April 14, 2014:- An unsettling decision emerged from the Massachusetts Supreme Judicial Court (SJC) today. For readers who prefer executive agencies to stick to executing the law rather than making fundamental policy, the decision will come as rather a disappointment. The case involved the question of regulatory takings and its name is Fitchburg Gas & Electric Company v. Department of Public Utilities, No. SJC-11397. In this decision the seven justices of the SJC interpreted a statute one way, and then granted the enforcing agency the right to interpret the same statute in exactly the opposite manner. Appropriately, the statute in question had its origins in the confusion and finger-pointing that followed a natural disaster.
After the storms of 2011, the consensus among state lawmakers was that the response of the utilities had been somewhat desultory. So in 2012 the Massachusetts Legislature enacted a statute establishing the Storm Trust Fund to help the Department of Public Utilities (DPU) examine the power companies’ storm preparedness. The law required all electric utilities to pay for the Fund via an annual assessment.
But, readers may wonder, as rational economic actors with a duty to their shareholders, would not the utilities simply pass on the cost of the assessment to the consumers? Ah, the Legislature thought of that. In order to prevent that very outcome it crafted section 18, para. 3, prohibiting the utilities from seeking “recovery of any assessments in any rate proceeding before the department.” Five electric companies sued on the basis that, among other things, the law amounted to a regulatory taking. The result was today’s decision from the SJC upholding the law.
A quick reminder: Did the Legislature intend to give the utility companies leeway to pass the cost of the assessment on the consumers? No, because (as the court explained) the Legislature’s intent was to raise funds to “investigate public utilities’ storm preparedness and responsiveness” and require the companies to “absorb the costs associated with achieving these purposes.” So the DPU must prohibit the utilities from effectively recouping that cost, correct? No. The DPU can interpret the statute in a way that permits the utilities to do exactly that.
Yes, you read that correctly.
Here is how the court summarized its decision: “[T]he Legislature may… prohibit the companies from including the assessment as a direct cost in a rate proceeding… However, even when such an assessment is properly excluded from the rate base, the department must permit the utilities to achieve a fair and reasonable rate of return on their investment, in accord with our constitutional mandates… What constitutes a reasonable return is a fact-specific inquiry that must be made in the context of a particular rate proceeding.”
The court held that although the DPU could interpret the statute to prevent a utility from claiming the assessment as part of its rate base, the DPU could — on the other hand — “offset the impact of the assessment through the allowance of a higher rate of return.” In footnote 4 the court observed, “It appears that the [DPU]… has not settled on an interpretation of the statutory language.”
Because the industry is such a highly regulated one the case is, in some respects, quite complex. But in one regard it is reasonably clear: An executive agency may interpret a statute in a way that contradicts what the SJC has determined to have been the clear intent of Legislature in enacting it. If you can call that reasonably clear.
Peter Vickery, Esq., 