Consumers Organization for Fair Energy Equality, Inc. v. Department of Public Utilities

• Decision Date: 11 September 1975
• Citation: 335 N.E.2d 341,368 Mass. 599
• Parties: CONSUMERS ORGANIZATION FOR FAIR ENERGY EQUALITY, INC., et al. v. DEPARTMENT OF PUBLIC UTILITIES et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 341

335 N.E.2d 341

368 Mass. 599

CONSUMERS ORGANIZATION FOR FAIR ENERGY EQUALITY, INC., et al.

v. DEPARTMENT OF PUBLIC UTILITIES et al.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued May 8, 1975.

Decided Sept. 11, 1975.

Richard A. Young, Natick, for Consumers Organization for Fair Energy Equality, Inc. and others.

Edward B. Hanify, Boston (William G. Meserve and John J. Desmond, III., Boston, with him) for Boston Edison Co. and another.

Robert V. Cauchon, Boston, for Brockton Edison Co. and another.

Philip H. R. Cahill, Westboro, for Massachusetts Electric Co.

Franklin M. Hundley for New Bedford Gas and Edison Light Co.

Robert S. Cummings, Maurice L Zilber and Richard L. Morningstar, Boston, for Western Massachusetts Electric Co., also with him.

Alan K. Posner, Asst. Atty. Gen., for the Dept. of Public Utilities.

Before TAURO, C.J., and REARDON, QUIRICO, KAPLAN and WILKINS, JJ.

KAPLAN, Justice.

We defer to point 3 of this opinion a consideration of certain procedural objections to the maintenance of the present appeal. If, as we shall conclude, the procedural problems are not serious, then we have to decide on the merits, on reservation and report of a single justice of this court, a petition for appeal under G.L. c. 25, § 5, by Consumers Organization for Fair Energy Equality, Inc. ('COFFEE') and 415 residential customers of six electric companies (named as respondents herein) from a final decision or order of the Department of Public Utilities (also named as a respondent) published on January 29, 1975. The decision (D.P.U. dockets 18,209 and 18,221) terminated an 'adjudicatory proceeding' in which the petitioners contended that increases in rates for electricity, billed to the petitioners by the electric companies in pursuance of 'fuel adjustment clauses' in their rate schedules, were illegal because no public hearings had been held by the department under G.L. c. 164, § 94, in connection with the imposition of those increases. ¹ The petitioners say that § 94, properly interpreted, called for public hearings, and in any event due process required them. Apparently the petitioners limited their attack to the increases that went into effect from January 1, 1973, to July 26, 1974. ² We agree with the department that the petitioners' contentions fail. There is no problem after July 26, 1974, because of new legislation that went into force that day. ³

1. Fuel adjustment clauses have appeared in electric utility rate schedules in this country for many years. A need for them was felt during the first World War and they have been with us ever since, although the wisdom of their use has been regularly a subject of controversy. ⁴ Such a clause provides typically for the fluctuation upward or downward of the rates charged to customers reflecting, in accordance with formula, changes from a defined base in the cost to the company of the fuel used by it to generate power. It is a 'pass-through' provision operating in terms of a mathematical formula. We need not go into the complexities and variations of these clauses since we face a general question that applies to fuel adjustment clauses regardless of their precise details. ⁵

Before its amendment by St.1973, c. 816, § 2, effective December 20, 1973, section 94 of c. 164, stating that gas and electric companies must file with the department 'schedules . . . showing all rates, prices and charges to be thereafter charged or collected,' as well as changes in those schedules, did not set out any requirement of a public hearing in connection with departmental proceedings at which the tariffs and changes of tariffs were considered. And so, even if increases of rates to customers pursuant to a fuel adjustment clause (as distinguished from any change in the clause itself) could be regarded as within the phrase 'schedules . . . showing all rates,' and so forth, it could not be said that § 94 compelled a public hearing in respect to those increases.

The 1973 amendment of § 94 came about through an episode involving the New England Telephone and Telegraph Company. The department in 1972 approved a change of the rate schedules of that company in a departmental proceeding without a public hearing (there was no problem of any cost adjustment clause). This provoked some agitation for an amendment of c. 159, § 20, ⁶ a section somewhat comparable to c. 164, § 94, and both sections were duly amended, the amendment of § 94 taking effect, as we have indicated, on December 20, 1973. As amended, § 94 provides that '(w)henever the department receives notice of any changes proposed to be made in any schedule filed under this chapter which represent a general increase in rates, prices and charges for gas or electric service, it shall notify the attorney general of the same forthwith, and shall thereafter hold a public hearing and make an investigation as to the propriety of such proposed changes after first causing notice of the time, place and the subject matter of such hearing to be published at least twenty-one days before such hearing in such local newspapers as the department may select.' The petitioners argue that this language should be read as requiring a public hearing for each increase ⁷ which comes about through application of the formula of a fuel adjustment clause in a schedule on file.

In the opinion accompanying its decision herein, the department dealt with the matter as follows: 'Petitioners argue that statutes 1973, Chapter 816, Section 2, amending General Laws, Chapter 164, Section 94, effective September 21, 1973 (sic: the proper date is December 20, 1973), changed the then existing statutory law and made a hearing mandatory for any 'general increase in rates, prices and charges' for electric service. We believe that this amendment required hearings for changes in any company's Fuel Clause itself, but not for mathematical variations pursuant to such a clause. A fuel clause obviously contemplates changes in the dollar amount (expressed as a decimal) that appears on a consumer's bill; such a figure will fluctuate upward and downward according to the cost of fuel, computed according to the formulae. As long as the clause (the formulae) remains fixed, the mathematics resulting from the clauses' operation do not constitute a 'general increase in rates, prices and charges.' We believe that, prior to July 26, 1974, no hearings were required for mathematical fluctuations pursuant to approved Fuel Adjustment Clauses.' The departmental interpretation is matched by this court's remarks in Century Cab Inc. v. Commissioner of Ins., 327 Mass. 652, 664, 100 N.E.2d 481, 489 (1951), where we said of a feature of an insurance rate expressed not in dollars and cents but in terms of a formula, 'A rate may be fixed where its elements are settled and where all that remains to be done is to combine those elements by the employment of a definite rule, or as here by mathematical process. . . . (citing cases)'

The department's view reflects long administrative understanding and practice. On the one hand, rate proceedings conducted by the department have comprised discussions of and decisions upon the desirability and content of cost adjustment clauses, and changes in those clauses, set out in proposed schedules of rates. ⁸ See e.g., Re Arlington Gas Light Co., 74 P.U.R. (N.S.) 442 (1948) (Mass.D.P.U.); Re Worcester Gas Light Co., 9 P.U.R.3d 152 (1955) (Mass.D.P.U.); Re Plymouth County Elec. Co., 18 P.U.R.3d 315 (1957) (Mass.D.P.U.); D.P.U. 16,482 (August 13, 1970). Cf. Boston Consol. Gas. Co. v. Department of Pub. Unil., 321 Mass. 259, 72 N.E.2d 543 (1947). On the other hand, there is no past instance that has been cited to us or that we have found where a change or impending change in the dollar amount of a rate, occasioned by application of the formula of a cost adjustment clause, had itself been the subject of a rate proceeding before the department. That the 1973 amendment of § 94 called for public hearings where certain changes of schedules were being proposed, did not alter the understanding that an increase of rate in pursuance of a cost adjustment clause appearing in a filed schedule was not the proper subject of a departmental proceeding under that section. But a proposal that an adjustment clause be added to a schedule, or that a clause in an existing schedule be modified, could be dealt with in such a proceeding, now with the requirement, in certain cases, of a public hearing.

These observations are reinforced when one considers the main historic purpose of cost adjustment clauses as conventionally stated. Rate proceedings have been notoriously slow as well as expensive. In times of inflation, dependence on lumbering rate proceedings to accommodate the rates to rapidly increasing costs would threaten utilities with unrecoverable expenditures destructive of reasonable returns. Therefore the demand arose to build into the rates, provisions by which increases in certain costs to the utilities (and, to be fair, decreases as well) would in accordance with formula be automatically passed on to the consumers as fluctuations of the charges to them, without the burden and expense to utilities--which would ultimately fall upon consumers--of instituting and carrying out separate rate proceedings to justify the varying charges. ⁹ Automatic adjustment made particular appeal where the utility had only minimal bargaining power about the particular items of cost (e.g., a gas company purchasing natural gas from a supplier whose rates were fixed by the Federal Power Commission), or where the State regulatory agency believed it could keep a close watch on the particular costs (e.g., an electric company purchasing coal or oil to generate power, the purchase contracts being under continual effective scrutiny by the State agency). See Chicago v. Illinois Commerce Commn., 13 Ill.2d 607, 614--616, 150 N.E.2d 776 (1958); Re Providence Gas Co., 88 P.U.R.3d 430, 433--434...