In re Conservation Law Found.

• Decision Date: 20 April 2018
• Docket Number: No. 17–162,17–162
• Citation: 188 A.3d 667
• Court: Vermont Supreme Court
• Parties: IN RE Petition of CONSERVATION LAW FOUNDATION

188 A.3d 667

IN RE Petition of CONSERVATION LAW FOUNDATION

No. 17–162

Supreme Court of Vermont.

October Term, 2017

April 20, 2018

Sandra Levine, Vermont Advocacy Center, Montpelier, for Appellant.

Craig S. Nolan and Owen J. McClain of Sheehey Furlong & Behm P.C., Burlington, for Appellee Vermont Gas Systems, Inc.

Daniel C. Burke, Department of Public Service, Montpelier, for Appellee Vermont Department of Public Service.

PRESENT: Reiber, C.J., Skoglund, Robinson, Eaton and Carroll, JJ.

ROBINSON, J.

¶ 1. The question in this case is whether steep increases in project cost estimates for the Addison Natural Gas Project, combined with changes in energy markets, create a "substantial change" such that Vermont Gas Systems, Inc. (VGS) must secure an amended certificate of public good under Public Utility Commission Rule 5.408. In ruling on Conservation Law Foundation's (CLF) separate petition for declaratory relief, distinct from post-judgment review of the Commission's certificate of public good, the Commission held that increased cost estimates for VGS's natural gas pipeline project, coupled with changes in the energy markets, were not a "substantial change" under Rule 5.408. We defer to the Commission's reasonable interpretation of Rule 5.408 and accordingly affirm.

¶ 2. The relevant, undisputed facts and procedural history are as follows. In December 2013, under docket 7970, the Commission¹ approved a certificate of public good (CPG) for VGS's forty-one-mile natural gas pipeline traversing Addison and Chittenden Counties (the Project). Considering the criteria in 30 V.S.A. § 248, the Commission concluded that the Project "will promote the general good of the State of Vermont," subject to a condition (among others) that:

Construction, operation, and maintenance of the proposed Project shall be in accordance with plans and evidence submitted in this proceeding. Any material deviation from these plans or a substantial change to the Project must be approved by the [Commission].

¶ 3. In July 2014, while an appeal of the CPG was pending before this Court, VGS, pursuant to Commission Rule 5.409, filed an updated capital cost estimate with the Commission. The updated estimate reflected a 41% net change in estimated cost, from $86.6 million at the time of the CPG award to $121,655,000. In September 2014, this Court granted the Commission's request for a remand of the CPG proceeding so that it could determine whether to reopen the CPG proceedings under Vermont Rule of Civil Procedure 60(b)² due to the estimated Project cost increases.

¶ 4. On remand, the Commission held a hearing and CLF filed a post-hearing brief arguing that the Commission should reopen the CPG proceedings. In a thirty-page decision released in October 2014, the Commission ruled that the Project cost estimate increase was "not of such a material and controlling nature so as to change [the Commission's] previous determination that approval of the Project pursuant to the criteria of 30 V.S.A. § 248 will promote the general good of Vermont."

¶ 5. In December 2014, VGS filed a second update of the estimated capital costs of the project. By that time, estimated project costs had risen to $153.6 million, representing a 78% increase over the original estimate at the time of the CPG award. In February 2015, this Court granted the Commission's request for a second remand in docket 7970 to enable the Commission to again consider whether to reopen the CPG proceedings under Rule 60(b).

¶ 6. After an opportunity for discovery, the Commission held evidentiary hearings. The Commission considered the revised cost estimates as well as arguments that the CPG did not serve the public good in light of changes in energy markets. CLF filed a post-hearing brief. On January 8, 2016, the Commission held that the new evidence—"the most significant of which" being "the much higher estimated cost of the Project"—did not alter its previous conclusion that the Project "promot[ed] the general good and is in the best interest of the state" under § 248 criteria.

¶ 7. Meanwhile, in July 2014, during the pendency of proceedings in docket 7970, CLF filed a separate petition (docket 8330) seeking a declaratory ruling from the Commission that the Project cost increases and changes in energy markets represented a "substantial change" under Commission Rule 5.408, thus requiring an amended CPG. Commission Rule 5.408 states:

An amendment to a certificate of public good for construction of generation or transmission facilities, issued under 30 V.S.A. § 248, shall be required for a substantial change in the approved proposal. For the purpose of this subsection, a substantial change is a change in the approved proposal that has the potential for significant impact with respect to any of the criteria of Section 248(b) or on the general good of the state under Section 248(a).

Requirements for Petitions to Construct Electric and Gas Facilities § 5.408, Code of Vt. Rules 30 000 5400, http://www.lexisnexis.com/hottopics/codeofvtrules [hereinafter Rule 5.408]. After the Commission decided not to reopen the CPG proceedings on the first remand in docket 7970, VGS moved to close docket 8330 because, it argued, the Commission had already ruled on the issues raised by CLF—i.e., that the Commission should reopen the CPG proceedings due to the increased Project costs and changes in energy markets. The Commission denied this motion and set a schedule for the proceedings that included briefing and a hearing with oral argument.

¶ 8. In March 2017, the Commission denied CLF's request for declaratory relief. The Commission explained that whether increased project costs and changes in energy markets are a "substantial change" under Rule 5.408 was a matter of first impression. It began by reading Rule 5.408 together with Rule 5.409. The Commission noted that when it promulgated Rule 5.408 in 2006, it simultaneously promulgated Rule 5.409, which specifically addresses reporting for cost increases. Commission Rule 5.409 states:

Where a Vermont utility is the petitioner, or the costs of a project or a portion thereof are eligible to be recovered from ratepayers, the petitioner shall regularly monitor and update the estimated capital costs of any project it has proposed for or received approval under Section 248. When the estimated capital costs of a such a project increase by 20 percent, and the increase is at least $25,000, or such other amount as the Commission may order in a given proceeding or prescribe in a Procedure, prior cost estimates submitted by the petitioner to the Commission, the petitioner shall notify the Commission and parties of the new capital cost estimates for the project and the reasons for the increase. This requirement to monitor, update, and report shall continue until construction of the project has been completed.

Id. § 5.409 [hereinafter Rule 5.409]. Rule 5.409, the Commission concluded, "is directed at protecting ratepayers from escalations of project costs by expressly requiring utilities to monitor the estimated capital costs of projects and imposing a duty to report cost-estimate increases of more than 20%." The Commission noted that under Rule 5.409, when cost estimates increase, the company must provide an explanation. However, the Commission noted, "by its terms, Rule 5.409 does not require any additional review of reported cost increases," but rather, "presents an opportunity for the [Commission] and affected parties to consider whether any additional review is warranted and, if so, what type of review, whether pursuant to Rule 5.408, Rule 60, or any other type of review that appears appropriate under the circumstances." In "[r]eading Rules 5.408 and 5.409 together," the Commission explained, "an increased cost estimate by itself does not, as a matter of law, constitute a substantial change that requires a Rule 5.408 amendment review." The Commission concluded that "[a] cost increase without attendant physical changes does not alter the proposal itself because the [Commission] does not approve the estimated cost of a project in a Section 248 [CPG] proceeding." But a cost increase reported under Rule 5.409 could indicate a "substantial change" to the approved proposal requiring review under Rule 5.408 if the increase is due to a cognizable change to the project itself.

¶ 9. Applying this construction, the Commission held that, in this case, Rule 5.408 did not require a CPG amendment because the cost overruns and changes in energy markets do not represent "cognizable changes" to the Project's approved CPG proposal. The Commission emphasized that its narrow conclusion that review under 5.408 is not required on account of increased cost estimates did not signal that such cost overrides are irrelevant or immune from review. It explained that in instances where a cost estimate increases or market fluctuations raise doubt about the continued validity of its previous finding of public good in an issued CPG, Rule 5.409 provides the Commission an opportunity to review and decide whether to reopen the proceedings under Rule 60 —as it did twice in docket 7970.

¶ 10. On appeal from the Commission's ruling, CLF makes several arguments. First, CLF contends that under the plain language of Rule 5.408, a significant increase in a project cost estimate is a change to the CPG "approved proposal." Cost estimates, CLF argues, are "a necessary and indispensable part of the proposal," and are essential to the Commission's review under the § 248 criteria. See 30 V.S.A. § 248(a)(3) (explaining that project must "promote the general good of the State" in order for Commission to award CPG); id. § 248(b)(1)–(11) (providing criteria for CPG evaluation, such as "economic benefit to the State and its residents" and whether project "[i]s required to meet the need for present and future service that could not otherwise be provided in a more cost-effective manner through energy conservation programs and measures"). Under CLF's theory...