ENGIE Gas & LNG LLC v. Department of Public Utilities , 475 Mass. 191 ( 2016 )

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SJC-12051
SJC-12052
ENGIE GAS & LNG LLC 1 vs. DEPARTMENT OF PUBLIC UTILITIES
(and another case 2).
Suffolk. May 5, 2016. - August 17, 2016.
Present: Gants, C.J., Spina, Cordy, Botsford, Duffly, Lenk,
& Hines, JJ. 3
Department of Public Utilities. Practice, Civil, Review of
order of Department of Public Utilities. Electric
Company. Public Utilities, Electric company, Judicial
review. Gas. Administrative Law, Judicial review,
Rulemaking, Agency's authority, Rate regulation. Statute,
Construction.
Civil actions commenced in the Supreme Judicial Court for
the county of Suffolk on October 26 and November 2, 2015.
1
ENGIE Gas & LNG LLC (ENGIE) filed its petition under its
previous name, GDF Suez Gas NA LLC.
2
Conservation Law Foundation vs. Department of Public
Utilities.
3
Justice Cordy participated in the deliberation on this
case and authored this opinion prior to his retirement.
Justices Spina and Duffly participated in the deliberation on
this case prior to their retirements.
2
The cases were reported by Cordy, J.
Thaddeus A. Heuer (Adam P. Kahn & Jesse Harlan Alderman
with him) for ENGIE Gas & LNG LLC.
David K. Ismay for Conservation Law Foundation.
Seth Schofield, Assistant Attorney General, for the
Attorney General.
Thomas H. Hayman, Special Assistant Attorney General
(Francis R. Powell, Special Assistant Attorney General, with
him) for the Department of Public Utilities.
Cheryl M. Kimball & Matthew A. Sanders, for NSTAR Electric
Company & others, amici curae, submitted a brief.
CORDY, J. These consolidated appeals are before us on a
single justice's reservation and report of challenges made to an
order of the Department of Public Utilities (department). Those
challenges raise the question of the department's authority to
review and approve ratepayer-backed, long-term contracts entered
into by electric distribution companies for additional natural
gas pipeline capacity in the Commonwealth pursuant to G. L.
c. 164, § 94A, which requires gas and electric companies to
receive departmental approval for any contract for the purchase
of gas or electricity lasting longer than one year.
The plaintiffs, ENGIE Gas & LNG LLC and Conservation Law
Foundation, contend that the order amounted to improper
rulemaking in violation of the Administrative Procedure Act,
G. L. c. 30A. They also argue that the department's
determination that it has authority pursuant to G. L. c. 164,
§ 94A, to approve such contracts constitutes an error of law
3
because it contravenes G. L. c. 164, § 94A, as amended through
St. 1997, c. 164 (restructuring act). 4
We disagree that the order of the department is an
improperly promulgated rule or regulation. We nevertheless
reach the statutory question presented by the plaintiffs, and
conclude that the order is invalid in light of the statutory
language and purpose of G. L. c. 164, § 94A, as amended by the
restructuring act, because, among other things, it would
undermine the main objectives of the act and reexpose ratepayers
to the types of financial risks from which the Legislature
sought to protect them. 5,6
4
Statute 1997, c. 164 (restructuring act), discussed infra,
restructured the electric utility industry, transforming "it
from a government-regulated monopoly, to 'a framework under
which competitive producers [would] supply electric power and
customers [would] gain the right to choose their electric power
supplier.'" Northeast Energy Partners, LLC v. Mahar Regional
Sch. Dist., 462 Mass. 687, 695 (2012), quoting St. 1997, c. 164,
§ 1 (c) (ii). Importantly, the restructuring act separated the
three utility services of generation, transmission, and
distribution, and deregulated the generation component in the
interests of competition. Northeast Energy Partners, LLC, supra
at 696. Companies providing transmission and distribution
services remain regulated by the State. Id.
5
Because we determine that the Department of Public
Utilities (department) erred in interpreting its authority under
G. L. c. 164, § 94A, we need not reach the question of Federal
law presented by ENGIE.
6
We acknowledge the amicus briefs submitted by the Attorney
General and by NSTAR Electric Company and Western Massachusetts
Electric Company, each doing business as Eversource Energy, and
Massachusetts Electric Company and Nantucket Electric Company,
each doing business as National Grid.
4
1. Background. The department regulates the rates that
both electric distribution companies 7 and local distribution
natural gas companies 8 may charge their customers (ratepayers).
G. L. c. 164, § 94A. See Fitchburg Gas & Elec. Light Co.
v. Department of Pub. Utils., 460 Mass. 800, 801
(2011); Attorney Gen. v. Department of Pub. Utils., 453 Mass.
191, 192 (2009).
In 2015, the Department of Energy Resources (DOER) filed a
petition asking the department to investigate the means by which
new natural gas delivery capacity 9 might be added to the New
7
An electric distribution company is the "arm of a utility
responsible for transmitting electricity from a generation
facility or power grid to the end consumer." Franklin W. Olin
College Of Eng'g v. Department of Telecomm. & Energy, 439 Mass.
857, 860 n.6 (2003). See G. L. c. 164, § 1 (defining
"[d]istribution company"). Electric distribution companies
provide two types of services: supply services and distribution
services. See NSTAR Elec. Co. v. Department of Pub. Utils., 462
Mass. 381, 381 (2012).
8
Local gas distribution companies "mak[e] and sell[] or
distribut[e] and sell[] . . . gas within the commonwealth."
See G. L. c. 164, § 1 (defining "[g]as company").
9
Prior to the Federal restructuring of interstate pipeline
service by the Federal Energy Regulatory Commission (FERC) (see
FERC Order No. 639, 18 C.F.R. Part 284 [Apr. 8, 1992]), gas and
the pipeline space, or "capacity," necessary to deliver it were
"bundled," or sold together. Once "unbundled," the department
recognized the distinction between the two elements of
interstate gas services as "blurred, at best" and established
that contracts for both would be similarly approved as
"contract[s] for the purchase of gas" pursuant to G. L. c. 164,
§ 94A, under the same "public interest standard." D.P.U. 94-
5
England market in order to mitigate price volatility experienced
by ratepayers in the Commonwealth, especially in the winter
months. See D.P.U. 15-37 (Oct. 2, 2015). The DOER specifically
asked whether the department, pursuant to its authority under
G. L. c. 164, § 94A, could approve long-term contracts 10 by
Massachusetts electric distribution companies for the purchase
and resale of interstate natural gas pipeline capacity. The
DOER stated that the ultimate goal of such purchases would be to
lower "gas constraint-driven high prices" for electricity in New
England by lowering the prices, particularly in the wintertime,
of wholesale electricity across the region.
In support of its request, the DOER asserted that gas
pipeline constraints have caused unreasonably high winter
electric prices in New England. Unlike local natural gas
distribution companies, which regularly contract for gas
capacity, electric generators that use natural gas to produce
electricity 11 are generally unwilling or unable to enter into
long-term contracts to secure firm gas capacity. For these
generators, there is added risk for such contracting because
174-A, at 22-26 (Mar. 15, 1994). We therefore use the terms
"gas" and "gas capacity" interchangeably.
10
By the terms of G. L. c. 164, § 94A, any contract in
excess of one year constitutes a long-term contract.
11
Generation is "the act or process of transforming other
forms of energy into electric energy or the amount of electric
energy so produced." G. L. c. 164, § 1.
6
there is no means by which they can be reasonably assured of
receiving enough revenue to cover the cost of securing the gas
capacity over the course of each year. Pipeline companies, on
the other hand, are not willing to build new pipeline capacity
without having long-term contracts in place. Thus, pipeline
companies do not have sufficient assurances such that they are
willing to build additional pipeline capacity for natural gas-
fired electric generators, despite the increasing natural gas
demand for heating and as a source of supply for electric power.
The DOER characterized this situation as a "mismatch" of needs
and incentives that requires a "solution."
Under the DOER's proposal, (1) the department would
authorize, pursuant to G. L. c. 164, § 94A, electric
distribution companies to enter into contracts to purchase gas
pipeline transportation capacity to be funded by the
Commonwealth's ratepayers through rates set and approved by the
department; (2) the pipeline owners (which in this case will
include affiliates of electric distribution companies) will use
those transportation contracts to help finance the construction
of new gas pipeline capacity in the region; (3) after the
pipelines are expanded, the electric distribution companies will
release (resell) their contracted-for capacity to electric
7
generators or "into the market"; 12 and (4) the release of that
capacity will increase gas supply and thus lower the wholesale
price of gas and electricity.
Noting that the question was one of first impression, the
DOER asked the department to determine whether "(1) there is an
innovative mechanism for electric distribution companies . . .
or other suitable parties to secure new, incremental gas
delivery capacity into the region to the benefit of electric
ratepayers; (2) review for cost-recovery of [electric
distribution company] contracts for natural gas capacity by the
[d]epartment under G. L. c. 164, § 94A . . . is appropriate; and
(3) the standard of review the [d]epartment would apply to
contracts submitted for approval under that section should be
different." The DOER stated that ratepayer-funded gas capacity
contracts entered into by electric distribution companies would
solve the "mismatch" problem by providing sufficient financial
assurance to pipeline companies to build new pipelines and
infrastructure in order to provide gas to natural gas-fired
electric generators.
12
Citing to Order Accepting and Suspending Tariff Record
and Establishing a Technical Conference, 154 FERC, ¶ 61,269
(Mar. 31, 2016), the Attorney General, in her brief, points out
that in order to release the contracted-for capacity to the
electric generation companies, the electric distribution
companies would first need to obtain a waiver from FERC, because
Federal law otherwise prohibits resellers from directing their
contracted capacity rights to a particular party unless FERC
grants a waiver. See also 18 C.F.R. § 284.8 (2015).
8
In response to the petition of the DOER, the department
opened an investigation into the means by which new natural gas
capacity might be added to the New England market, including
measures that electric distribution companies might pursue.
After considering input from stakeholders, including written
comments submitted by the plaintiffs, the department issued
D.P.U. 15-37, entitled, "Order Determining Department Authority
Under G. L. c. 164, § 94A" (order). The department determined
that the plain language of § 94A provides the department with
the statutory authority to approve gas capacity contracts
entered into by electric distribution companies, so long as the
department first determines that such long-term contracts are in
the public interest. D.P.U. 15-37, at 19, 43. The department
further concluded that it could properly allow cost recovery for
the contracts, including the cost of building the necessary
pipeline infrastructure, through electric distribution
rates. Id. at 12, 46. The department additionally determined
that its findings were consistent with the restructuring act
because the contracts entered into by the electric distribution
companies would not result in the companies' reentry to
producing, manufacturing, or generating electricity at
wholesale, as contemplated by the restructuring act. Id. at 26-
27.
9
The order further outlined the filing requirements and
standard of review applicable to future proceedings seeking
approval of ratepayer-backed contracts for gas capacity entered
into by electric distribution companies. Id. at 36, 44-45.
Since issuing the order, the department has docketed three
petitions by electric distribution companies for the approval of
such contracts; however, none has been approved at this time.
The contemplated contracts are for a term of twenty years.
In October and November, 2015, the plaintiffs filed
separate petitions in the Supreme Judicial Court for Suffolk
County pursuant to G. L. c. 25, § 5, asking that the order be
set aside on the ground that it is based on an erroneous
interpretation of law. A consolidated hearing was held before
the single justice, who denied the motions for judgment of
default and reserved and reported the matters to the full
court. 13
2. Propriety of appeal. We first consider whether this
appeal is properly before us. The plaintiffs ask the court to
review the department's order pursuant to G. L. c. 25, § 5,
which authorizes "an appeal as to matters of law from any final
decision, order or ruling." The department argues, however,
13
The plaintiffs also filed motions to stay the
department's order, D.P.U. 15-37 (Oct. 2, 2015) (order), which
would have halted the contract review process. The motions were
denied without prejudice.
10
that the order is not the product of an adjudicatory proceeding,
nor did it adjudicate the rights of the plaintiffs; therefore,
it is not appealable under § 5. See Providence & Worcester R.R.
v. Energy Facilities Siting Bd., 453 Mass. 135, 140 (2009) ("A
decision is 'final' for purposes of taking an immediate appeal
if it completely adjudicates the rights of the parties, leaving
nothing further to be decided").
We previously have held that where, as here, an agency
determines that it has statutory authority to act, but has not
yet exercised that authority, "such a decision is not 'final'
for the purposes of judicial review under G. L. c. 25,
§ 5." Id. Nevertheless, we reach the merits of the question of
law submitted to us by the parties because "the case has been
fully briefed on the merits, . . . there is a public interest in
obtaining a prompt answer to the question, and . . . the answer
. . . is reasonably clear." Id., quoting Brown v. Guerrier, 390
Mass. 631, 632 (1983). 14
3. Discussion. General Laws c. 164, § 94A, provides in
relevant part that "[n]o gas or electric company shall hereafter
enter into a contract for the purchase of gas or electricity
covering a period in excess of one year without the approval of
the department, unless such contract contains a provision
14
In light of this conclusion, we do not reach the
plaintiffs' argument that the order was issued in violation of
the Administrative Procedure Act, G. L. c. 30A.
11
subjecting the price to be paid thereunder for gas or
electricity to review and determination by the department in any
proceeding brought under [§ 93 or 94]."
In its order, the department concluded that the plain
language of § 94A provides it with the authority to review and
approve "the purchase of gas or electricity" by "gas or electric
companies." D.P.U. 15-37, at 19. It reasoned that the word
"'or' . . . is used to list the entities (gas and electric
companies) and the products (gas and electric purchases) and
does not limit one type of company or one type of product." Id.
Rather, the department ruled that the provision grants it broad
"authority over both electric and gas distribution companies,
without direct limiting language." Id. The department further
concluded that because the meaning of the statute could be
discerned from the plain language, the department need not
"consider legislative history or doctrines of statutory
construction." Id. Moreover, the department found that the
restructuring act did not present an impediment to electric
distribution companies contracting for natural gas capacity
subject to department review and approval because the framework
established by the department would not result in the electric
distribution companies' reentry to producing, manufacturing, or
generating electricity for sale at wholesale, as contemplated by
the restructuring act. Id. at 27. See St. 1997, c. 164, § 193.
12
The plaintiffs counter that this interpretation of § 94A
misapprehends the rules of statutory construction and is
inconsistent with the larger statutory context of c. 164, as
well as legislative policymaking embodied in the restructuring
act.
a. Standard of review. We review the validity of a policy
adopted by an agency charged with implementing and enforcing
State statutes under the same two-part framework used to
determine whether regulations promulgated by an agency are
valid. Franklin Office Park Realty Corp. v. Commissioner of the
Dep't of Envtl. Protection, 466 Mass. 454, 459-460 (2013).
First, we employ "the conventional tools of statutory
interpretation" to determine "whether the Legislature has spoken
with certainty on the topic in question." Goldberg v. Board of
Health of Granby, 444 Mass. 627, 632–633 (2005). Where the
court determines that a statute is unambiguous, we will reject
any agency interpretation that does not give effect to the
Legislative intent. Franklin Office Park Realty Corp., supra at
460.
If we conclude that "the Legislature has not directly
addressed the issue and the statute is capable of more than one
rational interpretation, we proceed to determine whether the
agency's interpretation may be reconciled with the governing
legislation" (quotation and citation omitted). Biogen IDEC MA,
13
Inc. v. Treasurer & Receiver Gen., 454 Mass. 174, 187 (2009).
We defer to the agency's interpretation insofar as it is
reasonable. Franklin Office Park Realty Corp., 466 Mass. at
460. Statutory interpretation, however, is ultimately the duty
of the courts, and the "principle of according weight to an
agency's discretion . . . is one of deference, not abdication,
and this court will not hesitate to overrule agency
interpretations of statutes or rules when those interpretations
are arbitrary or unreasonable" (quotations and citation
omitted). Moot v. Department of Envtl. Protection, 448 Mass.
340, 346 (2007), S.C., 456 Mass. 309 (2010).
Our interpretation is not limited only to determining a
statute's "simple, literal or strict verbal meaning" but also
considers a statute's "development, [its] progression through
the legislative body, the history of the times, prior
legislation, contemporary customs and conditions and the system
of positive law of which they are part . . ." Kain
v. Department of Envtl. Protection, 474 Mass. 278, 286 (2016),
quoting Oxford v. Oxford Water Co., 391 Mass. 581, 588 (1984).
Applying these rules to the statutory language at issue, we
conclude that the department erred in determining that § 94A, as
amended by the restructuring act, authorizes the department to
review and approve ratepayer-backed, long-term contracts for gas
capacity entered into by electric distribution companies.
14
b. Section 94A. The parties do not dispute that § 94A has
traditionally been construed by the department to apply to gas
company purchases of gas and electric company purchases of
electricity. Nonetheless, the department argues, nothing in the
plain language of the provision prohibits the department from
approving long-term contracts by electric distribution companies
for gas. 15 Moreover, the department insists that because the
language is unambiguous, the court need not employ the usual
canons of statutory construction.
The plaintiffs ask the court to read § 94A distributively
in accordance with the canon reddenda singula singulis, also
known as the rule of the last antecedent, see Ross, A Rule of
Last Resort: A History of the Doctrine of the Last Antecedent
in the United States Supreme Court, 39 Sw. L. Rev. 325, 325
15
In its order, the department provided a single basis for
its authority to approve long-term gas contracts by electric
distribution companies: the language of G. L. c. 164, § 94A.
See D.P.U. 15-37, at 14, 17-21. See id. at 15 n.16 (expressly
rejecting declining to address other potential bases for
authority). On appeal, however, the department provides several
other potential bases of statutory authority for its conclusion,
including G. L. c. 164, §§ 69I, 76, 93, and 94. We do not
specifically consider these statutory bases, as they were not
relied on in the department's order, and the court will not
otherwise "supply a reasoned basis for the [department’s] action
that the agency itself has not given" (citation omitted), NSTAR
Elec. Co. v. Department of Pub. Utils., 462 Mass. at 387. We
nonetheless reject the department's arguments with respect to
these provisions insofar as we determine that the over-all
statutory scheme of G. L. c. 164 supports the plaintiffs'
interpretation of § 94A as prohibiting the type of contracts
contemplated by the department's order.
15
(2009), which states that "[w]here a sentence contains several
antecedents and several consequents, courts read them
distributively and apply the words to the subjects which, by
context, they seem most properly to relate." 2A N.J. Singer &
S. Shambie, Statutes and Statutory Construction § 47:26 (7th ed.
2014). Applying this canon to the text, the plaintiffs argue
that the parallel uses of the word "or" in the first sentence of
§ 94A can be read only in a manner that authorizes the
department to approve electric company contracts for the
purchase of electricity, and gas company contracts for the
purchase of gas.
The department argues, however, that we must disregard this
maxim because the court uses aids of statutory construction only
where the words of the statute are ambiguous. This argument
misapprehends the task of statutory interpretation. The court
does not determine the plain meaning of a statute in isolation,
but rather concludes that a statute is unambiguous only after
"consider[ing] the specific language of a statute in connection
with the statute as a whole and in consideration of the
surrounding text, structure, and purpose of the Massachusetts
act," Custody of Victoria, 473 Mass. 64, 73 (2015), in light of
the "standard rules of statutory construction and grammar"
(citation omitted). Rowley v. Massachusetts Elec. Co., 438
Mass. 798, 802 (2003).
16
Whether the rule of the last antecedent is characterized as
a rule of construction or one of grammar, it is the type of
intrinsic aid we regularly use to discern the meaning of a
statute. Although application of the rule here supports the
plaintiffs' reading of the statute as prohibiting the
department's review and approval of gas capacity contracts by
electric distribution companies, it is not dispositive, because
the rule "is not an absolute and can assuredly be overcome by
other indicia of meaning." Barnhart v. Thomas, 540 U.S. 20, 26
(2003).
It is true, as the department points out, that the language
of § 94A does not expressly forbid it from reviewing and
approving contracts by electric distribution companies for gas.
Nor, however, does the language clearly permit such activity.
See Entergy Nuclear Generation Co. v. Department of Envtl.
Protection, 459 Mass. 319, 331 (2011) ("Where . . . the scope of
agency authority is at issue, we must determine whether the
agency is acting within the powers and duties expressly
conferred upon it by statute and such as are reasonably
necessary to carry out its mission" [quotation and citation
omitted]). Thus, to the extent that "the language is not
conclusive as to the Legislature's intent, we may seek guidance
from the legislative history." Commonwealth v. Garrett, 473
Mass. 257, 260 (2015). Moreover, taking this history together
17
with the development of § 94A and its place with the larger
statutory framework of G. L. c. 164, we conclude that the
Legislature did not intend to authorize the department to
approve the contracts contemplated in its order, but rather
intended, with limited exceptions, to regulate the gas and
electric utilities differently.
We begin by describing G. L. c. 164, § 94A, as it was
originally enacted in 1926. The provision stated: "No electric
company shall hereafter enter into a contract for the purchase
of electricity covering a period in excess of three years
without the approval of the department . . . ." St. 1926,
c. 298. Section 94A was enacted to address concerns that newly
consolidated "interlocking companies" would enter into contracts
"for the interchange of electricity," and that the department
might have to accept those non-arms' length transactions in
later-filed electricity rate cases. See 1926 House Doc. No.
153, at 2.
Concerns remained, however, about how the expansion of
holding companies and the consolidation of electric utilities
under them would impact ratepayers. In light of these concerns,
the Legislature created a special commission to investigate the
control and conduct of public utilities in the Commonwealth.
See Report of the Special Commission on Control and Conduct of
Public Utilities (commission), 1930 House Doc. No. 1200, at 7
18
(1930 special report). Unlike a similar report prepared in 1925
that recommended the enactment of § 94A, but did not reference
gas companies in the relevant discussion, see 1926 House Doc.
No. 153, at 2, the commission was instructed to investigate both
electric and gas companies. 1930 special report, supra at 7-9.
The special report reflects apprehensions about the
consolidation of independent operating companies, and how those
consolidations might unjustly increase ratepayer cost for gas
and electricity. Id. at 15-16, 34, 46-47, 52-53, 68-69, 240-
241.
The report informs our understanding of the history of
§ 94A, as it reveals why the Legislature sought to extend St.
1926, c. 298, to gas companies: the commission predicted that
the same concerns about electric companies would arise with
respect to gas companies as well. Id. at 41-42. Finding that
St. 1926, c. 298, provided "valuable protection against
excessive charges for electricity," the report recommended
extending the existing statute to cover gas company contracts
for the purchase of gas. See id. at 67-68. Importantly, the
special report did not appear to contemplate gas company
purchases of electricity or electric company purchases of gas.
To the contrary, the text of the special report supports the
plaintiffs' position that the electric and gas industries were
regulated separately. See, e.g., id. at 74 ("There is no
19
necessary connection between the two kinds of business"); id. at
15 n.2, citing G. L. c. 164, §§ 22, 23 ("An electric company
could not deal in gas under any circumstances"). The
recommended bill was enacted in May, 1930, and appears in
substantially the same form today. Compare St. 1930, c. 342,
with G. L. c. 164, § 94A. Following the 1930 amendment, § 94A
provided: "No gas or electric company shall hereafter enter
into a contract for the purchase of gas or electricity covering
a period in excess of two years without the approval of the
department . . ." (emphasis supplied). St. 1930, c. 342. 16
The department and the plaintiffs offer competing
interpretations of this history. The department argues that
this history does not support any finding of legislative intent
to restrict the commodities to be purchased by utilities, or the
types of contracts that would be subject to department review,
but rather only to limit the power of the holding companies that
had come to dominate the gas and electric industries. Thus, in
the department's view, the concerns that prompted the amendment
arose from a desire to protect ratepayers from excessive rates,
with no indication that the department should be limited in its
16
The statute was further amended in 1941 to change the
contract period from two years to one year. St. 1941, c. 400.
At the time of the 1930 amendment, the Legislature had already
used the "gas or electric company" or "gas or electricity"
construction numerous times elsewhere in G. L. c. 164. G. L.
(Ter. Ed.) c. 164 (1932), §§ 5, 11, 15-18, 30, 34, 42-43, 45-46,
55-56, 58, 60-69, 78-79, 81-84, 89, 92-96, 116-117, 124-125.
20
ability to review any type of commodity contract by any type of
utility company.
The plaintiffs disagree, and argue that the introduction of
the new language in the 1930 amendment did not alter or expand
the meaning of existing and unchanged statutory language because
the Legislature did not express any intent to do so. See Foster
v. Group Health Inc., 444 Mass. 668, 674 (2005) ("provisions of
[an] amendatory act [are] to be considered together with
provisions of [the] original act"). Thus, they argue, the 1930
amendment was not made with the intent to expand electric
company contracting authority to include the purchase of gas,
but rather to expand the department authority to regulate gas
company contracts for gas in addition to electric company
contracts for electricity.
We agree, and conclude that the history and development of
the statute supports the plaintiffs' distributive reading of the
terms "gas or electric." In light of the history, as well as
the different regulatory treatment of gas and electric
utilities, it is apparent that the addition of the term "gas" to
§ 94A was not meant to expand the department's authority to
review any type of commodity contract by any type of utility,
but rather to ensure that gas companies were not free to engage
in the types of transactions that might harm ratepayers when
electric companies were prohibited from doing so.
21
Moreover, our conclusion that the Legislature intended to
regulate gas and electric utilities differently is supported by
other language in the statute, including the express, non-
overlapping definitions of "gas company" and "electric company,"
even if the corporate entity engaging in one of those defined,
regulated businesses is "subsequently authorized" to also
perform the other function. See G. L. c. 164, §§ 1, 8A. 17
17
General Laws c. 164, § 1, defines an electric company as
follows:
"a corporation organized under the laws of the commonwealth
for the purpose of making by means of water power, steam
power or otherwise and for selling, transmitting,
distributing, transmitting and selling, or distributing and
selling, electricity within the commonwealth, or authorized
by special act so to do, even though subsequently
authorized to make or sell gas; provided, however, that
electric company shall not mean an alternative energy
producer; provided further, that a distribution company
shall not include an entity which owns or operates a plant
or equipment used to produce electricity, steam and chilled
water, or an affiliate engaged solely in the provision of
such electricity, steam and chilled water, where the
electricity produced by such entity or its affiliate is
primarily for the benefit of hospitals and nonprofit
educational institutions, and where such plant or equipment
was in operation before January 1, 1986; and provided
further, that electric company shall not mean a corporation
only transmitting and selling, or only transmitting,
electricity unless such corporation is affiliated with an
electric company organized under the laws of the
commonwealth for the purpose of distributing and selling,
or distributing only, electricity within the commonwealth."
A gas company is defined as "a corporation organized for
the purpose of making and selling or distributing and selling,
gas within the commonwealth, even though subsequently authorized
to make or sell electricity; provided, however, that gas company
shall not mean an alternative energy producer." Id.
22
Indeed, the department's own order acknowledges the "different
regulatory treatment of a [local distribution gas company] and
[electric distribution companies]." D.P.U. 15-37, at 43.
The larger statutory context in which the term "gas or
electric" is used extensively in G. L. c. 164 is also
instructive. For example, G. L. c. 164, § 116, gives a duly
authorized officer or employee of "a gas or electric company
. . . [the right to] enter any premises supplied with gas or
electricity by such company for the purpose of examining or
removing the meters, pipes, wires, fittings and works for
supplying or regulating the supply of gas or electricity and of
ascertaining the quantity of gas or electricity consumed or
supplied" (emphasis added). In an emergency, fire and police
officers must allow such an authorized representative "of a gas
or electric company . . . to enter any area or building in order
to shut off the gas or electricity, which is or may become a
source of danger to the public" (emphasis added). G. L. c. 164,
§ 116A. See G. L. c. 164, § 93 (granting department authority,
on notice and investigation following written complaint "either
as to the quality or price of the gas or electricity sold and
delivered, . . . [to] order any reduction or change in the price
or prices of gas or electricity or an improvement in the quality
thereof" [emphasis added]); G. L. c. 164, § 76A (department has
authority to supervise affiliate of both gas and electric
23
companies with respect to extent of their activities that
"affect the operations of" any gas or electric company they are
affiliated with, directing that "[s]uch relations, transactions
and dealings, including any payments by a gas or electric
company to such an affiliated company for services or materials
and supplies which enter into the manufacture, distribution or
sale of gas or electricity, shall be subject to review and
investigation by the department in any proceeding brought under
[G. L. c. 164, §§ 93-94]" [emphasis added]).
The department, however, argues that reading the words "gas
or electricity" distributively throughout G. L. c. 164 would
lead to absurd results that could not have been intended by the
Legislature. The department notes that it may authorize an
electric company to "engage in the business of a gas company"
and a gas company "to engage in the business of an electric
company" if it "deems the public convenience will be promoted
thereby" pursuant to G. L. c. 164, § 8A. Thus, the department
argues, if the court were to adopt the distributive reading of
c. 164 suggested by the plaintiffs, a gas company authorized to
engage in the sale of electricity pursuant to G. L. c. 164,
§ 8A, for example, would not be required to report accidents
caused by electricity it supplied where someone was killed (see
G. L. c. 164, § 95); would be unable to enter any area or
building to shut off electricity which is or may become a source
24
of danger to the public (see G. L. c. 164, § 116A); and would be
unable to stop service to a person who failed to pay his or her
electricity bill (see G. L. c. 164, § 124).
These arguments are not persuasive. The "absurdities"
identified by the department are easily resolved by consistently
treating "gas companies" and "electric companies" separately
throughout c. 164, as required by their statutory definitions.
Moreover, if a gas company were to amend its corporate charter
and obtain approval from the department under G. L. c. 164,
§ 8A, to also engage in the business of an electric company, as
the department hypothesizes, it would plainly also meet the
statutory definition of "electric company" pursuant to G. L.
c. 164, § 1, and so would expressly be subject to the statutory
provisions cited to by the department.
A final factor supports our conclusion that the Legislature
did not intend to authorize the department to approve electric
distribution company contracts for gas capacity and vice versa.
Although we defer to an agency's reasonable interpretation of a
statute it is charged with enforcing, "[t]he appropriate weight
(of such interpretation), in a particular case, will depend on a
variety of factors, including whether the agency participated in
the drafting of the legislation . . . , whether the
interpretation dates from the enactment of the legislation, and
whether it has been consistently applied" (citations
25
omitted). Board of Educ. v. Assessor of Worcester, 368 Mass.
511, 515-516 (1975).
In this case, we have not located (nor has the department
identified) any instance of the department approving, pursuant
to § 94A, a contract for electricity by a gas company, or a
contract for gas by an electric company in the eighty-six year
period since the 1930 amendment. Moreover, before issuing the
order, the department had never interpreted § 94A to authorize
its approval of such contracts; to the contrary, its prior
orders suggest that the department also had adopted a
distributive construction of the statute's language with the
term gas relating to gas companies and the term electricity
relating to electric companies. See, e.g., D.P.U. 95-67, at 21
(Oct. 10, 1995) ("G. L. c. 164, § 94A, requires gas and electric
companies to file for [d]epartment approval all contracts for
the purchase of gas or electricity of a duration greater than a
year" [emphasis added]); D.T.E. 02-50, at 2 (Sept. 23, 2002)
(same); D.P.U. 86-247, at 7 (Dec. 4, 1987) ("Under [§] 94A, any
electric company who contracts for the purchase of electricity
for a period in excess of one year must submit the contract for
review"). The department's order here thus represents a
significant departure from its own history of administering
26
§ 94A and its separate treatment of the gas and electric
utilities. 18
In light of these considerations, we conclude that the
department erred in interpreting § 94A as authorizing it to
review and approve ratepayer-backed, long-term contracts by
electric distribution companies for gas capacity (or contracts
by gas companies).
c. Restructuring act of 1997. We further conclude that
the department's interpretation of § 94A is untenable in light
of the 1997 restructuring act, which amended G. L. c. 164 ("An
Act relative to restructuring the electric utility industry in
the Commonwealth, regulating the provision of electricity and
other services, and promoting enhanced consumer protections
therein"). "Any judicial review of agency action embodies the
principle that an agency has no inherent authority beyond its
enabling act and therefore it may do nothing that contradicts
such legislation." Globe Newspaper Co. v. Beacon Hill
Architectural Comm'n, 421 Mass. 570, 586 (1996). For the
18
See also 220 Code Mass. Regs. §§ 11.00 (2016)
(department's rules governing restructuring of electric industry
silent as to whether restructured electric distribution company
being able to purchase gas or be compensated therefor); D.P.U.
94-174-A, at 1-2 (Mar. 15, 1994) (in designing and establishing
"single standard based on the public interest" to be applied to
all gas commodity contracts -- for both the gas itself, and for
the pipeline capacity necessary to transport it -- the
department entertained comments only from, included analysis
only regarding, and designed the standard only for, gas
companies).
27
reasons discussed herein, we determine that the department's
approval of ratepayer-backed, long-term contracts by electric
distribution companies for gas capacity contradicts the
fundamental policy embodied in the restructuring act, namely the
Legislature's decision to remove electric distribution companies
from the business of electric generation.
Prior to the passage of the restructuring act, electric
companies were vertically integrated monopolies, controlling the
generation, transmission, and distribution of electricity.
See Northeast Energy Partners, LLC v. Mahar Regional Sch. Dist.,
462 Mass. 687, 695 (2012). Recognizing that "the interests of
consumers [could] best be served by an expedient and orderly
transition from regulation to competition in the generation
sector consisting of the unbundling of prices and services and
the functional separation of generation services from
transmission and distribution services," St. 1997, c. 164,
§ 1 (m), the Legislature enacted the act to separate these three
utility services and open the supply of generation services to
competition. Northeast Energy Partners, LLC, supra at 696-697.
This functional separation of services, which limited a
"'company's ability to provide itself an undue advantage in
buying or selling services in competitive markets,' was regarded
as a necessary first step in moving toward 'a fully competitive
28
generation market based on customer choice.'" Id. at 697,
quoting D.P.U. 95–30, at 16 (Aug. 16, 1995).
The restructuring act also removed "the business of
producing, manufacturing, or generating electricity," from the
department’s supervisory authority. See St. 1997, c. 164,
§§ 189, 193. Following the transfer by Commonwealth utilities
of all generation facilities to separate ownership, no portion
of the business of a generating company could "be subject to
regulation as a public utility or as an electric company." St.
1997, c. 164, § 193; G. L. c. 164, § 1A (e).
Additionally, by deregulating the generation component of
the electric utility industry, electric distribution companies
were discharged from their duties to plan for, build, and
operate or profit from the making and selling of electricity.
Instead, the business of electric distribution companies is to
plan for, build, and operate distribution infrastructure (e.g.,
poles, wires, and substations); deliver electricity; and be
compensated for doing so. See, e.g, G. L. c. 164, § 1, inserted
by St. 1997, c. 164, § 187 (defining "[d]istribution company,"
"[d]istribution service," and "[d]istribution facility").
Recognizing the circumscribed role of electric distribution
companies after the restructuring act, the department exempted
them from their prerestructuring act business obligations
relating to fuel management and power planning. First, in 1998,
29
the department acknowledged that the electric distribution
companies would no longer be buying fuel for power plants or
recovering from ratepayers the cost of fuel. Accordingly, the
department exempted electric distribution companies from the
previous fuel procurement and cost recovery program under G. L.
c. 164, § 94G. D.T.E. 98-13, at 4 (Feb. 20, 1998). 19
The department also exempted electric distribution
companies from G. L. c. 164, § 69I, which had imposed a power
planning requirement on the electric utilities, and instead
directed distribution companies to focus exclusively on
distribution. D.T.E. 98-84, at 1-2 (Aug. 10, 1998). Section
69I had required electric companies to assess expected customer
electricity demand over a ten-year period and ensure that they
would have the right fuel and infrastructure mixture to serve
that expected demand. 20 In exempting electric distribution
19
As relevant here, G. L. c. 164, § 94G, required companies
to demonstrate to the department that their plans to procure
fuel for their power plants would "maintain sufficient reserves
of power for purposes of reliability and efficiency." G. L.
c. 164, § 94G (a). Section 94G (a) also allowed electric
companies to recover their fuel costs from customers and adjust
the rate based on fluctuations in fuel prices. See generally
Consumers Organization for Fair Energy Equality, Inc. v.
Department of Pub. Utils., 368 Mass. 599, 601-602 (1975).
20
In relevant part, G. L. c. 164, § 69I, required that
electric companies file biennial forecasts of the electric power
needs and requirements of its market area for the ensuing ten-
year period. D.T.E. 98-84/EFSB 98-5, at 1 (Aug. 8, 2003).
Prior to the restructuring act, the department used this device
to regulate electric companies' "procurement of and cost
30
companies from § 69I, the department recognized that the
restructuring act relieved such companies from their obligation
to "forecast[], plan[], solicit[] and procur[e] long-term
electricity supplies for their customers." D.T.E. 98-84, at 1
(Aug. 10, 1998).
Thus, the department's exemption of electric distribution
companies from both §§ 94G and 69I signaled its recognition that
electric distribution companies were leaving all aspects of the
generation business, including not only power plant
construction, but also the planning and fuel management aspects
of generation.
Moreover, in restructuring the electric industry by
removing electric distribution companies from the business of
electric generation, the Legislature "shifted the risks of
generation development from consumers to generators" to
"insulate[] [consumers] from construction, operational, and
price risks . . . inherent in commodity rate regulation."
D.P.U. 12-77, at 28 (Mar. 15, 2013). See D.T.E. 98-84, at 2
(Aug. 10, 1998) ("A market framework based on competition . . .
will mean that the economic consequences of building too many
power plants will be borne directly by investors, rather than
ratepayers"). Through the restructuring act, the Legislature
recovery associated with . . . resources to meet [their
customers' electricity needs." Id.
31
sought to shift such risk away from ratepayers, who had been
forced to pay higher rates for electricity as a result of
"excessive investments" in expensive and poorly managed long-
lived infrastructure projects. Black & Pierce, The Choice
Between Markets and Central Planning in Regulating the U.S.
Electricity Industry, 93 Colum. L. Rev. 1339, 1344-1345, 1386
(1993). 21
In this case, the department's interpretation of § 94A not
only would permit electric distribution companies to purchase
resources related to supply of electric generation (in this
case, natural gas capacity), but also would allow the department
to regulate such activity and to shift the associated costs to
ratepayers. We agree with the plaintiffs that such activity
would undermine the main object to be accomplished by the
restructuring act, i.e., to move from a regulated electricity
supply market to an open and competitive market for power. See
St. 1997, c. 164, § 1 (f). Further, an interpretation of § 94A
21
See, e.g., Attorney Gen. v. Department of Pub. Utils.,
390 Mass. 208, 219, 222, 228-229 (1983) (affirming department
decision that authorized electric company to recover, through
increased rates, costs it incurred in later abandoned Pilgrim II
nuclear power plant). See also Norwood v. Federal Energy
Regulatory Comm'n, 80 F.3d 526, 530-531 (D.C. Cir. 1996)
(affirming, in part, FERC decision to allow nuclear plant
operator to recover costs for prematurely closed nuclear plant
based in Rowe, Massachusetts); Cost of Seabrook Plant Begins to
Hit Customers, N.Y. Times, Feb. 1, 1987
(describing Massachusetts ratepayer costs associated with
construction of Seabrook nuclear power plant).
32
that includes approval of pipeline capacity contracts by
electric distribution companies would contradict the specific
statutory provisions put in place under G. L. c. 164 to account
for the divestiture of all generation assets by electric
distribution companies. See, e.g., G. L. c. 164, § 1G.
Accordingly, this interpretation would give rise to an
inconsistent body of regulatory law. See D.T.E. 98-84/EFSB 98-5
(exempting electric distribution companies from G. L. c. 164,
§ 69I, and rescinding 220 Code Mass. Regs. §§ 10.00); D.T.E. 98-
13 (exempting electric distribution companies from G. L. c. 164,
§ 94G).
Perhaps most importantly, however, the department's order
would reexpose ratepayers to the very types of risks that the
Legislature sought to protect them from when it enacted the
restructuring act. Both the DOER and the department noted that
gas-fired generating businesses are unwilling to assume the
risks associated with long-term gas pipeline capacity contracts
because there "is no means by which they can" assure recovery of
those contract costs. Shifting that risk onto the electric
ratepayers of the Commonwealth, however, is entirely contrary to
the risk-allocation design of the restructuring act.
Equally unavailing is the department's finding that the
order does not contravene the policy embodied in the
restructuring act because it does not allow the use of ratepayer
33
funds to construct a power plant. D.P.U. 15-37, at 27. As
prior decisions by this court and the department make clear,
power plant construction is only one aspect of the electric
generation market, and in enacting the restructuring act, the
Legislature sought to separate all aspects of generation from
all aspects of distribution. See, e.g., D.T.E. 98-13, at 4;
D.T.E. 98-84, at 1.
Moreover, the department itself has recognized that fuel
procurement and planning is an integral component of the
generation business, as evidenced by its exemption of electric
distribution companies from § 69I. Indeed, by some estimations,
fuel-related costs constitute seventy-five per cent of a natural
gas-fired plant's generation costs. 3 World Scientific Handbook
of Energy 72 (G.M. Crawley ed., 2013). Accordingly, prior to
the enactment of the restructuring act, the department required
electric companies to consider both the type and amount of fuel
they would use to generate power when they calculated whether
they could supply enough electricity to match expected demand.
We agree with the plaintiffs that if the restructuring act does
not allow electric distribution companies to finance investments
in electric generation, it cannot be reasonably interpreted to
permit those companies to invest in infrastructure unrelated to
electric distribution service. Accordingly, we reject the
department's reasoning. See Cardin v. Royal Ins. Co. of Am.,
34
394 Mass. 450, 456-557 (1985) (agency's interpretation of
statute "hardly persuasive where [it] violates the language and
policy of the statute," [quotation and citation omitted]).
The department's interpretation of the statute as
permitting electric distribution companies to shift the entire
risk of the investment to the ratepayers is unreasonable, as it
is precisely this type of shift that the Legislature sought to
preclude through the restructuring act. Contrast D.P.U. 12-77,
at 28 (Mar. 15, 2013) ("The legislation restructured the
electric industry in the state by providing incentives to
investor-owned electric distribution companies to divest their
generating assets and by adopting a competitive market structure
for the generation and purchase of electricity. This
restructuring shifted the risks of generation development from
consumers to generators, who are better positioned to manage
those risks").
Our interpretation of the restructuring act is supported by
the Legislature's own actions since the law's enactment. That
is, where the Legislature has sought to override the risk
allocation policy of the act, it has done so expressly. First,
in 2008, through enactment of the Green Communities Act, St.
2008, c. 169, the Legislature directed electric distribution
companies to seek proposals from renewable energy developers,
and, if they received reasonable proposals, to enter into
35
ratepayer-backed long-term contracts to buy the renewable power.
See St. 2008, c. 169, § 83. The Legislature concluded that such
contracts were necessary to "facilitate the financing of
renewable energy generation facilities." Alliance to Protect
Nantucket Sound, Inc. v. Department of Pub. Utils. (No. 1), 461
Mass. 166, 168 (2011). Importantly, in enacting the Green
Communities Act, the Legislature explicitly provided the
department with the authority to review and approve the
ratepayer-backed renewable energy contracts. St. 2008, c. 169,
§ 83 ("[a]ll proposed contracts shall be subject to the review
and approval of the department of public utilities").
The Green Communities Act represents a legislatively
created exception to the restructuring act's general prohibition
on electric distribution companies owning generation assets. To
facilitate promotion of renewable energy in the Commonwealth,
the Legislature allowed each distribution company to construct,
own, and operate twenty-five megawatts of solar energy before
January 1, 2009, and 50 megawatts after January 1, 2010.
St. 2008, c. 169, § 58. Section 58 further provided that an
electric distribution company had to obtain prior approval for
cost recovery from the department in order to recover
construction costs of a solar generation facility. Id.
Although the statute has since been amended, it continues to
36
provide an express, limited exemption from the restructuring
act. See St. 2012, c. 209, § 17.
Second, in 2012, the Legislature enacted "An Act relative
to competitively priced electricity," in which it authorized the
department to order electric distribution companies in the
Northeastern Massachusetts/Boston load zone (NEMA) to solicit
proposals for electricity generation, and if they received
reasonable proposals, to enter into ratepayer-backed long-term
contracts to buy the generation for use in the NEMA load zone.
St. 2012, c. 209, § 40. This provision explicitly permitted the
department to review and approve any resulting contracts if the
department determined that they were justified. Id.
These actions by the Legislature represent a clear decision
to depart from the policy choice to remove electric distribution
companies from the business of generation, as expressed in the
restructuring act, in very specific circumstances. Here, the
department's stated motive in issuing the order is to correct a
perceived failure of market-based incentives to encourage
wholesale generators to contract for adequate pipeline capacity.
However, its means of doing so, namely by reallocating risk onto
the ratepayers, is clearly prohibited by legislative policy.
Thus, no matter how salutary the department may claim its policy
aims to be, its order contravenes the fundamental policy
embodied in the restructuring act and cannot stand. See Utility
37
Air Regulatory Group v. Environmental Protection Agency, 134 S.
Ct. 2427, 2446 (2014) (agency authority to interpret ambiguities
in enabling statute "does not include a power to rewrite clear
statutory terms to suit its own sense of how the statute should
operate"); Wakefield Teachers Ass'n v. School Comm. of
Wakefield, 431 Mass. 792, 802 (2000) (fundamental policy
decisions are province of Legislature, and not coordinate
branches of government).
4. Conclusion. We conclude that the department erred in
interpreting G. L. c. 164, § 94A, as amended by the 1997
restructuring act, as authorizing it to review and approve
ratepayer-backed, long-term contracts by electric distribution
companies for natural gas capacity. Accordingly, the
department's order is vacated.
So ordered.