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Massachusetts Electric Co. v. Department of Public Utilities

Supreme Judicial Court of Massachusetts, Suffolk

September 4, 2014

Massachusetts Electric Company [1] & another [2]
Department of Public Utilities. NSTAR Electric Company
Department of Public Utilities. Western Massachusetts Electric Company
Department of Public Utilities

Argued April 7, 2014.

Page 554

Editorial Note:

This opinion is subject to formal revision before publication in the Massachusetts reporter.

Civil actions commenced in the Supreme Judicial Court for the county of Suffolk on December 28, 2012.

The cases were reported by Spina, J.

Robert J. Keegan ( Cheryl M. Kimball with him) for NSTAR Electric Company & another.

David S. Rosenzweig ( Erika J. Hafner & Michael J. Koehler with him) for Massachusetts Electric Company & another.

Christopher K. Barry-Smith, Assistant Attorney General, for Department of Public Utilities.

Present: Ireland, C.J., Spina, Cordy, Botsford, Gants, Duffly, & Lenk, JJ.[3]


[15 N.E.3d 180] Gants, J.

Three utility companies (utilities) challenge orders entered against them by the Department of Public Utilities (department) that impose monetary penalties for failing to " restore service to [their] customers in a safe and reasonably prompt manner," in violation of 220 Code Mass. Regs. § 19.03(3) (2010), after electrical outages arising from Tropical Storm Irene (Irene) on August 28, 2011, and a snowstorm two months later on October 29 (October snowstorm). The utilities -- Massachusetts Electric Company and Nantucket Electric Company, each doing business as National Grid (collectively, National Grid); NSTAR Electric Company (NSTAR); and Western Massachusetts Electric

Page 555

Company (WMEC) -- claim on appeal that (1) the department made an error of law in failing to apply the prudence standard when assessing the utilities' storm performances; (2) the department's findings were not supported by substantial evidence; and (3) the department's penalty calculations lacked the necessary subsidiary findings and constituted an abuse of discretion.

We affirm in part and reverse in part. We conclude that the department applied the appropriate reasonableness standard in finding that the utilities violated their duty to restore service in a safe and reasonably prompt manner. We also conclude that the department's over-all findings regarding National Grid and WMEC were supported by substantial evidence, as were its findings regarding the deficiencies of NSTAR's communication with municipal officials and the general public, but that its finding that NSTAR failed timely to respond to priority two and three wires-down calls was not supported by substantial evidence. We, therefore, vacate the penalties the department imposed on NSTAR that were based in part on this unsubstantiated finding, and remand to the department for the imposition of penalties that reflect the more limited scope of its factually supported findings on this subject. Finally, as to the remaining penalties, we conclude that the department made the necessary subsidiary findings and, with two exceptions, did not abuse its discretion in its imposition of monetary penalties. As to those exceptions, we reverse and vacate the monetary penalties imposed against National Grid for its damage assessment performance during the last two days of the Irene restoration period and for its acquisition and deployment of resources during the last two days of the October snowstorm restoration period, because there was not substantial evidence supporting a violation on those days.


1. Statutory background.

The department is tasked with the " general supervision of all... electric companies," G. L. c. 164, § 76, and, consistent with that authority, has evaluated utilities' performance in restoring power during and after major storms for at least the last three decades. See, e.g., Fitchburg Gas & Elec. Light Co., D.P.U. 09-01-A (2009) [15 N.E.3d 181] (Unitil); Eastern Edison Co., D.P.U. 85-232 (1986). In fulfilling its oversight responsibilities, the department has long declared that Massachusetts utilities have an obligation to restore service in a safe and timely manner when electric service has been disrupted by a major storm. See, e.g., Unitil, supra (2008 winter storm); Western Mass. Elec. Co., D.P.U. 95-86 (1995) (severe wind storm);

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Eastern Edison Co., supra (Hurricane Gloria). After a December, 2008, winter storm in which all of Fitchburg Gas and Electric Light Company's customers lost power, some for up to two weeks, the department reviewed the utility's response and concluded that the utility's poor performance in restoring service to customers in an effective and timely manner warranted monetary penalties, but noted that it lacked the power to impose them. Unitil, supra at 20, 91, 181.

That changed on November 12, 2009, just ten days after the issuance of the Unitil decision, when the Legislature enacted an " Act Relative to Public Utility Companies," St. 2009, c. 133 (act). The act directed the department to " promulgate rules and regulations to establish standards of acceptable performance for emergency preparation and restoration of service for electric... companies doing business in the commonwealth," and provided that the department " shall levy a penalty" against any company found to have violated those standards. G. L. c. 164, § 1J. The department was authorized to impose a penalty of up to $250,000 per violation per day, provided that the total for " any related series of violations" did not exceed $20 million. Id. The act also required utility companies annually to submit emergency response plans (ERPs), subject to the department's review and approval, " designed for the reasonably prompt restoration of service in the case of an emergency event." [4] G. L. c. 164, § 85B. The ERPs were required to include the following:[5] (1) the names of " management staff responsible for company operations during an emergency" ; (2) " a communications system with customers during an emergency extended beyond normal business hours and conditions" ; (3) contact with those who have a medical need " for essential electricity," including but not limited to elderly and physically disabled individuals; (4) designation of staff assigned to communicate with local officials and relevant regulatory agencies; (5) provisions designed to ensure the safety of a company's employees and contractors; (6) " procedures for deploying com-

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pany and mutual aid crews to work assignment areas" ; and (7) identification of and procedures for obtaining " additional supplies and equipment needed during an emergency." G. L. c. 164, § 85B ( a ) (1)-(7), inserted by St. 2009, c. 133, § 5.[6] See 220 Code Mass. Regs. § 19.05(1), (3) (2010).

[15 N.E.3d 182] After passage of the act, the department promulgated regulations providing performance standards for emergency preparation, restoration of service, and reporting. 220 Code Mass. Regs. § 19.03 (2010). Section 19.03(2) establishes a utility company's duty to prepare for an emergency event: " Each Company shall ensure that it is adequately and sufficiently prepared to restore service to its customers in a safe and reasonably prompt manner during an Emergency Event." Section 19.03(3) establishes a utility company's duty to restore service during an emergency event:

" Each Company shall restore service to its customers in a safe and reasonably prompt manner during all Service Interruptions and outages. During an Emergency Event, this shall include at a minimum, but not be limited to, implementing all applicable components of the Company's ERP related to restoration of service."

The department may open an investigation into a utility company's performance during an emergency event on its own initiative or at the request of the Attorney General or an affected municipality. 220 Code Mass. Regs. § 19.05(1) (2010). Where the department finds that a company violated any of these performance standards, it may impose a penalty within the parameters set forth in G. L. c. 164, § 1J.[7]

2. Factual background.

On August 28, 2011, Irene hit the New England area. At least four inches of rain fell on the region, with wind gusts reaching sixty-seven miles per hour. NSTAR customers experienced widespread power outages through September 2; National Grid customers suffered such outages through

Page 558

September 3. Two months after Irene, an October snowstorm dropped one foot of snow throughout much of the Commonwealth and up to thirty-two inches in western Massachusetts. As with Irene, the snowstorm resulted in widespread outages beginning on October 29 and lasting until November 3 for NSTAR customers and November 6 for National Grid and WMEC customers.

The department opened separate investigations regarding the performance of each of these three utility companies, with the investigation of NSTAR and National Grid focused on both Irene and the October snowstorm, and the investigation of WMEC focused solely on the October snowstorm. The department's investigations included dozens of records requests, submission of written testimony by various witnesses, sixteen public hearings throughout the utilities' territories, and several days of evidentiary hearings. On December 11, 2012, the department issued its decisions (orders) in each of the proceedings, rejecting the majority of the Attorney General's allegations but finding that each of these three utilities had -- to varying degrees -- violated its obligation to " restore service to its customers in a safe and reasonably prompt manner" during these emergency events, in violation of 220 Code Mass. Regs. § 19.03 (3).

For these violations, the department levied a penalty of $18.725 million against National Grid, $4.075 million against NSTAR, and $2 million against WMEC. The utilities each filed an appeal in the county court pursuant to G. L. c. 25, § 5.[8] A single justice reserved and reported the [15 N.E.3d 183] cases to the full court, and they were joined for oral argument.


Our standard of review when considering an appeal pursuant to G. L. c. 25, ยง 5, is " well settled" :

" [A] petition that raises no constitutional questions requires us to review the department's finding to determine only whether there is an error of law.... The burden of proof is on the appealing party to show that the order appealed from is invalid, and we have observed that this burden is heavy.... Moreover, we give deference to the department's expertise and experience in areas where the Legislature has delegated to it decision-making authority, pursuant to G. L. c. 30A, § 14. We shall uphold [the department's] decision

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unless it is based on an error of law, unsupported by substantial evidence, unwarranted by facts found on the record as submitted, arbitrary and capricious, an abuse of discretion, or otherwise not in accordance with law. G. L. c. 30A, § 14 (7)."

Bay State Gas Co. v. Department of Pub. Utils., 459 Mass. 807, 813-814, 947 N.E.2d 1077 (2011), quoting DSCI Corp. v. Department of Telecomm. & Energy, 449 Mass. 597, 603, 870 N.E.2d 1096 (2007).

1. Prudence versus reasonableness standard.

We first address the utilities' contention that the department erred as a matter of law in failing to apply the proper standard in its evaluation of each company's storm performances. The utilities argue that the department should have applied the prudence standard; the department contends that it appropriately applied the regulatory standard of whether the utility restored service to its customers " in a safe and reasonably prompt manner," which we shall characterize as a reasonableness standard.

Under the prudence standard, " the department determines whether a utility's actions, based on all that it knew or should have known at the time, were reasonable and prudent in light of the circumstances which then existed." Fitchburg Gas & Elec. Light Co. v. Department of Pub. Utils., 460 Mass. 800, 802-803, 956 N.E.2d 213 (2011). Although this sounds like a reasonableness standard, it differs from the reasonableness standard applied by the department in two fundamental ways.

First, under the prudence standard, it is not " appropriate for the department merely to substitute its own judgment for the judgments made by the management of the utility." Id. at 803. See Attorney Gen. v. Department of Pub. Utils., 390 Mass. 208, 229, 455 N.E.2d 414 (1983) (" On the issue of prudence, the department had no authority to substitute its judgment for the reasonably exercised prerogatives of [the utility's] business managers" ). The reasonableness standard applied by the department does not grant such deference to the judgment of utility management.

Second, a utility satisfies the prudence standard where it acts in conformance with " fair and prevailing utility practice." See Boston Gas Co. v.Department of Pub. Utils., 359 Mass. 292, 301, 269 N.E.2d 248 (1971). Under the reasonableness standard, a practice followed by every utility may still be unreasonable where it fails adequately to restore service following a storm in a ...

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