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

Heading: Use and Usefulness

Text: We now consider whether the Board is precluded by collateral estoppel from reducing the amount of HQ power costs that CVPS can recover in its rates if the Board concludes that the high price of that power makes it nonuseful in part. Generally, the arguments of the parties and our reasoning on this issue follow our analysis of issue preclusion on the prudency of the lock-in decision, although the nature of the issue may require a different result. On the first element, again, estoppel is asserted against the Department, which was a party in the prior action. We have set out above the Board's conclusion in the 1994 rate case. According to the prefiled testimony of its expert witness on the economics of the contract, the position of the Department in this case is: (1) the HQ power purchased by CVPS is used, but not economically useful, because it will cost $126 million dollars more than market value of the power over the term of the contract; (2) the Board's policy, as expressed in a number of decisions, is to share uneconomic costs between ratepayers and stockholders; (3) that policy is fair and efficient; and (4) the appropriate remedy is to share excess costs between ratepayers and shareholders. The witness distinguished his testimony from that of Dr. Rosen because Rosen's testimony differed from the Board's traditional method for addressing resources that are not used and useful; applied the used and useful test ... at any time during the life of a prudently-acquired asset; and applied the test to CVPS's resource portfolio as a whole, not just the HQ power. In its 1998 order on preclusion, the Board accepted these differences. It found that the Department presented a novel theory in 1994, that the theory covered all of CVPS's resources and not just the HQ power, and that the theory allowed exclusion of costs if at any point in time the life-cycle cost of the power exceeded market value. On the second element of collateral estoppel, identity of issues, we find no real differences between the issue litigated in 1994 and that presented in this case. In 1994, Dr. Rosen characterized his position as fully consistent with traditional rate-making theory, although he cited out-of-state, rather than Vermont, cases in support of his theory. Thus, we do not find the Department's current theory that the above-market costs of HQ power are nonuseful any more or less novel than Dr. Rosen's position in 1994. [8] In any event, we find the point to be insignificant. We are dealing here with labels rather than substance. The Department cannot escape the application of collateral estoppel by labeling the same argument as novel in one case and traditional in another. The question for us is whether the arguments were the same. We believe that the Department's position in 1994 was essentially the same as its position today. Putting aside for the moment what power sources are covered by the position, the only difference suggested is that Dr. Rosen testified that the Board could compare the total cost of a power resource to market costs at any point in time, and the current witness argues that the Board should make such a comparison only at key times in the life of a resource. We have looked carefully at the testimony of Dr. Rosen, as well as that of the Department's current witness, and cannot conclude that the timing of comparison is a significant difference. In 1994, Dr. Rosen gave testimony in response to the Board's questions, and the timing of the comparison of costs to determine whether power resources were useful did not come up in his initial testimony. CVPS witnesses attacked the testimony arguing, among other things, that predictions of future cost comparisons would vary depending upon when the predictions were made. Dr. Rosen answered that the CVPS witnesses raised a legitimate concern; specifically, he suggested that the degree to which each supply resource is useful could be reviewed in general rate-cases when warranted. Although the Board described Dr. Rosen as proposing that the comparison be done at any time, the question of timing played no part in the Board's decision as set forth above. We do not view the current Department witness as proposing anything significantly different from Dr. Rosen. His testimony argues that the comparison should be made at key times and states that this is a key time because CVPS is requesting that new costs be put into rates. Of course, the request that the costs be put into rates has generated a rate case, exactly when Dr. Rosen recommended that the comparison be made. To the extent there is a difference between the Department's position now and that in 1994, it is inconsequential. Finally, as with the prudency issue, the Department argues that collateral estoppel cannot apply because the 1994 rate case dealt with all of CVPS's power resources, and this case deals only with HQ power. In 1994, Dr. Rosen did propose that the cost of all of CVPS's power sources be compared with predicted market costs for the same power, and that any predicted excess costs be split between the ratepayers and CVPS stockholders. Nonetheless, he itemized the excess costs by source so that the Board had a specific excess cost prediction for HQ power. As expected, HQ costs constituted a large percentage of the predicted excess costs. Again, the Department's argument would be more understandable if it were claiming that the resolution of this case had a preclusive effect on litigation in the broader inquiry in the 1994 rate case. We fail to see how the Department can avoid collateral estoppel from the 1994 case by claiming that it litigated more issues in that case than it is seeking to litigate here. The whole point of collateral estoppel is that preclusive effect is determined on an issue by issue basis. The exact issue that the Department seeks to litigate here was litigated in 1994, albeit with others. We also conclude that the third element of collateral estoppel  that the issue was actually litigated and resolved in a final judgment  is met with respect to the usefulness of the HQ power. As we set out above, ___ Vt. at ___, 769 A.2d at 675-76, in 1994, the Board clearly rejected the Department's argument that the excess cost of the HQ power purchased by CVPS made it nonuseful, so CVPS was not entitled to recover all its costs in rates. That determination was necessary to its decision to allow the full cost of the HQ power to be reflected in rates. The Department argues that the Board did not render a final judgment on the issue because it stated that it may employ a market-based approach in future cases. Thus, the Department argues, it is entitled to try to persuade the Board to employ the market-based approach in this case. In 1994, the Board rejected the proposition that it could revisit the issue  whether power costs were useful during the life of a purchase-power contract  once it had found that, at the time the contract was entered into, it had been prudent to enter into the contract and the power would be economically useful over its life. We agree that it left open the possibility that it might use a market-value approach in the future, and deny recovery of costs that exceed market value, but under very limited circumstances. It stated: As utility markets become more open and competitive, it may become increasingly possible and, in many cases, desirable to employ market-based tests to govern the utility's total return. There is no suggestion in the prefiled testimony, or the Department's brief, that utility markets have become more open and competitive since 1994. Thus, while the Department seeks to rely on the Board's openness to a policy shift, it makes no claim that the changed conditions that would underlie that shift are present. Indeed, we take judicial notice that, since 1994, various proposals have been made in the Legislature and to the Board to open electricity markets to retail competition, but none have been adopted. As far as we can determine, Vermont has essentially the same electric regulatory system as it had in 1994 and that system is based on regulation of electric service monopolies, not competition. Thus, we reject the Department's contention that the judgment of the Board was not final with respect to the usefulness of the HQ power at its above-market cost. For the reasons discussed above concerning prudence, we reject the Department's argument that the fourth and fifth elements of collateral estoppel are not met with respect to the usefulness of the HQ power. Although we do not accept the Department's arguments, there is a related reason to question the application of collateral estoppel to the issue of the usefulness of HQ power. The prudency question is one of historical fact. The usefulness issue is a question of law, or at least of utility regulation policy. Courts have often treated issues of law and fact differently for purposes of collateral estoppel. The Restatement (Second) of Judgments recognizes that collateral estoppel generally applies to issues of law, Restatement (Second) of Judgments § 27 (1982), but provides exceptions to the general rule when: (2) The issue is one of law and (a) the two actions involve claims that are substantially unrelated, or (b) a new determination is warranted in order to take account of an intervening change in the applicable legal context or otherwise to avoid inequitable administration of the laws[.] Id. § 28(2). In this case, the first part of the exception is inapplicable; this case and the 1994 rate case are related. The second prong of the exception is, however, arguably applicable. See Keystone Water Co. v. Pennsylvania Pub. Util. Comm'n, 81 Pa.Cmwlth. 312, 474 A.2d 368, 372 (1984) (collateral estoppel does not apply in rate case with respect to an issue on which the law was changed by a decision of the Pennsylvania Supreme Court). Indeed, it may have more force in administrative agency proceedings because [a]gencies need more freedom to change policies and meet new law enforcement exigencies. 1 C. Koch, Administrative Law and Practice § 6.63, at 512 (1985): see also Restatement (Second) of Judgments § 83 cmt. h (the exception for relitigation of issues of law has perhaps its most salient application in situations where issue preclusion is invoked against the government in adjudications before an administrative agency). We cannot fully determine the application of the second prong on the current record. We know that on February 27, 1998, the Board issued an order in the Green Mountain Power Corporation (GMP) rate case, which was joined with this case on appeal because of an overlap in the issues, but that case has now been settled. See In re Green Mountain Power Corp., No. 5983, 1998 WL 216535 (Vt.Pub. Serv.Bd. Feb. 27, 1998). That decision found the HQ power supplied under the VJO contract to GMP was nonuseful because of its excessive cost over its life in relation to other available sources. In reaching that decision, the Board attempted to distinguish its decision in the 1994 CVPS rate case, on the same grounds that we have found unpersuasive in this decision. Thus, we must view the 1998 GMP order as a decision to fundamentally change regulatory policy from that announced in 1994. The Board's preclusion decision in this case was announced one month after the GMP decision was issued. Apparently, because the Board characterized its GMP and CVPS decisions as consistent, the Department has never raised the GMP decision as relevant to the issue preclusion determination before us. In fact, the Board itself never mentioned the GMP decision as relevant to its preclusion decision. Thus, we have no analysis, either from the Board or from the Department, on why it would be fair or unfair to apply the same policy on the usefulness of excessively-costly purchased power to both of Vermont's largest utilities, GMP and CVPS. The matter is further complicated by the fact that the GMP rate case has now been settled on terms more favorable to GMP than the February 1998 decision reflects. We believe that the only prudent action for us to take is to remand this interlocutory appeal back to the Board to evaluate the application of collateral estoppel to the issue of the usefulness of the HQ power under § 28(2)(b) of the Restatement (Second) of Judgments in light of the new events. Either party may, of course, challenge the Board's evaluation of this question by review of the final rate determination in this Court.