Petition — Roberts v. Narragansett Electric Co.

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Bupreme Court, U,

FILE

In the L_MICHARL RODAK, JR.

Supreme Court of the United States.

Ocroser Term, 1979.

ie. fa 79-982"

DENNIS J. ROBERTS II,

AtTorNEY GENERAL OF THE STATE OF RHODE ISLAND,

PETITIONER,

Dv.

THE NARRAGANSETT ELECTRIC COMPANY,

RESPONDENT.

Petition for a Writ of Certiorari to the

Supreme Court of the State of Rhode Island.

Dennis J. Roserts II,

Attorney General,

STEPHEN LICHATIN III,

Special Assistant Attorney General,

Chief, Appellate Division,

FarrH A. LASALLE,

Special Assistant Attorney General,

Providence County Courthouse,

Providence, Rhode Island 02903.

BATEMAN & SLADE, INC. BOSTON , MASSACHUSETTS

Table of Contents.

Opinion below

Jurisdiction

Question presented

Constitutional provision involved

Statement of the case

Prior proceedings

Statement of facts

Reasons for granting the writ

I. Due process mandates that The Narragansett

Electric Company be ordered to refund reven-

ues paid by its customers in excess of the rates

originally intended by the Public Utilities Com-

mission in its January 24, 1972, order 6

II. The Rhode Island Supreme Court erred in

failing to uphold the Commission’s award of

relief to the customers injured by the excessive

rates that Narragansett Electric Company

Own NNN — =

charged them 15

Conclusion 20

Appendix: Opinion of the Supreme Court of the State

of Rhode Island follows page 20

Table of Authorities Cited.

CASES.

Action for Children’s Television v. F.C.C., 564 F.2d

458 (D.C. Cir. 1977) 12, 13

Arizona Grocery Co. v. Atchison, Topeka & Santa Fe

Ry., 284 U.S. 370 (1932) 15, 16

ii TABLE OF AUTHORITIES CITED.

Board of Regents v. Roth, 408 U.S. 564 (1972) 9, 10

Brown v. United States, 377 F. Supp. 530 (N.D. Tex.

1974) 18

Burton v. Wilmington Parking Authority, 365 U.S.

715 (1961) 7

California Gas Producers Ass’n v. F.P.C., 421 F. 2d

422 (9th Cir. 1970) 18

Callery Properties, Inc. v. F.P.C., 335 F. 2d 1004 (5th

Cir. 1964), rev'd sub nom. United Gas Improvement

Co. v. Callery Properties, Inc., 382 U.S. 223 (1965) 17

Camero v. United States, 179 Ct. Cl. 520, 375 F. 2d

777 (1967) 18

City of Norfolk v. Virginia Elec. & Power Co., 197 Va.

505, 90 S.E. 2d 140 (1955) 9n

Civil Rights Cases, 109 U.S. 3 (1883) 7

Goldberg v. Kelly, 397 U.S. 254 (1970) 9

Goss v. Lopez, 419 U.S. 565 (1975) 10

Hartford Consumer Activists Ass’n v. Hausman, 38]

F. Supp. 1275 (D. Conn. 1974) 9n

Home Box Office, Inc. v. F.C.C., 567 F. 2d 9 (D.C.

Cir. 1977) 12

Jackson v. Metropolitan Edison Co., 419 U.S. 345

(1974) 7, 8,9

Massachusetts Bay Telecasters, Inc. v. F.C.C., 261

F, 2d 55 (D.C. Cir. 1958) 12

Mathews v. Eldridge, 424 U.S. 319 (1976) 6,7, 11, 14

Mesa Petroleum Co. v. F.P.C., 441 F. 2d 182 (5th Cir.

1971) 18, 20

Morgan v. United States, 304 U.S. 1 (1938) HH, 18. ¥7

Morrissey v. Brewer, 408 U.S. 471 (1972) | 9,11

TABLE OF AUTHORITIES CITED. lll

Moss v. C.A.B., 430 F. 2d 891 (D.C. Cir. 1970) 18

New England Tel. & Tel. Co. v. P.U.C., 116 R.I. 356,

358 A. 2d 1 (1976) 15

Niagara Mohawk Power Corp. v. F.P.C., 379 F. 2d

153 (D.C. Cir. 1967) 18, 20

Paul v. Davis, 424 U.S. 693 (1976) . 6

Sangamon Valley Television Corp. v. United States,

269 F. 2d 221 (D.C. Cir. 1959) 12

Sellers v. Iowa Power & Light Co., 372 F. Supp. 1169

(S.D. Iowa 1974) | 9n

Sniadach v. Family Fin. Corp., 395 U.S. 337 (1969) 9

CONSTITUTIONAL AND STATUTORY PROVISIONS.

United States Constitution, Fourteenth Amendment 2. *.

7, & a7

28 U.S.C. § 1257(3) 2

R.I. Gen. Laws 1956 (1977 Reenactment)

§ 39-1-1 19n

§ 39-1-38 19n

§ 39-2-7 5n

§§ 39-3-1 et seq. 8

§ 39-3-10 8

§ 39-3-10 — 13 10

§ 39-3-13.1 10n

§§ 42-35-1 et seq. 4,5, 6n, 13, 16, 20

§ 42-35-13 4n, 13, 15n

1975 R.I. Pub. Laws c. 276, § 1 10n

iv TABLE OF AUTHORITIES CITED.

MISCELLANEOUS.

Comment, Public Utilities and State Action: The Su-

preme Court Takes a Stand, 24 Cath. U. L. Rev. 622

(1975)

Craft, Due Process Restraints on the Use of Automatic

Adjustment Clauses in Utility Rate Schedules, 18

Ariz. L. Rev. 453 (1976)

In the

Supreme Court of the United States.

OcroBerR TERM, 1979.

No.

DENNIS J. ROBERTS II,

ATTORNEY GENERAL OF THE STATE OF RHODE IsLAND,

PETITIONER,

THE NARRAGANSETT ELECTRIC COMPANY,

RESPONDENT.

Petition for a Writ of Certiorari to the

Supreme Court of the State of Rhode Island.

Opinion Below.

The opinion of the Supreme Court of Rhode Island, not yet

reported, appears in the Appendix hereto.

Jurisdiction.

The opinion of the Supreme Court of Rhode Island was en-

tered on July 24, 1979. This Court granted one extension of

time in which to file the petition to and including Decem-

ber 21, 1979.

This Court’s jurisdiction is invoked under 28 U.S.C.

§ 1257(3).

Question Presented.

Whether the Supreme Court of Rhode Island used the cor-

rect standards in holding (1) that the Public Utilities Commis-

sion (PUC) acted illegally in voiding its order of January 27,

1972, and in ordering The Narragansett Electric Company to

refund revenues paid by customers in excess of the rates orig-

inally intended by the PUC in its January 24, 1972, order and

(2) that, although there was an illegal ex parte communica-

tion, the PUC was powerless to order refunds to the consumers

who paid the excessive rates.

Constitutional Provision Involved.

FOURTEENTH AMENDMENT.

Section 1. “... nor shall any State deprive any person of

life, liberty, or property, without due process of law . . ..”

Statement of the Case.

Prion PROCEEDINGS.

This proceeding was commenced at the request of the Attor-

ney General in the Rhode Island Public Utilities Commission

(PUC) to investigate whether The Narragansett Electric Com-

pany (Narragansett) had placed into effect and charged its

customers under improper and excessive rates at the conclu-

sion of Narragansett’s general rate increase filing considered

by the PUC. In its decision below, the PUC found that Narra-

gansett had implemented unjust, unreasonable, and unlawful

rates, and issued an order on August 21, 1978, directing Narra-

gansett to refund to its customers the difference between what

it collected under those rates and what it should have collected

if it had charged proper rates.

Narragansett petitioned the Supreme Court of Rhode Island

for a writ of certiorari to review and quash the August 21,

1978, order of the PUC. The Supreme Court granted the peti-

tion, quashed the PUC order and the case was remanded to

the PUC.

STATEMENT OF FACcts.

This case arose when the Attorney General of Rhode Island

asked the Rhode Island Public Utility Commission to investi-

gate certain allegations that The Narragansett Electric Com-

pany, the State’s largest supplier of electrical energy, had over-

charged its customers by implementing an improper rate in-

crease.

In November, 1970, Narragansett asked the PUC to permit

it to increase its rates by $8,889,000. These additional reve-

nues were to be realized by an increase in base rates which

would produce an additional $7,124,000 and by a change in a

fuel adjustment clause which would result in another revenue

increase of $1,765,000. On January 24, 1972, the PUC found

Narragansett’s requested increase of $8,889,000 excessive, un-

just and unreasonable and issped an order, Docket No. 1076,

allowing Narragansett a revenue increase of $6,448,000.

The following day, January 25, 1972, officials from Narra-

gansett obtained a meeting with members of the PUC to dis-

cuss the implications of the order. The Rhode Island Consum-

ers’ Council was neither informed of nor represented at the ex

parte conference. The meeting consisted of an extensive dis-

cussion between members of the PUC and officials from Nar-

ragansett only. On January 27, 1972, Narragansett presented

to the PUC the rates it had filed in response to the PUC’s order

allowing a $6.4 million revenue increase. The Consumers’

Council was informed of this meeting and sent a representa-

tive to it. At this meeting, no mention was made of the previ-

ous meeting at which the Consumers’ Council was not present.

On January 28, 1972, the PUC issued an order approving the

rates Narragansett had filed and placing them into effect on

that date.

In January of 1975, the Attorney General asked the PUC to

investigate Narragansett’s implementation of the 1972 rate or-

der. The PUC agreed to investigate and conducted extensive

hearings on the matter. In its decision below, the PUC found

that the meeting held on January 25, 1972, was an ex parte

meeting in violation of the State Administrative Procedures

Act and that the rates which Narragansett implemented on

January 28, 1972, were in substantial noncompliance with the

PUC’s order of January 24, 1972.! The PUC also found that

its order allowing a $6.4 million revenue increase meant that

'R.I. Gen. Laws 1956 (1977 Reenactment) § 42-35-13 provides:

Unless required for the disposition of ex parte matters authorized by

law, members or employees of an agency assigned to render a decision

or to make findings of fact and conclusions of law in a contested case

shall not, directly or indirectly, in connection with any issue of fact,

communicate with any person or party, nor, in connection with any is-

sue of law, with any party or his representative, except upon notice

and opportunity for all parties to participate . . ..

the total revenue increase was to equal that amount. To the

extent that Narragansett’s rates were calculated to yield more,

$7.8 million, those rates were excessive, unjustified and unrea-

sonable. Therefore, $1.4 million was considered improperly

collected by Narragansett.

The PUC determined that Narragansett procured the PUC’s

order of January 28, 1972, which placed the unlawful rates in-

to effect by obtaining an illegal, ex parte meeting with the

PUC in violation of the Rhode Island Administrative Proce-

dures Act. Narragansett failed to disclose to the participants

at the January 27, 1972, meeting what transpired at the ex

parte meeting or the actual effect of the rates Narragansett

filed on January 28, 1972. Thus, the PUC concluded that

since its January 28 order was based on the misunderstanding

it was given at the ex parte meeting, the order was invalid to

the extent that it purported to allow rates which collected

revenue over $6.4 million. Narragansett was ordered to re-

fund to its customers the money it had wrongfully collected

which exceeded the $6.4 million figure.

The Rhode Island Supreme Court granted the petition for

writ of certiorari filed by Narragansett and, after reviewing

the briefs submitted by both parties, entertained oral argu-

ment on the issues. The high court of Rhode Island found that

the record of the PUC’s investigatory hearing supported a find-

ing that an ex parte meeting had occurred on January 25,

1972, in violation of Rhode Island law. However, the court

refused to uphold the PUC’s order of a refund to the customers

injured by the excessive revenue increase and allowed Narra-

gansett to retain the $1.4 million it had improperly collected

from the customers.?*

£Simultaneously with his request for an investigation, the Attorney Gener-

al commenced a civil action against Narragansett in the Rhode Island Supe-

rior Court under R.I. Gen. Laws 1956 (1977 Reenactment) § 39-2-7. The

statute provides that a public utility is civilly liable for harm resulting from

Reasons for Granting the Writ.

I. Due Process MANDATES THAT THE NARRAGANSETT ELEC-

TRIC COMPANY BE ORDERED TO REFUND REVENUES PAI BY ITS

CUSTOMERS IN EXCESS OF THE RATES ORIGINALLY INTENDED

BY THE PuBLic UTILITIES COMMISSION IN ITS JANUARY 24,

1972, OrpeEr.

It is axiomatic that due process restrains government action

which denies persons liberty or property interests within the

context of the Due Process Clause. See Mathews v. Eldridge,

424 U.S. 319 (1976). Once the elements of the Due Process

Clause — governmental action and deprivation of a protected

interest — are present, in a particular set of circumstances, the

procedural limitations will be imposed. Of course, the nature

of the facts in issue must be appropriate for a hearing, and the

Due Process Clause does not proscribe deprivation of every in-

terest a person might have. Paul v. Davis, 424 U.S. 693

(1976). A utility consumer must demonstrate initially that he

has been deprived of a constitutionally recognized interest by

state action before he can challenge his denial of a refund.

While courts have been reluctant to hold that a utility rate in-

crease or the denial of a refund deprives a consumer of his

Fourteenth Amendment right, the procedural due process pro-

tections may be expanded to provide protection in this situa-

tion.* The issue becomes one of constitutional dimension and

any act done in violation of the public utility laws and that any person, firm,

or corporation injured thereby has three years from the time the cause of ac-

tion accrues to bring the suit. The Superior Court dismissed the action on

the ground that the PUC had exclusive jurisdiction to determine this contro-

versy. Since the Rhode Island Supreme Court recognized that the Janua-

ry 25, 1972, meeting was an ex parte meeting in violation of the State Ad-

ministrative Procedures Act and refused to allow the customers to recoup the

loss sustained as a result of the improper rates charged, the court deprived the

customers of the only remedy available to them.

*See Craft, Due Process Restraints on the Use of Automatic Adjustment

Clauses in Utility Rate Schedules, 18 Ariz. L. Rev. 453, 459 (1976).

requires a careful analysis of the hearings held prior to a rate

increase to assure fairness. In order to resolve that issue, this

Court has stated that essential considerations are “whether the

. . . procedures provided . . . are constitutionally sufficient

. . . [and} analysis of the governmental and private interests

that are affected.” Mathews v. Eldridge, 424 U.S. at 334.

The Due Process Clause of the Fourteenth Amendment pro-

vides: “[N]or shall any State deprive any person of life, liber-

ty, or property, without due process of law.” In 1883, this

Court in the Civil Rights Cases, 109 U.S. 3 (1883), affirmed

the essential dichotomy between action by the state subject to

scrutiny under its provisions and private conduct, how-

ever discriminatory or unfair, against which the F ourteenth

Amendment provides no shield. See also, Jackson v. Metro-

politan Edison Co., 419 U.S. 345 (1974). This Court intro-

duced the total involvement test in Burton v. Wilmington

Parking Authority, 365 U.S. 715 (1961), and calied for judicial

consideration of the aggregate effect of the activities, obliga-

tions, and responsibilities of the private entity in determining

whether state action is present. See Comment, Public Utilities

and State Action: The Supreme Court Takes a Stand, 24

Cath. J. L. Rev. 622, 626-632 (1975).

However, this Court found no state action in the termina-

tion of electrical service by a privately owned but carefully

regulated utility in its fairly recent Jackson decision, 419 U.S.

at 345. The Court employed the nexus test to require that the

state be sufficiently involved in the specific activity that it

“may fairly be treated as . . . [an action] of the State itself.”

Id. at 351.

The Attorney General submits that even if this Court ad-

heres to the more stringent Jackson test for ascertaining state

action, the hurdle in securing due process review of a situation

where the Supreme Court of Rhode Island found a wrong but

afforded no remedy to the consumer should not be insur-

mountable. The only link between the Pennsylvania agency

and the termination regulation in Jackson was the filing of ter-

mination procedures by Metropolitan Edison Company with

the commission and the lack of any commission action to re-

move them. In addition, the subject regulation had not been

the subject of an agency hearing nor had it come under scruti-

ny by the commission.

In contrast, ratemaking is one of the primary duties of the

Rhode Island Public Utilities Commission. See R.I. Gen.

Laws 1956 (1977 Reenactment) §§ 39-3-1 et seq. Specifically,

§ 39-3-10 provides as follows:

Every public utility shall file with the public utility ad-

ministrator within a time to be fixed by the administra-

tor, schedules which shall be open to public inspection,

showing all! rates, tolls and charges which it has estab-

lished and which are in force at the time for any service

performed by it within the state, or for any service in con-

nection therewith or performed by any public utility con-

trolled or operated by it. A copy of so much of said

schedules as the administrator shall deem necessary for

the use of the public shall be printed in plain type, or

typewritten, and kept on file in every station or office of

such public utility where payments are made by the con-

sumers or users, open to the public in such form and place

as to be readily accessible and conveniently inspected,

and as the administrator may order. The administrator

may determine and prescribe the form in which the

schedules, required by this section to be kept open to the

public inspection, shall be prepared and arranged, pro-

vided, that with respect to public utilities subject to the

federal “Act to regulate commerce,” so-called, the form

of such schedules shall be that from time to time pre-

scribed by the interstate commerce commission.

State involvement, therefore, differs from the Jackson fact

pattern, where the Supreme Court emphasized that the com-

mission had not “put its own weight on the side of the pro-

posed practice by ordering it.” Id. at 357. Here, the rates

charged the consumer resulted from government deliberation,

approval or disapproval, and orders, and, as a result, there is

state action.‘

The next obstacle to overcome to achieve due process review

involves consideration of whether the consumer has been de-

prived of a cognizable property interest in Fourteenth Amend-

ment terms. As this Court stated in Morrissey v. Brewer, 408

U.S. 471, 481 (1972), “due process is flexible and calls for such

procedural protections as the particular situation demands.”

It is clear that the Fourteenth Amendment does not include

a definition of the property it protects. Not all property inter-

ests of persons are protected, but money has always been rec-

ognized as protected property. For example, in Sniadach v.

Family Fin. Corp., 395 U.S. 337 (1969), the majority opinion

made it explicit that the property constitutionally recognized

was the use of the garnished portion of a person’s wages during

the interim period between the garnishment and the culmina-

tion of the lawsuit involved. In recent years, it appears that

this Court has read the word “property” rather expansively

and adopted the doctrine of entitlement. Board of Regents v.

Roth, 408 U.S. 564 (1972); Goldberg v. Kelly, 397 U.S. 254

(1970).

‘Utility consumers have encountered no recent problems in challenging

rates under the Fourteenth Amendment regarding state action. See, e.g.,

Hartford Consumer Activists Ass'n v. Hausman, 381 F. Supp. 1275 (D.

Conn. 1974); Sellers v. lowa Power & Light Co., 372 F. Supp. 1169 (S.D.

Iowa 1974); City of Norfolk v. Virginia Elec. & Power Co., 197 Va. 505, 90

S.E. 2d 140 (1955).

To have a property interest . . . a perso clearly must

have more than an abstract need or desire for it. He must

have more than a unilateral expectation of it. He must,

instead, have a legitimate claim of entitlement to it. It is

a purpose of the ancient institution of property to protect

those claims upon which people rely in their daily lives,

reliance that must not be arbitrarily undermined. Roth,

408 U.S. at 577.

Thus, it seems that this principle of entitlement will deter-

mine the consumer’s eligibility to be safeguarded by the Due

Process Clause. This Court read broadly what constitutes an

entitlement in the recent case of Goss v. Lopez, 419 U.S. 565

(1975). In Goss, the Court found that high school students

suspended for ten days had legitimate claims of entitlement to

a public education. The Court arrived at entitlement by look-

ing at a statutory framework and finding a legislative intent to

confer a benefit on the students. It seems that the utility con-

sumer may look to state statutes for an entitlement to particu-

lar rates. A careful review of R.I. Gen. Laws 1956 (1977 Re-

enactment) §§ 39-3-10 thr ugh 13 reveals that the state

through its legislation entitles the consumer to rates estab-

lished in accordance with the prescribed procedures. It fol-

lows that the consumer is entitled to a refund where the rate

was determined illegally. App. 7a-9a.5

Moreover, a person is required to purchase utility service,

which is a necessity of modern life, from a monopoloid utility

licensed by the state. Therefore, the consumer has no real

choice in the price he pays for electricity. This Court should

have no difficulty in recognizing the utility consumer’s entitle-

°R.I. Gen. Laws 1956 (1977 Reenactment) § 39-3-13.1 was enacted by

1975 R.I. Pub. Laws c. 276, § 1, authorizing the PUC to order refunds.

ment to pay rates which yield a fair rate of return and which

have been legally established and imposed.

As this Court is aware, after due process has been shown to

apply, the type of process that is due must be determined.

Morrissey, 408 U.S. at 481. This Court has articulated a bal-

ancing of interests approach to determine the mandate of due

process in each set of circumstances. Mathews v. Eldridge,

424 U.S. at 335.

It is a fundamental precept of fair process — as applicable

to administrative adjudication as to proceedings in the courts

— that the adjudicatory process be carried on in the open and

that nothing should be taken into account in arriving at a deci-

sion on a contested issue of fact that has not been introduced

into the record and exposed to refutation, exploration through

cross-examination or explanation by the parties. This basic

principle of all adjudication, judicial and administrative alike,

manifests itself in the well-settled prohibitions against ex parte

communications and evidence dehors the record. This princi-

ple received perhaps its most definitive recognition in Morgan

v. United States, 304 U.S. 1 (1938). In Morgan, the Court set

aside an order of the Secretary of Agriculture fixing certain

maximum rates for buying and selling livestock on the ground

that the Secretary’s ex parte consultation with the persons who

prepared the government's case violated the principles of fun-

damental fairness. The Court cogently observed:

Congress, in requiring a “full hearing,” had regard to

judicial standards, — not in any technical sense but with

respect to those fundamental requirements of fairness

which are the essence of due process in a proceeding of a

judicial nature. Id. at 19.

The maintenance of proper standards on the part of

administrative agencies in the performance of their quasi-

judicial functions is of the highest importance and in no

way cripples or embarrasses the exercise of their appro-

priate authority. On the contrary, it is in their manifest

interest. For. . . if these multiplying agencies deemed to

be necessary in our complex society are to serve the pur-

poses for which they are created and endowed with vast

powers, they must accredit themselves by acting in ac-

cordance with the cherished judicial tradition embodying

the basic concepts of fair play. Id. at 22.

In Sangamon Valley Television Corp. v. United States, 269

F. 2d 221 (D.C. Cir. 1959), the United States Court of Ap-

peals for the District of Columbia relied on its earlier remand

order in Massachusetts Bay Telecasters, Inc. v. F.C.C., 261

F, 2d 55 (D.C. Cir. 1958), and vacated an order of the Feder-

al Communications Commission because of ex parte contacts

by an F.C.C. regulatee with members of that commission.

Significantly, the court rejected the argument that, since the

issue before the commission was a matter of rulemaking, ex

parte attempts to influence the decision should not invalidate

that decision. The court held that because the F.C.C.’s de-

cision involved “resolution of conflicting private claims to a

valuable privilege, . . . basic fairness requires such a proceed-

ing to be carried on in the open.” Sangamon Valley Televi-

sion, 269 F. 2d at 224 (emphasis supplied).

In a pair of very recent decisions, Action for Children’s Tel-

evision (ACT) v. F.C.C., 564 F. 2d 458 (D.C. Cir. 1977), and

Home Box Office, Inc. v. F.C.C., 567 F. 2d 9 (D.C. Cir.

1977), the court exhaustively treated the status of Sangamon,

and the breadth of its reach today. A careful reading of these

opinions, together with the history of the developing law pro-

hibiting ex parte contacts, suggests that, at least in the federal

realm, such contacts are absolutely prohibited, and if made

will vitiate the agency’s ensuing order in all proceedings before

administrative agencies except informal rulemaking; and even

in the case of informal rulemaking ex parte consultations will

vitiate an agency’s order if it appears that they “may have ma-

terially influenced the action ultimately taken.” ACT v.

F.C.C., 564 F. 2d at 476.

The principles of exclusiveness of the record and prohibition

of ex parte consultations clearly are embodied in the laws of

Rhode Island. The Administrative Procedures Act, R.I. Gen.

Laws 1956 (1977 Reenactment) §§ 42-35-1 et seq., provides

that the record in a contested case shall include all evidence re-

ceived or considered and that an agency’s findings of fact in a

contested case shall be based exclusively on the evidence and

matters officially noticed. Further, § 42-35-13 specifically

prohibits ex parte consultations:

Unless required for the disposition of ex parte matters

authorized by law, members or employees of an agency

assigned to render a decision or to make findings of fact

and conclusions of law in a contested case shall not, di-

rectly or indirectly, in connection with any issue of fact,

communicate with any person or party, nor, in connec-

tion with any issue of law, with any party or his repre-

sentative, except upon notice and opportunity for all par-

ties to participate; but any agency member

(a) may communicate with other members of the

agency, and

(b) may have the aid and advice of one or more per-

sonal assistants.

In its decision below, the Supreme Court of Rhode Island

held the meeting of January 25, 1972, to be an illegal ex parte

consultation. App. at 7a-8a. The Attorney General argues

that the fundamental fact of that meeting is that Narragansett

went in to discuss an issue that meant $1.4 million in annual

charges to its customers, the difference between a $6.4 million

increase and a $7.8 million increase. App. at 2a-3a. It is clear

that Narragansett took full advantage of its ex parte meeting to

attempt to resolve the issue before the PUC. Such process

shocks the conscience.

In balancing the interests, several factors must be weighed

in favor of the consumer. The consumer was denied full and

fair scrutiny of Narragansett’s rate as well as the refund to

which he was clearly entitled. The financial hardship may be

severe; since the consumer has no alternative source of electri-

cal power, he is forced to reduce his consumption or other

items in his budget.

The public interest clearly includes avoiding the administra-

tive burden and costs associated with requiring Narragansett

to award a refund. Clearly, each hearing increases the cost of

regulatory agencies. However, costs alone do not control

whether due process mandates a particular procedure. Ma-

thews, 424 U.S. at 347-348.

The government’s interest in providing adequate utility

service could be effected by requiring a full and fair adjudica-

tive procedure and the payment of a refund when excessive

and illegal rates are charged by the utility. While financial

stability is necessary for the survival of Narragansett, it need

not be accomplished at the expense of the consumer.

Sharply rising utility bills in a troubled economy necessitate

reconsideration of the issue presented in this case. Consider-

ing the overall balance of interests, it is clear that due process

demands protection of the consumer’s interest in reasonable

rates and his entitlement to a refund when the rates are illegal

and excessive. Whether the benefits of safeguards and a reme-

dy outweigh the costs and injustice suffered can only be re-

solved under the United States Constitution.

II. THe RHopE ISLAND SUPREME CourT ERRED IN FAILING TO

UPHOLD THE COMMISSION’S AWARD OF RELIEF TO THE Cus-

TOMERS INJURED BY THE EXCESSIVE RATES THAT NARRAGAN-

SETT ELECTRIC COMPANY CHARGED THEM.

On August 21, 1978, the PUC ordered Narragansett to re-

fund its customers approximately $1.4 million it had improp-

erly collected in rates. It found that the order allowing these

rates resulted from proceedings involving an ex parte meeting

which violated the state statutory law and from a misunder-

standing on the part of its members as to the amount of reve-

nue the rates would produce for Narragansett. The Rhode Is-

land Supreme Court agreed that the proceedings leading to the

order allowing the rates involved an ex parte hearing that vio-

lated the statutory requirement of notice to all parties in-

volved.* However, the state court erred in quashing the PUC

order which commanded Narragansett to refund the money in

dispute.

The State Supreme Court relied upon the principle first

enunciated by this Court in Arizona Grocery Co. v. Atchison,

Topeka & Santa Fe Ry., 284 U.S. 370 (1932), and adopted in

Rhode Island in New England Tel. & Tel. Co. v. P.U.C., 116

R.I. 356, 358 A. 2d 1 (1976), of nonretroactivity of the rate-

making powers of a regulatory commission. In Arizona Gro-

cery, a distinction was made between the legislative and the

judicial functions performed by a regulatory commission, in

that instance the Interstate Commerce Commission. When

acting in a legislative capacity, a regulatory commission deter-

mines whether a rate for the future is reasonable and just.

When acting in a judicial capacity, it decides whether the le-

gal rate is lawful. In Arizona Grocery, the Court concluded

that where the commission has properly exercised its legis-

®See footnote 1: R.I. Gen. Laws 1956 (1977 Reenactment) § 42-35-13.

lative powers by fixing the lawful rates for the future, it can-

not, in its judicial capacity, disturb its finding of lawfulness.

However, when the rates under review were not properly leg-

islated, i.e., were not the result of a valid order and were,

therefore, utility-made, the commission may exercise its judi-’

cial functions and adjust the rates retroactively.

As has been pointed out, the system now administered

by the Commission is dual in nature. As respects a rate

made by the carrier, its adjudication finds the facts and

may involve a liability to pay reparation. Arizona Groce-

ry, 284 U.S. at 388.

The $1.4 million in question resulted from rates purportedly

allowed by the PUC’s order of January 28, 1972. However, as

the PUC correctly found, that order was void as a matter of

law. The January 28, 1972, order placed into effect rates sub-

mitted on that day. The PUC presumed these rates were in

compliance with its order of January 24, 1972, allowing Nar-

ragansett a total revenue increase of $6.4 million to be derived

from a change in base rate and the fuel adjustment clause.

Moreover, the order resulted from proceedings involving an ex

parte meeting held on January 25, 1972, which was prohibited

by the State Administrative Procedures Act. Under such cir-

cumstances, the $1.4 million in excess of the $6.4 million was

not properly approved by the PUC and not a commission-

made revenue increase. Therefore, the Arizona Grocery situ-

ation is not present in the instant case.

The Fifth Circuit Court of Appeals has stated:

It is one thing for a Court to rule that under a valid certif-

icate the Commission lacks the power to retrospectively

review rates and impose retroactive refund orders. It is .

quite another for a Court to conclude that a Commission

lacking the power to do the former may yet not have in-

herent power to recapture the fruits obtained under an

invalid, that is illegal, order. Callery Properties, Inc. v.

F.P.C., 335 F. 2d 1004, 1019 (5th Cir. 1964), rev’d on

other grounds sub nom. United Gas Improvement Co. v.

Callery Properties, Inc., 382 U.S. 223 (1965).

The rates allowed in this case resulted from an invalid order .

and, therefore, the PUC had the authority in its judicial ca-

pacity to afford reparation to those injured by the illegal activ-

ity.

As previously discussed, the principle that a regulatory

agency cannot retroactively amend its orders which were

found to be reasonable and just in a prior proceeding is not ab-

solute. A fundamental tenet of the adversary process is that

one party to an administrative proceeding may not engage in

an ex parte communication with members of the agency. To

engage in a communication of this nature is a violation of the

other party’s right to due process of the law guaranteed by the

Fourteenth Amendment to the Federal Constitution.

In Morgan v. United States, 304 U.S. 1, 19-20 (1938), this

Court stated:

If in an equity cause, a special master or the trial judge

permitted the plaintiff's attorney to formulate the find-

ings upon the evidence, conferred ex parte with the plain-

tiffs attorney regarding them, and then adopted his pro-

posals without affording an opportunity to his opponent

to know their contents and present objections, there

would be no hesitation in setting aside the report or de-

cree as having been made without a fair hearing. The re-

quirements of fairness are not exhausted in the taking or

consideration of evidence but extend to the concluding

parts of the procedure as well as to the beginning and in-

termediate steps.

The wrongness involved in holding an ex parte hearing is so

fundamental that the entire agency proceeding is considered

tainted and any order emanating from the proceeding is inval-

id. See Camero v. United States, 179 Ct. Cl. 520, 375 F. 2d

777 (1967); Brown v. United States, 377 F. Supp. 530 (N.D.

Tex. 1974): both involved the reinstatement of federal em-

ployees with back pay after determinations that ex parte com-

munications had occurred between the adjudicators and rep-

resentatives of the employers. Accordingly, the existence of an

ex parte meeting in ratemaking proceedings resulting from

noncompliance with statutory requirements of notice to the

parties involved should also automatically result in the invali-

dation of any order resulting from such proceedings. Moss v.

C.A.B., 430 F. 2d 891, 902 (D.C. Cir. 1970).

The primary purpose of regulatory agencies is to protect the

consumer. California Gas Producers Ass'n v. F.P.C., 421

F. 2d 422, 428 (9th Cir. 1970); Mesa Petroleum Co. v. F.P.C.,

441 F. 2d 182, 186 (5th Cir. 1971). In carrying out this policy,

the Federal Power Commission has the authority to make re-

funds to customers in compensation for improper acts done by

utilities in the absence of specific statutory authority. “[T]he

breadth of agency discretion is, if anything, at zenith when the

action assailed relates primarily . . . to the fashioning of poli-

cies, remedies and sanctions.” Niagara Mohawk Power Corp.

v. F.P.C., 379 F. 2d 153, 159 (D.C. Cir. 1967). Specific stat-

utory language granting an agency the authority to order re-

funds is not necessary. When a statute grants a commission

the discretionary authority to regulate rates, implicit in that

authority is the right to develop remedies and sanctions neces- .

sary to effectuate the objectives of the law. Therefore, the au-

thority to order refunds is implied in the general policy provi-

sions of the state statute.’

Finally, the fundamental principles of equity mandate an

award of relief to the customers injured by the excessive reve-

nues collected by Narragansett. A regulatory commission has

the authority to rely upon the principles of equity when acting

7R.I. Gen. Laws § 39-1-1 provides in part:

It is hereby declared to be the policy of the state to provide fair regu-

lation of public utilities and carriers in the interest of the public, to

promote availability of adequate, efficient and economical energy,

communication, and transportation services and water supplies to the

inhabitants of the state, to provide just and reasonable rates and

charges for such services and supplies, without unjust discrimination,

undue preferences or advantages, or unfair or destructive competitive

practices, and to co-operate with other states and agencies of the feder-

al government in promoting and coordinating efforts to achieve reali-

zation of this policy.

To this end, there is hereby vested in the public utilities commission

and the division of public utilities and carriers the exclusive power and

authority to supervise, regulate and make orders governing the con-

duct of companies offering to the public in intrastate commerce ener-

gy, communication and transportation services and water supplies for

the purpose of increasing and maintaining the efficiency of such com-

panies, according desirable safeguards and convenience to their em-

ployees and to the public, and protecting them and the public against

improper and unreasonable rates, tolls and charges by providing full,

fair and adequate administrative procedures and remedies, and by se-

curing a judicial review to any party aggrieved by such an administra-

tive proceeding or ruling.

R.I. Gen. Laws § 39-1-38 provides in part:

The provisions of this title shall be interpreted and construed liber-

ally in aid of its declared purpose. The commission and the division

shall have, in addition to powers herein specified, all additional, im-

plied and incidental power which may be proper or necessary to effec-

tuate their purposes... .

in a judicial capacity. Niagara Mohawk, 379 F. 2d at 160;

Mesa Petroleum Co., 441 F. 2d at 188. These principles are

not within the sole province of the Court. Id. The PUC did

what ought to be done in this instance. The State Administra-

tive Procedures Act specifically prohibited the ex parte meet-

ings under the circumstances found in this case. Therefore,

any order emanating from proceedings involving an ex parte

meeting is void. An award of relief through a refund is what

ought to be done in this instance, and fairness to the customers

involved demands this action.

Conclusion.

For the reasons stated above and in the interest of justice

and the fair administration of law, the petition for a writ of

certiorari should be granted.

Respectfully submitted,

DENNIS J. ROBERTS II,

Attorney General,

STEPHEN LICHATIN III,

Special Assistant Attorney General,

Chief, Appellate Division,

FAITH A. LaSALLE,

Special Assistant Attorney General,

Providence County Courthouse,

Providence, Rhode Island 02903. —

Appendix.

STATE OF RHODE ISLAND.

Supreme Court.

THE NARRAGANSETT ELECTRIC COMPANY

v. No. 78-319 — M.P.

EDWARD F. BURKE er At.

Bevitacgua, C. J. The Narragansett Electric Company

(Narragansett) has petitioned this court for a writ of certiorari

requesting us to review and quash the August 21, 1978 order of

the Public Utilities Commission (PUC). The petitioner also

seeks our termination of the PUC investigation requested by

the Attorney General, who alleged that Narragansett had

overcharged its customers by improperly implementing a rate

increase granted by the PUC in a January 24, 1972 order.

Prior to 1967, Narragansett supplied electricity partly from

its own generator and partly from power purchased from the

New England Power Company (NEPCO). During this peri-

od, Narragansett operated under a fuel adjustment clause.

This clause, which was applied to rates charged of commercial

and industrial enterprises, adjusted the price of electricity

whenever the cost of fuel utilized by Narragansett rose above

or fell below $10.75 per standard net ton. When the cost rose

above the $10.75 base rate, Narragansett would recover the

amount for its extra outlays from its commercial and industrial

customers. When the cost of fuel fell below the base rate

price, the fuel clause operated to reflect that difference in

credits on the bills of those customers.

In 1967, Narragansett contracted to sell all of the output

from its generating plants to NEPCO. Under the terms of this

“Integrated Facilities” contract, all of Narragansett’s generat-

ing costs, including the cost of fuel, were paid by NEPCO.

According to the PUC, because the fuel adjustment clause re-

mained in effect under this contract and because the cost of

fuel fell approximately $2 below the base rate price, the clause

implemented customer credits with no corresponding decrease

in fuel costs. This resulted in a situation whereby Narragan-

sett’s cost of service was artificially inflated, thus depressing

Narragansett’s earnings. Recognition of these credits by Nar-

ragansett contributed to its November 30, 1970 request for

rate relief.

On this date, Narragansett asked the PUC to permit it to in-

crease its rates by $8,899,000 (Docket 1076). These additional

revenues, which were based upon a 1970 test year, were to be

achieved by a combination of a $7,124,000 increase in base

rates and a change in the fuel adjustment clause amounting to

$1,765,000. The fuel clause was thus recalculated by lower-

ing the base cost of fuei, so that Narragansett would not have

to issue credits in the future for the differential that existed

during the test year.

The PUC issued a summary order on January 24, 1972,

granting Narragansett additional revenues of $6,448,000.

Two days later Narragansett filed new rates in compliance

with the January 24, 1972 order. The PUC approved this fil-

ing in an order issued on January 28, 1972.

On January 28, 1975, the Attorney General requested the

PUC investigation that led to this petition for certiorari. In his

request, the Attorney General contended that Narragansett

had implemented rates generating $7.8 million, or $1.4 mil-

lion more than the $6.4 million rate revenues allowed by the

PUC in its January 24, 1972 order. Narragansett responded

that although the implemented rates would have generated

$7.8 million over revenues earned in 1970, the new rates only

generated additional revenues of less than $6.4 million when

they became effective on January 28, 1972.

Before the PUC, attention focused on the revenue impact

caused by substitution of the new fuel adjustment clause for

the old fuel clause. Both parties agreed that implementation

of the new fuel clause would have produced $1,765,000 in ad-

ditional revenue during the 1970 test year. Narragansett,

however, asserted that elimination of the old fuel clause dur-

ing 1972 resulted in much less revenue. Narragancett attribut-

ed this result to the delay of the PUC in issuing the order due to

the 1971 Presidential price freeze, the outdated test year, Nar-

ragansett’s rapidly deteriorating financial condition and rising

fuel costs.

The PUC found that on the basis of these factors, Narragan-

sett implemented rates that allowed only $359,000 of addition-

al revenues from the fuel clause change, instead of $1.7 mil-

lion, thus permitting it to increase the base rates by

$6,089,000. The problem that ultimately resulted in this cer-

tiorari proceeding is that the facts leading to Narragansett’s

decision to estimate the fuel clause at the $359,000 amount

were not raised at the hearing before the PUC and thus do not

appear in the record of Docket 1076. Instead, claiming uncer-

tainty as to exactly what portion of the $6.4 million was to be

attributed to elimination of the old fuel clause, Narragansett

requested the PUC to clarify its order in what the Attorney

General describes as an ex parte meeting. Specifically, Narra-

gansett wanted to inquire whether the January 24, 1972 PUC

order was based on test year fuel costs so that $1.7 million of

the $6.4 million would be attributed to elimination of the old

fuel clause, entitling Narragansett to increase its base rates by

only $4.7 million, or based upon the then current fuel costs so

that Narragansett could increase its base rates by approximate-

ly $6.1 million. In the latter event, Narragansett would adopt

its “fuel normalization plan,” designating $359,000 instead of

$1.7 million to elimination of the old fuel clause, thus taking

test year (1970) revenues and normalizing those revenues to re-

flect December 1971 fuel costs.

The attorney for the Consumers’ Council was neither in-

formed of nor attended this meeting, held on January 25,

1972. It is this absence that resulted in the meeting’s alleged

ex parte status pursuant to G.L. 1956 (1977 Reenactment)

§ 42-35-13.! At the meeting, a Narragansett representative

took notes to the effect that chairman Smith responded that

the test year fuel clause credit was entirely separate from the

$6.4 million awarded by the PUC on January 24, 1972.

Chairman Smith also instructed Narragansett to implement its

final rate design in accordance with its fuel normalization

plan. Before doing so, however, Narragansett met with the

Consumers’ Council on January 27, 1972 to explain its fuel

normalization plan. The PUC approved of these rates imple-

mented by Narragansett on January 28, 1972.

Three years later, the Attorney General requested the PUC

to order Narragansett to refund all revenues it had received in

excess of the $6.4 million that the PUC found to be reasonable.

The Attorney General stressed that a refund was necessary be-

cause Narragansett had implemented rates representing a $7.8

million increase. The Attorney General also alleged that Nar-

ragansett had wrongfully persuaded the PUC to find that the

rates filed pursuant to the fuel normalization plan were in

1General Laws 1956 (1977 Reenactment) § 42-35-13 provides in pertinent

part as foliows:

“members or employees of an agency assigned to render a decision or to

make findings of fact and conclusions of law in a contested case shall

not, directly or indirectly, in connection with any issue of fact, com-

municate with any person or party, nor, in connection with any issue

of law, with any party or his representative, except upon notice and

opportunity for all parties to participate * * *.”

compliance with its order. Moreover, the Attorney General

claimed that the presentation at the meeting of January 27,

1972 to explain the rates to the Consumers’ Council was in-

complete, superficial and misleading.

The PUC found that the record did not warrant a finding

that Narragansett had perpetrated a fraud upon the PUC or

that any misrepresentation had occurred that alone would

warrant setting aside the rates. Nevertheless, the PUC also

decided that because the January 24th order was subject to

two interpretations, the subject matter of the meeting fell

within the definition of a contested case; that the January 25th

meeting was not limited to a request for clarification; and that

the January 25th meeting therefore possessed ex parte status.

The PUC further found that the disclosure meeting of Janua-

ry 27 did not cure the injury or prejudice suffered by the Con-

sumers’ Council. The PUC thus ordered Narragansett to re-

fund all revenues collected in excess of those it would have

earned had the rates been implemented as authorized by the

PUC’s decision and order of January 24, 1972 and of March 6,

1972.

In its petition for certiorari, Narragansett argues (1) that

the January 25, 1972 meeting was not an illegal, ex parte

meeting; (2) that assuming arguendo a technical violation of

the ex parte statute, the PUC erred in voiding the January 28,

1972 order; (3) that the PUC has no power to award refunds or

reparation; and (4) that the PUC erred in holding that Narra-

gansett’s compliance rates were unjust and unreasonable. In

view of our answer to Narragansett’s second and third allega-

tions, which we have discussed concurrently below, we need

not address Narragansett’s fourth argument.

In support of its position that the January 25th meeting was

not an illegal, ex parte communication, Narragansett main-

tains that the meeting was held merely for the sake of clarify-

ing the January 24th order and that no issue of law or fact was

presented for decision by the PUC necessitating a hearing.

Narragansett’s analysis thus removes the subject matter of the

meeting from the Administrative Procedures Act [G.L. 1956

(1977 Reenactment) chapter 35 of title 42] definition of “con-

tested case”* and places it within the parameters of this court’s

decision in Town of Charlestown v. Kennelly, 80 R.1. 148, 93

A.2d 728 (1953). In Kennelly, the public utilities administra-

tor directed the telephone company to submit for his approval

a schedule of rates designed to implement his earlier order.

We stated that although the better procedure would have dic-

tated giving the opponent an opportunity to be heard on

whether the rates conformed with the findings in the PUC de-

cision and its first order, there was no statutory requirement to

that effect and no prejudice had actually resulted. We there-

fore held that no new notice was required before entry of the

order effectuating the administrator’s decision. In the instant

case, Narragansett contends that the PUC, which found that

an issue of law or fact existed that could have seriously altered

implementation of the rate award, erred in deciding that Ken-

nelly did not apply to the alleged clarification meeting.

In G.L. 1956 (1977 Reenactment) § 39-5-3,° the General As-

sembly defined the framework within which this court reviews

*General Laws 1956 (1977 Reenactment) § 42-35-1(b) defines “contested

case” as follows:

“a proceeding, including but not restricted to ratemaking, price fixing,

and licensing, in which the legal rights, duties, or privileges of a spe-

cific party are required by law to be determined by an agency after an

opportunity for hearing.” (Emphasis added.)

3General Laws 1956 (1977 Reenactment) § 39-5-3 reads as follows:

“Findings of commission. — The findings of the commission on

questions of fact shall be held to be prima facie true and as found by

PUC decisions. Under this statutory mandate, we determine

whether the decision of the PUC is lawful and reasonable. In

so doing, we do not exercise our independent judgment or

weigh conflicting evidence, and we will not disturb adminis-

trative findings unless the record establishes that the findings

are not fairly and substantially supported by legal evidence.

Providence Gas Co. v. Burke, R.I. , , 380 A.2d 1334,

1339 (1977); New England Telephone & Telegraph Co. v.

PUC, 118 R.I. 570, 575, 376 A.2d 1041, 1044 (1977); United

Transit Co. v. Public Utility Hearing Board, 96 R.1. 435, 445,

192 A.2d 423, 428-29 (1963). See G.L. 1956 (1977 Reenact-

ment) § 39-5-3. In order to disturb an administrative order,

we must be satisfied that the PUC acted illegally, arbitrarily or

unreasonably. See Providence Gas Co. v. Burke, _R.I. at

, 380 A.2d at 1339; New England Telephone & Telegraph

Co. v. PUC, 118 R.I. at 578-79, 376 A.2d at 1044. See also

§ 39-5-3. Therefore, if we decide that the PUC erred in find-

ing that an ex parte meeting occurred, or that the PUC acted

in excess of its jurisdiction in voiding its January 28, 1972 order

and in demanding a refund, then we must quash the PUC’s

second, remedial order of August 21, 1978, thus permitting its

January 28, 1972 order to stand.

We believe that the record clearly supports the finding by

the PUC that an ex parte meeting occurred. The testimony of

Edward F. Hindle, attorney for Narragansett, establishes that

notwithstanding any lack of intent on the part of T. Dexter

Clarke, president of Narragansett, to raise a new proposal, the

topic of fuel normalization was initially broached at the meet-

the commission and the supreme court shall not exercise its independ-

ent judgment nor weigh conflicting evidence. An order or judgment of

the commission made in the exercise of administrative discretion shall

not be reversed unless the commission exceeded its authority or acted

illegally, arbitrarily or unreasonably.”

ting on January 25. The testimony of William McDade, a

senior rate engineer at New England Power Service Company,

who prepared testimony and exhibits for Narragansett, sub-

stantiates that an additional rate design measure via fuel nor-

malization was proposed on January 25. This fact distin-

guishes the present situation from the approval meeting held

in the case of Town of Charlestown v. Kennelly, supra. Even

Mr. Hindle admitted that the subject matter of the January

25th meeting had extended farther than he had anticipated.

Because the PUC was asked to approve implementation of the

fuel normalization plan, which would result in Narragansett

earning a greater revenue than had the 1970 test year fuel ad-

justment clause estimates been used, the process of ratemaking

was technically still in progress. The meeting of January 25

thus fell within the definition of “contested case” contained in

§ 42-35-1(b), so that all parties involved were entitled to an

opportunity for a hearing after reasonable notice pursuant to

§ 42-35-9.4 At the close of the meeting, the PUC instructed

Narragansett to implement its fuel normalization plan, thus

allowing Narragansett an increase in revenues over the test

year by $1.4 million. Because “the legal rights, duties, or

privileges” of both Narragansett and the public were deter-

mined without a hearing, the proceeding violated § 42-35-13,

which prohibits agency members from communicating with

any person or his representative concerning their prospective

findings of fact or decisions of law in a contested case absent

“General Laws 1956 (1977 Reenactment) § 42-35-9 reads, in pertinent

part, as follows:

“(a) In any contested case, all parties shall be afforded an opportunity

for hearing after reasonable notice.

“(c) Opportunity shall be afforded all parties to respond and present

evidence and argument on all issues involved * * *.”

notice and an opportunity for all parties to the case to par-

ticipate.» We therefore hold that the finding of the PUC that

the January 25 meeting extended farther than a mere request

for clarification and thus violated the prohibition against ex

parte meetings is fairly and substantially supported by legal

evidence.

Despite the fact that an ex parte meeting occurred, the PUC

acted in excess of its jurisdiction when it voided its order of

January 27, 1972 and ordered. Narragansett to refund the

amount of revenues collected in excess of those that would

have been collected had the rates been designed to comply

with the January 24, 1972 order and the March 6, 1972 deci-

sion. Although violations of the ex parte prohibition in other

factual contexts have led courts to void the agency order or

decision, see, e.g., Camero v. United States, 375 F.2d 777,

780-81 (U.S. Ct. Cl. 1967); WKAT, Inc. v. FCC, 296 F.2d

375, 382-83 (D.C. Cir. 1961); Sangamon Valley Television

Corp. v. United States, 269 F.2d 221, 224-25 (D.C. Cir.

1959); we choose to follow contrary precedent in a ratemaking

setting such as the one before us.

In Rhode Island, although ratemaking is legislatively de-

fined as a quasi-judicial function,® see Blackstone Valley

Chamber of Commercev.PUC, R.I. , ,396A.2d 102,

104 (1979), citing Narragansett Electric Co. v. Harsch,

5For the text of § 42-35-13, see note 1, supra.

®*General Laws 1956 (1977 Reenactment) § 39-1-3 provides in pertinent

part:

“The commission shal! serve as a quasi-judicial tribunal with jurisdic-

tion, powers, and duties to hold investigations and hearings involving

the rates, tariffs, tolls and charges * * * of * * * electric * * * public

utilities * * *.”

10a

117 R.1. 395, 401, 368 A.2d 1194, 1201 (1977), it is well settled

that rates are exclusively prospective in nature and that future

rates may not be designed to recoup past losses.’ See Narra-

gansett Electric Co. v. Burke, R.I. , , 381 A.2d 1358,

1364 (1977); New England Telephone & Telegraph Co. v.

PUC, 116 R.I. 356, 388, 358 A.2d 1, 20 (1976). This rule is

grounded upon the principle that “when a commission pro-

nounces that a specific rate is a ‘reasonable and lawful rate for

the future,’ that pronouncement has the force and effect of a

statute.” New England Telephone ¢ Telegraph Co. v. PUC,

116 R.I. at 388, 358 A.2d at 20. The rule that rates are exclu-

sively prospective was first enunciated by the Supreme Court

in Arizona Grocery Co. v. Atchison, Topeka ¢ Santa Fe Rail-

way, 284 U.S. 370, 52 S.Ct. 183, 76 L.Ed. 348 (1932). In

Arizona Grocery Co. the Court held that a public utilities

commission cannot repeal its own earlier-approved rates by

later finding them unreasonable. The Court posited that the

rates allowed by the commission had the force and effect of a

statute upon which the utility was entitled to rely. Id. at 386,

389, 52 S.Ct. at 185, 186, 76 L.Ed. at 354, 355. Application

of any other rule would encourage each ratemaking hearing to

continue indefinitely, encouraging waste of administrative

time and resources and discouraging reliance on commission

decisions.

We therefore hold that the PUC acted illegally in voiding its

order of January 27, 1972, and in ordering Narragansett to re-

fund revenues paid by customers in excess of the rates original-

ly intended by the PUC in its January 24, 1972 order.

7This rule has been relaxed only to permit the utility to belatedly collect

rates that became presently due where the utilities commission was remiss in

its statutory duty. The doctrine, however, has never allowed a utility to

recoup retroactively revenues lost even when they are lost due to the fault of

the commission. See Bristol County Water Co. v. PUC, 117 B.1. 89, 98 n.2,

363 A.2d 444, 449 n.2 (1976).

lla

Although the rationale behind the rule that rates are exclu-

sively prospective is to avoid doing injustice to those who rely

on PUC rate orders, the result engendered by use of the rule in

this case may appear inequitable to the customers who paid

the excessive rates. We note, however, that although there

has been an ex parte communication in violation of § 42-35-

13,° this section applies only to members and employees of the

particular agency, not to interested parties such as Narragan-

sett.® It is thus the PUC, not the representatives of Narragan-

°G.L. 1956 (1977 Reenactment) § 42-35-13 reads as follows:

“Ex parte consultations. — Unless required for the disposition of ex

parte matters authorized by law, members or employees of an agency

assigned to render a decision or to make findings of fact and conclu-

sions of law in a contested case shall not, directly or indirectly, in con-

nection with any issue of fact, communicate with any person or party,

nor, in connection with any issue of law, with any party or his repre-

sentative, except upon notice and opportunity for all parties to par-

ticipate; but any agency member

(a) may communicate with other members of the agency, and

(b) may have the aid and advice of one or more personal assistants.”

*Parties interested in the outcome of the dispute do not fall within the pro-

hibition of § 42-35-13. In this manner the Rhode Island statute is more

limited than its federal counterpart, 5 U.S.C.A. § 557 (1977). The federal

version of § 42-35-13 contains not only a subsection that parallels the § 42-

35-13 prohibition against communications instigated by the agency, but also

a subsection prohibiting all interested persons from engaging in ex parte com-

munications with members or employees of the agency or an administrative

judge. Compare § 42-35-13 (see note 8, supra) with 5 U.S.C.A. §§ 557(d)(1)

(A) and (B) at 352 (1977), which read as follows:

“(A) no interested person outside the agency shall make or knowing-

ly cause to be made to any member of the body comprising the agency,

administrative law judge, or other employee who is or may reasonably

be expected to be involved in the decisional process of the proceeding,

an ex parte communication relevant to the merits of the proceeding;

“(B) no member of the body comprising the agency, administrative

iaw judge, or other employee who is or may reasonably be expected to

be involved in the decisional process of the proceeding, shall make or.

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sett, that has violated the prohibition of § 42-35-13 by mis-

takenly permitting the clarification meeting to metamorphose

into an ex parte communication. Although the PUC may now

wish to remedy its over-sight, it remains subject to the judi-

cially-created, commission-made rate doctrine until the

General Assembly declares otherwise. As a creation of the

General Assembly, the PUC derives all of its powers, duties

and responsibilities from its enabling act. Bristol County

Water Co. v. PUC, 117 R.I. 89, 97, 363 A.2d 444, 449 (1976).

Although the General Assembly amended the Public Utili-

ties & Carriers Act in 1975, giving the Division of Public

Utilities and Carriers the power to order refunds, see § 39-3-

13.1,!° it is the rule in Rhode Island that absent legislative

guidance to the contrary, a statute will not be given retro-

active application if it creates, defines and regulates substan-

tive legal rights. See Fox v. Fox, 115 R.I. 593, 596-97, 350

A.2d 602, 604 (1976); Cipriano v. Personnel Appeal Board,

114 R.I. 141, 144, 330 A.2d 71, 73 (1975); Norton v. Paolino,

113 R.I. 728, 733, 327 A.2d 275, 278 (1974). Because § 39-3-

13.1 affects a vested substantive right, it is limited solely to

knowingly cause to be made to any interested person outside the agen-

cy an ex parte communication relevant to the merits of the

proceeding.”

There is no companion section to § 557(d)(1)(A) in the Rhode Island

statute.

10General Laws 1956 (1977 Reenactment) § 39-3-13.1 reads as follows:

“Power to order refunds. — The said division shall have the power,

when deemed by it necessary to provide remedial relief from unjust,

unreasonable, or discriminatory acts, or from any matter, act or thing

done by a public utility which matter, act or thing is in chapter 1 to 5,

inclusive, of this title, or otherwise, prohibited or declared to be

unlawful, to order the said public utility to make restitution to any

party or parties, individually or as a class, injured by said prohibited or

unlawful acts, by way of a cash refund, billing credit or rate adjust-

ment, or any other form of relief which the division may devise to do

equity to the parties. Any award made in restitution shall carry in-

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prospective use by the PUC and therefore cannot be invoked in

this case.!!

For the reasons stated above, Narragansett’s petition for cer-

tiorari is granted, the August 21, 1978 PUC order is quashed,

and the record is remanded to the PUC with our decision en-

dorsed thereon.

terest from the date of the injury, at the rate of seven (7%) per cent

from the date of the order of the division.”

1 For purposes of this discussion, we assume without deciding that § 39-

3-13.1 applies to the PUC as well as to the Division of Public Utilities and

Carriers.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.