Commonwealth Elec. Co. v. Department of Public Utilities

• Decision Date: 22 April 1986
• Citation: 397 Mass. 361,491 N.E.2d 1035
• Parties: COMMONWEALTH ELECTRIC COMPANY v. DEPARTMENT OF PUBLIC UTILITIES.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 1035

491 N.E.2d 1035

397 Mass. 361

COMMONWEALTH ELECTRIC COMPANY v. DEPARTMENT OF PUBLIC UTILITIES.

Supreme Judicial Court of Massachusetts Suffolk.

Argued Oct. 10, 1985.

Decided April 22, 1986.

Sander A. Rikleen (Eric J. Krathwohl, Boston, with him), for plaintiff.

Thomas A. Barnico, Asst. Atty. Gen., for defendant.

Paul K. Connolly, Jr., Adrienne M. Markham and John F. Finston, Boston, for Fitchburg Gas and Electric Light Co., amicus curiae, submitted a brief.

Thomas G. Robinson, Westborough, for Mass. Elec. Co., amicus curiae, submitted a brief.

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

LIACOS, Justice.

The Pilgrim Unit 1 nuclear power station (Pilgrim 1) was out of service for several months in 1981 and 1982. The Department of Public Utilities (DPU) issued a series of orders in which it found that the operator of Pilgrim 1, Boston Edison Company (Boston Edison), acted imprudently in certain aspects of the outage. We affirmed those orders. Boston Edison Co. v. Department of Pub. Utils., 393 Mass. 244, 471 N.E.2d 54 (1984). Before us now are appeals from a series of DPU orders imputing the imprudence of Boston Edison to the petitioner, Commonwealth Electric Company (company), thus precluding the company from recovering from its ratepayers certain purchased power costs attributable to that imprudence, and requiring the company to refund, with interest, the portion of those costs previously allowed. The company argues that, as matter of law, the DPU could not impute the imprudence of Boston Edison to the company, that the DPU acted beyond its statutory authority, and that regulation of its purchased power costs has been preempted by the Federal government. We affirm the orders.

We state the factual background of these proceedings. Commonwealth Electric Company is a retail electric utility company distributing electricity to consumers in forty communities in southeastern Massachusetts. The company owns and utilizes its own generating facilities to meet a portion of its customers' needs, but most of the electricity it sells is purchased at wholesale from other utility companies. On August 1, 1972, the company entered into an agreement with Boston Edison to purchase 11% of the capacity of Pilgrim 1. The agreement was filed with the Federal Power Commission (FPC) and was accepted by the FPC pursuant to § 205(d) of the Federal Power Act, 16 U.S.C. § 824d(d) (1982) (FPC docket no. E-8138). The agreement was in effect during 1981 and 1982. The Pilgrim 1 outage made it necessary for the company to obtain replacement power for its customers at a cost greater than the cost of power the company normally would have obtained from Pilgrim 1.

On June 3, 1982, the company notified the DPU that it intended to apply for approval of a change in the allowed fuel charge in its next quarterly filing under G.L. c. 164, § 94G (b ) (1984 ed.). The DPU issued a procedural order, D.P.U. 1003-G-1, which stated that the DPU intended to determine the company's liability for replacement power costs incurred as a result of Boston Edison's imprudence in the Pilgrim 1 outage. A series of hearings on this issue ensued. In the interim, the DPU authorized a quarterly fuel adjustment charge subject to refund, with interest, pending the outcome of the proceedings. D.P.U. 1003-G-2.

On September 22, 1982, the DPU issued its order. D.P.U. 1003-G-6. Among the DPU's findings was the following: "The Department finds that the Company shares responsibility for BECo's [Boston Edison's] imprudence during the Pilgrim 1 outage. Pursuant to its life-of-the-unit contract, ComElectric was not relieved of its service responsibilities, which include providing electricity at the lowest possible fuel cost; therefore, we believe that the Company is imputedly liable under G.L. c. 164, § 94G, for BECo's imprudence and that under that statute the Company's ratepayers should not pay the costs associated with the imprudent practices during the Pilgrim 1 outage." D.P.U. 1003-G-6, at 17-18. The DPU found the additional costs incurred by the company in the periods during which Boston Edison was imprudent to be $552,513. Id. at 21. The DPU ordered the company to return that amount, with interest of $43,450, to the ratepayers through a reduction in the fuel charge for October through December, 1982. D.P.U. 1003-H.

The company appealed from the orders of the DPU, under the authority granted in G.L. c. 25, § 5 (1984 ed.). A single justice reserved and reported the appeal.

The company makes essentially three claims of error: (1) The DPU legally could not impute to the company the imprudence of Boston Edison; (2) the DPU could not issue its orders without exceeding its authority under the provisions of G.L. c. 164, § 94G (1984 ed.); and (3) the DPU could not exercise regulatory authority over the relationship between the company and its wholesale suppliers of power because the Federal government has preempted that authority.

1. Imputation of imprudence. The DPU determined that the company shared the responsibilities and obligations of a joint owner of the Pilgrim 1 unit. This finding was based on the provisions of the contract between the company and Boston Edison.

The company claims that it is in fact not an owner of the Pilgrim 1 unit. We do not read the decision of the DPU to be to the contrary. The DPU found that the company "does not have an ownership share in the Pilgrim 1 unit, [but that] its life- of-the-unit contract is in all relevant respects here the same as partial ownership." The company contends, however, that the DPU erred in interpreting the company's contract with Boston Edison so as to find it "in all relevant respects here the same as partial ownership."

The DPU's interpretation was based on five sections of the contract set forth in the margin. ¹ Pointing out the general rule that the terms and provisions of a contract are to be interpreted in the context of the entire contract, cf. Glick v. Greenleaf, 383 Mass. 290, 296, 419 N.E.2d 272 (1981); McMahon v. Monarch Life Ins. Co., 345 Mass. 261, 264, 186 N.E.2d 827 (1962), the company draws our attention to clauses limiting the start-up risks it assumed; making Boston Edison responsible for financing, construction, licensing, staffing, operation, and maintenance of the facility; limiting the company's authority in decision making; imposing a standard of due diligence on Boston Edison; requiring Boston Edison to obtain insurance; and obligating Boston Edison to sell power to the company on terms as favorable as it granted to any buyer. These provisions were not mentioned in the DPU decisions.

Assuming that the contract provisions shifting responsibility and risk to Boston Edison are indicators of Boston Edison's predominant ownership role, we do not agree, as the company argues, that the DPU erred in finding enough indicators of the company's responsibilities and obligations to justify the conclusion that the company's role is the same as partial ownership for the purposes of the instant inquiry. ²

The DPU rested its decision on the imputed imprudence of Boston Edison and did not reach the question of the company's own imprudence. The company argues that it cannot be held responsible for Boston Edison's acts, absent proof of its control over Boston Edison. ³ The company relies most heavily on general principles of tort and agency law that tie vicarious liability to the right to control, citing Caron v. Lynn Sand & Stone Co., 270 Mass. 340, 346, 170 N.E. 77 (1930) (joint enterprise), Khoury v. Edison Elec. Illuminating Co., 265 Mass. 236, 238, 164 N.E. 77 (1928) (right to control determines master-servant relationship and thus whether respondeat superior applies), and Trent v. Atlantic City Elec. Co., 334 F.2d 847, 858-859, 864 (3d Cir.1964) (applying New Jersey law). The company asserts that, while a joint venturer may be found imputedly liable for the acts of his coventurer, Caron v. Lynn Sand & Stone Co., supra, he must have an equal right to direct or control the coventurer, Caron, supra, 270 Mass. at 346, 170 N.E. 77 and an intent to be a joint venturer, Cardullo v. Landau, 329 Mass. 5, 8, 105 N.E.2d 843 (1952). The company claims that it "clearly does not have control over" Boston Edison and that it does not "even share control over construction, operation or maintenance of the Pilgrim 1 Plant." Since the company did not have an equal right of control, and no intent to be a joint venturer was shown in the record, the company claims that it cannot be imputedly liable as a joint venturer.

In our view, reliance on tort analogies to define a public utility's responsibility in a regulated area of rate and fuel costs is unpersuasive. We find ample justification for the DPU's decision in the policy manifested by the statutory scheme of public utility regulation. The DPU was warranted in finding that the provisions of the contract reveal the company's intent to be treated as a joint owner and impose the kinds of risks and obligations ordinarily associated with ownership. See note 1 supra. The DPU relied on policy rationales supporting the imputation of imprudence to the company. "[T]here should be uniform treatment of companies involved in the same project, and ... allowing the form of the contract to control a company's responsibility for providing service at the lowest possible cost would create an untoward incentive for utilities to establish ownership forms that exempt them from liability." D.P.U. 1003-G-6, at 18 n. 1. "[T]his statute [G.L. c. 164, § 94G] was intended to operate consistently for all electric utilities the Department regulates...." Id. at 20. Such a statement of policy imperatives is wholly within the DPU's responsibility in administering the statutory regulatory scheme. Fitchburg Gas & Elec. Light Co. v. Department of Pub. Utils., 394 Mass. 671, 680, 477 N.E.2d 372 (1985) (Fitchburg II ). See G.L. c. 164, § 76 (1984 ed.).

The...