Attorney Gen. v. Dept. of Public Utilities

• Decision Date: 11 February 2009
• Docket Number: SJC-10110
• Citation: 900 N.E.2d 862,453 Mass. 191
• Parties: ATTORNEY GENERAL v. DEPARTMENT OF PUBLIC UTILITIES.<SMALL><SUP>1</SUP></SMALL>
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

900 N.E.2d 862

453 Mass. 191

ATTORNEY GENERAL v. DEPARTMENT OF PUBLIC UTILITIES.¹

SJC-10110

Supreme Judicial Court of Massachusetts, Suffolk.

Argued October 6, 2008.

Decided February 11, 2009.

Alexander J. Cochis, Assistant Attorney General (Joseph W. Rogers, Assistant Attorney General, with him) for the plaintiff.

John E. Bowman, Jr., Special Assistant Attorney General, for the defendant.

Scott J. Mueller, Boston (Meabh Purcell with him) for Fitchburg Gas and Electric Light Company.

Present: MARSHALL, C.J., IRELAND, SPINA, COWIN, CORDY, & BOTSFORD, JJ.

BOTSFORD, J.

The Attorney General appeals from an order of the Department of Public Utilities (department) approving a change in the way Fitchburg Gas and Electric Light Company, doing business as Unitil (company or Fitchburg),² recovers gas and electric supply-related bad debt expense; the order followed the department's adoption of a revised policy for treating the recovery of supply-related bad debt in an adjudicatory rate case involving a different company. The Attorney General argues that the department could not apply its revised policy to Fitchburg, and approve Fitchburg's proposed tariffs implementing that revised policy, without providing notice and conducting a hearing and investigation pursuant to G.L. c. 164, § 94. We agree with the Attorney General on this point, and vacate the department's order.

1. Background. The department regulates the rates that gas and electric companies may charge their customers. Id. Each such utility separately files a set of "tariff" documents³ setting out its proposed rates with the department. These may include, as separate tariffs, both a fixed base rate and a supplemental cost of supply adjustment rate, or cost recovery formula, called respectively a "cost of gas adjustment clause" (CGAC) for gas supply, and a "default service" (DS) tariff for electric supply.⁴

The department permits a utility's rates to reflect the cost of bad debt, the uncollectible revenue remaining after prudent efforts to collect on customer bills. See Bay State Gas Co., D.T.E. 05-27, at 175 (2005). The department's treatment of such debt has changed over time. In the context of a rate case initiated by Fitchburg in 2002, the department announced in its decision a policy that bad debt expense henceforth would be allocated between the base rate and the cost recovery formula, depending on whether the expense arose from distribution charges⁵ or supply charges,⁶ for both gas and electric rates. Fitchburg Gas & Elec. Light Co., D.T.E. 02-24/25, at 170-171 (2002).⁷ The portion of bad debt recoverable through the cost recovery formula would be recalculated using an allocation factor determined during annual or semiannual reconciliation proceedings. Id. at 172. However, to maintain the company's incentive to minimize bad debt expense, the allocation factor would be applied to the level of bad debt expense approved for the test year, rather than the actual amount of bad debt incurred in the year in question. Id. at 170, 172. In 2005, in a rate proceeding initiated by Bay State Gas Company (Bay State Gas), the department reviewed its bad debt expense recovery policy in the context of gas supply; many parties participated, including the Attorney General (as intervener) and Fitchburg (as a limited participant). Bay State Gas Co., D.T.E. 05-27, supra at 165-190. The department noted that, since its 2002 decision, supply-related bad debt expenses had increased dramatically, in proportion to wholesale gas prices. Id. at 178. Requiring Bay State to comply with the recovery policy and formula set out in the department's 2002 Fitchburg rate decision would result in significant over recovery or under recovery, depending on whether the market price decreased or increased. Id. at 183-184. Such unpredictable profits or losses "could violate the Department's rate structure goal of earnings stability," and "adversely affect the Company's earning stability, financial integrity, and its ability to attract capital." Id. at 183, 185. The department therefore adjusted Bay State's cost recovery formula to permit it to recover, dollar-for-dollar, all of its actual supply-related bad debt, rather than an allocated portion of the level established for the test year. Id. at 189-190.

On December 15, 2005, fifteen days after the department's decision and order in the Bay State Gas proceeding, Fitchburg filed a revised CGAC tariff with the department. The company's rates for January 1 through April 30, 2006, had previously been calculated on November 1, 2005, according to the CGAC formula established in Fitchburg Gas & Elec. Light Co., D.T.E. 02-24/25, supra at 170-171. The company now proposed to recalculate its rates using a revised bad debt cost factor, in accordance with the method approved for Bay State Gas in Bay State Gas Co., D.T.E. 05-27, supra.⁸ The company further requested retroactive recovery of under-recovered bad debt expense incurred during 2005.

The department notified the Attorney General of Fitchburg's petition and, on December 22, 2005, "stamp" approved the company's amended tariff sheet (a process in which the commissioners of the department signed the front page of the filing, rather than issuing a separate order). On February 3, 2006, the department requested public comment as to the retroactive recovery portion of the request, that is, the request to apply the amended formula to bad debt expense for 2005. The request for comment did not mention the prospective portion of the company's request, from January 1, 2006, and going forward, or that the department had already approved that portion. Both the company and the Attorney General submitted comments. On March 7, 2006, the company filed a similar amendment to the bad debt cost factor in its DS tariff, requesting a rate increase to reflect actual (dollar-for-dollar) bad debt expense beginning on January 1, 2006, and going forward, and retroactive recovery for 2005.⁹ The department issued a request for public comment on the retroactive portion of that request as well, and again received comments from the company and the Attorney General. In April of 2006, the department consolidated the two dockets. The department also served two sets of information requests on Fitchburg concerning its gas and electric filings, and the company responded to both requests. The department did not hold any form of public hearing on the filings.

On September 7, 2006, the department issued the order that is the subject of this appeal, allowing the company to amend its CGAC and DS tariffs to recover actual, dollar-for-dollar supply-related bad debt expense from December 1, 2005, onward (i.e., from the effective date of the Bay State Gas decision), and refusing to allow dollar-for-dollar recovery of such expense incurred before that decision. The order stated that the CGAC tariff from January 1, 2006, onward had been disposed of in the stamp approval, and noted that the Bay State Gas case, D.T.E. 05-27, had determined the issue of how supply-related bad debt expense should be treated. The Attorney General sought review of the department's order pursuant to G.L. c. 25, § 5. A single justice of this court reserved and reported the matter, without decision, to the full court.

2. Discussion. a. Standard of review. The Attorney General principally challenges the department's order as based on an error of law. The standard of review for petitions under G.L. c. 25, § 5, is well settled:

"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)."

Fitchburg Gas & Elec. Light Co. v. Department of Telecomm. & Energy, 440 Mass. 625, 631, 801 N.E.2d 220 (2004) (Fitchburg I), quoting Massachusetts Inst. of Tech. v. Department of Pub. Utils., 425 Mass. 856, 867-868, 684 N.E.2d 585 (1997). "We will `accord[] due weight and deference to an agency's reasonable interpretation of a statute within its charge.'" MCI Telecomm. Corp. v. Department of Telecomm. & Energy, 435 Mass. 144, 151, 755 N.E.2d 730 (2001), quoting Police Comm'r of Boston v. Cecil, 431 Mass. 410, 413, 727 N.E.2d 846 (2000).

b. Timeliness of appeal. The department and Fitchburg assert that the Attorney General's appeal from the department's order approving the company's amended CGAC tariff for the period from January 1, 2006, and going forward must be dismissed because she failed to file her appeal within twenty days of the December 22, 2005, stamp approval of that amended filing. In the particular circumstances of this case, we disagree.

Appeal to this court from "any final decision, order or ruling of the commission" must be filed "within twenty days after the date of service of the decision, order or ruling." G.L. c. 25, § 5. "The commission shall serve such decision, order or ruling upon all parties in interest by mailing, postpaid, within one day of its being entered, and service shall be presumed to have occurred in the normal course of delivery of such mail." Id. The Attorney General was a party in interest under G.L. c. 30A, § 1, because she is entitled under G.L. c. 12, § 11E, to participate in the department's rate setting proceedings. See American Hoechest Corp. v. Department of Pub. Utils., 379 Mass. 408, 410, 399 N.E.2d 1 (1980) (applying G.L. c. 30A to G.L. c. 25, § 5). The Attorney General states that (1) she never received service of the stamp approval (or notice that the department planned to issue a stamp...