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04/19/78 BOSTON EDISON COMPANY v. DEPARTMENT PUBLIC

April 19, 1978

BOSTON EDISON COMPANY
v.
DEPARTMENT OF PUBLIC UTILITIES



Suffolk. Five civil actions commenced in the Supreme Judicial Court for the county of Suffolk, two on October 20, 1975, and one on November 6, 1975, August 25, 1976, and September 10, 1976, respectively. The cases were reserved and reported by Kaplan, J.

Hennessey, C.j., Quirico, Braucher, Wilkins, & Abrams, JJ.

SYLLABUS BY THE COURT

Public Utilities, Regulation, Rate base. State Administrative Procedure Act. Jurisdiction, Public utilities. Practice, Civil, Review of order of department of public utilities, Intervention. Due Process of Law, Public utilities.

The opinion of the court was delivered by: Hennessey

Scope of judicial review of orders issued by the Department of Public Utilities in connection with rate setting proceedings. [9]

A rate of return of 13% on equity allowed an electric company by the Department of Public Utilities was not confiscatory nor did the department's adjustments to cost of service result in confiscation. [9-17]

In a rate setting proceeding the Department of Public Utilities did not err in declining to employ a year-end figure in calculating rate base and in using instead an adjusted year-average method. [18-19]

In a rate setting proceeding respecting an electric company, the company's failure to prove what portion, if any, of compensating balances, kept on deposit in various banks to ensure the availability of short-term credit, was used and useful to ratepayers during the test year warranted exclusion of the entire amount from the rate base by the Department of Public Utilities. [19-20]

In a rate setting proceeding respecting an electric company, the Department of Public Utilities did not err in excluding from the rate base the unamortized portion of a retired pollution control device. [20-21]

In a rate setting proceeding respecting an electric company, the Department of Public Utilities was warranted in excluding from the rate base as "plant held for future use" a parcel of land and a plant that had been retired in 1972 where the company introduced no plan for the use of either. [21-22]

In a rate setting proceeding respecting an electric company, a decision of the Department of Public Utilities to include in the rate base ninety days of working capital to cover a lag in the collection of revenues associated with fuel costs, rather than 105 days as proposed by the company, was supported by substantial evidence. [22-23]

Where the Department of Public Utilities adjusted an electric company's test-year expense and rate base figures to reflect the addition of a new plant which was in operation for only half of the test year, it could properly make a corresponding revenue adjustment to reflect a projected increase in revenues after the test year even though there was no causal connection between the new plant and the increased revenues. [23-24]

In the circumstances, a decision of the Department of Public Utilities in a rate setting proceeding to increase test-year revenues to account for the addition of a new plant during the test year in the same proportion that test-year additions to rate base resulting from the new plant bore to total test-year additions to rate base was supported by the record, and such a method sufficiently offset the effects of attrition. [24-30]

In a rate setting proceeding, the Department of Public Utilities erred in refusing to adjust cost of service to reflect an increase in post-test-year property tax rates for the company's property located in Boston where the record before the department contained a reasoned estimate of the post-test-year Boston property tax increase and the record on appeal showed the actual amount of the increase; the department did not err, however, in rejecting an adjustment purporting to estimate tax increases in municipalities other than Boston where the record before the department did not contain a reasoned estimate of those increases and the record on appeal contained no information as to increases actually made. [30-31]

In a rate setting proceeding respecting an electric company, the Department of Public Utilities did not err in adjusting an expense figure for "refueling outage" at a nuclear power plant, which was based on the theory that, ideally, an outage should occur every twelve months, to reflect the fact that the company's actual practice had been to schedule such an outage only every sixteen months. [32]

In a rate setting proceeding the Department of Public Utilities erred in disallowing as a cost-of-service item the tax expense on the company's allowance for funds used during construction accrued from 1960 to 1973, where the taxes had not been normalized and were payable during the test year even though subsequent to 1973 the department had allowed the Company to begin normalizing taxes on the debt portion of the allowance. [32-34]

The fact that in a rate setting proceeding the Department of Public Utilities had included the full cost of a plant under construction in the rate base when the utility company had acquired an allowance for funds used during construction of this plant in the test year did not warrant the department's refusal in a subsequent proceeding to make an adjustment in cost of service for taxes attributable to the allowance where such taxes had not been normalized and where the company had not accrued any allowance for construction of the plant after the rates set in the earlier proceeding went into effect. [34-35]

In a rate setting proceeding the Department of Public Utilities erred in disallowing as a cost-of-service item tax expense on the equity portion of the company's allowance for funds used during construction where the taxes had not been normalized and were payable during the test year. [35-38]

In a rate setting proceeding a decision of the Department of Public Utilities to calculate a utility company's income tax deduction for interest associated with short-term credit by calculating the interest on the year-average balance of short-term debt during the test year and to decline to adjust that figure for abnormal conditions was supported by substantial evidence. [38-39]

In a rate setting proceeding respecting a utility company, the Department of Public Utilities did not err in declining to adjust the test-year expense figures to allow the company a full year's depreciation on additions to plant in service made during the test year. [39]

In a rate setting proceeding before the Department of Public Utilities, an electric company was not entitled to a depreciation as part of its cost of service on easements acquired to construct transmission and distribution lines. [40]

The Department of Public Utilities erred in a rate setting proceeding respecting a utility company in disallowing as a cost of service item a contribution to an organization for the sole reason that the organization was no longer in existence. [40]

In a rate setting proceeding respecting a utility company, the Department of Public Utilities did not err in disallowing as a cost of service item a contribution to a lobbying organization [40-41]; nor did it err in disallowing as lobbying expenses an amount representing the difference between lobbying expense reported in a statement filed with the department and a higher figure previously reported to the Federal Power Commission [41].

In a rate setting proceeding respecting an electric company, evidence warranted a determination by the Department of Public Utilities that of $109,261 paid to the Massachusetts Electric and Gas Association, only $25,792 was paid for lobbying assistance. [41-42]

In a rate setting proceeding respecting a utility company, the Department of Public Utilities erred in allowing as an expense all but $17,194 of a total of $183,741 in salaries to employees who were paid in part for lobbying activities where there was no substantial evidence to support to the company's allocation of its employees' time. [42-43]

In a rate setting proceeding the Department of Public Utilities did not err in failing to deduct from cost of service the time spent by employees of an electric company in learning about a public power referendum. [43]

In a rate setting proceeding, the Department of Public Utilities properly adjusted a utility company's test-year property tax expense by subtracting property taxes allocable to plant held for future use. [43]

The Department of Public Utilities acted within the scope of its powers under G. L. c. 164 in ordering an electric company affirmatively to demonstrate in any future rate case that its operations are efficient. [43-44]

The Department of Public Utilities did not abuse its discretion in permitting two individuals, each representing only himself, to intervene in a rate setting proceeding respecting an electric company, despite unusually extensive participation by one of the individuals. [44-46]

A decision of the Department of Public Utilities to exempt the first 384 KWH of monthly residential usage from a rate increase granted to an electric company was within the regulatory authority of the department under G. L. c. 164, § 94, was supported by substantial evidence, and did not violate the constitutional rights of the company's industrial customers. [46-48]

There was no merit to an electric company's claim that it was entitled to recover from the Commonwealth damages resulting from the length of time it took the Department of Public Utilities to implement rate increases. [49]

These are five consolidated appeals from final decisions, orders, and rulings of the Department of Public Utilities (Department) in two separate rate proceedings involving Boston Edison Company (Company). In the first proceeding, D.P.U. 18200/18200-A (hereafter 18200/18200-A), the Department granted a rate increase based on 1974 as the test year. In the second, D.P.U. 18515 (hereafter 18515), the Department granted an increase based on 1975 as the test year. The appeals were filed in the Supreme Judicial Court for the county of Suffolk (county court) under G.L. c. 25, § 5. A single Justice ordered the appeals consolidated, and he reserved and reported them without decision to this court. He similarly reserved and reported the Company's motion for a stay, which the Company has renewed, and several motions to dismiss filed by the Department.

We consider first those issues relating to the more recent rate decision, 18515. In so doing, we dispose of two appeals -- filed by the Company and by an intervenor Stanley U. Robinson, III (Robinson), -- alleging various claims of confiscation and challenging the propriety of various adjustments to the Company's rate base and cost-of-service calculations. We next consider the three appeals challenging the Department's earlier decision in 18200/18200-A. These appeals were filed by Boston Edison, Robinson, and General Motors Corporation (General Motors), an intervenor in the proceedings below. Boston Edison and Robinson have limited their appeals in 18200/18200-A primarily to the issues also raised by General Motors, and these relate solely to rate structure. Specifically, the issues in 18200/18200-A concern the propriety of the Department's partially exempting certain residential customers from the rate increase. Finally, we consider two motions to dismiss, made in the county court, which were reported to us by the single Justice.

On May 11, 1977, shortly after oral argument on these appeals the full court ordered interim relief for the Company by way of a $6,619,000 cost-of-service adjustment to cover increased property taxes. *fn1 We find no error in the Department's decision in 18200/18200-A. We conclude that the Department's decision in 18515 was erroneous not only with respect to the property tax issue mentioned above but also with respect to certain lobbying expenses and the disallowed adjustment for "AFUDC not normalized." Some of these errors are in the Company's favor, and one goes in favor of the ratepayers.

We take notice of the Department's recent decision in D.P.U. 19300 (19300), granting Boston Edison additional rate relief based on 1976 figures. Although that decision moots a number of the issues involved in these appeals, we nevertheless reach the merits of all the issues before us. Wellesley College v. Attorney Gen., 313 Mass. 722, 731 (1943). See Potomac Elec. Power Co. v. Public Serv. Comm'n, 380 A.2d 126, 149 n.33 (D.C. Ct. App. 1977). We do so because the parties have fully briefed the issues, and because the questions raised are likely to arise again in the reasonably near future, evading judicial review again at that time. See Potomac Elec. Power Co. v. Public Serv. Comm'n, supra.

The net amount of items allowed and disallowed on appeal exceeds the amount of interim relief granted, but we conclude that a prospective rate adjustment is now impossible, since new rates have superseded those set in 18515, and since a rate increase may not be awarded retroactively as matter of law. See Newton v. Department of Pub. Utils., 367 Mass. 667, 679-680 (1975); New England Tel. & Tel. Co. v. Public Utils. Comm'n, 116 R.I. 356, 388 (1976). We further conclude that a refund to Boston Edison customers also is not in order at this time. See id. ; Fryer v. Department of Pub. Utils., 374 Mass. 685, 691 (1978). We remand the cases to the single Justice for the entry of judgment.

I. History of the Proceedings

On November 12, 1974, Boston Edison filed with the Department a proposed schedule of rates and charges designed to raise its 1975 revenues by about $70,000,000. The Department docketed this request as D.P.U. 18200 and held extensive public hearings. The Company had presented its direct case by May, 1975, but, because interested parties had intervened in the proceedings, it appeared that a final decision would be unlikely until September, 1975. The Company, therefore, filed a petition for interim rate relief requesting an immediate rate increase of $47,700,000, pending a final decision by the Department on its full request. The interim request was separately docketed as D.P.U. 18200-A but, on the Company's motion, the two proceedings were thereafter consolidated. The Department evaluated these rate proposals using calendar year 1974 as the test year, and on September 30, 1975, it issued a decision and order which, as subsequently amended, authorized new rate schedules designed to increase Boston Edison's annual revenues by $29,538,000. The appeals from that decision relate primarily to the problem of rate structure. The Department found that residential users as a class had not contributed significantly to the growth in peak load demand for electricity. Consequently, the Department exempted the first 384 kilowatt hours (KWH) of monthly residential usage from the general rate increase.

Two and one-half weeks after the Department's decision in 18200/18200-A, Boston Edison made a second rate filing seeking $49,500,000 in additional annual revenues. The Department docketed this case as D.P.U. 18515, and again numerous parties intervened in the proceedings. This time, using calendar year 1975 as the test year, the Department determined on August 12, 1976, that the Company was entitled to $10,960,000 in rate relief. The Company and intervenor Robinson -- who argues that the increase is too generous -- challenge that decision on numerous grounds relating to cost of service, rate base, and rate of return. The rate structure portion of 18515 is under advisement by the Department until the issues raised by the Company's request for increased revenues have been resolved. *fn2 In the meantime, the Department has permitted Boston Edison to collect a rate increase of $10,960,000 under the rate structure established in 18200/18200-A. Residential users remained exempt from the increase, to the extent of the first 384 KWH consumed each month, until the Department's superseding decision in 19300.

In connection with its motion for a stay in the county court, Boston Edison submitted two affidavits, one by Ralph M. Kelmon, the Company's treasurer (Kelmon affidavit), and the other by Robert D. Saunders, senior rate engineer in Boston Edison's rate research and forecasting department (Saunders affidavit). The Kelmon affidavit presented updated financial results for calendar year 1976 based on eight months' actual data and a four-month forecast. It also provided information with respect to the increase in the property tax rate in the city of Boston for the fiscal year that commenced on July 1, 1976. The Saunders affidavit presented updated information with respect to growth in 1976 sales over 1975 sales, also based on eight months' actual data and a four-month forecast.

When these consolidated appeals were reserved and reported by the single Justice to the full court, the two affidavits were included in the record on appeal, but "without prejudice to the rights of the parties to argue to the Full Court . . . the question of whether or not said evidence is relevant, material, necessary, or otherwise properly includible in the record on appeal." No evidentiary objections were made at oral argument by any party, and we have admitted both affidavits in order "to bring the proof as nearly as reasonably possible down to the date of final decision." Opinion of the Justices, 328 Mass. 679, 687 (1952). New England Tel. & Tel. Co. v. Department of Pub. Utils., 371 Mass. ...


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