Feb. 11, 2011
Southern Union Company v. Department of Public Utilities
Docket No. SJC-10683
Supreme Judicial Court
Gas Company, Department of Public Utilities, Rate Setting, Contracts.
Southern Union Company, doing business as New England Gas Company (company) appeals from an order of the Department of Public Utilities (department) that denied their request to recover an earnings sharing adjustment under a rate settlement agreement that was made with the Attorney General and the Low-Income Energy Affordability Network. The SJC determined that the settlement agreement let the company recover the earnings sharing adjustment. As such, this was reversed and remanded to a single justice with instructions.
Facts
The company distributes natural gas to customers in six communities. In 2006, they were experiencing revenue deficiency. They filed with the department a notice of intent to submit a rate case under G.L. c. 164, § 94, to obtain an increase in its distribution base rates by $7.8 million annually, starting in 2007. Instead of doing that, they entered into a proposed settlement agreement with the Attorney General (AG) and the Low-Income Energy Affordability Network. The agreement let the company increase its annual base rates by $4.2 million between 2007 and 2009. It also prohibited the company from seeking any further rate adjustment except in certain circumstances, which were outlined in § 2.10 and § 2.11 of the agreement. These refer to return on equity (ROE) for distribution service.
Despite the company’s rate increase, by 2008 it was still in a serious financial trouble. The company reported that its ROE for 2007 was -7.54% and invoked § 2.11 of the agreement in order to file a new prospective base rate increase. While that motion was pending, the company also filed a § 2.10 petition, seeking a one-time, retrospective earnings sharing rate adjustment to recover an earnings deficiency for 2007. This would have raised their negative ROE to positive 8%.
The AG intervened in the second petition pursuant to G.L. c. 12, § 11E(a), saying that no explicit language in the agreement allowed the company to file both petitions simultaneously. Also, she argued that allowing them to recover under § 2.10 for a loss in 2007 would violate the rule against retroactive ratemaking that is found in Fitchburg Gas $ Elec. Light Co. v. Department of Telecomm. & Energy, 40 Mass. 625, 637 (2004). Finally, she said that allowing recovery under both provisions would violate the prohibition in the agreement against recovering double costs. She said these were duplicative efforts to achieve a permanent increase to base rates.
The company claimed that the agreement “clearly and unambiguously” allowed recovery under both § 2.10 and § 2.11, as they operated independently of each other. Furthermore, § 2.10’s recovery was not retroactive ratemaking because it was authorized by the department in approving the settlement, and because the recovery of pasts costs was authorized in other circumstances. Also, in regard to recovering double costs, the company said this was not in violation of the agreement because the amounts sought were not the same costs.
In 2009, the department issued two orders: 1.) granting the company’s request under § 2.11 for a base rate increase (but not for as much as they requested), and 2.) denying the company’s request under § 2.10 for an earnings sharing adjustment of $4.1 million. The company appealed the second order.
Issue 1: What was the appropriate standard of review?
The Legislature has granted the department authority to approve settlement agreements of this sort. The Supreme Judicial Court concluded that the department erred in this instance by denying the company’s request to recover an earnings sharing agreement.
Issue 2: How should the settlement agreement have been interpreted?
The company argued that the language of § 2.10 and § 2.11 showed that they could recover under both. The Court agreed with this theory. Because the words in the agreement were singular rather than plural, and because they referred to the recovery of a deficiency that occurred in a single prior year, the Court concluded that § 2.10 allowed the company to recover a one-time, discrete amount for an individual past year rather than a recurring amount on a permanent basis. Conversely, § 2.11 allowed the company to pursue a permanent, ongoing rate increase during the two-year term of the settlement. Neither section referred to the other and they were therefore not duplicative.
The Court disagreed with the department that, by using 2007 as a test year for its request for a base rate increase under § 2.11, the company was precluded from recovering a share of its losses actually incurred in 2007 under § 2.10. Since the recovery that the company sought under § 2.10 was not recoverable under a prospective base rate case, under § 2.11, the recoveries under both provisions were not duplicative. Furthermore, allowing the company to recover under § 2.10 was not retroactive ratemaking. A retroactive adjustment to a cost of gas adjustment clause was not an adjustment to the base rate subject to the requirements of G.L. c. 164, § 94.
Also, allowing the company to recover under § 2.10 would not allow it to earn a higher return on its investment than was reasonable in the public interest. The agreement was consistent with applicable law and public interest. Therefore, the settlement agreement unambiguously granted the company the right to recover under both provisions and the department’s ruling was reversed. However, the method of recovery was not clarified under § 2.10, and so that was best dealt with by a single justice who ordered the department to address that on remand.
Judgment reversed and remanded.
–Prepared by JWK.
