Court Opinion

ID: 9530746
Source: CourtListenerOpinion
Date Created: 2023-08-07 04:03:10.082137+00
Date Added: 2024-06-11T13:28:14.070760
License: Public Domain

Liacos, J.
(dissenting). The impact of the court’s decision in this case is to make the ratepayers of Boston Edison Company the guarantors of business decisions in which neither they nor the Department of Public Utilities (department) had a voice. The court upholds a split decision of the three commissioners of the department and, thus, requires ratepayers to pay, over a period of years as part of their cost of service, for a project from which they have received no benefit or service whatsoever.
Many years ago, this court recognized the reason for public regulation of utility rates, saying “we have adopted, *235in this State, legislative regulation and control as our reliance against the evil effects of monopoly.” Weld v. Gas & Elec. Light Comm’r, 197 Mass. 556, 558 (1908). General Laws c. 164, § 76, enacted by St. 1885, c. 314, § 8, and amended by St. 1982, c. 120, § 6, states: “The department shall have the general supervision of all gas and electric companies and shall make all necessary examination and inquiries and keep itself informed as to the condition of the respective properties owned by such corporations and the manner in which they are conducted with reference to the safety and convenience of the public” (emphasis supplied). The requirements of G. L. c. 164,, § 94, as amended through St. 1973, c. 816, § 3, that gas and electric companies file proposed rate schedules with the department, and giving the department the power to “investigate the propriety of any proposed rate, price or charge” is part of a complicated statutory and regulatory scheme designed to ensure to the public the availability of service at reasonable cost from private industry protected from the risk of competition. See Boston v. Edison Elec. Illuminating Co., 242 Mass. 305, 309 (1922). The decision of the department, affirmed by the court today, turns these basic principles on their head. Under this decision, it is not the public who are protected; rather, the consuming public is required to rescue the utility from the effect of its mistakes, even though the consumers bear no responsibility for the company’s mistakes and derive no benefit from its acts. I cannot join in such a decision. I would hold that the department, in the circumstances of this case, committed an error in law in permitting Edison to recover its investment in Pilgrim II. See G. L. c. 30A, § 14 (7). Accordingly, I dissent. I state a few additional reasons to support my position.
1. Commissioner Selgrade’s participation. One can agree with the court that the propriety of Commissioner Selgrade’s participation in the proceedings below was not raised in a timely fashion, and yet conclude that this circumstance should be considered in reviewing the department’s decision.
*236As the body charged with reviewing the decisions of the department, we are not bound by the particular terms of G. L. c. 268A, § 23 (3), as appearing in St. 1982, c. 612, § 14, in considering the propriety of a Commissioner’s participation in a proceeding.1 Cf. Selectmen of Barnstable v. Alcoholic Beverages Control Comm’n, 373 Mass. 708, 710-714 (1977). It is well established that rules considering the disqualification of judges are equally applicable to administrative agencies. See Anstey v. Iowa State Commerce Comm’n, 292 N.W.2d 380, 390 (Iowa 1980); Chicago, Milwaukee, St. Paul, & Pac. R.R. v. Washington State Human Rights Comm’n, 87 Wash. 2d 802, 807 (1976), and cases cited. An appropriate source of guidance for us is Canon 3 of the Code of Judicial Conduct, S.J.C. Rule 3:09, as appearing in 382 Mass. 808 (1981). See Anstey v. Iowa State Commerce Comm’n, supra. This canon provides, in relevant part: “(C) Disqualification. (1) A judge should disqualify himself in a proceeding in which his impartiality might reasonably be questioned, including but not limited to instances where: ...(b) he served as a lawyer in the matter of controversy. ...” Plainly, Commissioner Belgrade is a lawyer who served in the matter in controversy. Signing a brief on behalf of an executive department as an employee of that department is sufficient involvement in the controversy to warrant disqualification. See Laird v. Tatum, 409 U.S. 824, 828-829 (1972) (memorandum of Rehnquist, J.); TWA v. CAB, 254 F.2d 90, 91 (D.C. Cir. 1958). Further, the language of the rule is broad and denotes an intention to expand its application beyond the formal confines of a “case” in a court of law. Realistically, this proceeding (D.P.U. 908) and the earlier proceeding (D.P.U. 19494), constitute a single matter of controversy. The subject matter of the controversy is Pilgrim II and who *237should pay for it. The department recognized as much in the earlier proceeding, when it placed the burden of proof on the company to demonstrate the prudence of Pilgrim II because “the Company will ultimately seek to pass on the costs of Pilgrim II to its customers in a future rate case.” Nothing could make the point clearer than the degree to which the order entered in D.P.U. 19494 settled issues which otherwise would have been, or were,2 open in this proceeding (D.P.U. 906). Thus, Commissioner Belgrade could properly have participated in these proceedings only under a rule of necessity. See ante at 216.
Given this circumstance, I believe that we have a duty to subject the department’s decision to special scrutiny, since Commissioner Selgrade cast the deciding vote in favor of permitting recovery. We are essentially in the position of a court reviewing an administrative decision made by an officer who, while admittedly biased, decided the matter under the rule of necessity. In such a case, “the reviewing court . . . may and probably should review with special intensity.” 3 K.C. Davis, Administrative Law § 19.9, at 405 (1980). See Board of Educ., Laurel Special School Dist. v. Shockley, 52 Del. 277, 279-280 (1959); Fanwood v. Rocco, 33 N.J. 404, 417-418 (1960); Connelly v. Jersey City Hous. Auth., 63 N.J. Super. 424, 429 (1960); Rinaldi v. Mongiello, 7 N.J. Super. 410, 412 (1949); Wisconsin Tel. Co. v. Public Serv. Comm’n, 232 Wis. 274, 329, cert. denied, 309 U.S. 657 (1939); McCormack, The Purpose of Due Process: Fair Hearing or Vehicle for Judicial Review?, 52 Tex. L. Rev. 1257, 1261-1262 (1974); Comment, Administrative Bias: *238An Update, 82 Dick. L. Rev. 671, 690 (1978). Cf. Hornsby v. Dobard, 291 F.2d 483 (5th Cir. 1961). Such scrutiny is especially appropriate where the matter, as here, implicates a broad public interest.
2. Abandonment of Pilgrim II. Under G. L. c. 164, § 94, the primary responsibility for reviewing rate schedules filed by a public utility lies with the department. Yet our review is not limited to determining whether the department committed constitutional error. We must also review the department’s decisions for each of the errors enumerated in G. L. c. 30A, § 14 (7). See, e.g., Massachusetts Elec. Co. v. Department of Pub. Utils., 376 Mass. 294, 302-303 (1978); Boston Edison Co. v. Department of Pub. Utils., 375 Mass. 1, 9, cert. denied, 439 U.S. 921 (1978); Southbridge Water Supply Co. v. Department of Pub. Utils., 368 Mass. 300, 308 (1975); New England Tel. & Tel. Co. v. Department of Pub. Utils., 360 Mass. 443, 449 (1971). Thus, wholly apart from our duty to review a decision of the department for constitutional error and for the other errors enumerated in G. L. c. 30A, § 14 (7),3 we must also determine if the decision is based on an error of law. G. L. c. 30A, § 14 (7) (c).
While it may be said that we will not find an error of law lightly, we have not embraced a stance which permits the department to commit errors as long as they do not violate the Constitution or a separate, specific statutory provision other than G. L. c. 30A, § 14 (7) (c). Southbridge Water Supply Co. v. Department of Pub. Utils., supra at 305-309. See Mystic Valley Gas Co. v. Department of Pub. Utils., 359 Mass. 420, 432-434 (1971). Such is the clear import of our holding in the Southbridge Water Supply Co. case. There, the company, because of the effect of attrition on its rate base, challenged the department’s refusal to apply a year-end rather than a year-average rate base. We assumed *239that the department’s refusal did not result in confiscation, see Southbridge Water Supply Co., supra at 305, and conceded “that the use of a year-end rate base is not the exclusive antidote for the effect of attrition,” id. at 308. We also noted that the department had consistently used a year-average rate base, id. at 307, and that the department’s practice had been approved by this court, id. at 307-308.4 We held, however, that the department’s refusal to use the year-end rate base, in the circumstances presented, constituted an error of law, id. at 305, and ordered the department to modify its decision, id. at 310.
Southbridge Water Supply Co. v. Department of Pub. Utils., supra, stands for the proposition that we are under a duty to review a decision of the department to determine if an error of law has occurred.5 It also stands for the proposition that the mere fact that the department possessed general authority to take an action does not end our inquiry, and that the application of even a previously accepted rule may constitute an error of law. We have applied these propositions to reach results favorable to utilities; evenhandedness would suggest that we are bound to apply them in cases where the department’s decision is challenged by other parties.
*240I turn now to consider whether the department committed an error of law by permitting Edison to recover the cost of Pilgrim II.6 Edison wishes essentially to turn a past loss, caused by the decisions of its own business managers, into a cost of service. See Office of Consumers’ Counsel v. Public Utils. Comm’n, 67 Ohio St. 2d 153, 166 (1981), appeal dismissed sub nom. Cleveland Elec. Illuminating Co. v. Office of Consumers’ Counsel, 455 U.S. 914 (1982). Its claim runs into two primary objections. First, and most significant, Pilgrim II never rendered any service, and, as it stands on this record, never will. It is established law that property must be currently used and useful to the ratepayers if it is .to be included in the rate base. Boston Edison Co. v. Department of Pub. Utils., 375 Mass. 1, 21 (1978). Thus, land held for future use, id., and the cost of physical plants under construction, New England Tel. & Tel. Co. v. Department of Pub. Utils., supra at 454-458, are excluded from the rate base. Similarly, as a general matter, ratepayers are not to be charged for losses arising out of activities from which they did not benefit. 1 A.J.G. Priest, Public Utility Regulation 65 (1969). Cf. Pacific Power & Light Co., Util. L. Rep. (CCH) par. 23,924, at 56,071 (Mont. Pub. Serv. Comm’n 1983). Second, permitting recovery can be attacked as a form of retroactive ratemaking, cf. Office of Consumers’ Counsel v. Public Utils. Comm’n, 67 Ohio St. 2d 153 (1981), which the department lacks general *241authorization to impose. Boston Edison Co. v. Department of Pub. Utils., supra at 6. Newton v. Department of Pub. Utils., 367 Mass. 667, 679-680 (1975). The department appeared to recognize these objections, but states that this case requires “unique rules.”
The circumstances surrounding Pilgrim II, however, do not suggest that a unique rule, imposing the loss on the consumers, should be adopted. Of primary importance is the fact that the decision to allocate the funds of Boston Edison’s investors in Pilgrim II was made, without encouragement from the department, by Edison’s business managers. Edison waged a long and successful battle to retain control over Pilgrim II. The sole expression of regulatory support for the project, the department’s decision in D.P.U. 19494, came two days before Edison cancelled the project. Our decision in Plymouth County Nuclear Information Comm., Inc. v. Energy Facilities Siting Council, 374 Mass. 236 (1978), had the effect of leaving to Edison the decisions whether to add physical plants, and how to do so. Had the decisions of Edison’s managers proved sound, Edison would have been entitled to receive a fair return on its investment. This opportunity to earn a fair return on a sound investment is all that a utility is entitled to receive. “[Pjublic utilities are not. ‘guaranteed’ either a fair rate of return, or any return whatever, on their investment” (emphasis in original). 2 A.J.G. Priest, Public Utility Regulation 788 (1969). See FPC v. Sierra Pac. Power Co., 350 U.S. 348, 354-355 (1956); Missouri ex rel. Southwestern Bell Tel. Co. v. Public Serv. Commn, 262 U.S. 276, 290-291 (1923) (Brandeis, J., dissenting).
The finding that management’s decision was not imprudent should not, in and of itself, shift the risk of loss to the ratepayers. This follows because the standard of prudence is devoid of content. Since the department is not permitted to substitute its judgment for the judgment of Edison’s business managers, see ante at 229, it is only in the extreme instance of mismanagement that the department has authority to find imprudence. In contrast, investors are entitled *242to subject management’s decisions to whatever degree of scrutiny they please. Since it is the shareholders, through the management'they have selected for Edison, who determine which projects should be pursued, they should be required to bear the loss resulting from Pilgrim II’s cancellation.7
The department’s reasons for permitting recovery are neither adequate nor internally consistent. On one hand, recovery is said to be necessary to compensate investors for a “new” level of risk caused by the cancellation of Pilgrim II. On the other hand, recovery is said to be necessary because rates in the past did not reflect the risk of cancellation. Neither argument is sound. It is doubtful that Edison has not been compensated for the risk of cancellation. It was entitled to a return which compensated it for the risks, including the risk of a plant cancellation, inherent in the nature of the enterprise. See FPC v. Hope Natural Gas Co., 320 U.S. 591, 603 (1944); Bluefield Water Works & Improvement Co. v. Public Serv. Comm’n, 262 U.S. 679, 692-693 (1923). Rather, the risk then being small, the amount of compensation was not great. Now that Pilgrim II has been cancelled, the “risk” is not new; all that is new is the extent of the loss.8
The department also argued that recovery should be allowed because Edison is not entitled to receive speculative returns on its investments. But a public utility is not supposed to make speculative investments that would justify speculative returns. The department’s finding concerning prudence and the financeability of Pilgrim II, turns in large measure on subsidiary findings that the project did not pre*243sent speculative risks. Its argument is therefore irrelevant in the circumstances of this case.
For the reasons stated above, I would hold that the department committed an error of law in permitting Edison to recover its investment in Pilgrim II. I need not consider whether I would reach the same conclusion if the decision below were untainted, or if the department or some other governmental body had taken a greater role, see G. L. c. 164, §§ 69H-69R, in the process which led to the decision to proceed with Pilgrim II.
I believe it is appropriate to comment briefly on the magnitude of the loss and the financeability of Pilgrim II. The court notes, as did the department, that the loss would equal “approximately] two-thirds of Edison’s entire net worth, more than 25 % of its permanently invested capital, and more than earnings retained and reinvested over its eighty-six year history.” Ante at 219. If this statement accurately reflects the magnitude of the loss, it becomes difficult to accept the department’s conclusion that the project was financeable.9 Such was the dissenting view of Commissioner Sprague. Commissioner Sprague also noted that the amount of the net loss to Edison will be significantly reduced by the amount of tax benefits it will receive (from $278.3 million to $162.3 million). He then noted that Edison had retained earnings of $152 million as of December 31, 1981, and that it paid out $39.5 million in dividends to its common shareholders. He then calculated that the loss could be eliminated immediately by using retained earnings and by omitting one quarterly dividend. He also noted *244that, if the loss were amortized over a period of years, Edison would not have to miss any dividends or use all of its retained earnings. In such circumstances, I fail to see how the court can justify the department’s extraordinary rescue of a regulated company from the consequences of its own mistakes. I dissent.

 The State Ethics Commission’s ruling considered only whether Commissioner Belgrade's participation would violate G. L. c. 268A, and specifically disclaimed an intention to pass on the issue of bias. We should therefore not place too much weight on the Commission’s ruling, especially since we need not resolve any issue under G. L. c. 268A.

 The logic of the department’s order also illustrates the point. With the question of the economic reasonableness of Pilgrim II settled in D.P.U. 19494, the primary factual issue before the department in this proceeding was whether Pilgrim II was financeable. We find out, however, that the project was financeable because the company, in the court’s words, had a “reasonable expectation that the department’s decision in D.P.U. 19494 would be favorable.” Ante at 230. Whether or not the result in D.P.U. 19494 preordained Edison’s recovery of the costs of Pilgrim II, it is very clear that D.P.U. 19494 made recovery a much more likely result.

 Those errors each provide a separate basis of review of the department’s decision. Massachusetts Elec. Co. v. Department of Pub. Utils., 376 Mass. 294, 302-308 (1978).

 Under the view adopted by the majority in this case, we would have been bound, in Southbridge Water Supply Co. v. Department of Pub. Utils., 368 Mass. 300, 308 (1975), to accept the department’s choice as to the method used to calculate the rate base, regardless of what we thought common sense dictated.

 In Mystic Valley Gas Co. v. Department of Pub. Utils., 359 Mass. 420 (1971), we also imposed a rule of law upon the department. While the companies claimed that the department’s decision constituted confiscation, see id. at 424, the court made no such determination, but simply announced that the company was entitled to have the rate calculated in a certain manner, id. at 432-434. We have not interpreted Mystic Valley Gas Co. v. Department of Pub. Utils., supra, as imposing a constitutional rule; rather we have reviewed a claim under the case as presenting an error of law. Massachusetts Elec. Co. v. Department of Pub. Utils., 376 Mass. 294, 303 (1978). And see Fitchburg Gas & Elec. Light Co. v. Department of Pub. Utils., 375 Mass. 571, 584-585 (1978), where we reversed an aspect of the department’s decision based arguably on an error of law. The department’s authority is not unlimited. See Newton v. Department of Pub. Utils., 367 Mass. 667, 679-680 (1975).

 The question whether a public utility can recover the cost of a generating plant cancelled before completion is an open one. The only State court to squarely address the issue has held that recovery is not permitted. Office of Consumers’ Counsel v. Public Utils. Comm’n, 67 Ohio St. 2d 153, 166 (1981), appeal dismissed sub nom. Cleveland Elec. Illuminating Co. v. Office of Consumers’ Counsel, 455 U.S. 914 (1982). A majority of the agencies regulating public utilities have permitted recovery, see supra at 224-227, but a substantial minority have denied recovery. E.g., Pacific Power & Light Co., Util. L. Rep. (CCH) par. 23,974 (Mont. Pub. Serv. Comm’n 1983) (noting patent unfairness of allocating loss to ratepayers). Several decisions permitting recovery have been accompanied by strong dissents. See, e.g., Rochester Gas & Elec. Co., No. 82-1, Case No. 27794 (N.Y. Pub. Serv. Comm’n January 13, 1982) (Mead, Comm’r, dissenting).

 Since the ratepayers never received any service from Pilgrim II, there is no room for the practical compromise we approved of in Fitchburg Gas & Elec. Light Co. v. Department of Pub. Utils., 371 Mass. 881, 883 (1975), concerning prematurely abandoned property.

 It cannot be denied that there is a strong public interest in maintaining the financial integrity of a public utility. But that interest does not suggest that the department should provide Edison with a guaranty against loss. Such an approach will do little to encourage prudent management and shareholder oversight.

 The theory of regulatory support adopted by the department and the court is patently erroneous. Edison did not have a reasonable expectation of regulatory support until the department issued its decision in D.P.U. 19494. Further, even if it can be said that it did, that expectation could not have arisen prior to the closing of the record in D.P.U. 19494 in February, 1980. Since Edison’s actions were found to be prudent only until June 30,1980, any expectation Edison possessed is relevant only to determining whether Pilgrim II was financeable in the period between February and June, 1980.