Public Service Commission v. Missouri Gas Energy

Citations: 388 S.W.3d 221; 2012 WL 5205740; 2012 Mo. App. LEXIS 1352Docket: No. WD 74732

Court: Missouri Court of Appeals; October 23, 2012; Missouri; State Appellate Court

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The Office of the Public Counsel (OPC) appeals the Public Service Commission's (PSC) decision granting Southern Union Company, doing business as Missouri Gas Energy (MGE), summary determination regarding Tariff Sheet R-34, which addresses MGE's liability to its customers in tort. The OPC argues that the PSC's order is unlawful for failing to include a public interest determination as mandated by 4 CSR 240-2.117(l)(E) and for lacking adequate findings and conclusions. Additionally, the OPC contends that the PSC improperly permitted MGE's tariff to include an exculpatory clause that releases MGE from liability for injuries caused by its negligence on customer-owned equipment. The OPC claims this immunity exceeds the PSC's authority, contravenes common law and public policy, and lacks a rational basis, especially given a prior order rejecting a similar immunity provision. The Chief Judge reverses the PSC's decision and remands the case for further proceedings. MGE, which supplies natural gas to over 500,000 customers across 34 Missouri counties, is regulated by the PSC. The PSC is responsible for overseeing public utilities, including gas providers. The PSC's Staff had previously filed a complaint against MGE, alleging that Tariff Sheet R-34's liability limitations were unjust, unreasonable, and unenforceable based on established Commission policy, citing a related case (GT-2009-0056) where a similar immunity clause was rejected. The Staff's complaint highlighted multiple ways in which MGE's tariff improperly immunized it from liability, including negligence and violations of safety regulations. MGE responded to the complaint with a motion to dismiss.

On December 1, 2010, the Staff responded to MGE’s motion to dismiss by filing a “Motion For Summary Determination,” asserting that no genuine issues of material fact existed and that the public interest necessitated the complaint's sustenance. MGE subsequently filed a similar motion on April 11, 2011, claiming no material facts were in dispute and that a summary determination was in the public interest. The Office of the Public Counsel (OPC) supported the Staff's motion on June 2, 2011. The Commission then prepared to rule on the motions, and on November 9, 2011, issued its “Final Decision and Order To File A New Tariff Sheet” effective November 19, 2011. The Commission partially granted and denied both the Staff’s and MGE’s summary determination motions while denying MGE’s motion to dismiss.

The Commission found Paragraph 1 of MGE’s Tariff Sheet R-34 unjust and unreasonable, as it made customers liable for third-party claims resulting from MGE’s operations, which was contrary to public policy. It ruled that customers should not bear risks for which they are not compensated. Additionally, it deemed Paragraph 2 unjust for attempting to shield MGE from liability for negligence related to gas leakage and inspection, concluding that such immunity could lead to negligence without accountability and was against Missouri public policy. Finally, the Commission found Paragraph 3 similarly unjust, as it sought to exempt MGE from responsibility for negligence associated with the maintenance and repair of customer-side gas equipment, reinforcing that liability for negligence encourages better safety practices.

The Commission determined that the provision in question assigned the responsibility for complying with equipment standards solely to the customer, thereby exempting MGE from liability concerning inspections, leaks, and repairs on the customer’s side, regardless of the cause. It noted that shielding MGE from liabilities greater than ordinary negligence contradicts Missouri’s public policy, as liability for negligence incentivizes MGE to adopt safety measures beneficial to the public. 

Regarding Tariff Sheet R-34 Paragraph 4, which limited customer liability for damage caused by third parties, the Commission found it reasonable, emphasizing that customers could better prevent such damage, particularly when meters are located indoors. Consequently, the Commission upheld MGE’s summary determination on this paragraph.

In contrast, Paragraph 5 of Tariff Sheet R-34, which exempted MGE from liability related to gas delivery and associated damages, was partially deemed unjust. While the Commission accepted that MGE should not be liable for events beyond its control or for ordinary negligence, it determined that the paragraph unjustly immunized MGE from claims related to its negligence concerning inspections, leaks, and repairs.

As a result, the Commission ordered MGE to submit a revised tariff sheet by December 9, 2011, ensuring compliance with the findings of the order and eliminating unjust provisions from Tariff Sheet R-34.

The Commission granted summary determination for MGE regarding Staff's allegations that MGE's Tariff Sheet R-34 violated Natural Gas Safety Rules, while denying Staff’s claim that the Laclede Order GT-2009-0056 represented an authoritative policy statement. The Commission clarified that the Laclede Order addressed specific issues without establishing a general policy on tariff provisions. Subsequently, on November 18, 2011, the OPC and the Consumers Council of Missouri filed a Joint Application for Rehearing, alongside MGE's own application, all of which were denied on December 7, 2011, leading to an appeal.

A tariff, which details public utility services and associated rates, holds the same authority as law once adopted. The review of the Commission's decision on MGE's tariff focuses on its lawfulness and reasonableness, the former hinging on the Commission's statutory authority and the latter on evidence support, absence of arbitrariness, and lack of discretion abuse. The burden of proof lies with the party challenging the order to demonstrate its unlawfulness or unreasonableness.

In the appeal, the OPC argued that the Commission's summary determination was unlawful due to its failure to make a public interest determination as required by regulation 4 CSR 240-2.117(l)(E) and lacked sufficient findings. The court acknowledged that while the regulation necessitates a public interest determination, it does not mandate an express finding; it suffices that the Commission believes the summary determination procedure serves the public interest.

The Commission retains discretion to deny summary relief even if the preliminary criteria are met, based on public interest considerations. Each party seeking summary determination must demonstrate that it serves the public interest, which encompasses efficient facilities and fairness between patrons and utilities, as outlined in section 386.610, RSMo 2000. By partially granting MGE’s motion for summary determination, the Commission implicitly concluded it was in the public interest to do so. All parties involved supported a summary determination on the grounds of public interest, and the Commission's order does not require a specific public interest finding to be lawful.

In the appeal, the OPC argues that allowing MGE’s tariff to contain an exculpatory clause, which limits MGE's liability for negligence related to customer-owned equipment, is unlawful and unreasonable. The OPC contends that this immunity exceeds the Commission's authority, contradicts common law and public policy, and lacks a rational basis in light of a previous ruling where a similar immunity was rejected.

MGE argues that this point on appeal is moot due to the tariff sheet in question being replaced by a subsequent approved tariff, rendering the original tariff uncorrectable. Generally, superseded tariffs are considered moot unless the issue at hand is of significant public interest, recurring, and would evade appellate review. The court may exercise discretionary jurisdiction under these circumstances to clarify legal principles for future guidance.

The mootness exception is applicable in this case, as a declaration is needed for future guidance on whether the Commission can permit a utility company to include an exculpatory clause in its tariff that exempts the company from liability for personal injury or property damage resulting from its negligence on customer premises and gas equipment. This issue is of public interest, likely to recur, and may evade appellate review. The specific tariff provision in question, Paragraph 5 of MGE’s Tariff Sheet R-34, states that the Company is not liable for losses related to gas delivery through equipment beyond the meter, including negligence by the Company or its agents. The Commission concluded that this provision gives MGE immunity from liability for events beyond its control and for its negligence, referencing a Missouri Supreme Court case that supports the idea that tariffs can grant immunity from ordinary negligence in business operations. The Office of Public Counsel (OPC) argues that this interpretation allows the Commission to grant complete immunity to utility companies, even in cases of negligence leading to serious harm or property damage. The legitimacy of the Commission's orders hinges on its statutory authority, as established by Missouri law, which stipulates that the Commission only has powers explicitly granted by statute. Missouri's common law generally supports the right of citizens to sue for negligence unless explicitly overridden by statute.

No statute grants the Commission authority to limit a public utility's negligence liability for personal injury or property damage. The legislature has not indicated a policy of immunity for public utilities regarding negligence leading to customer harm. Legislative intent to preempt common law claims must be explicit, as established in Overcast v. Billings Mut. Ins. Co. The Commission cannot implicitly gain powers that the legislature must confer explicitly. Without explicit legislative authority, the Commission cannot approve a utility's attempt to eliminate a customer's right to sue for negligence.

MGE and the Commission reference Warner v. Southwestern Bell Telephone Company to support their position, where the court upheld a tariff limiting liability for economic damages due to directory errors. However, the Warner case involved economic damages rather than personal injury or property damage, and did not allow for complete abrogation of negligence claims. The limitations in Warner merely capped recoveries, unlike the current situation where the tariff seeks to eliminate negligence claims entirely. Thus, Warner does not apply to the issue at hand regarding the Commission's authority to approve such a tariff.

The Supreme Court case, State ex rel. Western Union Telegraph Company v. Public Service Commission, upheld a limitation of liability related to the non-delivery of telegraphic messages, focusing on economic damages rather than personal injury or property damage. The court clarified that basing rates partly on liability is not a restriction but a predetermined maximum for damages due to nonperformance or negligence. Consequently, liability in utility services, like natural gas provision, can only be limited if expressly authorized by the Legislature. The limitations in Western Union merely capped recoverable damages for errors, without eliminating negligence claims against the utility, unlike the tariff in the present case. As there is no statute preventing customers from suing for negligence involving personal injury or property damage, the Commission overstepped its authority, leading to the reversal of its decision and remand for further action aligned with this opinion.

MGE's Tariff Sheet R-34 became effective on April 3, 2007, following a Commission order. The burden of proof to demonstrate that the tariff was unreasonable rested with the Staff. The Commission rejected the OPC’s assertion that the tariff's language nullified circuit court judgments, clarifying that it merely provided immunity for losses from court-ordered service stoppages. The Consumers Counsel of Missouri did not intervene in the appeal. The Commission found that Paragraph 5 of the tariff was unjust and unreasonable because it attempted to shield MGE from liability for negligence related to inspection, leakage, and repair. To establish a negligence claim, a plaintiff must show that the defendant had a duty, breached that duty, and that the breach caused the injury. The court refrained from addressing the constitutionality of related legislation, noting that other jurisdictions have upheld limitations of liability in utility tariffs for negligence claims but found that rationale unconvincing. Consequently, the court did not consider the OPC's claim about the Commission's failure to provide a rational basis for its decision, as the Commission is not bound by stare decisis.