Office v. Department of Pub. Util. Control

• Court: Connecticut Supreme Court
• Writing for the Court: Borden
• Citation: Office v. Department of Pub. Util. Control, 905 A.2d 1, 279 Conn. 584 (Conn. 2006)
• Decision Date: 22 August 2006
• Docket Number: No. 17465.,17465.
• Parties: OFFICE OF CONSUMER COUNSEL v. DEPARTMENT OF PUBLIC UTILITY CONTROL et al.

Page 1

905 A.2d 1

279 Conn. 584

OFFICE OF CONSUMER COUNSEL v. DEPARTMENT OF PUBLIC UTILITY CONTROL et al.

No. 17465.

Supreme Court of Connecticut.

Argued March 7, 2006.

Decided August 22, 2006.

Bruce C. Johnson, for the appellant (plaintiff).

Robert L. Marconi, assistant attorney general, with whom was Seth Hollander, for the appellee (named defendant).

Kenneth H. Eagle, Hartford, for the appellee (defendant Connecticut Light and Power Company).

SULLIVAN, C.J., and BORDEN, NORCOTT, KATZ and ZARELLA, Js.^*

Opinion

BORDEN, J.

The principal issue in this administrative appeal¹ is whether the named defendant, the department of public utility control (department), properly allowed rate recovery to the defendant Connecticut Light and Power Company (company), in a 2004 rate proceeding for an expense that had not been allowed in a 1993 rate proceeding. The plaintiff, the office of consumer counsel, claims that the department should not have allowed the rate recovery because it had not expressly promised the company, when it declined to allow the expense in the 1993 proceeding, that it could recover the expense in a later proceeding. Alternatively, the plaintiff claims that, even if the department promised deferred recovery in 1993, allowing the rate recovery in the 2004 proceeding was unjustified in light of intervening circumstances. The trial court concluded that the department properly allowed the rate recovery and dismissed the plaintiff's appeal. We affirm the judgment of the trial court.

The department, in a rate proceeding, allowed the company to recover certain projected employee pension costs. The plaintiff appealed from that decision to the trial court, which dismissed the plaintiff's appeal. This appeal followed.

The record reveals the following relevant facts and procedural history. In 1992, the company filed a request for a rate increase with the department (1992 rate filing). The 1992 rate filing included the company's projected pension costs for fiscal years 1993 to 1995. Those costs were developed by the company's pension actuaries and included the amortization over 18.3 years of the company's share of the pension plan's unrecognized net gain of $68.3 million as of December 31, 1992.²

The department issued a draft decision on the 1992 rate filing on June 1, 1993 (draft decision). In the draft decision, the department amortized the $68.3 million in unrecognized pension gain over an eight year period instead of the 18.3 years requested by the company. As a result, the company's pension expense for rate-making purposes was reduced by approximately $5 million per year for the three fiscal years, 1993 to 1995, for a total reduction of $15.7 million.

The company submitted written comments on the draft decision in which it advised the department that, because of the department's reduction of pension expenses for rate-making purposes, "the [c]ompany now faces a situation where its pension expense for book purposes . . . will be over $5 million higher [annually] than has been allowed in rates. To avoid the significant financial impact of this conflict, the [c]ompany requests language to be added to the final decision that would allow recognition of a regulatory asset for the difference in pension expense created by the eight year v. [eighteen] year amortization periods for the net unrecognized gain. That is, the final decision should specifically state that because the gain will be amortized over eight years for ratemaking purposes, all other things being equal, ratemaking pension expenses in years [nine through eighteen] will be higher than the [c]ompany's . . . booked pension expense. This will allow the [c]ompany to avoid an earnings hit for the $5 million mismatch between what has been provided in rates for this item and what is reflected in its financial statements."

The department issued its final decision on the 1992 rate filing on June 16, 1993 (1993 decision). In the 1993 decision, the department noted that, "[i]n the history of regulation in the [s]tate of Connecticut, 1993 is the worst year to be confronted with rate cases since the depression of the 1930's. [The company], in recognition of the state of the economy, offered an alternate multiyear rate proposal intended to mitigate the rate shock of a potential 13.9 [percent] one-year rate adjustment.

"Even with a multi-year proposal, the [company's] rate request of $358 million is the highest in its history. Could the ratepayers and the economy of the [s]tate survive such an increase? . . . Could this be accomplished in this 1993 recessionary economy? Could we fairly service the ratepayers and also fulfill our responsibility to the [c]ompany under [General Statutes] § 16-19e? These questions were uppermost in our minds as we proceeded with the hearings." (Citation omitted.)

Addressing the issue of pension expenses, the 1993 decision stated that, "[g]iven the magnitude of the unrecognized net gain, the persistence of past earnings in excess of forecasted long-term rates of return, and the projection of negative . . . direct pension expenses over the next five years, the [department] deems it appropriate that [the company's] $68.3 million net gain be amortized over eight years rather than 18.3 years." The decision also included the following language which the company had requested in its written comments on the draft decision: "The [department] recognizes the fact that as a result of using an eight-year amortization of the unrecognized net gain, the [c]ompany's pension expense for book purposes . . . will be over $5 million higher [annually] than the amount to be included in rates. The [department] recognizes that, all other things being equal, ratemaking pension expenses in years [nine] through [eighteen] will be higher than the [c]ompany's . . . booked pension expense."

In 1998, the legislature enacted the 1998 Electric Restructuring Act, Public Acts 1998, No. 98-28(act), which required the company to sell its electricity generation assets and to focus solely on transmission and distribution. The act allowed the company to recover from its customers the difference between the net book value of certain of its assets under the act and their previous market value, or its "stranded costs. . . ." See Connecticut Light & Power Co. v. Dept. of Public Utility Control, 266 Conn. 108, 110, 830 A.2d 1121 (2003). In 1999, the company attempted to recover as stranded costs a portion of the pension expenses that had been the subject of the 1993 decision. The plaintiff argued that allowing recovery of the expenses as stranded costs would result in retroactive rate making. Citing the "all other things being equal" language of the 1993 decision, the department concluded that "it would be inappropriate to eliminate the regulatory obligation to recover the expense difference of the 1993-1995 unrecognized pension gain." It denied recovery of the expense, however, stating that the issue would be "addressed in the [c]ompany's next rate case."

The company filed its next request for a rate increase in 2003 (2003 rate filing).³ In that filing, it again requested recovery of the disallowed pension expense. On December 17, 2003, the department issued an initial decision denying recovery of the expense (initial decision). The company then filed a petition for reconsideration of that issue, among others, on the ground that the department had not properly considered its 1993 decision promising future recovery of the expense. The department granted the request for reconsideration and, on August 4, 2004, it issued its final decision (2004 decision) in which it reversed the initial decision. The department stated that it agreed "with the [plaintiff] that the [d]epartment did not in [the 1993 decision establish a regulatory asset for the unrecognized pension gain. There is, it has been held, `a fundamental difference between a decision to record deferred charges and a decision to recover deferred charges. . . . A decision to permit recording of deferred charges has only an indirect impact on rates, and, therefore, is not subject to the same scrutiny as a decision to raise rates.' [Business & Professional People for the Public Interest v. Illinois Commerce Commission, 146 Ill.2d 175, 246, 166 Ill.Dec. 10, 585 N.E.2d 1032 (1991)]. The [1993 decision] permitted the recording of deferred charges, leaving all ratemaking considerations of the deferred charges (including regulatory asset treatment and rate recovery) to be decided in a future rate case, at which all parties could present evidence on such issues. In this proceeding, [the company] requested recovery of the deferred charges, and a full and complete record was created. Upon review of the record of the rate case and this reopener, the [d]epartment concludes that it is appropriate to allow [the company] to establish a regulatory asset to recover the unrecognized pension gain. As [the plaintiff] states, [the company's] actual pension expense over 1993, 1994 and 1995 was below the allowed pension expense; however, the fact remains that, but for the [d]epartment's actions in reducing the unrecognized pension gain assumptions, the gap between allowed and actual would have been greater." The company had asked the department to allow it to recover the $15.7 million as a regulatory asset over four years, but the department allowed recovery over thirteen years with no return.

The plaintiff appealed from the department's decision to the trial court pursuant to General Statutes § § 16-35 and 4-183. The plaintiff argued on appeal that the department's 1993 decision had not established a regulatory asset and that such assets cannot be created "after the fact." It also argued that the department had failed to consider whether denying recovery would harm the company and, therefore the decision constituted impermissible "single-issue" rate making. Finally, the plaintiff argued that allowing recovery constituted...