440 Mass. 625 | Mass. | 2004
In May, 2001, pursuant to an investigation launched on its own initiative, the Department of Telecommunications and Energy (department)
Two kinds of regulated gas company charges are at issue in this appeal: the base rate and the CGAC, both of which are components of the total amount ratepayers pay for gas services in Massachusetts. See 220 Code Mass. Regs. § 6.06 (1993). The base rate is the principal device through which a gas company operating within the Commonwealth generates revenue from its ratepayers. See Boston Gas Co. v. Department of Telecom. & Energy, 436 Mass. 233, 234 (2002). During the relevant period, a gas company’s base rate was determined on a “cost of service/rate of return” basis, calculated to permit utilities to recover reasonable operating expenses and to earn a fair return on investment. See Boston Gas Co. v. Department of Telecom. & Energy, 436 Mass. 233, 234 (2002). Base rates are established in departmental proceedings conducted in accordance with G. L. c. 164, § 94,'' which, among other things, requires the department to hold a public hearing on, and to investigate the propriety of, any requested base rate changes, and to inform the Attorney General of the proposed changes. G. L. c. 164, § 94.
In contrast, the CGAC is a price component established by departmental regulations that permits a utility, on a semi-annual basis, to recoup the actual costs of gas by passing those costs on to the ratepayers. See 220 Code Mass. Regs. § 6.06; G. L. c. 164, §§ 76, 76C. The department computes the CGAC according to a complex mathematical formula that factors both projected gas costs for a certain period and a “reconciliation adjustment” of the difference between the actual costs incurred during the relevant period and the forecast. See 220 Code Mass. Regs. §§ 6.06-6.08 (1993). Unlike the base rate, which is not subject to retroactive adjustment and may only be changed pursuant to the hearing procedures set out in G. L. c. 164, § 94, the CGAC “may, for good cause shown, be modified by the [djepartment” in such manner as it “may determine to be in the public interest.” 220 Code Mass. Regs. §§ 6.02, 6.12(1) (1993). See Consumers Org. for Fair Energy Equality, Inc. v. Department of Pub. Utils., 368 Mass. 599, 601-602 (1975) (describing history and function of fuel adjustment clauses).
Inventory finance charges are charges that a company may
We summarize the facts as found by the department and in the undisputed record on appeal. In 1984, Fitchburg applied for an increase in its base rate, using 1983 as its “test year” from which to project its future costs. Fitchburg’s 1983 base-rate costs included IFCs, and it sought to include IFCs in the prospective new base rate. Before the department could approve
Fitchburg did not include IFCs in its CGAC in 1983, 1984, 1985, or 1986. In 1987, when the department first included IFCs in a standardized CGAC formula promulgated by regulation, Fitchburg began to include IFCs in its CGAC. Between 1987 and 1998, Fitchburg regularly submitted CGAC on a semiannual basis to the department. See 220 Code Mass. Regs. § 6.06. The department, pursuant to its standard policy, gave Fitchburg’s CGAC applications “tentative” approval, while expressly reserving the right to review and require changes to the CGAC application, including modifications that “require the [c]ompany to refund to its customers any amounts that are found by the [department to be the result of imprudent [c]ompany action.” However, in that period, the department never required Fitchburg to adjust the amount of the IFCs in its CGAC, and costs were passed on to ratepayers.
Fitchburg did not seek to raise its base rate again for fourteen years, until 1998. See Fitchburg Gas & Elec. Light Co., D.T.E. 98-51, at 1 (1998). During the 1998 base rate increase proceedings, Fitchburg included IFCs in its 1997 “test year,” thereby alerting the department that Fitchburg might be collecting IFCs in its base rate in addition to its CGAC. On November 1, 1999, the department, on its own initiative, commenced an investigation to determine “(1) whether any over-collecting of a return on gas inventory by Fitchburg has occurred; (2) the amount of any over-collection; and (3) whether Fitchburg’s ratepayers are entitled to reimbursement resulting from an over-collection.”
Between March 14, 2000, and February 15, 2001, the department held hearings at which both Fitchburg and the Attorney General, as an intervener, presented documentary and testimonial evidence. See G. L. c. 12, § 11E. On May 31, 2001, the department issued its investigative order. It found that from May 1, 1987, to November 30, 1998 (a period of 139 months), Fitch-
Fitchburg filed a timely notice of appeal from the department’s final order, pursuant to G. L. c. 25, § 5. On January 22, 2003, the single justice reserved and reported the case to the full court.
2. Standard of review. The standard of review for petitions under G. L. c. 25, § 5, is well settled:
“[A] petition that raises no constitutional questions requires us to review the department’s finding to determine only whether there is an error of law. . . . The burden of proof is on the appealing party to show that the order appealed from is invalid, and we have observed that this burden is heavy. . . . Moreover, we give deference to the department’s expertise and experience in areas where the Legislature has delegated to it decision-making authority, pursuant to G. L. c. 30A, § 14. We shall uphold an agency’s decision unless it is based on an error of law, unsupported by substantial evidence, unwarranted by facts found on the record as submitted, arbitrary and capricious, an abuse of discretion, or otherwise not in accordance with law. G. L. c. 30A, § 14 (7).” (Citations omitted.)
Massachusetts Inst. of Tech. v. Department of Pub. Utils., 425 Mass. 856, 867-868 (1997). On appeal, Fitchburg challenges the substantiality of the department’s factual findings, the correct
3. Substantial evidence. Fitchburg claims that, in the absence of evidence that a specific amount in its 1984 base rate was attributable to IFCs, the department lacked substantial evidence that the company double charged consumers. We disagree.
For purposes of administrative proceedings, substantial evidence is “such evidence as a reasonable mind might accept as adequate to support a conclusion.” G. L. c. 30A, § 1 (6). In considering the substantiality of evidence in an administrative proceeding, we accord due weight to the “ ‘experience, technical competence, and specialized knowledge’ of the department,” Martorano v. Department of Pub. Utils., 401 Mass. 257, 261 (1987), quoting G. L. c. 30A, § 14 (7), and reverse only if “the cumulative weight of the evidence tends substantially toward opposite inferences.” Cobble v. Commissioner of the Dep’t of Social Servs., 430 Mass. 385, 391 (1999). “The appealing party carries the burden of showing that the order appealed from is unsupported by substantial evidence.” Boston Gas Co. v. Department of Telecom. & Energy, 436 Mass. 233, 237 (2002).
Here, notwithstanding that neither Fitchburg, the Attorney General, nor the department could adduce a specific amount attributable to IFCs from Fitchburg’s 1984 base rate, the evidence was strong that IFCs were included in that base rate. The evidence showed conclusively that the company was recovering IFCs through its base rate prior to 1984, including in its 1983 “test year,” as a component of the materials and supplies costs in its base rate; that Fitchburg proposed to include IFCs in the 1984 base rate increase; and that the 1984 settlement did not exclude the collection of IFCs from Fitchburg’s base rate in 1984. Fitchburg’s pre-1984 collection of IFCs was consistent with well-established industry practice in the 1980’s, as allowed by the department. See Consumers Org. for Fair Energy Equality, Inc. v. Department of Pub. Utils., 368 Mass. 599, 604-605 (1975) (fact finder may consider department’s “long administrative understanding and practice”). Fitchburg’s own witness testified to the reasonableness of the inference that the company
It is undisputed that, in addition to whatever IFCs Fitchburg recovered through its base rate, it collected $657,052 for the IFCs in its CGAC from 1984 through 1998. We agree with the department that it is reasonable to conclude that $657,052 represented the amount by which Fitchburg overcharged its ratepayers because, having fully exercised its option to include IFCs in the base rate, any concurrent IFCs that Fitchburg included in the CGAC were by definition excessive.
4. Conclusions of law. Fitchburg maintains that, even if it could be shown that it double counted its IFCs, or regardless whether it could be shown to have double counted them, such overcharges were not illegal as a matter of law. The company argues, in fact, that the department knew of and permitted the
The fundamental flaw in this argument is the presumption that the department acted directly counter to the Legislature’s intent to protect ratepayers from overreaching by public utilities. See G. L. c. 164, § 76 (department exercises “general supervision” over utilities to ensure that they conduct business “with reference to the safety and convenience of the public”). Fitch-burg requires us to presume that the department, in the interests of expediency, shirked its primary mission, to prevent overpricing by companies whose product is vital to the conduct of everyday life. See, e.g., Commonwealth Elec. Co. v. Department of Pub. Utils., 397 Mass. 361, 369 (1986) (“We note that the [department’s] role in guarding the ratepayers’ interests and assuring that utility companies are not encouraged to avoid their responsibilities is supported by long-standing decisions in which we have found the legislative purpose to be protection of ratepayers”); Weld v. Gas & Elec. Light Comm’rs, 197 Mass. 556, 558 (1908) (“we have adopted, in this State, legislative regulation and control as our reliance against the evil effects of monopoly”). Absent much stronger evidence than Fitchburg has brought to bear in this appeal, we presume that the department’s practices, policies, and procedures further rather than inhibit its objectives and responsibilities. See, e.g., Massachusetts Inst. of Tech. v. Department of Pub. Utils., 425 Mass. 856, 867-868 (1997); Commonwealth Elec. Co. v. Department of Pub. Utils., supra at 368, 369.
We reject Fitchburg’s claim that the department failed properly to put the company on notice that it may not double charge its customers. A gas company must be in “compliance with the provisions of law and the orders, directions and requirements of the department,” G. L. c. 164, § 76, and the depart
We also find no merit in Fitchburg’s argument that its overcharges were reasonable in light of the department’s repeated approval of its CGAC during the relevant period. The department’s failure to detect Fitchburg’s overbilling practices for a period of over eleven years, while regrettable, does not immunize the company from the consequence of having acted illegally. See LaBarge v. Chief Admin. Justice of the Trial Court, 402 Mass. 462, 468 (1988) (“the doctrine of estoppel is not applied against the government in the exercise of its public duties”); Phipps Prods. Corp. v. Massachusetts Bay Transp. Auth., 387 Mass. 687, 693 (1982) (“This court has been reluctant to apply principles of estoppel to public entities where to do so would negate requirements of law intended to protect the public interest”); Doris v. Police Comm’r of Boston, 374 Mass. 443, 449 (1978) (“It would indeed be a most serious consequence if we were to conclude that the inattention or inactivity of government officials could render a statute unenforceable and thus deprive the public of the benefits or protections bestowed by the Legislature”). Similarly, we are unmoved by Fitchburg’s argument that, because its base rates were not as high as they legally could have been, any overcharge of IFCs should be credited against the amount the company would have collected had it sought and obtained a base rate change earlier than 1998. That Fitchburg voluntarily refrained from seeking an increase in its base rate from 1984 to 1998 has no bearing on the question whether the charges it did collect were improper. To hold otherwise would be to permit a gas company to increase its base rates by stealth in violation of G. L. c. 164, § 94.
In short, Fitchburg has failed to carry its heavy burden of
5. Scope of authority. We next consider whether, as Fitchburg claims, the department’s refund order constitutes retroactive rulemaking in violation of its statutory authority. It is well established that the department may not order retroactive adjustments (either up or down) of a gas company’s base rate. See Boston Edison Co. v. Department of Pub. Utils., 375 Mass. 1, 6 (1978) (“a rate increase may not be awarded retroactively as matter of law”). See also Lowell Gas Co. v. Attorney Gen., 377 Mass. 37, 44-45 (1979); Fryer v. Department of Pub. Utils., 374 Mass. 685, 689-690 (1978); Newton v. Department of Pub. Utils., 367 Mass. 667, 678 (1975); Metropolitan Dist. Comm’n v. Department of Pub. Utils., 352 Mass. 18, 26-27 (1967). See generally Krieger, The Ghost of Regulation Past: Current Applications of the Rule against Retroactive Ratemaking in Public Utility Proceedings, 1991 U. 111. L. Rev. 983, 984. The rule against retroactive ratemaking finds its source in the statutory construction of G. L. c. 164, § 94, which mandates determination by the department, after a public hearing and an investigation, of the “propriety” of the new base rate. See, e.g., Consumers Org. for Fair Energy Equality, Inc. v. Department of Pub. Utils., 368 Mass. 599, 605-606 (1975); Cambridge Elec. Light Co. v. Department of Pub. Utils., 363 Mass. 474, 494-495 & n.31 (1973); Metropolitan Dist. Comm’n v. Department of Pub. Utils., supra at 26.
We have not previously been asked to determine whether the rule against retroactive ratemaking should be applied to adjustments in the CGAC, but we have no difficulty in concluding that an order retroactively adjusting a CGAC is well within the department’s general supervisory authority over utility costs, see G. L. c. 164, § 76, and is consistent with its “broad authority to determine ratemaking matters in the public interest.” Massachusetts Inst. of Tech. v. Department of Pub. Utils., 425 Mass.
Furthermore, CGAC are governed not by G. L. c. 164, § 94, but by regulations promulgated pursuant to the department’s general supervisory powers as conferred by the Legislature in G. L. c. 164, § 76. These regulations expressly give the department authority to investigate the CGAC, see 220 Code Mass. Regs. § 6.12(4), and to modify the application of the CGAC. See 220 Code Mass. Regs. § 6.02. Fitchburg does not challenge these regulations. Here, the department is not ordering a refund of wrongly projected excessive profits, but taking corrective action in response to an error in the calculation of the CGAC. Such corrective measures are well within its authority to protect consumers. See G. L. c. 164, § 76. As we stated in another regulatory context, a regulatory body correcting “a mistake in the expense allowance resulting from the improper use of data” does not engage in a “ ‘second look’ that violatefs] the prohibition on retroactivity.” Automobile Insurers Bur. of Mass. v. Commissioner of Ins., 425 Mass. 262, 267 (1997) (regulation of automobile insurance rates). See Daily Advertiser v. Trans-La, 612 So. 2d 7, 25 (La. 1993) (“By implication, the commission’s ongoing authority to investigate fuel cost adjustments passed on through such clauses includes the power, when necessary, to take corrective measures and to order refunds for charges not prudently incurred”).
As for the specifics of the refund order itself, we reject Fitch-
6. Evidentiary issues. Fitchburg was not, as it contends, materially prejudiced by the department’s exclusion from evidence of certain notes and analyses made by a department staff member and by the department’s reliance on materials not in the record. First, there was no error in excluding from evidence the notes and analyses of a staff member who had no decision-making authority within the department and whose testimony would, in any event, have been merely cumulative of the uncontroverted evidence that the department had failed to detect Fitchburg’s overcharges during the relevant period. Second, we agree with Fitchburg that the department should not have included in its order a review of the practices of other gas companies, which it had not introduced in evidence. However, Fitchburg has failed to show that it was substantially prejudiced by the department’s inclusion of the review.
7. Conclusion. For the reasons set forth above, we remand the case to the county court where a judgment is to be entered affirming the department’s findings that Fitchburg illegally overcharged its customers in the amount of $675,052, and its order requiring Fitchburg to reimburse its ratepayers for the overcharges in the manner specified by the department.
So ordered.
In 1997, the Legislature renamed the Department of Public Utilities the Department of Telecommunications and Energy. St. 1997, c. 164, § 186.
General Laws c. 164, § 94, states in pertinent part: “Rates, prices and charges in such a schedule may, from time to time, be changed by any such company by filing a schedule setting forth the changed rates, prices and charges, but until the effective date of any such change no different rate, price or charge shall be charged, received or collected by the company filing such a schedule from those specified in the schedule then in effect; provided, that a company may continue to charge, receive and collect rates, prices and charges in accordance with a contract heretofore lawfully entered into, or, until the
Gas companies procure and store gas to meet future customer demand, particularly seasonal demand. Because a company is not paid until after the gas is distributed to its customers, a gas company incurs expenses for the purchase of gas inventories that are realized either through capital expenditure or short-term borrowing. See Fitchburg Gas & Elec. Light Co., D.T.E. 98-51, at 16 (1998) (“A company is entitled to be reimbursed for the costs associated with using its own funds or for the interest expense it incurs on funds borrowed for this purpose”).
In 1979, the department established a standard CGAC to replace the company-specific CGAC. D.P.U. 4240-78/19806, at 2-3 (1979). Concerned lest the rules change lead to overlapping base rate and CGAC charges, the department expressly directed utility companies to be prepared in future rate cases to “show in detail how its [base] rates are being modified to comply with the standard [CGAC].” Id. at 9.
The current version of the applicable regulation states: “Total inventory finance charges — As billed in each peak season in anticipation of subsequent off-peak season charges. The total shall represent an accumulation of the projected charges as calculated using the monthly average of financed inventory at the existing (or anticipated) financing rate through a trust or other financing vehicle.” 220 Code Mass. Regs. § 6.06 (1993).
Fitchburg was given thirty days to file a revised CGAC reconciliation factor in compliance with the department’s order. Fitchburg filed a motion with the department to stay enforcement of the order pending the outcome of its appeal. The motion was denied. Subsequently, Fitchburg filed a motion in the county court for a stay of the department’s order. A single justice denied the motion on November 16, 2001. Fitchburg began to implement the refund in bills for services rendered on or after November 1, 2001.
For example, one Fitchburg witness testified that a utility could be expected to assume that an undisputed item in a proposed filing, such as the IFCs at issue here, would be included in a settlement reached with the government. She also testified that failure to include any amount for gas inventories in the 1983 base rate would have been inconsistent with the company’s obligation to consumers to have enough gas on hand to meet peak winter demand.
Given the latter testimony, the department acted well within its discretion to conclude that the testimony of a Fitchburg witness who characterized the reference to IFCs in the base rate request as a “placeholder” was “to put it with restraint, implausible.” See School Comm. of Wellesley v. Labor Relations Comm’n, 376 Mass. 112, 120 (1978) (“It is for the agency, not the courts, to weigh the credibility of witnesses and resolve factual disputes”).
Proposed 220 Code Mass. Regs. § 6.03, which was not adopted, stated: “The date on which this clause is to become effective for each utility shall be determined by the [department. Implementation may be delayed pending a review of a utility’s allocated cost of service study and in conjunction with any adjustments to base rates determined to be appropriate by the [¿department.” See Wyman-Gordon Co., D.RU. 1669-A, Attachment (1986).
With regard to other costs that might be included in either the base rate or the CGAC, the department has stated explicitly that a gas company may not collect the same cost twice. Wyman-Gordon Co., D.P.U. 1669-B, at 10 (1987) (“Companies proposing to include production gas costs in [the CGAC] would be required ... to identify the amounts in excess of the level included in base rates”).
Fitchburg had a number of available options for correctly charging for IFCs after standardization of the CGAC. It could have elected to keep the IFCs in its base rate and “zeroed out” the amount for IFCs in the standardized CGAC. It could have sought a new base rate hearing to eliminate IFCs from the base rate prior to including them in the CGAC, or, more practically, it could have avoided the base rate proceeding procedures by requesting a voluntary reduction in its base rate. Hearings pursuant to G. L. c. 164, § 94, are not required for such voluntary reductions, and Fitchburg had used the voluntary reduction procedure on at least one prior occasion, in 1993, to permit its customers to benefit from the reduced expenses realized by a debt financing. See Fitchburg Gas & Elec. Light Co., D.P.U. 93-168A, at 5 (1993).
Although the department has a general power to investigate utilities under G. L. c. 164, § 76, it does not have the power to initiate a new base rate proceeding absent a company’s request. G. L. c. 164, § 94.
Fitchburg also argues that it was not required to obtain approval of a financing vehicle, see 220 Code Mass. Regs. § 6.06, before including IFCs in its CGAC. This matter was the subject of other administrative proceedings, and we need not address it here. Only the overcharging claims are at issue on this appeal.
Because we conclude that the department had the authority to adjust a CGAC retroactively, we do not consider the department’s argument that Fitch-burg should be estopped from claiming that the refund order constitutes retroactive ratemaking because it had previously sought a retroactive adjustment in its CGAC. See Rock v. Massachusetts Comm’n Against Discrimination, 384 Mass. 198, 200 n.4 (1981) (“Since we find no error in the commission’s order . . . we do not reach these [procedural] issues”).
After these petitioners had challenged the increase to their electricity bills, but prior to this court’s decision, the Legislature enacted St. 1974, c. 625, § 1, which requires that an electric company cannot charge a customer under a fuel adjustment clause without the department’s approval after a public hearing. Consumers Org. for Fair Energy Equality, Inc. v. Department of Pub. Utils., 368 Mass. 599, 612 (1975). See G. L. c. 164, § 94G (governing fuel adjustment charges for electric companies).
Because we have long held that changes to fuel adjustment clauses are not ratemaking subject to the requirements of G. L. c. 164, § 94, Consumers Org. for Fair Energy Equality, Inc. v. Department of Pub. Utils., supra, we do not agree with Fitchburg that the Legislature’s failure specifically to authorize these adjustments, as it did with electric companies, see G. L. c. 164, § 94G, indicates a legislative intent to limit the department’s authority to adjust the gas CGAC. See Massachusetts Respiratory Hosp. v. Department of Pub. Welfare, 414 Mass. 330, 333 n.4 (1993) (A subsequent amendment “should be given no weight as ‘demonstrating’ that no such authority existed before its
Although statutes regulating gas companies do vary, it is instructive to note that other States that have examined this issue have also concluded that fuel adjustment clauses are not retroactive ratemaking. See, e.g., Daily Advertiser v. Trans-La, 612 So. 2d 7, 23 (La. 1993) (noting “in most jurisdictions, the commission implements such clauses pursuant to its plenary rate making authority,” but because adjustments “go into effect without an antecedent reasonableness review” a commission is “not precluded by the rule against retroactive rate making from subsequently examining and modifying such
Similarly, other jurisdictions have determined that, pursuant to its general supervisory authority, a regulatory body overseeing a utility company may order a refimd through a fuel adjustment clause. See, e.g., Daily Advertiser v. Trans-La, supra at 25 (“By implication, the commission’s ongoing authority to investigate fuel cost adjustments passed on through such clauses includes the power, when necessary, to take corrective measures and to order refunds for charges not prudently incurred”); Matter of Niagara Mohawk Power Corp. 69 N.Y. 2d 365, 372-373 (1987) (“[T]he power to order refunds must be implied, for there is little purpose in reviewing fuel adjustment charges, and the consumer’s interests are ignored, if corrective action is not authorized for imprudent expenditures automatically passed through to the ratepayers. Manifestly, a refund is justified when the charges passed through to ratepayers result not from marketplace conditions, which the adjustment allowances are intended to ameliorate, but from the utility’s own inefficiency and mismanagement”); Wisconsin Power & Light Co. v. Public Serv. Comm’n, 181 Wis. 2d 385, 406 (1994) (Abrahamson, J., dissenting) (“Courts in other states have also concluded that a regulatory agency’s authority to investigate fuel cost adjustments implies the power to order corrective measures and refunds as a result of such audits”).
Fitchburg’s objection centers on a footnote in the department’s order that states that the department reviewed the filings of other companies that had moved their IFCs from base rates into CGAC from the period 1987 through 1992, and “conclude[d] that no other [company] had been collecting IFCs concurrently through both base rates and the CGAC.”