IN RE TARIFF FILING OF CVPS

• Decision Date: 09 February 2001
• Docket Number: No. 98-214.,98-214.
• Citation: 769 A.2d 668
• Parties: In re TARIFF FILING OF CENTRAL VERMONT PUBLIC SERVICE CORPORATION.
• Court: Vermont Supreme Court

769 A.2d 668

In re TARIFF FILING OF CENTRAL VERMONT PUBLIC SERVICE CORPORATION.

No. 98-214.

Supreme Court of Vermont.

February 9, 2001.

Robert A. Mello and John H. Klesch (On the Brief), South Burlington, for Appellant Central Vermont Public Service Corp.

James Volz, Director for Public Advocacy, and Aaron Adler, Special Counsel, Montpelier, for Appellee Department of Public Service.

Trevor R. Lewis of Primmer & Piper, P.C., Montpelier, for Amicus Curiae Vermont Public Power Supply Authority.

Present: AMESTOY, C.J., DOOLEY, MORSE and SKOGLUND, JJ., and ZIMMERMAN, D.J., Specially Assigned.

DOOLEY, J.

Central Vermont Public Service Corporation (CVPS) brings this interlocutory appeal from a decision of the Public Service Board holding that it may consider in a rate case whether the cost of power CVPS purchases from Hydro-Quebec (HQ) may be excluded, in whole or in part, from expenses covered by utility rates. CVPS argues that the Board was precluded under principles of res judicata, collateral estoppel or equitable estoppel from considering whether CVPS acted prudently by entering into, and waiving termination rights with respect to, a thirty-year purchase power contract with HQ in August 1991, and whether the power purchased from HQ is uneconomical and therefore not "used and useful."

We hold that the Board¹ is collaterally estopped, based on its prior determinations in a 1994 rate case, from considering further whether CVPS acted imprudently by locking into the HQ contract in August 1991. We conclude that it is premature to determine whether the Board may take any further action in this rate case based on the imprudence it found in the 1994 rate case. Finally, we remand for further proceedings on whether the Board may determine if the power purchased from HQ is useful. In all other respects, the order of the Board is affirmed.

A brief history of the HQ contract is helpful to understand the context in which these issues come before us. In 1987, the Vermont Joint Owners (VJO) of the Highgate interconnection facilities — a group of nine Vermont utilities that included CVPS — entered into a contract to purchase electricity from HQ over a thirty-year period, from 1990 to 2020. In 1988, the contract was amended to extend the time until April 30, 1991, for any party to terminate the contract if necessary regulatory approvals were withheld or tendered upon terms unsatisfactory to that party. In 1991, the Board granted interim approval for both the HQ contract and a participation agreement between the nine Vermont utilities. See 30 V.S.A. § 248(a) (requiring Board to issue certificate of public good before utility may purchase energy from outside Vermont for period exceeding five years). We affirmed the Board's order in In re Twenty-Four Vermont Utilities, 159 Vt. 339, 618 A.2d 1295 (1992) (HQ I).

In early 1991, HQ informed VJO that it was not satisfied with a condition of the regulatory approval it obtained from the National Energy Board of Canada and was appealing that condition to the Canadian Federal Court of Appeals. Consequently, HQ sought to extend the deadline for terminating the contract based on its dissatisfaction with a regulatory requirement. In April 1991, the parties signed a waiver and release, extending the parties' right to terminate the contract on the basis of unsatisfactory regulatory approvals until December 1, 1991. On April 30, 1991, the Board approved the waiver and release, and this Court affirmed the Board's order in In re Twenty-Four Vermont Utilities, 159 Vt. 363, 618 A.2d 1309 (1992) (HQ II).

In July 1991, the Canadian Federal Court of Appeals affirmed the export license to HQ and struck down the condition to which HQ had objected, and HQ informed VJO that it was willing to commit to the contract at that time despite the uncertainty of an appeal to the Canadian Supreme Court. On August 28, 1991, HQ agreed to forego its regulatory termination right, thereby waiving any right to terminate the agreement in the event the Supreme Court of Canada reinstated the unsatisfactory regulatory condition. VJO responded on August 29, agreeing to waive any right to terminate the contract based on unsatisfactory regulatory conditions. As do the parties and the Board, we refer to the action of waiving the termination right as locking into the contract. The Board did not review the early lock-in decision at the time because it concluded that it did not have jurisdiction to review the matter while HQ I and HQ II were pending in this Court.

In February 1992, the Board approved the allocation of HQ electricity to the individual utilities, a condition of its earlier contract approval, and this Court affirmed that decision in In re Twenty-Four Electric Utilities, 160 Vt. 227, 627 A.2d 355 (1993) (HQ III). In October 1994, the Board granted CVPS a rate increase of 4.27 percent in the first litigated CVPS rate increase to include HQ contract costs (the 1994 rate case). As discussed in more detail below, in 1994, the Public Service Department had argued that CVPS should not be able to recover in rates the full HQ contract costs because CVPS was imprudent in locking into the contract and the purchased power was not used and useful at the price set in the contract. In reaching its decision, the Board found that CVPS made a management error in prematurely locking into the contract and, as a result of this and other findings, reduced CVPS's allowed rate of return by 75 basis points. It rejected the Department's theory that the costs of HQ power above what other sources would cost, over the life of the HQ contract, was not used and useful. The Board's decision was not appealed to this Court.

In September 1997, CVPS filed with the Board a petition to increase its rates by 6.6 percent, seeking a revenue increase of $15.4 million. Several organizations moved to intervene and for appointment of independent counsel to oppose rate increases associated with the HQ contract. CVPS objected on the grounds that res judicata, collateral estoppel or equitable estoppel precluded relitigation of issues concerning the HQ contract, as they were resolved in the 1994 rate case. The Board granted the motions to intervene and appointed an independent investigator to present evidence on CVPS's decisions to negotiate, execute, lock in, and manage its contract with HQ.

In January 1998, CVPS moved to expedite the decision on preclusion, and in February moved twice to strike prefiled testimony pertaining to the HQ contract issues. In April 1998, the Board determined that it was not precluded in this rate case from considering the prudence of CVPS's decision to enter into the HQ contract, particularly the early lock-in decision, and the usefulness of power supplied by the contract in relation to other power that could be obtained at lower costs (the 1998 decision). Specifically, it ruled that: (1) res judicata, or claim preclusion, does not apply in rate cases; (2) collateral estoppel, or issue preclusion, applies but has no preclusive effect in this case because the issues actually litigated in the 1994 rate case were different from those presented in this case; and (3) the elements of equitable estoppel are not satisfied in this case. On April 30, the Board granted CVPS permission to take an interlocutory appeal to this Court on the preclusion issues and stayed further proceedings pending the appeal. CVPS argues here that each of the Board's reasons for rejecting the 1994 rate case as preclusive is wrong.

I. Introduction

Generally, in reviewing decisions of the Board, "we give great deference to the particular expertise and informed judgment of the Board." In re Vermont Power Exchange, 159 Vt. 168, 179, 617 A.2d 418, 424 (1992). We uphold findings of fact unless clearly erroneous. See id. "Our standard of review is based, however, on the nature of the Board's expertise and the appropriateness of paying deference to it." Id. The applicability of judicially-created doctrines such as claim preclusion or issue preclusion in rate cases is not an issue within the Board's expertise of utility law. Moreover, whether preclusion applies to a given set of facts is a question of law, which we review de novo. See State v. Pollander, 167 Vt. 301, 304, 706 A.2d 1359, 1360 (1997). Thus, we give no deference to the Board's decisions on claim preclusion and issue preclusion.

The doctrine of res judicata, also called claim preclusion, "bars the litigation of a claim or defense if there exists a final judgment in former litigation in which the `parties, subject matter and causes of action are identical or substantially identical.'" Berlin Convalescent Ctr. v. Stoneman, 159 Vt. 53, 56, 615 A.2d 141, 143 (1992) (quoting Berisha v. Hardy, 144 Vt. 136, 138, 474 A.2d 90, 91 (1984)). The doctrine does not require that the claims were actually litigated in the prior proceeding; rather, it applies to claims that were or should have been litigated in the prior proceeding. See Lamb v. Geovjian, 165 Vt. 375, 380, 683 A.2d 731, 734-35 (1996). For example, res judicata applies to both affirmative defenses that could have been raised before, see id. at 381, 683 A.2d at 735, and compulsory counterclaims that should have been raised before, but not to permissive counterclaims. See Cold Springs Farm Dev., Inc. v. Ball, 163 Vt. 466, 473, 661 A.2d 89, 93 (1995).

The doctrine of collateral estoppel, also called issue preclusion, is similar in effect but more narrow in scope. See Berlin Convalescent Ctr., 159 Vt. at 56, 615 A.2d at 144. It bars the relitigation of an issue, rather than a claim, that was actually litigated by the parties and decided in a prior case. See id. The elements of collateral estoppel are: (1) preclusion is asserted against one who was a party in the prior action; (2) the same issue was raised in the prior action; (3) the issue was resolved by a final judgment on the merits; (4) there was a full and fair opportunity to litigate the...