Opinion ID: 2310685
Heading Depth: 2
Heading Rank: 1

Heading: Prudence

Text: To determine whether the 1994 rate case has any preclusive effect, we examine the prudency issues separately from the used-and-useful issue and apply the five elements of collateral estoppel to each issue, beginning with those related to prudency. First, it is undisputed that the first element is met because CVPS is asserting collateral estoppel against a party  that is, the Department  who was a party in the prior action. [3] The Department has not argued otherwise. The second element requires that the same issue was raised in the earlier proceeding. This element is complicated because, here, the Department claims, through its expert witness, that CVPS acted imprudently in eleven different ways. The witness stated in prefiled testimony that some of the allegedly imprudent actions occurred during the period from 1986 to 1990, while CVPS was negotiating the contract, on its own behalf and then for the Vermont Joint Owners, and then seeking approval for the contract from the Board. It is clear that none of these imprudency theories were solicited by the Board in 1994, and none were presented by the Department. Thus, CVPS has not established this element for these theories. [4] The remainder of the imprudency theories advanced by the Department involve the period in 1991 leading up to the decision to lock in the contract, and the lock-in decision itself. The Board addressed this period in the 1994 rate case. Nevertheless, the Board concluded that the prudency issues raised by the Department in this case are different from those presented in the 1994 case because, in the 1994 case: (1) the Department ultimately decided not to litigate the issue of whether the Company's entry into and management of the Contract (including its decision to lock in the Contract) were prudent; and (2) instead, the Department presented the issue of whether CVPS mismanaged its entire power supply portfolio. We conclude that the Board's first distinction is inaccurate, and the second, although more accurate, is irrelevant. First, we note that, in the 1994 case, the Board ordered the parties to specifically address whether the lock-in decision was prudent. Thus, the parties were not at liberty to ultimately decide not to litigate the issue, as the Board states in its 1998 decision. CVPS had the burden of proof in establishing that the lock-in decision was prudent. See In re Green Mountain Power Corp., 147 Vt. 509, 519, 519 A.2d 595, 601 (1986) (utility has burden of showing prudence of its decisions). [5] It vigorously and thoroughly addressed the issue raised by the Board. Insofar as the evidence submitted to the Board was insufficient to establish the prudence of the lock-in, the conclusion that must be drawn is that the decision to lock in was imprudent. See Coalition of Cities for Affordable Utility Rates v. Public Utility Comm'n, 798 S.W.2d 560, 563-64 (Tex.1990) (utility has burden of proving prudence of expenditure and is not entitled to second trial to present more evidence where it fails to meet burden). The Board states, however, that the Department elected not to present testimony either challenging the prudence of the Company's decision to lock in the Contract or supporting that decision. (Emphasis added.) The record shows otherwise. As set out above, the Department presented the testimony of Dr. Rosen who stated that he could not conclude that the lock-in decision was prudent, and that CVPS was imprudent in not documenting its decision-making process in the summer of 1991. Dr. Rosen's testimony supported a conclusion that CVPS was imprudent, and the Department argued for this conclusion. When we compare the testimony that the Department is prepared to offer in this case with the testimony it presented in 1994, we see that it intends to present a more thorough, aggressive and detailed case than it did in 1994. Indeed, there is an indication that, in the 1994 case, the Board was frustrated with the quality of the Department's presentation, [6] and the Board did not accept the main part of Dr. Rosen's testimony dealing with the usefulness of the HQ power at the contract price. In applying issue preclusion, however, the question is whether an issue was litigated in the past, not whether it was litigated well. The record shows that the issue of the prudency of CVPS's action in evaluating its options in 1991 and locking into the HQ contract was litigated in 1994. The Board also concluded that the issue presented in 1994 was different because the Department contested the prudency of the management of all of CVPS's power resources. Thus, the Department argues here that the Board did not decide that CVPS's actions leading to its decision to lock into the HQ contract were imprudent, but rather decided that CVPS had a pattern of mismanaging its overall power supply portfolio. We agree that the Department submitted evidence on CVPS's overall management of its power supply portfolio, and the Board made general conclusions concerning that management. The Board made clear, however, that the most significant CVPS action, and the one with the greatest impact on rates, was its decision to lock in the HQ contract early. Thus, the Board directed the parties to submit specific evidence on the prudency of that action, and the parties did so. [7] The Department's responsive testimony was that of Dr. Rosen, and he stated I will only address the [Board's] questions with reference to the Company's decision to acquire the Hydro-Quebec contract, since that is the only major resource to be initially acquired since 1989. If CVPS were arguing that the 1994 decision was preclusive with respect to a power source other than HQ, we would understand the Department's argument. In 1994, however, the Board was focused primarily on the HQ power, and Dr. Rosen's testimony on prudence addressed only the HQ lock-in decision. Under these circumstances, the presence of other resource management issues is largely irrelevant to whether CVPS has established the second element of collateral estoppel. We hold that it has established this element as to the prudency of actions it took leading up to the decision to lock into the contract, and the prudency of its lock-in decision. The third element requires that the issue actually litigated was resolved by a final judgment on the merits. Much of our discussion above applies to this element. The conclusion reached by the Board  that the prudence of CVPS's decision to lock into the HQ contract cannot be established due to the absence of any detailed economic analysis of the alternatives to the contract during the six-month period prior to the lock-in  is the same conclusion that the Department urged the Board to reach based on the testimony of Dr. Rosen. In fact, the Board went further and concluded that CVPS's actions leading to and including the early lock-in decision were integral parts of the pattern of mismanagement by CVPS. Thus, it found that the evidence demonstrated CVPS's significant failures and errors of judgment in power-cost management decisions between April and October 1991, including, first and foremost [t]he decision to prematurely lock in the HQ Contract before considering all possible alternative strategies for managing the Contract and potential return sales. The historical facts concerning the early lock-in decision, the lack of analysis and documentation in the months preceding the August 1991 lock-in decision, and the prudence of CVPS's actions and decisions in this regard were litigated and resolved by the Board in the 1994 rate case. The Board's decision in the 1994 rate case became a final judgment on the merits when neither party appealed it to this Court. Nevertheless, relying on Zingher v. Department of Aging & Disabilities, 163 Vt. 566, 664 A.2d 256 (1995), the Department argues that the Board's decision was not final on these issues because the Board reserved the right to reconsider the issues in future proceedings. In Zingher, we held that an administrative decision was not final, and therefore did not have preclusive effect, because the plain language of the order left open the possibility of later review. See id. at 571, 664 A.2d at 258 (petitioner's request should be denied at the present time because petitioner has yet to show that services are necessary to his obtaining employment). Here, we need not decide whether the Board has the authority to reserve the right to retry an issue where there has been a failure of evidence because there is no such reservation in the Board's decision in the 1994 rate case. Cf. Coalition of Cities, 798 S.W.2d at 564 (concluding that public utility commission does not have authority to reserve right to rehear prudence issue in subsequent proceeding where utility failed to present sufficient evidence to prove prudence). Contrary to the Department's contention, statements by the Board in decisions issued prior to the 1994 rate case indicating that the prudence of the HQ lock-in would be decided in a future rate case do not support the contention that the 1994 rate case did not decide that issue. Related to the third element of a final judgment on the merits is the requirement that the issues be necessary to the previous decision. Our review of the record in the 1994 rate case indicates that resolution of the HQ prudence issues was necessary to the Board's decision in determining the appropriate penalty to impose against CVPS for excessive power costs. Despite the Department's request for a disallowance of HQ power costs, and the Board's determination that CVPS was imprudent in failing to do adequate analysis before locking into the contract, the Board rejected any disallowance of costs, imposing instead a 75-basis-point reduction in return on equity. Based on the detailed decision of the Board, we have no doubt that it considered carefully the events during the six months prior to the lock-in and the lock-in decision in determining the appropriate penalty. The fourth and fifth elements of collateral estoppel  whether there was a full and fair opportunity to litigate the prudence issues in the 1994 rate case, and whether it is fair to apply preclusion here  are generally considered together. Among the factors to consider are the choice of forum, the incentive to litigate, the foreseeability of future litigation, the legal standards and burdens in each action, the procedural opportunities of each forum, and the possibility of inconsistent determinations. See Trepanier v. Getting Organized, Inc., 155 Vt. 259, 265, 583 A.2d 583, 587 (1990). The party opposing application of collateral estoppel has the burden of showing that circumstances make it appropriate for an issue to be relitigated. See id. at 265-66, 583 A.2d at 587-88. We conclude that there was a full and fair opportunity to litigate the prudence issues related to the lock-in in the 1994 rate case. Both the prior and instant actions were brought by CVPS in the same forum to increase its rates; thus, the standards, burdens and procedures, as well as the incentive to litigate were all the same. The Department has not shown that it was deprived of an adequate day in court. Accordingly, it is fair to apply preclusion here to prevent repetitious litigation of the same issues. See id. at 266, 583 A.2d at 588 (critical inquiry is whether party to be bound had full and fair opportunity to contest issue resolved in earlier action so that it is fair to refuse relitigation of same issue); see also Berlin Convalescent Ctr., 159 Vt. at 60, 615 A.2d at 145-46 (we balance desire not to deprive litigant of adequate day in court against desire to prevent repetitious litigation). The Department argues that it is not fair to apply collateral estoppel here for several reasons, but notably does not assert that it was denied a full and fair opportunity to litigate the prudence issues in the previous rate case. Instead, the Department contends that the application of collateral estoppel: (1) will turn each rate case into an expensive, unworkable litigated proceeding because it will prevent later litigation of any issue that could have been litigated; (2) will significantly undermine the Board's authority to protect the public and ensure that ratepayers bear only just and reasonable costs; and (3) will result in ratepayers bearing all the substantial above-market costs associated with the HQ contract. Consequently, the Department contends that the interests in finality underlying the doctrine of collateral estoppel are outweighed by the public policy concerns involved in regulating a monopoly and the serious harm to the public that will result by applying it here. We briefly outline our disagreement with the Department's arguments. First, we are dealing here only with issue preclusion. Thus, the Department's concern that preclusive effect may flow from everything that could have been litigated in 1994 is misguided. Second, our earlier decisions to apply issue preclusion in rate cases mean that we have concluded that expensive and time-consuming relitigation of contested issues is in the interest of neither the public nor the utilities. The same finality that benefits the utility investors can serve the interests of consumers who know that if a utility is once denied relief because of its failure to prove its case, it may not return repeatedly on the same facts until the [Board] yields. Coalition of Cities, 798 S.W.2d at 565. Moreover, finality of decisions also conserves the resources of the administrative tribunal. Finally, we recognize that the financial impact on ratepayers of the cost of the HQ contract is much greater in 1998 than in 1994 because CVPS is obligated to buy a greater quantity of power in later years under the contract. Nevertheless, the Department was fully aware in 1994 of the purchase terms of the contract and their likely impact on future rates. Indeed, the life-cycle analysis the Department presented in 1994 demonstrated that impact dramatically. Moreover, the Board's 1994 order offers at least some protections for ratepayers, as explained infra. We cannot conclude that it is unfair to apply collateral estoppel on the prudency of CVPS's decision to lock into the HQ contract. Consequently, we agree with CVPS that collateral estoppel applies to the Board's 1994 decision on the prudency of the lock-in decision. On the other hand, we disagree with CVPS's position that the Board is also collaterally estopped by the 1994 decision from declaring any further consequences to CVPS. As the Department emphasizes, the Board found CVPS's actions imprudent, not prudent. Some of the confusion on this point results from the Board's decision to label its 75-basis-point reduction of CVPS's rate of return as a penalty, which CVPS argues in turn must be a one-time reduction. We emphasized in the very recent case of In re Citizens Utilities Co. that the purpose of a rate-of-return reduction is not to penalize a company for specific acts of misconduct, but rather to set reasonable rates in cases where the consumers are not being adequately served `due to inefficiency or improvidence or other like reasons.' ___ Vt. ___, ___, 769 A.2d 19, 26 (2000) (quoting In re New England Tel. & Tel. Co., 115 Vt. 494, 513, 66 A.2d 135, 147 (1949)). Consistent with that purpose, the Board in the 1994 rate case imposed the reduction in rate of return to remain in place until the Company demonstrates, through tangible results, that it has eliminated the excessive power costs imposed on customers by ineffective and improvident management decisions, or that it is on a reasonable and equitable path towards doing so. Irrespective of the Board's label, the rate-of-return reduction  based in part on the imprudence it found  may remain in force as long as CVPS's service is being impaired as a result of the high price of its power. In sum, although the Department cannot relitigate the question of CVPS's prudency in making the lock-in decision, the Board may continue the reduction to CVPS's rate of return based on the imprudency it has already found and the failure of CVPS to eliminate the effect of that imprudency on its rates. The Board specifically addressed this point in its 1998 decision. It held that, even if it is required to give preclusive effect to the 1994 decision, it can continue the reduction to CVPS's rate of return. In fact, the Board concluded that it can increase the reduction in future cases: If the Company fails to correct these problems [of excessive costs], the Board plainly retains jurisdiction to impose a different remedy to ensure that ratepayers do not bear the financial burden alone. The remedies imposed in [the 1994 rate case] may be adjusted over time, as costs and conditions change, as a matter of fairness to both the utility and its ratepayers. . . . . [T]he appropriate remedy in the earlier docket may no longer be reasonable in light of the new facts and changed Contract power costs. It is difficult to understand how increased power costs could be used by the Company to justify its request for a rate increase, but could not be used by the Department as a basis for requesting a modification in the remedies that partially protect the ratepayers from excessive power costs. The Company obviously believes that the Board retains jurisdiction to raise rates in response to the changing Contract costs. Collateral estoppel is not a bar to consideration of a different remedy based upon higher power costs included in this rate case. Although CVPS attacks this holding in general terms, we believe it is premature to determine whether collateral estoppel precludes the Board from adopting a modified or increased rate-of-return reduction in this case for the imprudency it found in 1994. At this point, we can only speculate on what basis the Board may act, and the nature and extent of the reduction it might adopt. Thus, we leave this issue, if it becomes real, to review of the final judgment of the Board should such review be sought.