# Appendix — Boston Edison Co. v. Department of Public Utilities > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_1534%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1978 - **Citation:** 439 U.S. 921 ## Text AUG 15 Jo79 MICHA EL In THE Supreme Court of the GQnited States OctosER TERM, 1978 oO er No. 78- 478 -259 BOSTON EDISON COMPANY, v. DEPARTMENT OF PUBLIC UTILITIES OF THE COMMONWEALTH OF MASSACHUSETTS, ET. AL. Appellees. Appellant, ON APPEAL FROM THE SUPREME JUDICIAL COURT OF THE COMMONWEALTH OF MASSACHUSETTS APPENDIX TO JURISDICTIONAL STATEMENT Epwarp B. Haniry Wuu1am G. MEsERvVE Ropes & Gray 225 Franklin Street Boston, Massachusetts 02110 (617) 423-6100 Victor H. Kazang1an Joun J. Desmonp III Boston Edison Co. 800 Boylston Street Boston, Massachusetts 02199 Attorneys for Appellant, Boston Edison Company August 15, 1978 TABLE OF CONTENTS Decision and order of the Supreme Judicial Court of the Commonwealth of Massachusetts in Boston Edison Company v. Department of Public Util- ities, S.J.C. No. 832 (April 19, 1978). ... Boston Edison Company’s petition for rehearing by the Supreme Judicial Court of the Common- wealth of Massachusetts dated May 1, 1978. The Supreme Judicial Court’s denial of Boston Edi- son Company’s petition for rehearing dated June eer ee Notice of Appeal to the Supreme Court of the United States filed by Boston Edison Company with the Supreme Judicial Court of the Common- wealth of Massachusetts on July 17, 1978. |. Decision and order of the Department of Public Utilities of the Commonwealth of Massachusetts in D.P.U. 18515 dated August 12,1976... Decision and order of the Department of Public Utilities of the Commonwealth of Massachusetts in D.P.U. 18200/18200-A dated September 30, 2 gras ber cle Mig ean eh wea G eat eies Amended order of the Department of Public Util- ities of the Commonwealth of Massachusetts in D.P.U. 18200/18200-A dated October 17, 1975. .. Page 55 70 71 75 145 186 COMMONWEALTH OF MASSACHUSETTS. SupreME JupiciaL Court FoR THE COMMONWEALTH, At Boston, April 19, 1978. In THE casE No. SJC-832 BOSTON EDISON COMPANY vs. DEPARTMENT OF PUBLIC UTILITIES pending in the Supreme Judicial Court for the County of Suffolk No. 75-340, 75-341, 75-367, 76-304, 76-342 OrvereED, that the following entry be made in the docket; viz., — The cases are remanded to the county court for entry of judgment in accordance with the opinion. By the Court, Freperick J. Quinuan, Clerk. April 19, 1978 9 —s BOSTON EDISON COMPANY vs. DEPARTMENT OF PUBLIC UTILITIES HENNESSEY, C. J. These are five consolidated appeals from final decisions, orders, and rulings of the Department of Public Utilities (Department) in two separate rate pro- ceedings involving Boston Edison Company (Company). In the first proceeding, D.P.U. 18200/18200-A (hereafter 18200/18200-A), the Department granted a rate increase based on 1974 as the test year. In the second, D.P.U. 18515 (hereafter 18515), the Department granted an increase based on 1975 as the test year. The appeals were filed in the Supreme Judicial Court for the county of Suffolk (county court) under G.L. ec. 25, $5. A single justice ordered the appeals consolidated, and he reserved and re- ported them without decision to this court. He similarly reserved and reported the Company’s motion for a stay, which the Company has renewed, and several motions to dismiss filed by the Department. Because of the length of this opinion, a table of contents is appended at the conclu- sion. We consider first those issues relating to the more recent rate decision, 18515. In so doing, we dispose of two appeals — filed hy the Company and by an intervenor Stanley U. Robinson, IIT (Robinson), — alleging various claims of con- fisecation and challenging the propriety of various adjust- ments to the Company’s rate base and cost-of-service calculations. We next consider the three appeals challeng- ing the Department’s earlier decision in 18200/18200-A. These appeals were filed by Boston Edison, Robinson, and General Motors Corporation (General Motors), an inter- vener in the proceedings below. Boston Edison and Robin- son have limited their appeals in 18200/18200-A primarily to the issues also raised by General Motors, and these relate solely to rate structure. Specifically, the issues in 18200/ et eee ee te ec 3 18200-4 concern the propriety of the Department’s partially exempting certain residential customers from the rate in- crease. Finally, we consider two motions to dismiss, made in the county court, which were reported to us by the single justice. On May 11, 1977, shortly after oral argument on these appeals, the full court ordered interim relief for the Com- pany by way of a $6,619,000 cost-of-service adjustment to cover increased property taxes.’ We find no error in the Department’s decision in 18200/18200-A. We conclude that the Department’s decision in 18515 was erroneous not only with respect to the property tax issue mentioned above but also with respect to certain lobbying expenses and the dis- allowed adjustment for “AFUDC not normalized.” Some of these errors are in the Company’s favor, and one goes in favor of the ratepayers. We take notice of the Department’s recent decision in D.P.U. 19300 (19300), granting Boston Edison additional rate relief based on 1976 figures. Although that decision moots a number of the issues involved in these appeals, we nevertheless reach the merits of all the issues before us. Wellesley College v. Attorney Gen., 313 Mass. 722, 731 (1943). See Potomac Elec. Power Co. v. Public Serv. Comm’n, 380 A.2d 126, 149 n.33 (D.C. Ct. App. 1977). We do so because the parties have fully briefed the issues, and because the questions raised are likely to arise again in the reasonably near future, evading judicial review again at that time. See Potomac Elec. Power Co. v. Public Serv. Comm'n, swpra. The net amount of items allowed and disallowed on ap- peal exceeds the amount of interim relief granted, but we conclude that a prospective rate adjustment is now im- The merits of the property tax issue are discussed in the cost- of-service section of this opinion, infra. 4 possible, since new rates have superseded those set in 18515, and since a rate increase may not be awarded retroactively as matter of law. See Newton v. Department of Pub. Utis., 367 Mass. 667, 679-680 (1975); New England Tel. & Tel. Co. v. Department of Pub. Utils., R.L. ; (1976).* We further conclude that a refund to Boston Edi- son customers also is not in order at this time. See id.; Fryer v. Department of Pub. Utils., Mass. ; (1978). We remand the cases to the single justice for the entry of judgment. I. HisrTory OF THE PROCEEDINGS. On November 12, 1974, Boston Edison filed with the De- partment a proposed schedule of rates and charges designed to raise its 1975 revenues by about $70,000,000. The De- partment docketed this request as D.P.U. 18200 and held extensive public hearings. The Company had presented its direct ease by May, 1975, but because interested parties had intervened in the proceedings, it appeared that a final decision would be unlikely until September, 1975. The Company, therefore, filed a petition for interim rate relief requesting an immediate rate increase of $47,700,000, pend- ing a final decision by the Department on its full request. The interim request was separately docketed as D.P.U. 18200-A but, on the Company’s motion, the two proceedings were thereafter consolidated. The Department evaluated these rate proposals using calendar year 1974 as the test year, and on September 30, 1975, it issued a decision and order which, as subsequently amended, authorized new rate schedules designed to increase Boston Edison’s annual reve- ® 358 A.2d 1, 20 (1976). > Mass. Adv. Sh. (1978) 744, 752. n.d (1977).°. New England Tel. & Tel. Co. v. Department of Pub. Utils., Mass. , (1976).° New England Tel. €& Tel. Co. v. Department of Pub. Utils., 360 Mass. 443, 453 (1971). In this instance, the Department tailored the appli- cation of the year-average and year-end methods to yield a fair and principled result.’ 2. Compensating balances. The Company’s calculation of rate base included $22,592,000 in compensating balances kept on deposit in various banks to ensure the availability ° Mass, Adv. Sh. (1977) 273, 277 n.5. P Mass, Adv. Sh. (1976) 2246, 2250. * The Company’s reliance on Southbridge Water Supply Co. v. Department of Pub. Utils., 368 Mass. 300, 308-309 (1975) (Mass. Adv. Sh. [1975] 2245, 2256-2258), is misplaced. In that case we held that it was error of law for the Department to apply the year- average method under the special circumstances presented. In this case, the Department has not adhered strictly to the year-average method; on the contrary, it has afforded year-end treatment to Mystic 7, a station that was in service for the last six months of the test year. For a related discussion of the Southbridge case, see note 13, infra. 19 of short-term credit. The Department excluded this sum from the rate base in 18515. Boston Edison concedes that its ioan agreements with these banks do not limit the Com- pany’s ability to withdraw these funds, but it stresses that, as a practical matter, it must maintain compensating bal- ances if it hopes to continue short-term borrowing. The Department’s objection is that the Company has not attempted to trace and measure what portion, if any, of the compensating balances are used and useful to the rate- payers. The record does not show the purposes for which the short-term credit is used; the Company has not broken down the $22,592,000 sum to apportion short-term credit between operating costs and capital costs, which are not includable in rate base. In such undifferentiated form, com- pensating balances do not reflect any measure of useful- ness to customers asked to pay a rate of return on them. For this reason, the Department exciuded the entire amount from the rate base, relying on our decision in New England Tel. é Tel. Co. v. Department of Pub. Utils., 360 Mass. 443, 460 (1971). There was no error. The same failure of proof has occurred here as occurred in that case. More- over, the Company was put on notice by the Department’s decision in 18200/18200-A that the need for compensating balances and the necessary amount thereof should be clearly established as part of a working capital lag study. In the absence of such evidence, it was not improper for the Department to exclude the Company’s proposed rate base adjustment. 3. Exclusion of the scrubber from rate base. In 1970, Boston Edison invested $5,283,000 in a scrubber, a pollution control device designed to permit the use of inexpensive high sulphur fuel oil without increasing air pollution. The Company built the scrubber as an experiment which, if successful, might have saved ratepayers a substantial 20 amount in fuel clause charges. Tests showed that the scrubbing process did indeed work, but the scrubber has been permanently retired because changes in Federal air quality regulations have made operating the device econo- mically unfeasible. The Department has permitted the Company to recover the entire amount of its investment from the ratepayers. For this reason the Department has allowed the Company to amortize the investment over a ten-year period; one- tenth of the investment will be reflected in the rates, as part of the cost of providing electrical service, each year for ten years. But the Department will not permit the Company to earn a return on the unamortized portion of the invest- ment in the meantime. For this reason, the Department excluded the unamortized portion from the rate base in 18515. There was no error. The record shows that the scrubber was not used or useful to the ratepayers during the test year and would not be put back in operation in the future. This court has sanctioned the Department’s gen- eral policy of excluding retired plant from the rate base provided that the Department applies its policy consistently to the affected utility and provided that the exclusion does not have a confiscatory effect. See Fitchburg Gas & Elec. Light Co. v. Department of Pub. Utils., Mass. , - (1977).4 Special circumstances may necessitate an exception to the Department’s policy on occasion, see Boston Gas Co. v. Department of Pub. Utils., 367 Mass. 92, 101-102 (1975), but no special circumstances appear in this case. 4. Plant held for future use. The Company included $1,895,691 in its proposed year-end rate base as “plant held for future use.” Of this amount, $1,663,000 was allocated 4 Mass, Adv. Sh. (1977) 273, 279-280. ee ee Ee eT ee nT ae 21 for land, and $232,691 for plant that had been retired in 1972. The Company introduced no plan for the use of either. There was no error in excluding the two items from the rate base. When the Company anticipates a need for constructing a new plant, it buys land in the area under consideration, often well before the time when the land will actually be used in construction. The Company contends that, in the long run, a program of this sort might reduce the Com- pany’s total land acquisition costs. This may be true, but in the meantime the land is not used and useful in pro- viding service to the ratepayers. Moreover, the Company remains free to sell the land at a profit, which goes to the stockholders, not to the ratepayers. One such sale occurred during the test year. The Department’s general policy is to exclude from the rate base items that are not currently used and useful to the ratepayers. E.g., New England Tel. & Tel. Co., 11 P.U.R.4th 297 (Mass. Dep’t of Pub. Utils. 1975). This policy is in accord with that of many jurisdictions, see 1 A.J.G. Priest, Principles of Public Utility Regulation 180 & n.138 (1969), and there was no reason to depart from it in this case. 5. Cash working capital. The cash working capital al- lowance in the rate base represents the amount of money the utility must supply from its own funds to meet operat- ing expenses as they arise during the period between the rendition of service and the receipt of payment therefor. Ordinarily, the allowance equals 12.5% of those total an- nual operating expenses that require working capital. That is, the company should have enough cash on hand to cover forty-five days of operating expenses (12.5% of the year), on the assumption that there will be a lag of forty-five days between rendition of service and payment by the customer. 22 The forty-five day figure is a widely used convention, but it is axiomatic that the regulatory agency “may quite reasonably and properly take into account factors which reduce the need as well as those which increase it.” Ala- bama-Tenn. Nat. Gas Co. v. Federal Power Comm’n, 203 F.2d 494, 498 (3d Cir. 1953). Using the forty-five day standard, the Company included $30,457,000 in its proposed rate base as cash working cap- ital. It ineluded another $28,917,000 to cover an additional sixty-day lag in the collection of revenues associated with fuel expenses. The interveners objected that if the De- partment allowed both items in the rate base, it would in effect be allowing the Company a return on 105 days of working capital purportedly needed to cover fuel ex- penses.'"° The Company’s witness had admitted on cross- examination, however, that there was a ninety-day lag for fuel costs, not a 105-day lag. The Department, therefore, rejected Boston Edison’s proposals and recalculated the Company’s working capital needs according to the evidence. It allowed ninety days of working capital to cover fuel costs; sixty days of working capital to cover purchased power costs; and the usual forty- five days of working capital to cover all other operating expenses. The recalculation lowered the Company’s pro- posed working capital allowance by $4.6 million. The De- partment’s decision was supported by substantial evidence. B. Cost-of-Service Adjustments in 18515. The Department used the historic test-year approach in determining the Company’s revenue needs. After calculat- ing the adjusted average rate base for 1975, the Depart- © Forty-five days’ working capital for operating expenses plus sixty days’ additional cash to cover additional fuel costs equals 105 days’ working capital. 23 ment considered the actual revenues and expenses for that year in order to determine the cost of service. It then made such adjustments as it deemed necessary to arrive at a proper basis for determining the revenues needed by the Company to enable it to earn a fair return on the rate base. Boston Edison maintains that in this process the Depart- ment overstated its test-year base revenues and under- stated its expenses, thereby depriving the Company of revenue to which it was entitled. Specifically, Boston Edison argues first that the Depart- . ment distorted the base revenue figure by adjusting the Company’s calculation to include additional future reve- nues projected to be earned from Mystic 7, which had been ‘ ineluded in the rate base on a vear-end basis. The Com- pany also contends that in computing its test-year ex- penses, the Department committed the following errors: (1) it disallowed an adjustment based on an estimated property tax increase; (2) it understated the average an- nual cost of refueling the Company’s nuclear power plant; (3) it disallowed the Company’s proposed tax adjustment for depreciation on “AFUDC not normalized”;" (4) it understated the Company’s income tax expense by over- stating the amount of the Company’s interest deduction associated with short-term credit; (5) it failed to annualize depreciation on certain additions to plant in service; (6) it disallowed depreciation on easements; (7) it disallowed certain lobbying and political expenses; and (8) it miscal- culated property taxes on land held for possible future use. These alleged errors are discussed in the following para- graphs. 1. The revenue adjustment. The largest cost-of-service adjustment challenged by the Company concerns the Mystic 11 See subsection 4, infra. 24 7 station. This is a 600-megawatt fossil-fueled generating plant that was put in operation in June, 1975 — thereby adding about 13% to the Company’s plant in service. Al- though the station was in operation for only half of the test year, it would be in operation for the whole time that new rates would be in effect. For this reason, the addition of Mystic 7 greatly complicated the Department’s task in 18515. The essence of the test-year method is the correlation of revenues, expenses and assets (rate base) over a selected period of time. See, e.g., Potomac Elec. Power Co. v. Pub- lic Serv. Comm’n, 380 A.2d 126, 133 (D.C. Ct. App. 1977). The method has been likened to freezing the action of a motion picture in order to examine a single frame in detail. Note, An Earnings-Price Approach to Fair Rate of Return in Regulated Industries, 20 Stan. L. Rev. 287 (1968). The Department examines a test period — usually the most re- cent twelve-month period for which complete financial in- formation exists — on the theory that the revenue, expense, and rate base figures during that period accurately reflect the utility’s present financial situation and fairly predict the Company’s future performance. See Potomac Elec. Power Co. v. Public Serv. Comm’n, supra. To the extent that known or anticipated changes in revenues, expenses, or rate base will distort the correlation among these ele- ments, adjustments are made in the test-year data to reflect those changes. The approach depends on keeping the three elements in phase, however, and if an out-of- period adjustment is made to one, corresponding adjust- ments to the others may be necessary to preserve a fair relationship. See, eg. Los Angeles v. Public Utils. Comm'n, 7 Cal. 3d 331, 336 (1972); Pacific Tel. & Tel. Co. v. Public Utils. Comm’n, 62 Cal. 2d 634, 644-645 (1965); State ex rel. Utils, Comm’n v. Morgan, 278 N.C, 235, 237- 25 238 (1971).’? The Department’s decision in 18515 stretched this principle almost to the breaking point. All parties agreed that the test-year figures would have to be adjusted substantially in 18515 to account for the addition of Mystic 7 to the Company’s net plant in service. Boston Edison proposed expense and rate base adjust- ments, and the Department accepted these proposals. The Department also made a revenue adjustment, however, adding about $11,200,000 of the projected increase in 1976 revenues to the 1975 base revenue figure. It did so on the theory that this increase was attributable to Mystic 7. Boston Edison challenges the propriety of this action on appeal, and in the alternative, it challenges the size of the adjustment. The Company’s position has considerable merit. The Department’s action was extraordinary, and, if it were not for the magnitude of the related adjustments in this case, we would likely find that it was unsupportable. Cf. City of New York v. Public Serv. Comm’n of N.Y., 42 App. Div. 2d 259 (N.Y. 1973). However, the Department carefully tailored its usual approach to suit the special cir- cumstances of a difficult case. On balance, we conclude that its judgment was supported by substantial evidence and did not amount to error of law. The Department had added the Company’s full year-end investment in Mystic 7 to the rate base. The effect of this year-end treatment was to allow a return on about 12See also Michigan Bell Tel. Co., 85 P.U.R.3d 467, 470-471 (Mich. Pub. Serv. Comm’n 1970); West Keansburg Water Co., 83 P.U.R.3d 423, 427-428 (N.J. Bd. of Pub. Util. Comm’rs 1970); New York State Elec. & Gas Corp., 88 P.U.R.3d 300, 306 (N.Y. Pub. Serv. Comm’n 1971); Rochester Gas &@ Elec. Corp., 88 P.U.R.3d 271, 275-276 (N.Y. Pub. Serv. Comm’n 1971); North Carolina Gas Serv. Div. of Pa. & 8. Gas Co., 41 P.U.R.3d 91, 101-102 (N.C. Utils. Comm’n 1961); United Inter-Mountain Tel. Co., 79 P.U.R.3d 499, 529 (Tenn. Pub. Serv. Comm’n 1969); Gen- 26 $72,500,000 of property that would have been excluded from the year-average rate base altogether if the Department had not made an exception to its usual practice. It must be emphasized that year-average calculation of the rate base has been the Department’s rule, and year-end treat- ment, even for additions to plant during the test year, has been a rare exception in Massachusetts. The Department’s discretionary decision to apply the year-end approach to Mystie 7 redounded greatly to the Company’s benefit. This benefit was one of the premises on which the Department based its forward-looking revenue adjustment.” Moreover, the Department made discretionary increases in test-year expense figures, thereby increasing the asserted revenue deficiency. The Department allowed the Com- pany’s adjustments for annualized depreciation, projected wages, and property taxes associated with Mystic 7, adding these out-of-period expenses to the test-year cost of ser- vice. The latter two expense adjustments have been al- lowed in the past without a corresponding revenue adjust- ment, see New England Tel. d Tel. Co. v. Department of eral Tel. Co. of Wis., 34 P.U.R.3d 497, 506 (Wis. Pub. Serv. Comm'n 1960); Cheyenne Light, Fuel & Power Co., 79 P.U.R.3d 80, 86-88 (Wyo. Pub. Serv. Comm’n 1969). *S A somewhat persuasive argument can be made, on the author ity of the Southbridge case, that year-end treatment for Mystic 7 was not discretionary, but required by law. See Southbridge Water Supply Co. v. Department of Pub. Utils., 368 Mass. 300, - (1975) (Mass. Adv. Sh. [1975] 2245, 2256-2258). In Southbridge, the utility had taken a new reservoir into its rate base on the last day of the test year, thereby increasing its net plant in service by more than 60%. Id. at 304 (Mass. Adv. Sh. [1975] at 2250-2251). This court held that it was error of law for the Department to require year-average calculation in the special circumstances pre- sented. Id. (Mass. Adv. Sh. [1975] at 2251). Clearly, the rule in Southbridge was relevant to this case, but Southbridge is distin- guishable, and, although the question is a close one, we do not think it would be appropriately applied here, where Mystic 7 was in use for six months during the test year. 27 Pub. Utils., Mass. , - (1976) ;. New England Tel. & Tel. Co. v. Department of Pub. Utils., 360 Mass. 443, 481-482 and 490-491 (1971), but the annualization of de- peciation on plant added during the test year is an unusual adjustment for the Department to allow. Like the year-end treatment for Mystic 7, this adjustment must be viewed in context; it was yet another element of a larger, singular exercise of regulatory discretion, namely the adjustment of test-year data to reflect a fair and accurate relationship among the rate base, revenues, and expenses. Boston Edison argues that there is no causal relationship between the addition of Mystic 7 in 1975 and the increased base revenues in 1976. Therefore, the Company argues, it is arbitrary and capricious to attribute any portion of the increase in retail revenues to the addition of Mystic 7. We need not disagree with the Company’s premise in order to reject its conclusion. Clearly, the addition of Mys- tie 7 did not cause retail customers to consume more elec- tricity, and so it did not cause the base revenue figure to rise in 1976. However, the Company’s argument overlooks the reason for making any adjustment to test-year data at all, namely to make the rates accurately reflect the relation- ship between rate base, revenues, and expenses while the rates are in effect. An accurate relationship among these three elements might have been established if the Department had used a purely year-average rate base with virtuaily unadjusted test-year figures. Alternatively, the relationship might have been established by using a purely year-end rate base with forward-looking adjustments to the whole gamut of reve- nues and expenses. In this case, the Department deter- mined that neither method would be appropriate by itself. * Mass. Adv. Sh. (1976) 2246, 2255-2256. 28 The Department essentially used the former method to strike a balance among these three elements in 18515, ex- cept that it used the latter method with regard to Mystic 7. As to Mystic 7, the Department used (1) a year-end rate base ; (2) a full year of Mystic 7 operating expenses (as will be seen infra), increased to reflect all the out-of-period ex- pense adjustments requested by the Company in this con- text; and (3) an out-of-period base revenue adjustment de- signed to make the rates reflect (a) the fact that Boston Edison had built Mystic 7 to meet a projected demand and to turn that demand into revenue, and (b) the fact that the Company would enjoy this increased revenue at a time when the rates set in 18515 would be in effect. It is not necessary, therefore, to prove a causal relationship in order to conclude that an adjustment of the base revenue figure was appro- priate under the circumstances and attributable to Mystic 7. The fact which we find most persuasive, however, is that in 18200/18200-A the Company had conceded the need for a similar revenue adjustment and had itself proposed the fig- ure adopted by the Department in that case.* In light of the Department’s substantial additions to the rate base and expense figures, we cannot say that it was erroneous for the Department to make some corresponding revenue adjust- ment in 18515. See West Keansburg Water Co., 83 P.U.R. 3d 423, 427-438 (N.J. Bd. of Pub. Utils. Comm’rs 1970)."* ‘* Since this factor in all probability will not be present in future cases, we give notice to the Department that if this issue should arise again, a similar adjustment may necessitate even closer judicial serutiny. It can be argued that the Department erred in failing to articulate fully in its written opinion the reasoning underlying the revenue adjustment. See G.L. ce. 30A, §11(8). We find the Department’s stated reasons to be seanty indeed, but conclude that a fuller statement of the Department’s reasoning should be excused under the special cireumstances presented here, The Department 29 The Company next challenges the amount of the adjust- ment. The adjustment proposed by the Company in 18200/ 18200-A was $6,379,000 — 100% of Boston Edison’s pro- jected increase in base revenues from 1974 to 1975. In 18515, the interveners again proposed an adjustment equal to 100% of the projected revenue increase; their proposed adjust- ment was $16.7 million. The Department reasoned that — unlike in 18200/18200-A, in which Mystic 7 was not on line during any part of the test vear — it would not be fair to add the entire projected increase to test-year revenues, since some of those revenues would be attributable not to Mystic 7, but to the remainder of the rate base, caleulated according to the usual year-average method. The Department there- fore determined that “[a] reasonable way to adjust reve- nues to mesh with the Mystic 7 increase in rate base is to attribute the expected revenue additions to Mystic 7 in the same proportion that the Mystic 7 test year additions to rate base (about $145 million) bear to total test vear addi- tions to rate base (about $216 million). The result of this is to add some $11.2 million to test year revenues.”"* The adjustment made by the Department represented 67.1% of the projected revenue increase — as opposed to the 100% adjustment urged by the interveners and 0% urged by Bos- ton Edison. The Company argues that it is unfair to include a full year’s revenue increase attributable to Mystic 7 without originally made au out-of-period base revenue adjustment in 18200/18200-A because Boston Edison had conceded the need for such an adjustment. In 18515, the Department merely followed its own precedent set in 18200/18200-A. The Company clearly knew the reasons for the adjustment — both from the decision in the earlier case and from the controversy which the proposed revenue adjustment caused in the proceedings before the Department in 18515. 16 $145 Million = ‘ ; 67. 4 ili = $11.2 million. $216 million 67.1% ; 67.1% of $16.7 million = $ million 30 having the data also reflect a full year’s expenses attribu- table to that plant. However, as the Company’s treasurer noted in 18200, the three plants Mystic 7 replaced — Mysties 1, 2 and 3— operated until June, 1975, and the operation expenses attributable to these units were replaced by equiv- alent expenses associated with Mystic 7. The unadjusted test-year data included six months’ expenses for Mystics 1, 2 and 3 and six months’ expenses for Mystic 7. In effect, therefore, the Department’s decision in 18515 reflects a full year of Mystic 7’s expenses. The Company itself asserted this equivalency in 18200. The Company argued for the first time on appeal that another reasonable way to calculate the adjustment would have been to attribute the projected growth in 1976 retail revenues to the total amount of plant in service, not just to the Company’s net additions during the test year. This method would have resulted in a revenue adjustment of only $2,505,000."7 The Company was free to suggest this alterna- tive below, but it never did so. Despite its concessions in 18200/18200-A, and although the interveners pressed for an identical method of adjustment in 18515, the Company failed to present an alternative formula to the Department, choos- ing to argue instead that no revenue adjustment at all should be necessary. The proposal urged by the Company on appeal was not before the Department, and, given the unusual circumstances in this case, we cannot say that the Department erred in choosing a higher figure that was sup- ported by reason and by the record. Boston Edison’s final argument with regard to the revenue adjustment is that it partially deprived the Company of the opportunity to use its normal growth in revenues to off- The investment in Mystie 7 ( $145,000,000) divided by total net plant in service ($960,412,000) equals 15%. Fifteen per cent of the projected revenue inerease ($16,700,000) equals $2,505,000. 31 set the effects of attrition. Attrition is “the tendency of the rate of return to diminish in a period of comparatively high construction costs.” New England Tel. & Tel. Co. v. Department of Pub. Utils., 331 Mass. 604, 622 (1954). In 1973, 1974, 1975 and 1976, the Company’s actual rate of re- turn has been lower than that allowed by the Department, and we have held that the Department has a responsibility to take evidence of attrition into account, by some method, in order “to arrive at rates which afford the Company the opportunity to earn a ‘fair and reasonable return on hon- estly and prudently invested capital.’” New England Tel. dé Tel. Co. v. Department of Pub. Utils., es ye (1976),* quoting from Boston Gas Co. v. Department of Pub. Utils., 367 Mass. 92, 97 (1975). The Department took attri- tion into consideration in this case by affording year-end rate base treatment to Mystic 7. It was entitled to conclude that this would be a sufficient remedy, and there is nothing in the record to suggest a conclusion to the contrary. 2. Estimated increase in property taxes. In its pro- posed cost-of-service calculation, Boston Edison included adjustments to reflect the projected increase in 1976 prop- erty tax rates for Boston and for various other municipali- ties in which the C_mpany’s property is located. The De- partment denied these adjustments, and its sole rationale was that “[i]t is proper to annualize a known increase in property taxes, but not an estimated one.” This reasoning is inconsistent with the Department’s own precedents and also with the decisions of this court. See New England Tel. dé: Tel. Co. v. Department of Pub. Utils., 360 Mass. 443, 481- 482 (1971) ; Boston Gas Co., D.P.U. No. 17885-A at 3 (Mass. Dep’t of Pub. Utils., May 7, 1974) ; Western Mass. Elec. Co., D.P.U. No. 17604 at 12 (Mass. Dep’t of Pub. Utils., May 1, 8 Mass. Adv. Sh. (1976) 2246, 2253-54. 32 1974). These cases show that the Department has long fol- lowed a policy of adjusting test-year property taxes to re- flect known post-test-year increases. The Department has also permitted adjustments reflecting estimated increases when the record shows that the estimate is likely to be cor- rect, or in any event when the estimate appears to be rea- sonable. The record before the Department in 18515 contained a reasoned estimate of the 1976 Boston property tax increase. But moreover, the Kelmon affidavit, included in the record on appeal, now shows the actual amount of that increase. It shows that $6,619,000 in increased property taxes is allo- cable to Boston Edison’s retail electric operations,"* and we have previously ordered interim relief for the Company in that amount. The interim order will become final when judgment is entered on these consolidated appeals in the county court. There was no error, however, in the Department’s rejee- tion of an adjustment purporting to estimate property tax increases in municipalities other than Boston. The Depart- ment could conclude that the record in 18515 did not permit a reasonable estimate of those increases to be made, and the record on appeal does not contain further information on this issue. The Company’s own prior rate proceedings be- fore the Department show that, when a reasonable projec- tion is not made, estimated increases may be disallowed. Boston Edison Co., 6 P.U.R.4th 77, 80 (Mass. Dep’t of Pub. Utils. 1974). 3. Refueling costs. Periodically, Boston Edison must shut down its nuclear power station for a number of weeks *®§ Boston Edison also sells electricity at wholesale, and it sells steam to be used for heating. Part of the tax increase is borne by these customers, who are not affected by this decision. 33 in order to change the nuclear fuel and make repairs that cannot be made with the plant in operation. No such “re- fueling outage” occurred during the test year, but the Com- | pany nevertheless added $4,000,000 to its test-year expense figures on the theory that, ideally, an outage should occur every twelve months during the period in which new rates are in effect. The Department disallowed part of the ad- justment, noting in its decision that the Company’s actual practice has been to schedule an outage only about once every sixteen months. This schedule was projected to con- tinue in the future. Although the Company hopes to adopt a twelve-month schedule eventually, it did not show when this is likely to happen. The Department allowed a $3,1 00,000 adjustment, the annual cost of a refueling outage that occurs only about every sixteen months. There was no error. The Company mentions two additional arguments in pass- ing, contending that the Department miscalculated in reduc- ing the Company’s proposed refueling outage adjustment. There is no merit in either argument. To allow an addi- tion $800,000 — as the Company first suggests — would be to attribute to the test-year cost of service a maintenance expense for which Boston Edison had already received re- imbursement under the terms of a warranty settlement reached with the General Electric Company. The second argument is that the Company should be entitled to relief because it inadvertently understated the cost of a refueling outage by $200,000. This argument comes too late; the De- partment’s decision was fully supported by cost-of-service figures put in the record by Boston Edison. 4. “AFUDC not normalized.” Boston Edison raises three issues in connection with its proposed “adjustment for AFUDC not normalized.” The Company’s adjustment would have increased the cost-of-service figure to reflect 34 fully the income taxes paid during the year. We discuss each of the issues separately against a background that is necessary as a preliminary matter. We conclude that this adjustment was erroneously disallowed by the Department. a. “AFUDC.” The Allowance for Funds Used During Construction (AFUDC) is a standard account used by utilities and regulators to identify, for ratemaking pur- poses, the capital costs associated with a particular con- struction project. See Uniform System of Accounts for Klectrie Companies par. 432 (Mass. D.P.U. rev. ed. 1961). Its function is to compensate the utility for capital costs incurred during construction — that is, incurred before the cost of the completed project has been added to the rate base. As the Company incurs capital costs relevant to this account, it also “accrues AFUDC” — that is, it becomes eligible to have these costs reflected in the rates at some time in the future. The Department does not allow the utility to reeover AFUDC accruals at the time the capital expense is incurred. Instead, the Department requires the utility to add the total obligation thus accrued to the cost of the new plant when it is eventually added to the rate hase. The utility then recovers the amount of the AFUDC accruals gradually over the service life of the plant in the form of depreciation recognized as an expense incurred in providing electrical service. See generally Litke, Allowance for Funds Used During Construction, Pub. Utils. Fort- nightly at 19 (September 28, 1972). The Department defines AFUDC as “the net cost for the period of construction of borrowed funds used for econstrue- tion purposes and a reasonable rate upon other funds when so used.” Uniform System of Accounts for Electric Com- panies par. 432 (Mass. D.P.U. rev. ed. 1961). Ag this defi- nition shows, AFUDC comprises two distinct parts: (1) a debt portion, which represents the interest expense on 35 borrowed money, and (2) a so called “equity” portion, which represents an opportunity cost incurred when the utility finances construction with its own internally-gen- erated funds, foregoing a more lucrative investyent in something else. See Litke, swpra. The equity portion is an imputed cost. It does not reflect an out-of-pocket ex- pense, but the Department has consistently treated it as an element of the cost of service.® See, e.g., Boston Edison Co., 6 P.U.R.4th 77, 79 (1974). When the finished plant goes into operation, the Com- pany’s cost of service reflects two distinguishable kinds of depreciation. First there is the kind of depreciation that returns the utility’s investment in its physical plant and which is tax deductible. See I.R.C. § 167. Then there is AFUDC, a kind of “depreciation” that repays capital costs incurred in building the plant. AFUDC receipts reflected in the rates are not tax deductible. Therefore, in addition to bearing the capital cost of new construction, the rate- payers must pay the tax on income attributable to AFUDC. The determination of when the ratepayers should do so adds another aspect to the issues raised by Boston Edison. b. “Normalization.” Should the utility’s rates recog- nize the Company’s AFUDC tax liability in the year in 1° The rationale underlying the accrual of equity AFUDC is that “the cost of capital is not measured by interest payments alone, but rather by all the economic costs of the entire financing arrange- ment. A part of these costs is borne by the equity investors who are willing to assume risks and without which financing by debt capital would not be possible.” Litke, supra at 19. If the Company had its plant built by an independent contractor who turned the finished plant over to the utility on a “turn key” basis, the price to the utility would include a premium for the contractor’s having put his own capital at risk. The equity portion of AFUDC sim- ilarly compensates the utility for putting internally generated funds at risk when it builds the plant itself. 36 which ratepayers become obligated to pay AFUDC or later, in the vear in which the Company actually pays the tax? The former method is called “normalization,” and accoun- tants do not agree on whether normalization is advantage- ous to the ratepayers in the long run. It is certainly ad- vantageous to the utilities. See generally 1 A.J.G. Priest, Principles of Public Utility Regulation 124-136 (1969). When a utility incurs a construction-related capital cost and accrues AFUDC on its books, that transaction has no present income tax consequences, only tax consequences in later years. Nevertheless, when AFUDC is accrued, a determinable, future tax liability is created. Taxes are said to be “normalized” when ratepayers are charged not the actual income taxes paid during the test year, but a larger, hypothetical figure. This figure represents the taxes actually paid plus an amount equal to the future tax liability on AFUDC accrued during the test year. Tn other words, the ratepayers pay the tax in advance. According to one commentator, normalization is popular with utilities since it requires ratepayers to pay a tax allowance which, instead of being transmitted forthwith to the United States Treasury, is available to the Company as a fund of cost- free capital until the taxes associated with AFUDC be- come due in later years.*” See J.C. Bonbright, Principles of Publie Utilitv Rates 220 (1961) (discussing normaliza: tion in connection with accelerated depreciation). For the purposes of this appeal, the importance of normalization is this: if AFUDC has been normalized, then the ratepayers have already paid the taxes; if AFUDC has not been nor- malized, then the rates must provide sufficient revenues to 7° It should be pointed out that the deferred tax reserves gener- ated by normalization are subtracted from the rate base. There- ' fore, although the Company obtains the use of this money without ineurring any additional cost, the Company is not entitled to earn a return on the fund at the expense of the ratepayers. 37 pay the taxes as they become due — in addition to paying back the capital costs incurred during construction. ce. Lhe three components of Boston Edison's “allowance for AFUDC not normalized.” We now turn to the issues raised by Boston Edison’s appeal in 18515. 1) Taxes, on AFUDC accrued from 1960 to 1973, which are now due and have not been normalized. Boston Kdi- son began accruing AFUDC in 1960. It did not begin normalizing taxes on the debt portion until the Department allowed it to do so in D.P.U. 17795-A, a rate proceeding employing a 1973 test year. Boston Edison Co., 6 P.U.R.4th 77, 79 (1974). The Department has never allowed Boston Edison to normalize taxes on the equity portion of AFUDC. Projects that were under construction between 1960 «nd 1973 are now in service. Boston Edison customers, there- fore, are now paying AF UDC each year, and the Company is incurring a corresponding income tax expense each year. There is no deferred-tax reserve to meet this expense, be- cause this AFUDC has never been normalized. In 18515, the Department disallowed an adjustment that would have recognized the tax expense in calculating the test-year cost of service. Its decision was erroneous as matter of law. The Department reasoned that “it is an inordinate bur- den on current ratepayers to require them to support present normalization as well as pre-normalization costs [that is, present taxes]. Therefore, notwithstanding the fact that the tax liability for pre-normalization AFUDC may in fact have arrived, we do not think it should be charged to the Company’s present customers... .” This reasoning misses the mark. Tax expense is clearly an element of the Company’s cost of service, whether or not the Company accumulates a deferred-tax reserve. Nor- malization determines only when the tax will be reflected in the rates. It does not relieve current ratepayers of an 38 expense that is properly part of the cost of service. This is so with regard to taxes on both the debt and the equity portions of AFUDC. 2) Taxes, on AFUDC accrued on Mystic 7 in 1974-1975, that have not been normalized. Under the Department’s policies, a utility may accrue AFUDC whenever it incurs capital costs associated with a particular construction proj- ect and may do so until the project is completed. Mystic 7 went into operation in June, 1975. The Company in- curred construction related capital costs up until that time. It was therefore entitled to accrue, and did acerue, AFUDC in the same amount. None of the AFUDC accrued on Mystie 7 in 1974 and the first six months of 1975 has been normalized. The Depart- ment has never allowed equity AFUDC associated with any project to be normalized. Moreover, although the Depart- ment’s rule now is to permit normalization of debt AFUDC, it made exceptions with regard to debt AFUDC accrued on Mystic 7 during 1974*' and the first six months of 1975” The Department’s reasons for making those exceptions are not germane to this appeal. What is important is that the taxes have not been paid previously, and they are now fall- ing due, a bit each year. The Company proposed an ad- justment that would have included in the cost of service taxes on AFUDC payable during the test year. For the reasons discussed in part 1 of this discussion, supra, the disallowance of this adjustment was error of law. The Attorney General argues that to allow this adjust- ment would be to allow double recovery in this ease, since the full original cost of Mystie 7 was included in the rate *' This ruling came in 18200/18200-A, and the Department’s deci- sion to refuse normalization has not been appealed. *? This ruling came in 18515, and, again, the refusal is not before us. 39 base both in 18200/18200-A and in 18515. There is no pos- sibility of double recovery here. Boston Edison actually accrued AFUDC in 1974 and 1975, and there can be no denying it. When the Company instituted rate proceedings in 18200/18200-A, the Department used 1974 as the test year and attributed Mystic 7 to the test-year rate base in order to set fair rates for the future. Those rates took effect on October 1, 1975. Therefore, the ratepayers have been paying a return on Mystic 7 as an item in the rate base since October, 1975. The Company accrued AFUDC only up until June, 1975. There is no overlapping and therefore no possibility of double recovery. 3) Taxes on the equity portion of AFUDC — other than that associated with Mystic 7 — accrued from 1973 to 1975. Taxes on the equity portion of AFUDC have never been normalized. The construction projects on which AFUDC was accrued are now in operation and providing electrical services to the ratepayers. The third component of Boston Edison’s adjustment for “AFUDC not normalized” would have generated revenues to meet the taxes on the equity portion of all AFUDC — other than that relating to Mystic 7 —accrued since 1973, but not normalized. The preced- ing discussion makes it clear that these taxes are properly includable in the test-year cost of service and that the Department erred in refusing the adjustment. d. The effect of mootness on this determination. Taken together, the three components of the adjustment for “AFUDC not normalized” would have increased Boston Edison’s test-year income tax expense by $2,360,000. Since we take notice that new rates have become effective since this appeal was filed, the Company may not now collect this amount retroactively in the form of a rate increase based on 1975 as the test year. The Company will never- 40 theless recapture most of its capital costs incurred during construction, since the Company will recover depreciation on the same AFUDC accruals here in issue for each year of the associated plant’s useful life. In the future, the depreciation recovered by the Company will not be de- creased by income tax expense. 0. Income tax: Calculation of interest expense associ- ated with short-term debt. In order to caleulate Boston Kdison’s test-year income tax expense for ratemaking pur- poses, the Department had to determine the amount of the Company’s deduction for interest associated with short- term credit. Relying on evidence offered by the interven- ers, the Department calculated the interest on $106,000,000, the year-average balance of short-term debt during the test year. The Company objects that the amount of inter- est thus derived should have been reduced by two further adjustments which the Department refused to make. It argues that the Department erroneously failed to adjust the interest calculation by $4,903,000 to reflect a saving in short-term interest which the Company would have real- ized (1) if it had issued certain secured notes at the begin- ning of the test year rather than at the end, as actually happened, and (2) if it had also issued certain preference stock at the beginning of the year rather than toward the end of the first quarter. There was no error. It does not appear that the year-average figure required “adjustment for abnormal conditions.” Michigan Wis. Pipe Line Co. v. Federal Power Comm'n, 263 F.2d 553, 556 (6th Cir. 1959). Cf. United Gas Pub. Serv. Co. v. Texas, 303 U.S. 123, 145 (1938). On the contrary, the Department could find that to use the Company’s average short-term debt in calculating its test-year income taxes was an appropriate way to reflect the Company’s usual short-term borrowing experience. The Company had issued secured notes and preference 41 stock during the test year in order to refinance short-term debt, but the Department reasoned that it was incorrect to assume from this that the Company would enjoy a decrease in the level of short-term debt over the period in which new rates would be in force. The net effect of the Company’s proposed adjustments would have been to assume a normal short-term debt level of only $72,000,000. The Department found, however, that “[t]hat figure is not a fair reflection of either the past or the future.” Substantial evidence supported the figure chosen by the Department, and we cannot say that there was error of law. 6. Annualized depreciation on test-year additions to plant in service. The Department declined to adjust the test-year expense figures to allow the Company a full year’s depreciation on additions —other than Mystie 7° — to plant in service made during the test year. The amount of the proposed adjustment was $735,000. The Department has determined to calculate the rate base on a year-average basis, and the Department could reasonably conclude that to allow the Company to annualize depreciation on plant not in existence at the beginning of the test vear would have been inconsistent with that approach. See Fall River Gas Co., D.P.U. No. 17708 at 9 (Mass. Dep’t of Pub. Utils., Oct. 11,1973). Cf. Utah Tel. Co., 81 P.U.R.3d 156, 160-161 (Utah Pub. Serv. Comm’n 1969). See generally Kansas Power & Light Co., 8 P.U.RAth 337, 362-363 (Kan. State Corp. Comm’n in 1975). 7. Depreciation on easements. As of December 31, 1975, Boston Edison had spent abont $3,990,000 in acquiring ease- 23 The Department allowed the Company to annualize its depreci- ation expense associated with Mystie 7. This adjustment has been discussed previously, supra at (Mass. Adv. Sh. [1978] at ), in connection with the Mystic 7 revenue adjustment. 42 ments in order to construct transmission and distribution lines. In 18515, the Company claimed depreciation on these easements, at the rate of 3%, as part of its cost of service. The Department rejected this $120,000 adjustment, reason- ing that easements are interests in land which — unlike the power lines built on them — do not have a limited useful lite. See Western Mass. Elec. Co., D.P.U. No. 18252 at 12 (Mass. Dep’t of Pub. Utils., Dec. 15, 1975). There was no error. The Department added the full original cost of the easements to the Company’s rate base; that is, it did not subtract depreciation from the original cost as it would for other items on which the Company is entitled to a return. The result might well be different if the easements them- selves were limited to a term of years, but that is not the Company’s objection in this case. 8. Lobbymg and political expenses. The Department disallowed about $43,000 in political contributions and lob- bying expenses during the test year. The Company con- tends that this disallowance was erroneous. Robinson, on his part, claims error in the Department’s failure to elimi- nate a great deal more of the Company’s cost-of-service expenses, which he alleges were attributable to lobbying. We consider each appeal separately. a. Boston Edison’s appeal. Of the expenses disallowed, $10,000 represented a contribution to a group called Citizens for Economy in Government. That organization is no longer in existence, and for this reason alone the Department re- duced the Company’s cost-of-service figure by $10,000. Bos- ton Edison maintains that this adjustment was arbitrary and capricious; the Department concedes the point in its brief. The Department’s decision was erroneous as to this ruling. 43 Another $10,000 represented a contribution to the Massa- chusetts Taxpayers Foundation, a registered lobbyist whose principal activities, the record shows, are directed toward proposing and influencing legislation and executive action. Boston Edison concedes that the recipient of its contribu- tion is a lobbying organization, but contends that the De- partment erred in disallowing this expense because no evi- dence was offered to show that the Company’s contribution was in fact used for lobbying. This argument has no merit. It is the Company’s burden to show that each item of ex- pense is properly part of the cost of service, and lobbying expenses are widely held to be excludable from a utility’s operating expenses for ratemaking purposes. See, e.g., Pacific Tel. & Tel. Co. v. Public Utils. Comm’n, 62 Cal. 2d 634, 669-670 (1965); Illinois Bell Tel. Co. v. Illinois Com- merce Comm’n, 55 Ill. 2d 461, 479-480 (1973); Central Me. Power Co., 15 P.U.R.4th 455, 475-476 (Me. Pub. Utils. Comm’n 1976). The Company also objects to the disallowance of $22,658 in lobbying expenses in addition to the two contributions discussed above. There was no error as to this adjustment. The record in 18515 contains two reports detailing certain of Boston Edison’s lobbying expenditures during the test year. A disclosure statement originally filed with the Fed- eral Power Commission reported that the Company had inenrred $75,103 in lobbying expenses to be borne by the stockholders. A second statement, filed with the Depart- ment, reported only $52,444 for such activities. The dis- crepancy is not explained in the record, and the Department chose to believe the higher figure. The Company offers an explanation for the first time on appeal; it is not persuasive, and, in any event, it comes too late. b. Robinson’s appeal. Robinson argues that three further items of expense allowed by the Department should have been disallowed as lobbying expenses. 44 During the test year, Boston Edison paid $109,261 to the Massachusetts Electric and Gas Association (MEGA), an organization that acts as a lobbyist, but also engages in a number of other activities on behalf of the Company. Bos- ton Edison reported that only $25,792 of this amount was paid for lobbying assistance; the Department accepted this allocation, after cross-examination, and allowed the rest to be reflected in the new rates. There is substantial evidence in the record to support the Department’s determination. Robinson further challenges the Department’s refusal to disallow the salaries of certain Boston Edison employees who were paid by the Company to lobby on its behalf in addition to performing other public relations functions for the Company. Boston Edison had paid several “vice presi- dents for corporate relations” a total of $183,741 in salaries during the test year. The part of this expense which the Company reported as an excludable lobbying expense was $17,194. The Department accepted these figures despite the Company’s inability to support the allocation on cross- examination. We conclude that there was no substantial evidence to support the allocation and that it was error of law for the Department to allow these expenses, absent proof that they are properly part of the cost of service. Substantial evidence means “such evidence as a reason- able mind might accept as adequate to support a conclu- sion.” G.L. e. 380A, §1 (6). New England Tel. & Tel. Co. v. Department of Pub. Utils, Mass. , (1977). The Company’s method of allocating its employees’ time be- tween lobbying and nonlobbying activities appears to have been arbitrary. Boston Edison’s witness testified that some of the time billed to the ratepayers was counted as 100% lobbying time, some as 15% lobbying, some as 12% lobbying, and a considerable amount as 0% lobbying, in- ‘Mass. Adv. Sh. (1977) 1195, 1202. 45 cluding all time spent in the office. The witness was unable to explain how one employee could have caused a total of 400 hours spent lobbying to be allocated at 0%. Moreover, he admitted on cross-examination that he had no rule for sorting out these options and no rationale that would sup- port the use of this or any other percentage method of allocation. The Department accepted the allocation never- theless. It is true, of course, that these employees perform services for the Company other than lobbying, and that the expenses associated with these services may be includable in the cost of service. The record does not suggest an alternative allocation, however. The Company did not prove that these expenses should be borne by its customers, and for this reason the Department’s decision to allow $166,547 in contested salaries as an element of the cost of service was erroneous.” The final item challenged by Robinson concerns time spent by Boston Edison employees learning about the November, 1976, public power referendum. The record does not indicate the cost of this activity. Moreover, the Department determined after careful consideration that this expense could fairly be classified as educational rather than political. There was no error. 9. Alleged miscalculation of the amount of property taxes to be eliminated from the cost of service. In accor- dance with its decision to exclude plant held for future use from the rate base,”* the Department adjusted the Com- pany’s test-year property tax expense by subtracting $195,000 in property taxes associated with that plant. The 24 $183,741 (total salaries) minus $17,194 (amount previously disallowed) equals $166,547. 25The rate base exclusion is discussed at Adv. Sh. [1978] at ). supra (Mass. 46 Company contends that only $35,000 should have been sub- tracted. The Department’s decision is fully supported by the record. The Company does not argue this point vigor- ously, and we are persuaded by the Attorney General’s demonstration that the rates already reflect the additional $160,0000 sought here. C. Ground Rules Established by the Department in 18515 for Boston Edison’s Next Rate Case. In 18515, the Department ordered “that the Company affirmatively demonstrate, in any future rate case, that it has moved to improve the efficiency of its operations and the productivity of all its employees, both management and nonmanagement. Such a demonstration, at a minimum, would include a showing that employees’ wages, salaries, and numbers are not excessive and that the construction program is the least that will provide necessary and ade- quate service.” The Company maintains that it is beyond the power of the Department to impose such a requirement and that, in any event, this requirement is unfair on its face. There was no error. Under G.L. ec. 164, the Depart- ment possesses broad investigative and supervisory au- thority over electric utilities and may properly inquire into these aspects of their operations in furtherance of its mandate to “keep itself informed as to... the manner in which they are conducted with reference to the... con- venience of the public.” G.L. ¢. 164, §76.% It has long *° See also G. L. ¢. 164, § 76 (general supervisory and investiga- tive powers); id. §76A (supervision of utility’s dealings with affiliates) ; id. § 85 (power to examine company records) ; id. § 93 ( power to investigate and adjust prices to order improvement in service ) ; id. § 94 (authority to conduct investigation as to propriety of rate increase request). See also Cambridge Elec. Tight Co. v. Department of Pub. Utils., 363 Mass. 474, 494 & n.31 (1973). 47 been held that “the State, through the regulary constituted authorities, has taken complete control of these corpora- tions so far as is necessary to prevent the abuses of monopoly.” Weld v. Gas & Elec. Light Comm’rs, 197 Mass. 556, 558 (1908). The efficiency of Boston Edison and the magnitude of its construction program are matters of legitimate public interest, and the Company will not be heard to protest at this point that the requirement imposed by the Department constitutes an undue constraint on man- agerial prerogatives. See Consumers Power Co., 14 P.U.R.4th 1, 14-21 (Mich. Pub. Serv. Comm’n 1976). If the Department administers its requirement unfairly, that is- sue will, of course, be open to review at the appropriate time. D. Intervention in the Proceedings Below. The Department permitted Robinson, a mathematician, and one Torgeir Kvale (Kvale), an engineer, to intervene in 18515. Boston Edison maintains that the interests of these individuals were already represented by the Massa- chusetts Consumers Council, which had intervened “for and in behalf of the people of the commonwealth.” G.L. ¢. 6, § 115, inserted by St. 1963, c. 773, § 2. The Company argues, therefore, that the Department erred in permitting Robinson and Kvale to intervene and also in refusing to limit their participation to filing a written statement of position. The Administrative Procedure Act grants the Department broad discretion with regard to interveners.”” However, that dis- 27 General Laws c. 30A, § 10, inserted by St. 1954, c. 681, § 1, in effect during the departmental proceeding, provided that: “Unless otherwise provided by any law, agencies may ... (4) allow any person showing that he may be substantially and specifically affected by the proceeding to intervene as a party in the whole or any portion of the proceeding, and allow any other interested per- 48 cretion is not unlimited. See Newton v. Department of Pub. Utis., 339 Mass. 535, 543 n.1 (1959). Robinson and Kvale both had presented evidence of ex- pertise in ratemaking issues. Both were “interested per- sons” within the meaning of the statute, and the Depart- ment clearly had discretion to allow these individuals to intervene. The more serious question concerns the extent to which Robinson was permitted to participate.** The Department limited Kvale’s intervention to making a statement, through an attorney, on one of the several issues about which he had expressed concern. This limited intervention clearly falls within the Department’s discretion to allow interested persons “to participate by presentation of argument orally or in writing, or for any other limited purpose, as the agency may order.” G.L. e¢. 30A, $10, cel. (4), as in effect prior to St. 1977, c. 965. Robinson’s par- ticipation was an entirely different matter. Of the 4,700 or so pages of transcript in 18515, over 900 pages were taken up by Robinson’s cross-examination of witnesses. Another 250 were taken up with the presentation of and cross-examination concerning his direct evidence. We em- phasize that he was representing only himself; the Depart- ment’s regulations prohibit non-lawyers from representing the interests of others. Because of the extent of Robinson’s participation, his intervention presents a close question. We cannot agree son to participate by presentation of argument orally or in writing or for any other limited purpose, as the agency may order.” See St. 1977, e. 965, which struck out § 10 and inserted new provisions governing adjudicatory proceedings. *® We do not reach the question whether an individual ratepayer can be a person “substantially and specifically affected by the pro- ceeding” within the meaning of G.L. ¢. 30A, § 10, cl. (4). 49 that the Department was obliged to limit him to the filing of a written statement of position. In most circumstances, Robinson’s role would be of doubtful validity. Given the difficulty of the case before it, we cannot say that the De- partment erred in seeking an intervener’s extensive help in fully elucidating the issues. The Department operates under a statutory deadline when conducting rate proceed- ings, G.L. ¢. 25, § 18, inserted by St. 1975, c. 684, § 90, and its decision that intervention will expedite the case is en- titled to great weight. Our decision in Save the Bay, Inc. v. Department of Pub. Utils., 366 Mass. 667 (1975), relied on by the Company, is not to the contrary. We add that similarly extensive participation by an intervener in any future case should be permitted by the Department only if careful consideration discloses special circumstances in jus- tification. E. Rate Structure in 18200/18200-A. Once having determined what increase was necessary to meet Boston Edison’s revenue deficiency in 18200/18200-A, the Department considered various proposals offered by the Company and the interveners for allocating the increase among the Company’s customers. The Department ac- cepted the basic principle underlying the Company’s pro- posed rate structure and fashioned experimental rates allo- eating the rate increase according to the relative contribu- tion of customer classes to the growth in peak-load demand for electricity.”2 However, the Department modified the 29 General Motors contends that the Department abused its dis- cretion by declining to use as its sole criterion the cost of service to each class. There is no merit to this argument. Trustees of Clark Univ. v. Department of Pub. Utils., Mass. _ (1977) (Mass. Adv. Sh. [1977] 698, 704). See generally, Cudahy & Malko, Electric Peak-Load Pricing: Madison Gas and Beyond, 1976 Wis. L. Rev. 47. 50 Company’s proposal by exempting the first 384 KWH of monthly residential usage from the rate increase, on the ground that this seginent of residential usage had not con- tributed significantly to the growth in peak-load demand. Boston Edison and General Motors challenge this exemp- tion on appeal. They argue that the Department lacked statutory authority to make any exemption at all and that the exemption made is not supported by substantial evi- dence. In addition, General Motors maintains that the ex- emption violates its rights under art. 10 of the Declaration of Rights of the Massachusetts Constitution. There was no error. Under the provisions of G.L. c. 164, § 94, most recently amended by St. 1973, ¢. 816, §§ 2, 3, the Legislature has given the Department regulatory authority over “all rates, prices and charges” to be collected in the Commonwealth for the sale of electricity. As we have previously noted, this statute gives the Department “jurisdiction of the entire rate structure” in electric rate cases. Boston Real Estate Bd. v. Department of Pub. Utils., 334 Mass. 477, 485 (1956) (emphasis in the original), The statute contains no excep- tion, but the appellants now submit that the 384 KWH exemption created in 18200/18200-A exceeded the Depart- ment’s authority. There is no merit to this contention. What Boston Edison and General Motors object to is “dif- ferent treatment for different classes of customers, reason- ably classified,” which we have long held to be within the statutory powers of the Department. /d. at 495. This is not a case of irrational discrimination. See Lef- kowitz v. Public Serv. Comm’n, 40 N.Y.2d 1047, 1048 (1976). Cf. New England Tel & Tel. Co. v. Department of Pub. Utils., Mass. . os (1976)." The Department de- " Mass. Adv. Sh. (1976) 2246, 2272-2273. ol termined that Boston Edison’s need for rate relief stemmed from its construction program; that new construction had been necessitated by the growth in peak-load demand; and that, since average residential usage had not contributed significantly to the growth in peak-load demand, residential users should not participate fully in the rate increase. The Department could reasonably conclude, on the record before it, that the challenged exemption would encourage energy conservation in the public interest, both by residential users below the 384 KWH level and by Boston Edison’s largest industrial customers. For this reason, the Department’s determination must be affirmed if supported by the record. See Apartment House Council of Metropolitan Wash., Inc. v. Public Serv. Comm’n of the Dist. of Columbia, 332 A.2d 53, 58 (D.C. Ct. App. 1975). Evidence given by a Boston Edison witness clearly indi- cates that the Company’s increased costs resulted ultimately from the growth in peak-load demand. It also indicates that the “general service class” of commercial and indus- trial users was primarily responsible for that growth and that residential customers who kept their consumption be- low 384 KWH monthly contributed least to the need for new plant construction. The 384 KWH figure represents the average residential usage in recent years, and the record shows that this figure has remained relatively steady while commercial and industrial demands have increased. We conclude that there is substantial evidence to support the Department’s decision to exempt certain customers. General Motors points out that the rate structure in 18200/18200-A increases Boston Edison’s margin of profit on power sold to industrial customers in order to offset the relatively low margin of profit on power sold to residential ratepayers. It asserts that this price differential amounts to confiscation of its property in violation of the Massachu- 52 setts Constitution. This position finds no support In = eases, and there is considerable judicial precedent to the contrary in other jurisdictions. See Norfolk & gage Conley, 236 U.S. 605, 608-609 (1915) ; Minneapolis oe , v. Federal Power Comm’n, 278 F.2d 870, 871 (D.C. a 1960) ; Allied Chem. Corp. v. Georgia Power Co., . os 548, 553-554 (1976) ; Petrolane Gas Serv., Inc. v. Idaho ‘ Utils. Comm’n, 85 Idaho 593, 602 (1963) ; Carpenter v. ce sylvania Pub. Util. Comm’n, 141 Pa. Super. 447, 450 ( : : We decline to adopt General Motors’s argument as the law of the Commonwealth. V. CONCLUSION. Boston Edison’s consolidated appeals raise one additional issue, the Company’s claim that it is entitled to — from the Commonwealth. The Company complains that t : Department took an inordinate length of time to ap rye rate increases in 18200/18200-A and 18515 and that the Commonwealth, therefore, should compensate the Company by the amount of its revenue deficiency in the interim. The Company raises this issue by appeal, and the Attorney Gen- eral has filed motions to dismiss so much of the appeals as seeks damages from the Commonwealth. Those motions are allowed. Boston Edison should address these arguments to the Legislature. The Department met es dead- lines in rate proceedings which it characterized as pernepe the most complex ever to come before the Department. The record does not support the Company’s assertion that the delay was inordinate or intentional. Judgment is to be entered in the county court affirming the Department’s decision in 18200/18200-A. Judgment similarly is to be entered in 18515 affirming the decision in part and reversing as to those subsidiary determinations of 53 the Department found to be erroneous as matter of law, supra. These determinations are: (1) the disallowance of an expense adjustment for an estimated Boston property tax increase; (2) the disallowance of an expense adjustment for taxes associated with “AFUDC not normalized”; (3) the disallowance of a contribution made to a citizens’ group; and (4) the allowance of an allocated portion of salaries paid to Boston Edison employees engaged, inter alia, in political lobbying, where substantial evidence did not sup- port the allocation. The interlocutory order granting $6,619,000 in interim rate relief is affirmed. If relief could be granted representing the net amount of the several ad- justments allowed and disallowed, the Company would be entitled to an amount greater than the $6,619,000 in interim relief already granted. However, it is clear that such addi- tional relief may not be granted, for the reason, as we have Stated supra, that the more recent decision in 19300 super- sedes that in 18515. Tht law is clear that Boston Edison may not receive additional relief retroactively. See Arizona Grocery Co. v. Atchison, Topeka & Santa Fe Ry., 284 U.S. 370, 386 (1932); New England Tel. & Tel. Co. v. Public Utius. Comm’n, R.I. , 1976." The cases are re- manded to the county court for the entry of judgment. So ordered. ¥ 358 A.2d 1, 20 (1976). Oe he alee ent eee 54 TABLE OF CONTENTS Subject Sa ee ee eee SL I. History of the proceedings .......-----++-++>: II. Nature and scope of judicial review III. Claims of confiscation .... IV. Review under G. L.c. 830A ........- 2-05 sere eee A. Rate Base in 18515 ..........- eee e eee eee 1. Year-average calculation ........------: Compensating balances .......--------: The “serubber” . Plant held for future use ............-- Cash working capital ............-+--: B. Cost of service adjustments in 18515 .......... The revenue adjustment...._.......- . - . Estimated property tax increase........ Refueling costs . Re faa ek oe “AFUDC not normalized” Caleulation of interest deduction . Annualized depreciation on additions to Se Ne Depreciation on easements ............. Lobbying and political expenses ....... Alleged miscalculation of property tax ad- , eee C. Ground rules established in 18515 ............ Te Dates Oe Te ck hier eda ccnckotunens EK. Rate structure in 18200/18200-A ............. V. Conclusion . Page 24 3 » }5) ROPES & GRAY 225 FRANKLIN STREET BOSTON O2!1!10 May 1, 1978 HonorasB_e Epwarp F. Hennessey Chief Justice Supreme Judicial Court Pemberton Square Boston, Mass. 02108 Re: Boston Edison Company v. Department of Public Utilities — No. SJC 832 Dear Mr. Chief Justice: Boston Edison Company hereby petitions the Supreme Judicial Court for rehearing of its decision dated April 19, 1978, in the above-entitled case. It does so because the deviations from prior authority, the non-recognition of sub- stantial arguments, and the apparent misunderstanding of the state of the record or of certain undisputed facts con- tained therein, all reflect misapprehension sufficient to war- rant rehearing. The issues raised by the petition are as follows: I. The Allowed Return of Common Equity In upholding the Department’s finding that a 13% return on Boston Edison’s common equity was fair and reasonable, the Court, at p. 15 of its Opinion, accepts the Department’s conclusion that such a return will not produce a market price for the Company’s stock which is at or above book 56 value. Nevertheless, the Court limits its previous yerg in New England Tel. é Tel. v. Department of Pub. Uti S, Mass. Adv. Sh. (1976) 2246, 2259 that “forced as confiseation” to instances where new equity must be so below book in order to sustain a utility’s “normal ine tions.” Opin. 17 In substance, the Court holds that a uti i : like Boston Edison which needs additional capital to func a construction program “of limited duration and unprece- dented size” does not enjoy the same protection from Ex. BE-300, pp. 14-15. ® Co. Brief, pp. 110-111; Co. Reply Brief, pp. 56-58. 61 IV. The Mystic Scrubber The Court excluded the Mystie scrubber from the Com- pany’s rate base with the summary statement that “Special circumstances may necessitate an exception to the Depart- ment’s policy [of excluding retired plant from rate base] on occasion . .*., but no special circumstances appear in this case.” Opin. 23 However, the relevant “special cireum- stances” were discussed at length in the Company’s brief (pp. 111-119), in its Reply Brief (pp. 58-61), and in the letter sent by its counsel to the Court on April 13, 1977 (pp. 3-5) responsive to the Assistant Attorney General’s post hearing letter. As a result,-Boston Edison requests that that portion of the Court’s decision be reviewed in light of the special circumstances which it submits did, indeed, exist in this case, but which appear to have been overlooked. V. Plant Held for Future Use One of the principal grounds upon which the Court ex- cluded plant held for future use from the Company’s rate base was that “the Company remains free to sell the land at a profit, which goes to the stockholders, not to the rate- payers. One such sale occurred during the test year.” Opin. 24 However, although the Department had found in its decision that if such plant “were sold at a profit, the gain would go to the stockholders, not to the ratepayers” (A. 113), there was absolutely no evidence in the record which supported that statement. Similarly, although the Department then argued in its Brief to this Court that “the Company remains free to sell the land at a price above cost, the profit going to stock- holders and not ratepayers. It completed one such sale during the test year, for $56,815.” (Dept. Brief, p. 161), 62 those statements were completely unsupported by the record. This is readily apparent by examining the cita- tions upon which the Department purported to rely in sup- port of its argument. Since the Court appears to have mis- apprehended the facts on this point, Boston Edison respect- fully submits that it should reconsider its treatment of this issue. VI. Cash Working Capital In approving the Department’s calculation of the cash working capital allowance which is included in rate base, the Court stated that those working capital needs were cal- culated “according to the evidence”. Opin. 25 In fact, the Department, in making its caleulations, arbitrarily con- sidered only selected portions of te evidence bearing upon the Company’s working capital needs. In the proceedings before the Department, the Company suggested that the Department use the so-called 45-day working capital convention in calculating the Company’s working capital needs. This method was challenged by the Attorney General. As a result, the Company presented extensive testimony (Tr. 4490-4521) and a meticulous study (Ex. BE-405) describing in detail the Company’s working capital needs. Nevertheless, the Department utilized neither the 45-day convention nor the detailed study. In- stead it arbitrarily considered only those items which tended to reduce the calculation of the Company’s working capital needs, while ignoring those which might increase it. The Department’s decision was, therefore, contrary to the evidence actually before it. Although the Court’s decision upholds the Department, it appears from the language of the opinion that the Court overlooked the more detailed study which had been admitted into evidence. Accordingly, a rehearing is warranted. 63 Moreover, even if the Department’s basic approach had been correct, it failed to adjust that calculation in order to reflect the effects of bi-monthly billing. The deficiency in the Department’s methodology was specifically highlighted in the Company’s Reply Brief (pp. 65-66), but this point, too, appears to have been overlooked by the Court in reach- ing its decision.. VII. The Mystic 7 Revenue Adjustment At pages 6 and 7 of its decision, the Court accepted into evidence both the Saunders and Kelmon affidavits which presented updated 1976 financial results for Boston Edison. It recognized that the admission of these affidavits was consistent with its obligation “to bring the proof as nearly as reasonably possible down to the date of final decision”. Opinion of the Justices, 328 Mass. 679, 687 (1952) Never- theless, after admitting those affidavits, the Court failed to utilize the updated information which they provided in ruling upon the Mystic 7 revenue adjustment. Specifically, the Company had argued’ that even if the Department’s revenue adjustment were appropriate (as the Court subsequently found), the amount of that adjust- ment should be substantially revised in light of the more recent evidence, presented by affidavit, which dealt with the growth of 1976 kwh sales over 1975 kwh sales. The Depart- ment’s adjustment had been based on a projected growth in 1976 base revenues of $16,700,000 (A. 122-123). The Saunders affidavit, which was based on eight months’ actual 1976 data and a four-month forecast, showed that the growth in 1976 base revenues would actually approximate only $7,900,000. (A. 219-220) Thus, even if the Depart- ment’s methodology were adopted, merely by using the up- 7 See Co. Brief pp. 48-49 and Co. Reply Brief pp. 21-22. 64 dated financial information which the Court was bound by law to consider, the Company was still entitled to an addt- tional $5,582,000 in retail revenues. The Court’s opinion overlooks this extremely critical point vigorously asserted by the Company. There are other cogent reasons for rehearing the issue of the contested Mystic 7 adjustment: First, the Court appears to believe that the inclusion of Mystic 7 in rate base at its year-end value “redounded greatly to the Company’s benefit.” Opin. 29 While under other circumstances that might be true, in this case the beneficial effects of including Mystic 7 at its year-end value were largely negated by the base revenue adjustment.® Second, the Court, in distinguishing this case from the Southbridge Water Supply Co. ease, Mass. Adv. Sh. (1975) 9945, 2256-2258", states that because Mystic 7 was in opera- tion for six months during the test year, this case somehow presented a less compelling situation than did Southbridge for including the new plant in rate base at its year end value. See Opin. 29-30, ftnte. 13 In fact, the opposite would seem to be true. For here, unlike Southbridge, six months of actual operating experience was already reflected in the cost of service figures. That means that the inclusion 8’ The calculation is shown at p. 49 of the Co. Brief. ® $70,000,000 (the additional value of Mystic 7 actually included in rate base because of the “year end” treatment of this plant) xX 9.49% X 2.0567668 — $13,663,101, the amount of the revenue deficiency resulting from the inclusion of Mystic 7 in rate base at its year end value. However, the Department’s revenue adjust- ment then eliminated $11,200,000 of that deficiency. 10 The Company had argued at pp. 19-21 of its Reply Brief that to be consistent with Southbridge, Mystic 7 should be included in rate base at its year end value with no base revenue adjustment. 65 of the Mystic plant in rate base at its year end value would actually be less likely to distort the predictive value of the test year figures than was the case in Southbridge. Third, at p. 32 of its decision, the Court finds “most persuasive” the argument that the Company had accepted a similar revenue adjustment in a prior case.’ However, the facts in D.P.U. 18200 were completely different from those in D.P.U. 18515. In that prior case, as the Company has previously pointed out,” Mystic 7 was included in rate base during a test year when the plant was never even in service. Since the plant did not become operational until some six months after the test year had concluded, some adjustment to reflect the effect of the increased loads which would exist during its first year of operation was appro- priate. However, a totally different factual situation was presented in D.P.U. 18515 because Mystic 7 was actually in service during the test year. In fact, elimination of any base revenue adjustment would have been more consistent with the prior case, for there it had been determined that 1975 revenues, not 1976 revenues, were an appropriate match for a rate base which included Mystic 7. Fourth, in dealing with the Company’s argument that the revenue adjustment should not be made without including a full year’s expenses attributable to the Mystic plant, the Court incorrectly states that the operational expenses for Mystic 7 would merely replace operational expenses for Mysties 1, 2 and 3 which had been retired in June, 1975 but ™ Since the rates set in D.P.U. 18200 proved to be inadequate to permit the Company to earn the allowed return, it is, of course, possible that the Company was wvong in that case and that the error should have been correcte:{ in D.P.U. 18515. That possi- bility appears to have been overlooked. 2 See Co. Brief pp. 44-47. 66 which were nevertheless included in the cost of service fig- ures. Opin. 34 Although this argument was made by the Assistant Attorney General in a letter to the Court dated April 8, 1977, in the Company’s April 13, 1977, reply to that letter, which the Court apparently overlooked, it demon- strated that that argument was simply not accurate. (See April 13, 1977 letter, pp. 5-6) VII. The Pilgrim Refueling Outage | The Court summarily rejects two arguments which the Company is said to have raised “in passing” which would have diminished the size of the Department’s reduction to the Company’s proposed refueling outage adjustment. First, with respect to the $800,000 adjustment related to the G.E. warranty settlement, the Court finds that to include this amount in the cost of service “would be to attribute to the test vear cost of service a maintenance expense for which Boston Edison had already received reimbursement”. Opin. 38 However, that rationale is not borne out by the facts. The G.E. warranty settlement related to pre-test year maintenance expenses. Moreover, a much greater sum than the amount of that settlement had already been flowed through to ratepayers in previous cases in anticipation of the settlement with General Electric. As the Company pointed out at pp. 1-3 of its April 13, 1977 letter to the Court where it responded to a similar erroneous assertion made in the post-hearing letter sent by the Assistant Attor- ney General, the $800,000 adjustment proposed by the Com- pany was, in fact, required in order to avoid providing rate- payers with a double credit for that settlement. Furthermore, the Court’s position on this item appears to be directly contrary to its treatment of the $160,000 property tax eredit on plant held for future use. See Opin. 52 There the Court refused to allow the Company the 67 benefit of a property tax credit received in the test year on the grounds it related to a previous year’s expenses. Here, however, it required the Company to give the ratepayers the benefit of the warranty credit even though it, too, re- lated to a previous year’s expense. These two results are difficult to reconcile. Second, with respect to the $200,000 adjustment relating to the understatement of the cost of the refueling outage, the Court rather inexplicably asserts that “This argument comes too late.” Opin. 38 The adjustment in question was supported by the evidence and argued by the Company in the briefs submitted to the Department. However, the De- partment apparently overlooked the point in its final deci- sion. As a result, it was then raised again in both the Company’s Brief (pp. 61-62) and its Reply Brief (pp. 28-30) to this Court. Under such circumstances, it is submitted that the argument has not been raised “too late”. IX. The Short Term Interest Deduction In affirming the Department’s calculation of short term interest expenses for purposes of computing cost of service income taxes, the Court gives no indication in its opinion that it considered the Company’s argument that such an approach produces a serious mismatching of the various elements in the ratemaking process. (See Co. Reply Brief, pp. 47-49) Furthermore, the Court never addressed the argument that if the Department’s approach of using pro- jected short term debt balances is adopted, then to be con- sistent, it should also project AFUDC balances in normaliz- ing the debt portion of AFUDC. (See Co. Brief, pp. 78-80; Co. Reply Brief, pp. 49-61) A rehearing should be allowed so that those issues, which apparently were overlooked, can he fully considered. X. Retroactive Rate Relief In its decision, the Court found that the Department had improperly eliminated depreciation on AFUDC not nor- malized from the Company’s cost of service. That error had reduced the Department’s calculation of the Company’s revenue deficiency and hence its retail rates by some $2,357,000. In addition, the Company was deprived of $5,582,000 solely because of the failure to use updated finan- cial data in connection with the Mystic 7 adjustment. The improper treatment of the G.E. warranty settlement in the amount of $800,000 and the failure to correct the Depart- ment’s $200,000 clerical error in modifying the refueling outage adjustment reduced the Company’s revenue defi- ciency by another $1,000,000. Thus, the correction of these errors alone, which are produced with no change in the substantive treatment of any of the other issues raised on appeal, would have entitled the Company to nearly $9,000,000 in additional retail revenues on an annual basis. That loss becomes approximately $15,000,000 if it is com- puted on a twenty-month basis.” In this case, the revenues improperly denied the Com- pany appreciably exceed the revenues granted. In such circumstances of extraordinary hardship, it is submitted that basie concepts of fairness inherent in due process and equal protection should move the Court to reconsider its conclusion that rate relief “may not be awarded retro- actively as a matter of law.” Opin. 4 Instead, consistent with the approach in Potomac Electric Power Co. v. Public Service Comm’n., 380 A.2d 126, 147-149 (D.C. Ct. App. 1977), which the Court cites with approval elsewhere in its ** The approximate interval between the Department’s original decision of August 12, 1976 and the Court’s decision of April 19, 1978. ; 69 decision on other issues, the Court should fashion a remedy by which revenues unjustifiably denied by the Department will not be irretrievably lost. Respectfully submitted, Epwarp B. Haniry Witiiam G. Meserve Attorneys for the Petitioner Boston Edison Company EBH/WGM :cae ec: All parties 70 SuprEME JupiciaL Court For THe CoMMONWEALTH COURT HOUSE BOSTON FREDERICK J. QUINLAN Clerk WILLIAM M. CLORAN Assistant Clerk June 22, 1978 Wiuiam G. Meserve, Esa. Ropes & Gray 225 Franklin Street Boston, Massachusetts 02110 Dear Mr. Meserve: Re: Boston Edison Company v. D.P.U. Supreme Judicial Court No. SJC-832 Your application for a rehearing in re the above cap- tioned case has been considered by the court and is denied. Very truly yours, Frep QuINLAN Clerk c.c.: Margot Botsford, A.A.G. 1 Ashburton Place, 20th floor, Boston 02108 Laurence M. Johnson, Esq. Newman & Meserve 125 High St., Boston 02110 Stanley U. Robinson, III, Esq. 9 Wheelock Road, Wayland 01778 Torgeir K. Kvale, Esq. 218 Beethoven Ave., Waban 02168 Norman C. Ross, Asst. Corporation Counsel Boston City Hall, Boston 02201 Andrew J. Newman, Esq. Guterman, Horvitz, Rubin & Rudman 3 Center Plaza, Boston 02108 71 COMMONWEALTH OF MASSACHUSETTS SUPREME JUDICIAL COURT FOR THE COMMONWEALTH Suffolk County April Sitting, 1977 No. 832 BOSTON EDISON COMPANY, Petitioner We DEPARTMENT OF PUBLIC UTILITIES, Respondent NOTICE OF APPEAL TO THE SUPREME COURT OF THE UNITED STATES Notice is hereby given that Boston Edison Company, the petitioner above named, appeals to the Supreme Court of the United States from the decision and order of the Su- preme Judicial Court for the Commonwealth of Massachu- setts entered in this proceeding on April 19, 1978, which affirmed the September 30, 1975 decision and order of the Department of Public Utilities in the proceeding docketed by the Department as D.P.U. 18200/18200-A and which af- 72 firmed in part and reversed in part the August 12, 1976 decision and order of the Department of Public Utilities in the proceeding docketed by the Department as D.P.U. 18515. This appeal is taken pursuant to 28 U.S.C. § 1297(2). Epwarp B. Haniry WiuiaM G. MEsERVE Ropes & Gray 225 Franklin Street Boston, Massachusetts 02110 Victor H. KazanJian Joun J. Desmonn, IIT Boston Edison Company 800 Boylston Street Boston, Massachusetts 02199 Attorneys for the Petitioner Boston Edison Company Dated: July 17,1978 73 CERTIFICATE OF SERVICE S.J.C. No. 832 July 17, 1978 I, William G. Meserve, a member of the Bar of this Court and an attorney for the Petitioner, Boston Edison Com- pany, hereby certify that I have served a copy of the fore- going Notice of Appeal to the Supreme Court of the United States upon the other parties to these consolidated appeals by causing a copy of the same to be mailed, postage prepaid, to the following persons: Margot Botsford, Esq. Assistant Attorney General One Ashburton Place (20th Floor) Boston, Mass. 02109 : Laurence M. Johnson, Esq. Newman & Meserve 125 High Street Boston, Mass. 02110 Stanley U. Robinson, IIT Nine Wheelock Road Wayland, Mass. 01778 Torgeir K. Kvale 218 Beethoven Avenue Waban, Mass. 02168 i ai a 74 Norman C, Ross, Esq. Assistant Corporation Counsel Boston City Hall Boston, Mass. 02201 Andrew J. Newman, Esq. Guterman, Horvitz, Rubin & Rudman Three Center Plaza Boston, Mass. 02108 Wituiam G. Meserve Ropes & Gray 225 Franklin Street Boston, Massachusetts 02110 COMMONWEALTH OF MASSACHUSETTS Suffolk, ss. Subscribed and sworn to before me this 17th day of July, 1978. Exisa M. Lopez, Notary Public My Commission expires Nov. 22, 1979 75 The Commonwealth of Massachusetts DEPARTMENT OF PUBLIC UTILITIES August 12, 1976 D.P.U. 18515 INVESTIGATION BY THE DEPARTMENT ON ITS OWN MOTION AS TO THE PROPRIETY OF THE RATES AND CHARGES STATED IN M.D.P.U. NOS. 311 THROUGH 327, INCLUSIVE, FILED BY BOSTON EDISON COMPANY ON OCTOBER 17, 1975, TO BE- COME EFFECTIVE NOVEMBER 1, 1975. 76 TABLE OF CONTENTS BIPPTRATIAIIU .. . « . « «ow 5 ce i nw ewe e were ses sceeses oe.) kd )) neers eer RATE BASE ioe Me eee tre cas ke a iiaae wn A. Average vs. Year-End Rate Base .........----- B. Compensating Balances..........-..----ss55>- C. Mystic Unite 1, 2,3 ...... 1.2... cece ecco eeees D. The Scrubber De PA yw eacaek cs swe E. Plant Held for Future Use...........-.---+++: F. Pilgrim 1 Facilities Transferred to Pilgrim 2.... G. Alloeation of L Street Plant H. Materials and Supplies .................+.++-+ er BOM C0, Uo gid wae sare Asian 844 64.0 ts J. Pilgrim Station Stabilizing Line K. Working Capital ee era ee Rate Base Summary . REVENUES A. Adjustment for Mystic 7 ...............-0205- B. Interest on Overdue Accounts ..............++. C. NEPCO Contract Revenues ................... D. Wholesale-Retail Allocation ..................-. E. Contract Fuel Clause Revenues ................ EXPENSES Ry eRe eee ee ee . - Bmp Wem Tee... onc conc es etc cenavenenes (. Amortization of the Price-Waterhouse Report . D. Amortization of Leasehold Improvements ...... ee PE eee Tee eee ee ee F. Nuclear Refueling and Maintenance Expense ... G. The 1976-77 Wage and Salary Adjustments ..... H. Adjustment for Changes in Number of Employees 5. Bitimsatod Property TOO... . 2. conc cscnceces, 101 102 102 102 103 104 105 106 107 108 ORDER TABLE OF CONTENTS — Continued Annualization of 1975 Property Taxes. ....__... Contested Property Taxes .................... Property Taxes on CWIP __. Depreciation on Easements ................... Depreciation Adjustments on Plant Added in 1975 Depreciation Rates ... Operation and Maintenance Customer Deposits . Contributions | Ineome Taxes 1. Interest Expense-Short Term Debt 2. AFUDC Not Normalized CAPITAL STRUCTURE A. Common Equity Balance B. C. D. Capital Stock Expense RATE OF RETURN Interest Rate on Chicago Note .... Investment in Nuclear Subsidiaries oS 2 Se O's € 6.6 8 CS EOE 6 OS Se SS OS OS SP ee ee ee ee xh os ee Oe i oe ee oe a ee a Ok ee ay 6's © 625 9D 2 ORAL BESD SS PSE SOE CCHS SOTO HOES OD 108 109 110 112 112 113 113 114 114 117 118 121 122 123 124 125 126 141 141 142 142 142 "y 78 The Commonwealth of Massachusetts DEPARTMENT OF PUBLIC UTILITIES August 12, 1976 D.P.U. 18515 Investigation by the Department on its own motion as to the propriety of the rates and charges stated in M.D.P.U. Nos. 311 through 327, inclusive, filed by Boston Edison Company on October 17, 1975, to become effective Novem- ber 1, 1975. APPEARANCES: Ropes and Gray (by: Edward B. Hanify, Esq. and William G. Meserve, Esq., of counsel), 225 Franklin Street, Boston, Massachusetts 02110 and Victor H. Kazanjian, Esq., General Counsel, and John J. Desmond, III, Associate General Counsel, 800 Boylston Street, Boston, Massa- chusetts. For Boston Edison Company. Francis X. Bellotti, Attorney General (by: Michael Meyer, Esq., Kenneth Barna, Esq. and Lisa Fitzgerald, Wsq., Assistant Attor- neys General and Nicholas J. Seobbo, Chief Financial Analyst), One Ashburton Place, Boston, Massachusetts. For the Office of the Attorney General and the Massachusetts Con- sumers’ Council. 79 APPEARANCES: Guterman, Horvitz, Rubin & Rudman (by: (Continued) Andrew J. Newman, Esq., of Counsel), Three Center Plaza, Boston, Massachusetts. For Boston Insurance Exchange Building, Inc., Stastreet Trust, and Associated Industries of Massachusetts. Barry A. Margolin, Esq., 364 Boylston Street, Boston, Massachusetts. For Massachusetts Fair Share. John J. Cassidy, Esq., General Services Ad- ministration, 18th F Street, Washington, D.C. 20405. For the Federal Executive Agencies. Mr. Stanley U. Robinson, III, Nine Wheelock Road, Wayland, Massachusetts. Pro se. Mr. Torgier Kvale, 281 Beethoven Avenue, Waban, Massachusetts. Pro se. INTRODUCTION By Order dated September 30, 1975 (D.P.U. 18200/ 18200A, as amended), the Department approved a rate in- crease in the amount of $29.5 million for Boston Edison Company (“Company”). Less than three weeks later the Company filed the present application for a further in- crease of $48.8 million, since raised to $49.5 million. The increase was to go into effect November 1, 1975, but was suspended until July 1, 1976 and later to September 1, 1976. On May 19, 1976, after 34 days of hearings, the Depart- ment determined that, due to the number and complexity of issues relating to rate relief, there was substantial dan- ger that the important question of rate design would not receive adequate attention within the statutory suspen- 80 sion period. The Department had hoped that both the rate relief and rate design aspects of this case could be com- pleted in sufficient time so that a single order could be is- sued prior to the suspension date. However, it does not ap- pear that the hearing and briefing schedule for the rate de- sign phase of the case will permit the issuance of a single order. Accordingly, this Order is limited to the question of the extent to which the Company is entitled to a rate in- crease. As to this question, it is intended that this Order shall be the Department’s final decision. The Company’s basic contention is that because of regu- latory lag and continuing inflation, it has suffered financial decline to a point where its ability to serve its customers adequately is seriously endangered. The Company appears once again to embrace its historic position that the only remedy for its financial difficulties is rate relief. The Intervenors” principal argument is that the Com- pany’s financial health will improve as a result of increased revenues from a new plant which the Company has recently constructed. This contention is considered as part of the general discussion of revenues below. It is our view that rate relief should be a last resort, and that it should be granted only after there has been a proper showing that every reasonable effort has been made to hold expenses down and to ease the burden imposed by the con- struction program. Although the Company contends that it has made efforts to economize, the record does not indicate that the Company has acted as vigorously as it might have to reduce or eliminate expenses incurred for non-essential services; nor does it show any substantial and sustained “Tntervenors” as used herein, shall refer to the Attorney Gen- eral and the Massachusetts Consumers’ Council unless otherwise indicated. 81 attempt to relieve the financial strain attributable to con- struction. We have elsewhere expressed concern as to whether rate increases are justified absent a showing of efficient opera- tions. Fall River Gas Co., D.P.U. 18416 (1976). We there- fore require that the Company affirmatively demonstrate, in any future rate case, that it has moved to improve the efficiency of its operations and the productivity of all its employees, both management and non-management. Such a demonstration, at a minimum, would include a showing that employees’ wages, salaries and numbers are not exces- sive and that the construction program is the least that will provide necessary and adequate service. In the Fall River case we made a similar requirement, with the evidence to relate to the period between the date of the Order and the next rate filing. Had such a require- ment been applicable to the present case it would have been virtually meaningless, as the present application came less than three weeks after the last rate Order. We therefore direct that the period shall be that from the end of the test period used in this case (December 31, 1975) to the date of the next application. We now proceed to a consideration of the issues relating to rate base, revenues and expenses, and rate of return. RATE BASE A. Average vs Year-End Rate Base The test period applicable here is the year 1975. The Company urges the use of a year-czd rate base to offset the alleged adverse effects of regulatory lag. The Inter- venors vigorously oppose this, urging the use of an aver- age rate base. 82 In our view, an average rate base is the appropriate measure. Ordinarily its use is a reasonably reliable basis for determining the amount of plant and other investment needed during the test year to produce the revenues for that year. However, exceptions are made when an unusu- ally large unit has come into service during the year. That is the case here. On June 14, 1975, the new 600 megawatt plant called Mystie Unit No. 7 (“Mystic 7”) went into commercial operation. This investment constituted about one-seventh of the year-end rate base, a far greater than normal addition. In Boston Edison Co., D.P.U. 18200 (1975), the test period was 1974, so that the plant came on line almost six months after the close of the test period. The Department nevertheless recognized that the situation was one calling for special consideration. We normalized the test year by assuming that Mystic 7 was in operation throughout the period, by making certain additions to test year revenues, adjustments to the cost of service, and other adjustments to the test vear rate base. The treatment given Mystic 7 in the present decision is consistent with, though not the saine as, that in D.P.U. 18200. Independently of that consideration, the treatment here is one which produces a just and reasonable result. We conclude that, as in D.P.U. 18200, Mystie 7 should be assumed to have been in the rate base throughout the test year. It should be included in the rate base at the net amount attributable to it, after depreciation, as of the end of the year. This, with appropriate adjustments to reve- nues (discussed hereinafter), will provide a proper return on this investment and will at the same time give a fair approximation of the revenues to be expected from it. Thus, a reasonable matching of rate base, revenues and ex- penses as to this item will have been achieved with such precision as the nature of the problem permits. 83 The unusual circumstances of Mystic 7 aside, however, we are not persuaded by anything in this record or by the Company’s argument that we ought to abandon our well- established practice of employing an average rate base. As we said recently in Western Massachusetts Electric Co., D.P.U. 18252 (1975): **The rate making process seeks to reproduce in the fu- ture the actual results of the test year, properly ad- justed. It follows that the process should be concerned with arriving at a fair return on the average rate base which will obtain in the future, rather than a beginning or end of period rate base. Criticism of the use of average rate base may be an- swered by appropriate adjustments to the test year and by use of the most current date available. p. 3. Accordingly, for investment other than Mystic 7, we will use as the Company’s proper rate base, the average of the beginning of year and end of year account balances. B. Compensating Balances In its ecaleulation of rate base the’ Company included $22.6 million of balances which it alleges it is required to maintain with various lending institutions in order to as- sure lines of credit for short-term borrowing. It repre- sented that that amount was actually on deposit and at- tributable to the Company’s electric operations. The argument runs that if the Company borrows, say, $1,000 at 8% with no compensating balance requirement, it would be able to use that amount in its construction pro- gram at a cost of $80 per annum. If, on the other hand, it were required to maintain a $100 compensating balance, it would pay the same $80 for only $900 of usable funds. Up to that point the argument is correct, if such are the facts. There are several difficulties, however. One is that 84 in no case has the Company come forward with a loan agreement showing a compensating balance requirement.’ It is common knowledge in the industry that the rigidity with which the requirement is enforced varies to a consid- erable degree with money market conditions, the banks being less disposed towards strictness when funds are plentiful. Second, there is no showing as to any portion of the $22.6 million that it would not have been maintained but for the requirement. There is in the rate base a cash work- ing capital allowance which the Company calculates at $30.5 million. It is probable in the highest degree that at least some substantial portion of the amount claimed as vompensating balances would be maintained in the lending banks in any event. Absent any showing of lack of dupli- cation, some overlap must be assumed as a matter of com- mon sense. Third, the establishment of compensating balances ap- pears to be a device for the convenience of the banks. Such balances are not used and useful in the public interest. The publie would certainly be no better off than if the Company were to pay the same effective rate of interest on the por- tion of the loan truly available for its use, with no com- pensating balances. Not only do compensating balances disguise the extraction from the borrower of a higher ef- fective rate of interest than appears on the face of the loan, but they also result in a more impressive balance sheet for the bank than would otherwise be the case, since the ratio of loans to deposits 1s made to appear more favorable. ? The annual reports of the Company to stockholders and to the Federal Power Commission state that there are no legal restrictions on the withdrawal by the Company of compensating balances. 85 Fourth, the rejection of these balances as part of the rate base represents established precedent which the pres- ent record does little, if anything, to contradict. The Company proposes an alternative to the inclusion of compensating balances in rate base. It suggests that a sep- arate return could be calculated for the balances on the basis of actual cost instead of the overall rate of return. Such an approach, the Company says, would eliminate the possibility that it could earn a greater rate of return on compensating balances than the interest rate it was re- quired to pay on its short-term debt (a possibility we noted in diseussing this issue in D.P.U. 18200). The proposal must be rejected for the reasons discussed above. Simply stated, compensating balances do not repre- sent an investment upon which the ratepayers should be required to pay a return — even a reduced return. The Company’s final argument in this area is that the interest expense figure used in the income tax calculation should be reduced by the amount of compensating balances times the prime interest rate used to calculate short-term interest expense and the cost of the First National Bank of Chicago Note. The Company contends that such adjust- ment would prevent the ratepayers from getting a tax benefit in the form of an interest deduction on compensat- ing balances. While compensating balances may increase the effective rate of interest on borrowed funds, as discussed above, they do not increase the interest expense which is deduct- ible for income tax purposes under Section 163 of the In- ternal Revenue Code. Thus, the ratepayers are not getting an income tax benefit from compensating balances. For all these reasons, the Company’s positions with re- spect to compensating balances are rejected. C. Mystic Units 1, 2 and 3 On June 1, 1975, the Company retired three generating units known as Mystie 1, 2 and 3. The Company argues that the investment should be included in plant in service for rate base purposes because the units are used and use- ful up to the time of their retirement. If they are excluded, says the Company, then all new plant + uich went on line in 1975 and which will be in service at the time any new rates go into effect should be included at its full value, not merely at its average value for the year. The Company has included in its rate base a net amount of $1.7 million for the three plants. This number comes from subtracting $10.2 million of accumulated depreciation from the $11.9 million of December 31, 1974 balance of plant cost. The $1.7 million represents retired plant. The Depart- ment has consistently held that the public should not be required to pay a return on property that is no longer used and useful. Fitchburg Gas & Electric Co., D.P.U. 18031-A (1975). Reasons peculiar to this case reinforce that policy. It is, of course, the result reached and not the method employed which is controlling. “It is not the theory but the impact of the rate order which counts. If the total effect of the rate order cannot be said to be unjust and unreason- able, judicial inquiry is at an end.” Federal Power Com- mission v. Natural Gas Pipeline Co. of America, 315 U.S. 575, 586 (1942). Similarly, the Supreme Judicial Court said in Boston Gas Co. v. Department of Public Utilities, 324 N.E.2d 372, 376 (1975), that “our fundamental law requires no particular theory or method to be used in determining rate base...” Here the Department is giving a full vear’s effect in the rate base to Mystic 7 even though it did not go into opera- 87 tion until about the time Mystic 1, 2 and 3 were taken off line. The addition of Mystic 7 was a known change requir- ing special treatment. In normalizing the test year by hypothesizing the inclusion of Mystic 7, it is equally appro- priate to exclude Mystic 1, 2 and 3. This exclusion is cor- rect as a matter of consistency with the overall treatment of plant account in the rate base. D. The Scrubber The Company has included in its rate base $4.1 million for the unamortized portion of a pollution control device known as a scrubber, which was used to reduce the sulphur content of flue gas in an oil-fueled generating station. It was part of a project at the Mystic Station conducted in conjunction with the Environmental Protection Agency. The record indicates that its potential for savings was substantial. In 1974, however, it was removed from service when facilities to process the sulphur crystals recovered as part of the scrubbing process became unavailable. The evidence that it failed for economic reasons is not challenged. The reason the Company has set up the unamortized por- tion in the rate base is so that it may write off over a period of time. It proposes a five-year period. The account in which the serubber now appears is called “Unamortized Research and Development Costs”. It is the same item dis- eussed in D.P.U. 18200, at which time it was classified as “Property Held for Future Use”. In that (:cision we ex- eluded it from rate base. The treatment proposed by the Company would give it the same return on the unamortized balance as if the serub- ber were still used and useful and, in addition, would allow it to charge off amortization of 20% a year. Thus the rate- 8S payer would, for the next five years, be paying more than if the $4.1 million scrubber were in full operation and being written off at the same 3% rate as that of fixed assets. The Company is not entitled to earn a return on this item, which has been completely retired and was not used or useful at any time during the test year. At the same time, the stockholders alone should not be required to ab- sorb the loss. The investment was a management decision which cannot reasonably be called an imprudent expendi- ture. It was simply a project that did not mature as expected. It is ordered that the item be deducted from the rate base, but that it be amortized at the same rate as the over- all rate of return granted herein (or as may be granted in subsequent rate cases) until it is fully written off. In that way the ratepayers will properly bear their share of the investment, but will be paying no return on it and will be paying for it over a limited period. The amortization will be at no greater rate than the return that a depreciating asset would have earned, and here no depreciation will be charged to cost of service. The stockholders are also bearing a part of the burden of the investment. They are being required to forego a return. See, Worcester Gas Light Co., D.P.U. 16316 (1970), cited in Fitchburg Gas and Electric Light Co., D.P.U. 18031-A (1975). They should recover their investment as promptly as is reasonable, but should not profit from the failure of the project. The disposition ordered here achieves that result without causing the ratepayers to bear charges any higher than a fair rate of return would require. In- stead of return, the charges will go to reduce the remaining part of the investment, with eventual reduction of the cost of service when the item is fully amortized. 89 E. Plant Held for Future Use Included in the Company’s proposed rate base is $1.9 million of Plant Held for Future Use, of which $1.7 million is land. The Company argues that it should all be included in rate base, because it is necessary that sites for future use be acquired well in advance, and because in the long run a prudent acquisition program of this sort may reduce the costs to be borne eventually by the ratepayers. Implicit in the Company’s argument is the suggestion that should Plant Held for Future Use not be included in rate base, the Company would have no incentive to acquire such plant and thus save money on an expenditure which might otherwise have to be made under unfavorable cir- cumstances. This suggestion, however, has not been borne out by experience as far as we can determine. Quite apart from the question of whether the inclusion of Plant Held for Future Use in rate base acts as an incentive or a deterrent to sound investment policies, we are not dis- posed to require the Company’s customers to give a return on plant which is not currently used and useful in provid- ing service to them. Such is the case with Plant Held for Future Use. Moreover, we have no assurance that such plant will ever be used for the henefit of the Company’s customers. If part of it were sold at a profit, the gain would go to the stockholders, not to the ratepayers. That has happened in the past and it will doubtlessly happen again in the future. See, New England Telephone and Telegraph Company, D.P.U. 18210 (1975). We conclude that this item is not a proper part of rate base. 90 F. Pilgrim | Facilities Transferred to Pilgrim 2 In 1974, a part of the Company’s investment in Pilgrim 1 was retired on the Company’s books, because that part was sold to other utilities as part of their participation in Pil- grim 2. The remainder, amounting to $8.1 million, has been included in the Company’s caleulation of rate base. The Intervenors oppose this inclusion, saying that it is part of the, as vet, unfinished Pilgrim 2 and should be ex- cluded as Construction Work In Progress (“CWIP”). The record shows, however, that the plant in question, consist- ing principally of a breakwater and other shore protection with associated dredging, was used and useful during the test year in the service of the Company’s customers. Cur- rently, it is being used by Pilgrim 1 and can be used by both Pilgrim units. The record indicates that the facilities were necessary for Pilgrim 1. That they may also become useful or necessary for Pilgrim 2 should not deprive them of their proper status as part of the rate base. This is consistent with the result reached in D.P.U. 18200. The Intervenors, in another con- nection, urge that the Department follow the dictates of the Supreme Judicial Court in Boston Gas Co. v. Department of Public Utihties, swpra, at p. 379 in which it said. A party to a proceeding before a reguiatory agency such as the Department has a right to expect and obtain rea- soned consistency in the agency’s decisions. This does not mean that every decision of the Department in a par- ticular proceeding becomes irreversible in the manner of judicial decisions constituting res judicata, but neither does it mean that the same issue arising as to the same party is subject to decision according to the whim or eaprice of the Department every time it is presented. (FMmphasis added.) There is no reason to depart from the result pr [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_1534%3A2. Public record. Not legal advice.