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06/30/78 FITCHBURG GAS AND ELECTRIC LIGHT COMPANY

June 30, 1978

FITCHBURG GAS AND ELECTRIC LIGHT COMPANY
v.
DEPARTMENT OF PUBLIC UTILITIES



Suffolk. Civil action commenced in the Supreme Judicial Court for the county of Suffolk on September 15, 1977. The case was reported by Kaplan, J.

Hennessey, C.j., Braucher, Kaplan, Wilkins, & Liacos, JJ.

SYLLABUS BY THE COURT

Public Utilities, Rate base costs. Practice, Civil, Review of order of department of public utilities. Due Process of Law, Public utilities.

The opinion of the court was delivered by: Braucher

In a rate proceeding respecting a utility company, exclusion of the unamortized portion of retired property from rate base was justified and did not have a confiscatory effect. [574-577]

In a rate setting proceeding, a decision of the Department of Public Utilities to exclude from rate base as unused and unuseful to ratepayers an electric generating plant kept on standby for emergency service was made with fair notice to the company and was supported by substantial evidence. [578-583]

In a rate setting proceeding a decision of the Department of Public Utilities to normalize an allowed amortization expense on an electric generating plant which was to be retired by approximating future tax benefits associated with the retirement, was unsupported by the evidence. [583-584]

Where in a rate proceeding there was undisputed evidence that a utility company paid its property tax on a fixed base pursuant to a tax case settlement and that the tax would not be reduced by the retirement of a generating plant, the Department of Public Utilities erred in adjusting the company's property tax expense by an amount allocated to the plant. [584-585]

Where a rate setting proceeding respecting a utility company was to be remanded to the Department of Public Utilities for other reasons, this court afforded the company an opportunity on remand to supply a reasonable estimate of what portion of a figure asserted by the company in the proceeding to represent the expense of operating a particular plant to be retired would not in fact be saved by the retirement. [585]

In a rate setting proceeding, a decision of the Department of Public Utilities to calculate the company's short-term debt at a level equal to an average of short-term debt during the test year and to take full account of the company's long-term debt, incurred toward the end of the test year but continuing during the future period for which rates were being set, was reasonable and supported by substantial evidence. [585-586]

In a rate setting proceeding the Department of Public Utilities did not err in ordering that certain property retired by the company be given "abnormal" abandoned property treatment and that the company bring its books into conformity with the decision beginning with the test year where the order merely implemented the department's decision in a prior rate case and was not retroactive. [586-587]

The Fitchburg Gas and Electric Light Company (Company) asserts that the Department of Public Utilities (Department), in regulating its rates, has improperly excluded from the rate base an electric generating unit known as Unit 6, and that the Department's order is confiscatory. In February, 1977, the Company sought $2,795,000 in increased annual electric revenues and $838,000 in increased annual gas revenues. Effective August 31, 1977, the Department allowed increases designed to produce $1,060,185 in additional annual electric revenues and $553,734 in additional annual gas revenues. A single Justice of this court granted a stay, pending our decision and subject to refund, permitting further increases designed to produce $472,831 additional annual revenues.

We now reject the Company's claim of confiscation and uphold the exclusion of Unit 6 from the rate base. We also find no error in the Department's calculation of the Company's projected debt or in the Department's order that certain retired property be given abnormal abandoned property treatment. But we hold that the Department erred in calculating expense saving from the retirement of Unit 6 and in treating the amortization expense of the retirement as a tax deduction. The case is to be remanded to the Department. The stay is to remain in force pending final decision by the Department.

1. History of the litigation. The issues in this case arise in part out of two prior cases. In D.P.U. 18031-A (July 15, 1975), the Company had retired certain property and the Department excluded that property from the Company's rate base. The Company appealed to this court, and argued that the Department's policy of excluding the unamortized portion of abandoned property from rate base was erroneous. The Company further argued that even if the Department's policy was legal in general, it was illegal when applied to the Company in that case since it had the effect of producing an effective rate of return which was confiscatory or otherwise illegal. We rejected both arguments, but we noted that the Company could reopen the issue of the adequacy of its effective rate of return by filing a new rate application. Fitchburg Gas & Elec. Light Co. v. Department of Pub. Utils., 371 Mass. 881, 889 & n.15, 890 (1977) (Fitchburg I).

In D.P.U. 18296 and 18297 (December 31, 1975), the Department found that a prima facie case had been made that an electric generating unit owned by the Company, known as Unit 6, was "excess capacity, the elimination of which may be made without significant effect on service to customers." The Department stated, "If the Company is convinced that retention of the plant is in the best interests of its customers, it should be prepared in its next rate case to present a detailed economic justification for its continuation in service." The Company appealed the Department's decision but subsequently abandoned the appeal.

In the present case (D.P.U. 19084, August 31, 1977), the Company was unable to convince the Department that the retention of Unit 6 was justified. It was also unable to convince the Department to include in rate base either the unamortized portion of Unit 6 or the unamortized portions of the Company's other retired properties. The Company now brings an appeal to us pursuant to G. L. c. 25, § 5, and seeks to relitigate the issue of the adequacy of its effective rate of return. It also argues that the exclusion of Unit 6, and certain other decisions by the Department, are not supported by substantial evidence.

2. Confiscation. In general, review of a decision by the Department is governed by G. L. c. 30A, § 14 (7). The Company, however, is claiming that the Department's decision has resulted in confiscation. "So far as unconstitutional confiscation is claimed, the Company is entitled to an independent judicial review as to both law and fact; . . . ." New England Tel. & Tel. Co. v. Department of Pub. Utils., 371 Mass. 67, 71 (1976).

We rule elsewhere in this opinion that the Department's decisions excluding Unit 6 from the rate base, projecting the Company's debt at a level higher than the Company argued for, and giving certain retired property abnormal abandoned property treatment, are supported by substantial evidence. The Company argues that it is entitled to independent judicial review of those decisions, since, if wrongly decided, they might result in confiscation. We disagree. As we have indicated in prior decisions, we review such Department findings, though subsidiary to a confiscation claim, only to determine whether they are supported by substantial evidence and otherwise meet the standards of G. L. c. 30A, § 14 (7). See Boston Edison Co. v. Department of Pub. Utils., ante, 1, 9-11, 17 (1978) (Boston Edison); Fitchburg I, supra at 885 n.7. Cf. Zussman v. Rent Control Bd. of Brookline, 371 Mass. 632, 642 (1976) (Wilkins, J., Concurring).

The Company does not contest the Department's choice of 13% as its rate of return on common stock. Nor does it challenge the Department's general policy of excluding unamortized abandoned property from the rate base. But it argues that the effect of excluding from rate base the unamortized portion of Unit 6 and the unamortized portions of certain other retired properties, together with several other asserted errors by the Department, is a confiscatory effective rate of return. The Company argues that, in contrast to its allowed rate of return on common stock of 13%, its effective rate of return will be only 7.2%. The Company computes the "effective rate of return" on a base of "common stock" as of December ...


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