Western Massachusetts Electric Co. v. Department of Public Utilities
Court: Massachusetts Supreme Judicial Court; August 25, 1977; Massachusetts; State Supreme Court
Appeals were filed regarding decisions by the Department of Public Utilities (DPU) related to Western Massachusetts Electric Company's (WMECo) fuel cost charges. WMECo challenged a DPU decision that disapproved its proposed fuel charge for July 1976, which the DPU found non-compliant with G. L. c. 164, § 94G. Conversely, the Attorney General appealed two DPU approvals of WMECo's fuel charges for March and April 1976, based on the same non-compliant procedure. The DPU decided not to retroactively adjust the earlier charges, citing a lack of substantial customer prejudice, which was deemed a proper exercise of discretion.
In August 1974, WMECo filed for a fuel expense adjustment clause, effective September 16, 1974, to calculate fuel charges based on monthly fuel expenses divided by net kilowatt hours supplied, with specific exclusions for costs related to new nuclear units. This was irrelevant until January 1976, when the Millstone Unit No. 2 nuclear plant, in which WMECo held a 19% share, began operations. The exclusion became significant during the calculation of the March 1976 fuel charge, as excluding the lower-cost nuclear fuel would have resulted in a lower charge for customers.
Following a public hearing on the March 1976 charge, the Attorney General contested the fuel adjustment clause's legality under G. L. c. 164, § 94G. The DPU approved the March fuel factor on a tentative basis, reserving the right for further review and indicating that any adjustments would be reflected in the April fuel factor, with a final decision on March's charge pending further investigation.
The department faced uncertainty regarding whether the company’s fuel expense adjustment clause complied with G. L. c. 164, § 94G. Following two public hearings, on March 31, 1976, the department authorized the company to impose fuel charges for April 1976, while reserving the right to reassess the charge in future periods. The Attorney General appealed this decision. On July 13, 1976, the department issued a decision concerning the company’s July fuel charge, determining that excluding costs associated with Millstone #2 was non-compliant with G. L. c. 164, § 94G, and ordered the company to recalculate its July fuel factor to include these costs. The company appealed this decision, and the Attorney General intervened. The company argued that the department erred in its conclusion about the fuel expense adjustment clause, asserting that it was justified in collecting revenues to offset its investment in Millstone #2. The company acknowledged that the revenue from the fuel charges exceeded its fuel costs, but the department ultimately ruled that using a fuel charge for capacity cost recovery was inappropriate, stating that such costs should be recouped through base rates established in rate cases. The department asserted that § 94G does not allow fuel charges to cover costs unrelated to fuel, emphasizing that fuel charges must be uniformly billed per kilowatt-hour and must reflect all fuel costs incurred in electricity generation.
St. 1974, c. 625, § 1, establishes that electric companies are prohibited from using fuel charges to recover costs unrelated to fuel, as outlined in § 94G. This section mandates that only actual fuel costs can be included in fuel charge calculations, which must be allocated to customers based on their energy usage. The electric company in question violated this provision by excluding kilowatt hours from Millstone #2 and improperly categorizing non-fuel expenses as fuel costs, leading to a misrepresentation of its fuel costs.
The company contends that it is inequitable for the regulatory department to alter its position on the fuel expense adjustment clause after previously approving it. However, the department's earlier approvals lacked practical significance when Millstone #2 was not operational. Once the exclusionary language became relevant in March 1976, the department expressed doubts regarding the company's fuel factor, granting only tentative approval. By July 1976, the department's stance was clarified, and the company had no reasonable basis to rely on earlier decisions.
The dispute centers on a legal interpretation of § 94G rather than administrative discretion, and the company's claims of inadequate reasoning and lack of substantial evidence supporting the department's decision are unfounded. The essential facts were undisputed, and the department's rationale for disapproving the company's fuel expense adjustment clause was adequately demonstrated.
The Attorney General's appeal concerning the company's fuel charges for March and April 1976 was examined. It was determined that these charges were not calculated per G. L. c. 164, § 94G, but this alone does not warrant reversing the department's decisions or requiring refunds. The department, in its discretion, chose not to retroactively adjust the fuel charges even after deeming the fuel expense adjustment clause unlawful in July 1976. The department argued that its decision was a significant change in position intended to protect the parties' interests, asserting that the company should have received sufficient warning to adapt to the new legal environment.
The Attorney General failed to demonstrate that the company received illegitimate revenues; it was shown only that revenues from Millstone #2 were improperly collected as fuel charges. For an administrative agency's decision based on a legal error to be overturned, it must be shown that substantial rights were prejudiced, which was not the case here as no harm to customers was evidenced.
The appeal's merits were found lacking, rendering the timeliness of the company's motion to dismiss the Attorney General's appeal regarding the March 1, 1976 decision unnecessary to address. The March 1 decision lacked finality until the March 31 decision, which also required further consideration. The final resolution came with the July 13, 1976 decision.
Ultimately, the department's decisions are affirmed, the company's motion to dismiss the appeal from DPU 18129-R is denied, and any adjustments to the company’s fuel factors for July 1976 and beyond will be supervised by the department, which may decide against refunds to customers if higher rates were approved after May 11, 1976.
Statute 1974, c. 625, § 4 establishes that any existing fuel charge on the effective date of the act will remain in effect for sixty days or until a new charge is approved by the department of public utilities, whichever occurs first. Fuel clauses filed had effective dates based on electricity consumption as measured by meter readings after the effective date. The fuel charge must be adjusted for the company's delivery efficiency, calculated as the ratio of KWH sales and use in 1973 to net KWH supplied that year.
In January 1976, power was provided to customers from Millstone #2, incurring associated fuel expenses; however, the company’s investment in this unit was not included in the rate base. Conversely, for Millstone Unit #1, the investment was included in the rates, allowing its fuel expenses and KWH generation to factor into the March 1976 fuel charge calculation. This distinction is relevant to the Attorney General's appeal regarding the timeliness of the department's decision on the March 1976 fuel charge.
The department had authorized the continued application of the fuel expense adjustment clause for May and June 1976, and these determinations were not appealed. In May 1976, the company filed a general rate revision to recover carrying charges for Millstone #2, suggesting the prior appeals may no longer affect the calculation of the fuel charge.
Section 94G allows the department to approve itemized fuel charges in rates filed by electric companies to reflect fuel and power cost adjustments. All fossil fuel costs must be included in this charge, billed at a uniform rate per kilowatt-hour. The uniform fuel rate is determined by dividing the total fuel cost for a billing period by the total KWH used by customers. The department will only authorize rates that include all fuel costs and will establish regulations for the consistent calculation and billing of fuel charges by electric companies.
The department may incorporate additional factors into uniform fuel charge calculations only after a public hearing and formal written opinion, with an annual review of the calculation method. For bimonthly billing, the fuel charge is calculated using the average rates for the two months multiplied by total kilowatt-hours used. Electric companies must file monthly reports, and the department can mandate rebates if billed fuel charges exceed actual fuel costs. A public hearing and department approval are required before billing a fuel charge. The Attorney General contends that all fuel costs and energy consumption should be included in calculating fuel charges per § 94G, which originally required the inclusion of “any and all fuel.” However, the term "fossil" was added in legislative amendments, leading to ambiguity about the scope of § 94G. The department's interpretation may differ from the minimum requirements of the statute. The company has not contested the finality of the department’s decision regarding the appeal process. If the company's rate filing was not suspended, it would need to reflect the operational consequences of Millstone #2 in its July 1976 fuel factor calculations.
