Eastern Edison Co. v. Department of Public Utilities

• Decision Date: 04 March 1983
• Citation: 388 Mass. 292,446 N.E.2d 684
• Parties: EASTERN EDISON COMPANY v. DEPARTMENT OF PUBLIC UTILITIES.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 684

446 N.E.2d 684

388 Mass. 292

EASTERN EDISON COMPANY v. DEPARTMENT OF PUBLIC UTILITIES.

Supreme Judicial Court of Massachusetts, Suffolk.

Argued Nov. 5, 1982.

Decided March 4, 1983.

Robert G. Bleakney, Jr., Boston (David A. Fazzone, Boston, with him), for plaintiff.

E. Michael Sloman, Asst. Atty. Gen. (Thomas A. Barnico, Asst. Atty. Gen. with him), for defendant.

Samuel Huntington and Thomas G. Robinson, Westborough, for Massachusetts Elec. Co., amicus curiae, submitted a brief.

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

HENNESSEY, Chief Justice.

Eastern Edison Company (Eastern Edison), appeals pursuant to G.L. c. 25, § 5, from three decisions of the Department of Public Utilities (department). Eastern Edison challenges the department's refusal in each case to approve an increased charge to Eastern Edison's retail customers, based on an increase in the cost of power Eastern Edison purchases from its wholesale supplier, its wholly-owned subsidiary, Montaup Electric Company (Montaup). The increase in Montaup's wholesale charges to Eastern Edison reflected Montaup's attempt to recoup its investment in the abandoned Pilgrim Nuclear Unit No. 2 project (Pilgrim II). The cases were reserved and reported on a consolidated basis by a single justice of this court.

Eastern Edison is a retail electric utility company distributing electricity to customers in southeastern Massachusetts. Montaup is a public utility engaged in the generation, transmission, and sale at wholesale of electricity in interstate commerce. Both parties agree that Montaup's wholesale rates charged to Eastern Edison are, therefore, regulated exclusively by the Federal Energy Regulatory Commission (FERC), under the Federal Power Act, 16 U.S.C. §§ 824(a), (b), and 824d (1976 & Supp. V 1981). New England Power Co. v. New Hampshire, 455 U.S. 331, 102 S.Ct. 1096, 71 L.Ed.2d 188 (1982). Federal Power Comm'n v. Southern Cal. Edison Co., 376 U.S. 205, 84 S.Ct. 644, 11 L.Ed.2d 638 (1964). Montana-Dakota Utils. Co. v. Northwestern Pub. Serv. Co., 341 U.S. 246, 71 S.Ct. 692, 95 L.Ed. 912 (1951). Public Utils. Comm'n of R.I. v. Attleboro Steam & Elec. Co., 273 U.S. 83, 47 S.Ct. 294, 71 L.Ed. 54 (1927). Montaup invested in Pilgrim II and the abandonment of the project left it with a share of the unrecovered costs. It submitted a revised rate schedule to the FERC, proposing a new rate, "M-7", for service to several customers, including Eastern Edison, to allow it to recover its unamortized investment in Pilgrim II. FERC Docket No. ER-81-749-000 (November 3, 1981). The FERC accepted the M-7 rate for filing, and suspended it for one day, allowing it to become effective, subject to refund, on November 5, 1981. It noted that it suspended the rate for only one day because "preliminary review of Montaup's filing suggests that the proposed rates may not yield excess revenues." The FERC also ordered that a public hearing be held concerning the justness and reasonableness of the rate. Thus, pending final decision by the FERC, Montaup's rates charged to Eastern Edison include a surcharge attributable to Montaup's Pilgrim II investment. The Department of Public Utilities notes that it is "involved in and represented by the Attorney General" in the FERC proceeding.

Since 1974, Eastern Edison (then called Brockton Edison Company) has included within its rate schedules a Purchased Power Cost Adjustment Clause (PPCA), authorized under G.L. c. 164, § 94G, providing for an adjustment in Eastern Edison's charges to retail customers to reflect fluctuations in the cost of power Eastern Edison purchases from its supplier, Montaup. ¹ In 1978, Eastern Edison's PPCA was modified to provide for a "single quarterly forward-looking" adjustment in retail rates. ² Accordingly, shortly before the beginning of each quarter, Eastern Edison files an application with the department for approval of a revised fuel charge pursuant to its PPCA. The application is then set for hearing and decision under G.L. c. 164, § 94G. The decisions appealed from reviewed Eastern Edison's applications for the quarters commencing December 1, 1981 (D.P.U. 1006-E), March 1, 1982 (D.P.U. 1006-F), and June 1, 1982 (D.P.U. 1006-G). For each quarter, the proposed fuel adjustment charge reflected the M-7 rate charged to Eastern Edison by Montaup to recover Montaup's investment in the Pilgrim II power plant project.

While D.P.U. 1006-E and D.P.U. 1006-F were being heard, a general retail rate proceeding of Boston Edison Company (Boston Edison), D.P.U. 906, was being litigated before the department. Boston Edison had a substantial investment in Pilgrim II. However, unlike those of Montaup, Boston Edison's rates are subject to the exclusive jurisdiction of the department. One of the issues in the Boston Edison case was the extent to which Boston Edison would be allowed to recover its investment in the abandoned Pilgrim II project.

In D.P.U. 1006-E, the department stated: "Since ... the manner and extent to which the Pilgrim II costs are to be assumed by the ratepayers is currently under review and subject to the scrutiny of the Department, we decline to pass upon their propriety here. We will therefore exclude that portion of the charge from the Company's fuel adjustment clause for the present time." In a footnote, the department noted that it was participating in the FERC proceeding on Montaup's M-7 rate request, and that "[t]his proceeding should provide a forum to address our concerns over the continued collection of any Pilgrim II costs pending the outcome of our review." Similarly, D.P.U. 1006-F referred to the Boston Edison proceeding, and found "that the best treatment of the portion of [Eastern Edison's] fuel charge attributable to abandonment costs at the Pilgrim II nuclear facility is to continue to exclude ... [them] pending the results of the Department's on-going investigation and review." The department also noted that Eastern Edison had appealed the department's earlier ruling in D.P.U. 1006-E to this court. In both D.P.U. 1006-E and D.P.U. 1006-F, the department ordered Eastern Edison to accumulate the disallowed charges in account 186. In D.P.U. 1006-E, it was specified that this was to be done "pending a resolution as to the treatment of such costs."

In D.P.U. 1006-G, decided after the Boston Edison case, the department issued a decision allowing Eastern Edison "to recover [Montaup's] costs related to Pilgrim II to the same extent as allowed in previous Department decisions (Boston Edison Company, D.P.U. 906 [1982] and Commonwealth Electric Company, D.P.U. 956 [1982] )." ³ The department ordered that Eastern Edison's "fuel charge for this quarter and for succeeding quarters include charges for Pilgrim II costs calculated in accordance with the Department's Interim Order in this case." That order referred to the department's decision in Boston Edison Company, D.P.U. 906 (1982), and specified that Eastern Edison should file with the department a calculation of its Pilgrim II expenses disallowing costs incurred after July 1, 1980, and AFUDC. The department requested "a final accounting ... once actual figures are known." The department also ordered Eastern Edison to continue to accumulate the disallowed charges in account 186.

The reservation and report of the single justice presents two issues for our consideration. "Whether, in retail rate proceedings devoted solely to the determination of Eastern's purchased power cost adjustment factor under its [PPCA], where Eastern's cost of purchased power was based entirely on [Montaup's] effective rates ... on file with the F.E.R.C., the Department had jurisdiction: (1) To defer decision on whether Eastern would be allowed to recover a portion of such purchased power costs pending the results of another proceeding before the Department involving another utility and ordering Eastern to calculate and accumulate said amount in a deferred debit account [D.P.U. 1006-E and D.P.U. 1006-F]; and (2) To disallow thereafter recovery by Eastern of a portion of its actual purchased power costs [D.P.U. 1006-G]." Although both parties presumably agreed to this statement of the issues, and both adopt it in their briefs, the department proceeds to argue its case based on a different characterization of the issues before us. The department now concedes that Eastern Edison's increased wholesale fuel expenses based on Montaup's FERC-filed rate are "legitimate operating expenses that are ultimately recoverable from the ratepayers in some form," and argues that its decisions did not deny recovery of a portion of these expenses on the authority of Boston Edison, D.P.U. 906, but rather deferred Eastern Edison's opportunity to pass these expenses through to its customers under its PPCA "pending the conclusion of the FERC investigation of the reasonableness of the Montaup rate."

We conclude that the department's actions interfered with the FERC's exclusive jurisdiction to set rates for electricity transmitted and sold at wholesale in interstate commerce. We further conclude that, even if the department's decisions were deferrals pending the conclusion of the FERC investigation, as claimed by the department, the decisions exceeded the department's jurisdiction. We accordingly remand the case to the single justice, with directions to enter a judgment reversing the department's decisions and to order relief as provided in this opinion.

We first consider the regulatory framework within which these cases arise. In Public Utils. Comm'n of R.I. v. Attleboro Steam & Elec. Co., 273 U.S. 83, 47 S.Ct. 294, 71 L.Ed. 54 (1927), the United States Supreme Court held that the commerce clause, U.S. Const., art. I, § 8, precludes State regulation of rates charged for electricity transmitted in interstate commerce. In response to Attleboro, Congress enacted the Federal Power Act, now codified at 16 U.S.C. § 824 (1976 & Supp. V 1981), and the Natural...