliance under correct standard and require Atmos to produce asymmetrical-pricing documentation and FDC support |
Key Cases Cited
- State ex rel. Atmos Energy Corp. v. Pub. Serv. Comm’n of State, 103 S.W.3d 753 (Mo. banc 2003) (background on affiliate transaction rules and cross-subsidization concerns)
- State ex rel. AG Processing, Inc. v. Pub. Serv. Comm’n of State, 120 S.W.3d 732 (Mo. banc 2003) (standard of review for PSC orders)
- State ex rel. Praxair, Inc. v. Missouri Pub. Serv. Comm’n, 344 S.W.3d 178 (Mo. banc 2011) (reasonableness review: substantial competent evidence standard)
- Riverside Pipeline Co., LP v. Pub. Serv. Comm’n of State, 215 S.W.3d 76 (Mo. banc 2007) (discussed PSC practices and prudence doctrine)
- Anaheim, Riverside, Etc. v. Fed. Energy Reg. Com’n, 669 F.2d 799 (D.C. Cir. 1981) (discussion of prudence presumption and its limits)
- U.S. W. Commc’ns, Inc. v. Pub. Serv. Comm’n of Utah, 901 P.2d 270 (Utah 1995) (affiliate transactions not entitled to arm’s-length prudence presumption)
- Boise Water Corp. v. Idaho Pub. Utils. Comm’n, 555 P.2d 163 (Idaho 1976) (probability of collusion supports placing burden on utility for affiliate expenses)
- Turpen v. Oklahoma Corp. Comm’n, 769 P.2d 1309 (Okla. 1988) (utility bears burden to show affiliate transactions reasonable)
- Pacific Tel. & Tel. Co. v. Pub. Utils. Comm’n, 34 Cal.2d 822 (Cal. 1950) (noting dangers and suspicion inherent in affiliate dealings)
- Deck v. Teasley, 322 S.W.3d 536 (Mo. banc 2010) (general law of evidentiary presumptions)
- United States v. Western Elec. Co., 592 F. Supp. 846 (D.D.C. 1984) (risk of cross-subsidization when monopoly and competitive activities coexist)