Pwsb's Application to Change Rate Schedules

• Decision Date: 25 February 2010
• Docket Number: No. 2007-378-M.P.,2007-378-M.P.
• Citation: 989 A.2d 110
• Parties: In re PROVIDENCE WATER SUPPLY BOARD'S APPLICATION TO CHANGE RATE SCHEDULES.
• Court: Rhode Island Supreme Court

989 A.2d 110

In re PROVIDENCE WATER SUPPLY BOARD'S APPLICATION TO CHANGE RATE SCHEDULES.

No. 2007-378-M.P.

Supreme Court of Rhode Island.

February 25, 2010.

Michael A. Calise, Asst. City Sol., for Plaintiff.

Leo J. Wold, Special Asst. Atty. Gen., for Defendant.

Present: SUTTELL, C.J., GOLDBERG, FLAHERTY, and ROBINSON, JJ.

OPINION

Justice GOLDBERG, for the Court.

This case is before the Supreme Court as a statutory petition for certiorari filed by the petitioner, the City of Providence (city), pursuant to G.L. 1956 § 39-5-1. The city is seeking review of a decision by the Rhode Island Public Utilities Commission (PUC)¹ denying a rate increase to the Providence Water Supply Board (PWSB or board) for reimbursement of sums paid for the PWSB's retirees' health-care coverage and benefits. The city seeks review of the report and order that the PUC issued in Docket No. 3832. After careful review of the record in this case, we affirm the order of the PUC.

Facts and Travel

Although this case began on March 30, 2007, when the PWSB made a general rate filing with the PUC, the events giving rise to the rate filing date to 1997, when the city began paying for a portion of the PWSB's retiree health-care costs. Inexplicably, these unreimbursed payments continued until 2005.² The 2007 rate filing, as requested, amounted to an overall revenue increase of $9,688,321 or 19.07 percent, and would have resulted in a rate increase for a typical resident in the city of approximately $41.60 or 17 percent. The 2007 rate filing was not solely based on the retirees' health-care costs; it was included in a general rate filing seeking an increase for several additional operational expenses.³ The only issue before us, however, is the city's petition to review that portion of the PUC's decision denying the reimbursement for the retirees' healthcare costs. It is important to note, however, that in its final report the PUC declared that this was the PWSB's fourth rate filing since 2000, but was the first time the city sought reimbursement for retiree health-care costs, notwithstanding that such payments commenced in 1997.⁴

The PWSB is an entity that is independent of city control; however, it uses the city's administrative services. According to the record, the PWSB typically prepares a payroll and sends it to the city's finance department, and the city charges the PWSB budget for allocations made on the PWSB's behalf. From 1997 through 2005, the city neglected to charge the PWSB for costs associated with the PWSB's retiree health care. Once this error was discovered, the PWSB sought to reimburse the city for past expenses that it had failed to pay because of the city's oversight.

Hearings on the PWSB's rate filing were held on June 19, 21, and 28, 2007 and September 12-13, 2007. The PUC also accepted prefiled testimonies from witnesses and experts representing the PWSB and other interested parties. The most pertinent testimony about the retirees' health-care costs came from Ms. Jeanne Bondarevskis (Bondarevskis), director of finance for the PWSB, and Mr. Thomas Catlin (Catlin), a consultant on revenue requirements for the Division of Public Utilities and Carriers.

Bondarevskis testified that the requested increase was intended to reimburse the city for the costs of retirees' health care, and she explained how these expenses were calculated. Specifically, Bondarevskis stated that the PWSB had not been reimbursing the city for the cost of its retirees' health care for several years and that this mistake was not discovered until fiscal year 2006. According to Bondarevskis, "[f]or some time now Providence Water has not reimbursed the [c]ity for [h]ealth care costs for employees in a direct manner," but Bondarevskis explained that when the payroll is complete, the city then wires the amount needed for payroll and fringe benefits.

The PUC explained in its order,

"In order to calculate the amount to be paid back, the City Controller's office started with actual costs for fiscal years 2005 and 2004, discounted the costs back for each fiscal year 2003 through 1997, based on the annual working rate[⁵] increase. In Ms. Bondarevskis' opinion, this was `a reasonable method of estimating the outstanding liability.'"

In his testimony, Catlin stated that he would not oppose recovery of the retirees' health-care costs because the PWSB is not investor-owned. He noted that prior to the hearing, PWSB had requested a proposed settlement that would have reduced the amount sought to be recovered and the division proposed to expand the recovery period. However, despite this proposed resolution, the PUC delved further into how the PWSB derived the amount it sought to recover in the rate increase.

The hearing focused on the discrepancies arising from Bondarevskis's calculations for the proposed rate filing. The PUC questioned how the PWSB verified the amount charged by the city to the PWSB for active employees because her testimony indicated that there is no verification required for inactive or retired employees. The PUC was also concerned that the city did not track retiree costs and that it could not confirm the amount spent from 1997 through 2005 for retired PWSB employees. The PUC found that it was not until 2007 that "the [c]ity began tracking retirees separately from active employees for healthcare expenses," and it concluded that the expenses sought to be recovered, prior to 2004, "are based on estimates." The PUC noted that before 2004 the city had no figures accurately reflecting the amount it paid for PWSB retirees' health care, nor could the city's finance department recall whether, "when the actual claim experience was broken out and provided to the [c]ity, retirees were in a separate category from active employees[.]"

The PUC ultimately rejected the PWSB's request for reimbursement to the city for 1997 through 2005,⁶ finding that the prohibition against retroactive ratemaking barred the recovery sought in the case. According to the PUC, the payment sought would be retroactive ratemaking and that none of the exceptions to that prohibition would apply. Additionally, and determinative for our purposes, the PUC declared:

"Even if the Commission found that the prohibition against retroactive ratemaking should not apply, it is unclear what amount for retiree health care should be allowed. In order to calculate the amount to be paid back, according to Ms. Bondarevskis, the [c]ity [c]ontroller's office started with actual costs for fiscal years 2005 and 2004, discounted the costs back for each fiscal year 2003 through 1997, based on the annual working rate increase."

The PUC issued its written order on December 13, 2007, finding that the PWSB's "request to fund through future rates repayment of the City of Providence $1,489,081 over six years, or $248,180 annually for past retiree health care expense is denied." On December 18, 2007, the city petitioned this Court for review in accordance with § 39-5-1.⁷ On January 17, 2008, the writ was issued, and thereafter this case was assigned to the Supreme Court's full briefing calendar. For the reasons set forth in this opinion, we affirm the order of the PUC denying the reimbursement for the retirees' health-care costs.

Standard of Review

The General Assembly has established the standard of review for cases brought before us pursuant to title 39 of the General Laws, entitled "Public Utilities and Carriers." Specifically, the General Assembly has declared:

"The findings of the commission on questions of fact shall be held to be prima facie true, and as found by the commission and the [S]upreme [C]ourt, shall not exercise its independent judgment nor weigh conflicting evidence. An order or judgment of the commission made in the exercise of administrative discretion shall not be reversed unless the commission exceeded its authority or acted illegally, arbitrarily, or unreasonably." Section 39-5-3.

Additionally, we have expounded upon this standard of review in the context of regulatory proceedings, deeming it a limited standard of review. When reviewing such regulatory proceedings, our authority is limited to whether the PUC's findings are lawful and reasonable, supported by legal evidence and sufficiently specific to allow us to determine if the evidence before the PUC reasonably supports its decision. See Providence Water Supply Board v. Public Utilities Commission, 708 A.2d 537, 541 (R.I.1998); see also § 39-5-1. As we stated in Providence Water Supply Board v. Malachowski, 624 A.2d 305, 309 (R.I.1993):

"Even though we may reverse, affirm, or remand orders of the commission, we afford `great deference to decisions of the Public Utilities Commission in its rate-making regulatory capacity.' * * * We do so because the Legislature has mandated that we cannot reverse an order of the commission unless it exceeded its authority or acted illegally, arbitrarily, or unreasonably. Section 39-5-3. In our review, a party challenging a rate that the commission approves must overcome the presumption that the commission's conclusions are reasonable unless shown otherwise by clear and convincing evidence."

In applying this standard to the issues before us, we note that in seeking to overturn a finding of the PUC, the city has a difficult burden to overcome.

Analysis

After a careful review of the record before us, we are satisfied that this case demonstrates a complete failure of proof by the PWSB and by the city as intervenor (and the real party in interest). We note at the outset, that the PUC found that an extrapolation of retiree health-care costs, based on a dubious mathematical formula, is insufficient proof of those costs as a matter of law. We reject the city's contention that the statute regulating ratemaking for public utilities provides for an extrapolation of costs.

The city argues to this Court that the prohibition against retroactive ratemaking does not apply to the rate filing at issue in this...