Bertone v. Department of Public Utilities

• Court: Supreme Judicial Court of Massachusetts
• Writing for the Court: Before LIACOS; GREANEY
• Citation: Bertone v. Department of Public Utilities, 583 N.E.2d 829, 411 Mass. 536 (Mass. 1992)
• Decision Date: 06 January 1992
• Parties: Mario BERTONE et al. 1 v. DEPARTMENT OF PUBLIC UTILITIES et al. 2

Page 829

583 N.E.2d 829

411 Mass. 536

Mario BERTONE et al. ¹ v. DEPARTMENT OF PUBLIC UTILITIES et al. ²

Supreme Judicial Court of Massachusetts Suffolk.

Argued Oct. 8, 1991.

Decided Jan. 6, 1992.

David A. Kellem, Hull, for plaintiff.

Eric A. Smith, Asst. Atty. Gen., for Dept. of Public Utilities.

Jeffrey M. Bernstein, Kenneth L. Kimmell, Boston, with him, for Hull Mun. Lighting Plant, intervener.

Before LIACOS, C.J., and WILKINS, LYNCH, O'CONNOR and GREANEY, JJ.

GREANEY, Justice.

Mario Bertone and Joan Bertone (Bertones) appeal from an order of the Department of Public Utilities (department) granting summary judgment to the Hull Municipal Lighting Plant (HMLP), and denying their request as interveners for summary judgment. The department's order was entered in connection with a petition by HMLP to determine the validity of its contribution-in-aid-of-construction (hook-up charge) provisions which were applied to collect a charge from the Bertones as a condition of the supply of electrical service to their condominium project. The department concluded essentially that the provisions requiring payment of a hook-up charge were valid, and that the charge assessed was neither unlawfully discriminatory nor lacking in sufficient standards for proper application. A single justice of this court reserved and reported the case to the full court. We agree with these conclusions. We also reject the Bertones' argument that the hook-up charge constitutes an unlawful tax. Consequently, we affirm the order of the department.

Facts included in a joint stipulation of facts (filed by the parties to establish a basis for summary judgment), and other information based on materials in the record before the department, disclose the following.

a. The background of the dispute. HMLP is a municipal electric department established pursuant to St. 1891, c. 370. In 1986, HMLP served approximately 5,120 retail customers, and in 1986 had total sales of approximately 32,000,000 kilowatt-hours, yielding revenues of approximately $3,302,000. In 1985, HMLP had a peak load of 7.5 megawatts.

On July 15, 1985, HMLP's board adopted the provisions in issue as paragraphs 25 and 26 of its general terms and conditions. These provisions took effect on August 1, 1985, and required, in paragraph 25, as a condition of the supply of electrical service, the payment of a hook-up charge by those seeking a hookup at a location not previously serviced by HMLP. Paragraph 26 provides that a customer seeking new or expanded service is required to pay an initial study fee to be credited against the final amount later calculated for the hook-up charge. ³

The Bertones are the developers of Nantascot, a condominium building in Hull containing sixty-six residential units and one commercial unit. The Bertones requested from HMLP a permanent service hookup for Nantascot in April, 1986. Because Nantascot was a site not previously served by HMLP, it required, pursuant to paragraph 26 of the general terms and conditions, that the Bertones pay a hook-up charge before their project could receive electricity. On or about April 24, 1986, the Bertones paid HMLP $2,500 as an initial study fee under protest.

The Bertones first requested actual service in the fall of 1986, so that they could begin work on the interior of the building. Using figures provided by the Bertones' electrical engineer, and figures prepared by its own consulting engineer, HMLP calculated the hook-up charge for Nantascot to be $86,849. By letter dated September 26, 1986, HMLP informed the Bertones of the charge and advised that it had to be paid as a requisite to Nantascot's receiving electrical service. The Bertones have paid the hook-up charge in full with a reservation of their legal rights to have the payment refunded if their challenge to the hook-up charge prevails. The hook-up charge assessed to the Bertones covered the cost of both the general system improvements and the site-specific improvements required to provide electricity to Nantascot. HMLP has not determined the exact cost breakdown between these two categories, but the majority of the fee covered improvements which were not specific to a particular site. Nantascot was substantially completed and ready for occupancy in September, 1987.

b. Background and implementation of the hook-up charge. Throughout the 1970s and early 1980s, HMLP's existing transmission, distribution, and supply system was capable of meeting the load requirements then imposed. Costs for maintenance and routine upgrading of the system were paid from monies collected through the existing rate structure. However, HMLP had determined that a substantial increase in load would necessitate improvements because its system was restricted by limitations on available transmission capacity, distribution equipment, and supply resources.

In 1984, HMLP's board first became aware that extensive real estate development was planned for Hull. At that time, there were proposals to build approximately 1,500 condominium units over a four or five-year period, an expansion that would impose demands for electricity far beyond the existing capacity of HMLP's system. As of January 22, 1987, when HMLP filed its petition with the department, the number of proposed condominium units had grown from 1,500 to approximately 2,000. This development could be expected to increase HMLP's peak load by at least forty per cent over a very short period of time. Had this growth occurred as anticipated, HMLP's existing system would have been unable to serve all of the planned load as well as its current load. With this increased load, HMLP would then either have to refuse to serve new customers, curtail severely the quality and reliability of the supply of electricity that it could provide to existing customers, or both. HMLP estimated that it could be called on to make plant investments from $3,000,000 to $7,000,000, and possibly more, depending on the extent of development in Hull, the energy efficiency of the new construction, and the choice of heating and hot water systems. HMLP expected system improvements to be needed within a short time period.

HMLP further concluded that the use of electricity for heating, especially in resistance applications, could have severe financial and economic effects on existing and future ratepayers, and indirectly on Hull. HMLP also considered that high utility bills, in addition to being burdensome for future customers, would reduce the resale value of condominium units. In 1985, in order to plan an appropriate response to the projected development, HMLP entered a contract with an expert to analyze the issues raised by such development. Based on extensive analysis and study, the expert recommended that HMLP impose a hook-up charge for connecting new loads to the system. ⁴

HMLP also concluded that it would cost approximately $2,500,000 to finance the infrastructure improvements to HMLP's existing system necessary to accommodate the expected load growth. As a result of the expert's analysis, and HMLP's own determinations, HMLP proposed a development facilitation program to implement plans that would: (1) limit new hookups for electric space heating and hot water, and (2) charge applicants seeking a service hookup at a location not previously served by HMLP, as well as existing customers seeking substantially expanded service, a hook-up charge to reflect the costs imposed on HMLP for providing a service hookup and attendant system improvements. ⁵ The development facilitation program also imposed a moratorium on new electrical space and hot water heating, except in hardship cases. These restrictions were to last at least until August 1, 1990. To date, no one has challenged HMLP's authority to impose these restrictions, and many developments, which originally had considered more expensive heating systems have substituted alternatives, thus reducing anticipated demand.

Since August 1, 1985, the effective date of the addition of paragraphs 25 and 26 to HMLP's general terms and conditions, HMLP has instituted system improvements as part of its over-all plan to convert its distribution system from a 13,800 volt system to a 23,000 volt system. The improvements include reconductoring lines, redesigning distribution lines and service connectors to accommodate new load, and installing and upgrading service in some parts of Hull. The conversion to a 23,000 volt system is not yet complete. HMLP has spent approximately $1,500,000 to date on system improvements and has collected approximately $600,000 in hook-up charges, all of which has been applied to the cost of improvements. A minor portion of the remaining costs has been funded through HMLP's general funds, and thus through existing rates. HMLP expects that the general funds will be reimbursed out of future collections of hook-up charges. However, hook-up charges will not be used to reimburse the general funds for expenses associated with annual system maintenance required during the time the system is being improved. HMLP estimates that such maintenance costs will comprise $500,000 of the $2,500,000 total cost of necessary improvements.

1. The Bertones view the system improvements made by HMLP as incurring extraordinary expenses for the enlargement and reconstruction of its facilities. Based on that view, they argued to the department that no specific authorization exists within the statutory scheme governing the operation of municipal lighting plants, see G.L. c. 164, §§ 34-69A (1990 ed.), for the imposition of a hook-up charge to pay for general or site-specific improvements of the type made by HMLP. The Bertones urged the department to conclude that the hook-up charge was invalid as unauthorized because, in the absence of specific statutory permission for such a charge, the funding for general system improvements should have been obtained from the depreciation fund under G.L. c. 164, § 57, or by a bond...