Houlton Water Company v. Public Utilities Commission , 2014 Me. LEXIS 41 ( 2014 )

MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 2014 ME 38
Docket: PUC-12-247
Argued: January 16, 2013
Decided: March 4, 2014
Panel: SAUFLEY, C.J., and LEVY, SILVER, MEAD, GORMAN, and JABAR, JJ.
HOULTON WATER COMPANY et al.
v.
PUBLIC UTILITIES COMMISSION
SAUFLEY, C.J.
[¶1] The Office of the Public Advocate, Houlton Water Company, and the
Industrial Energy Consumer Group (IECG) (collectively, the intervenors) appeal
from the Public Utilities Commission’s approval, with multiple conditions, of the
reorganization of two regulated electrical utilities in Maine. The reorganization
involves changes in the corporate ownership of specific entities that transmit and
distribute electricity in Maine such that they will be held in common ownership
with generators of electricity in Maine, primarily generators of electricity from
wind power. The intervenors urge us to conclude that the Electric Industry
Restructuring Act, 35-A M.R.S. §§ 3201-3217 (2013), prohibits, as a matter of
law, the proposed union under a single ownership of transmission-and-distribution
utilities and electricity generators. Alternatively, the intervenors argue that the
specific affiliations and financial relationships proposed here contravene the goals
2
of the Act, the Commission erred in its legal analysis and its factual findings, and
the Commission abused its discretion in approving and setting conditions on the
reorganization.
[¶2] We conclude that the Commission’s interpretation of the Act’s
prohibition on “financial” relationships is inconsistent with the goals and language
of the Act. We vacate the approval and remand for further proceedings.1
I. OVERVIEW
[¶3] Effective in 1999 and 2000, the Legislature substantially changed the
regulation of Maine’s electricity industry. See 35-A M.R.S. § 3204. By separating
the generation of electricity from its transmission and distribution (T&D),2 the
Electric Industry Restructuring Act was intended to effectuate the Legislature’s
goal of encouraging competition and innovation in the generation of electrical
power. See id. §§ 3202, 3203. “One of the purposes of the Restructuring Act was
to create a competitive market in which Maine’s citizens would be able to
comparison shop among various competitive electricity providers for their personal
1
Because we remand for further proceedings based on an error in statutory interpretation, we express
no opinion on the intervenors’ other arguments on appeal.
2
As do the parties, we refer to the regulated entities that transmit and distribute electricity in Maine as
“T&D” utilities. T&D utilities are public utilities. 35-A M.R.S. § 102(13) (2013). The Restructuring Act
defines a T&D utility, in relevant part, as “a person, its lessees, trustees or receivers or trustees appointed
by a court, owning, controlling, operating or managing a transmission and distribution plant for
compensation within the State.” 35-A M.R.S. § 102(20-B) (2013).
3
and commercial electricity generation services.” Competitive Energy Servs. LLC v.
Pub. Utils. Comm’n, 2003 ME 12, ¶ 2, 818 A.2d 1039.
[¶4] To achieve its goals, the Act mandated that companies holding both
generation and T&D assets divest themselves of the generation assets and
generation-related activities by March 1, 2000. 35-A M.R.S. § 3204(1).
Following divestiture, the Commission continues to regulate and oversee T&D
utilities, which hold monopolistic rights to the limited T&D resources in Maine.
See, e.g., id. § 3204(5), (6). “Because the Restructuring Act allowed the
investor-owned electric utilities to keep their transmission and distribution assets,
the former electricity providers were transformed into transmission and distribution
utilities . . . fully regulated by the Commission.” Competitive Energy Servs., 2003
ME 12, ¶ 2, 818 A.2d 1039.
[¶5] At the same time, the regulation of the production and generation of
electricity was greatly reduced, so much so that the parties refer to power
generation as “unregulated” in Maine, although the generators are subject to some
restrictions and must be licensed. See generally 35-A M.R.S. § 3202 (deregulating
retail access to generation services); id. § 3203 (authorizing the Commission to
license competitive electricity providers). In addition, the Act authorized
competitive electricity providers to market, broker, aggregate, or sell the generated
electricity to the public. Id. §§ 3201(5), 3202(1). Recognizing the potential effects
4
on competition, the Act now gives the Commission the authority to order
divestiture by a T&D utility if another entity purchases 10% or more of the stock
of the T&D utility and the Commission determines that an affiliated competitive
electricity provider thereby obtains an unfair market advantage. See id.
§ 3206-A(2).
[¶6] Following divestiture, any major change in the ownership or
organization of a T&D utility is considered to be a reorganization that must be
approved by the Commission. See id. §§ 708, 3204(5) (2013). The Restructuring
Act and the more broadly applicable statute that regulates public utilities’
reorganizations, id. § 708, provide the statutory basis for the Commission’s review
of the complex corporate transactions between and among energy corporations and
their respective affiliates.3
3
The Restructuring Act defines “affiliate” for purposes of this dispute. See 35-A M.R.S.
§§ 707(1)(A), 3201(1) (2013). The Restructuring Act provides, “‘Affiliated interest’ has the same
meaning as provided in section 707, subsection 1, paragraph A.” 35-A M.R.S. § 3201(1). Section
707(1)(A) provides,
“Affiliated interest” means:
(1) With respect to a public utility . . . :
(a) Any person who owns directly, indirectly or through a chain of successive
ownership 10% or more of the voting securities of a public utility;
(b) Any person, 10% or more of whose voting securities are owned, directly or
indirectly, by an affiliated interest as defined in division (a);
(c) Any person, 10% or more of whose voting securities are owned, directly or
indirectly, by a public utility;
5
[¶7] The appeal before us involves a challenge to a proposed reorganization
that, in the end, involves several business entities that provide T&D or generation
services in Maine. 4 Specifically, the Commission approved two petitions for
reorganization—one filed by T&D utilities Bangor Hydro-Electric and Maine
Public Service Company (MPS), and the other filed by the newly formed Northeast
Wind Holdings, LLC, all of which are owned by a Canadian corporation, Emera,
Inc., which operates in northeastern North America, in three Caribbean countries,
and in California. The evidence indicated that, at the time of the hearings, more
than 80% of Emera’s earnings came from regulated utilities.
[¶8] In essence, the reorganization would allow Emera to make two major
changes in its holdings. First, while continuing to hold the T&D utilities, Bangor
Hydro and MPS, Emera would be allowed to obtain a greater share of electricity
generators that generate power in Maine. Specifically, it would increase its
ownership share of Algonquin Power & Utilities Corp. (APUC), a Canadian
(d) Any person, or group of persons acting in concert, that the commission may
determine, after investigation and hearing, exercises substantial influence over the
policies and actions of a public utility, if the person or group of persons
beneficially owns more than 3% of the public utility’s voting securities; or
(e) Any public utility of which any person defined in divisions (a) to (d) is an
affiliated interest.
4
As authorized by statute, the Commission entered several protective orders in these proceedings,
shielding from public view a substantial amount of proprietary business information, not otherwise
available to the public, that was required to be filed with the Commission in the course of the
reorganization proceedings. See 35-A M.R.S. § 112 (2013). To effectuate those orders, this decision
contains only those details of the transactions that are necessary to an understanding of the matters on
appeal.
6
company that owns and operates a diversified portfolio of electrical generation and
utility distribution businesses in North America, including several that generate
electricity in Maine. Second, Emera would be authorized to engage in a joint
venture with First Wind Holdings, LLC, a wind energy developer, to establish a
new wind generation company to be called JV Holdco. JV Holdco would own and
operate wind generation projects in Maine, Vermont, and New York.
[¶9] Thus, the proposed transactions would allow Maine’s regulated T&D
utilities—Bangor Hydro and MPS—to be held in common ownership with
companies engaged in electricity generation in Maine, including several developers
of wind energy projects. Cf. id. § 707(1)(A). This ownership structure would not
have been allowed during the initial divestiture phase of the Restructuring Act.
See id. § 3204(1). The intervenors argue that it is not allowed now. We must
therefore determine whether the Restructuring Act prohibits or limits the proposed
reorganizations.
II. BACKGROUND
A. Proposed Transactions
[¶10] The Commission consolidated two petitions for hearing and decision,
each of which proposed a specific transaction. The first transaction involves
Emera’s plan to increase its ownership in APUC from 8.2% to a maximum of 25%
7
(the APUC transaction). One APUC subsidiary owns generation assets5 in Maine,
and owns a subsidiary that acts as a competitive electricity provider, which is a
“marketer, broker, aggregator or any other entity selling electricity to the public at
retail.” Id. § 3201(5). The initial plan was for APUC and Emera to engage in a
joint venture in the creation of a new entity, Northeast Wind Holdings, but when
APUC ultimately withdrew from that venture, the plan was altered to provide that
Emera would own 100% of Northeast Wind Holdings. As a result, the proposal
did not, at that stage, implicate section 3206-A(2), which regulates the
relationships between T&D entities and competitive electricity providers.
[¶11] The second transaction involved a proposed joint venture between
that Emera subsidiary, Northeast Wind Holdings, and subsidiaries of First Wind
Holdings, LLC, an entity involved in the development of utility-scale wind energy
projects. Through this transaction, a newly created entity to be known as JV
Holdco LLC would be held in joint ownership by the Emera-owned Northeast
Wind, which would acquire a 49% interest in JV Holdco, and First Wind, which
would hold the remaining 51% interest. To obtain its 49% interest,
Emera-Northeast Wind would invest $333 million in the form of equity and a loan
that may be converted to equity. First Wind would transfer a variety of wind
5
The Restructuring Act defines generation assets to include “all real estate, fixtures and personal
property owned, controlled, operated or managed in connection with, or to facilitate, the generation of
electric power.” 35-A M.R.S. § 3201(10) (2013).
8
projects in Maine and the northeast to JV Holdco. Additional wind projects could
be transferred to JV Holdco over the next decade that would commit Emera,
through Northeast Wind, to provide 49% of the necessary funding—more than $1
billion.6
[¶12] The First Wind transaction also involves the transfer of the Stetson
Generator Lead7 to Northeast Wind or another Emera affiliate, and the execution of
a Memorandum of Understanding between Bangor Hydro and First Wind whereby
First Wind would purchase twenty years of transmission capacity from a T&D
project undertaken by Bangor Hydro and National Grid.
[¶13] Accordingly, Bangor Hydro and MPS, both highly regulated
providers of electricity transmission and distribution in Maine, would be Emera
affiliates, and JV Holdco, which will own substantial generation assets located in
Maine, would also be owned in part by Emera. See id. §§ 707(1)(A), 3201(1).
Emera would also have a substantial financial relationship with First Wind, which
holds generation or generation-related assets, through the joint venture of their
subsidiaries.
6
The agreement allows for the expedited financing of new “shovel ready” projects if certain
conditions are met.
7
Generation lead lines connect generation facilities to transmission lines.
9
[¶14] Primary among the concerns raised by the intervenors in response to
the proposed reorganizations is the potential that an owner of generation assets
such as JV Holdco or First Wind would, through these shared economic and
business connections, obtain a competitive advantage over other generators in
access to transmission and distribution by Bangor Hydro and MPS, thus potentially
defeating the purposes of the Restructuring Act.
B. Procedural Background
[¶15] On April 26, 2011, as required by 35-A M.R.S. § 708(2), Bangor
Hydro and MPS filed a request for reorganization 8 concerning the originally
anticipated APUC transaction.9 On May 5, 2011, the newly formed Northeast
Wind requested Commission approval for the First Wind transaction. The hearing
examiner consolidated the petitions into a single proceeding. Houlton Water, the
Public Advocate, and IECG, among others, intervened.
8
Section 708(1)(A) defines “reorganization” as
any creation, organization, extension, consolidation, merger, transfer of ownership or
control, liquidation, dissolution or termination, direct or indirect, in whole or in part, of
an affiliated interest as defined in section 707 accomplished by the issue, sale,
acquisition, lease, exchange, distribution or transfer of voting securities or property.
35-A M.R.S. § 708(1)(A) (2013). Section 708 further provides that “no reorganization may take place
without the approval of the commission” unless “exempted by rule or order of the commission.”
35 M.R.S. § 708(2)(A) (2013). The Commission may not approve the reorganization of a public utility
“unless it is established by the applicant for approval that the reorganization is consistent with the
interests of the utility’s ratepayers and investors.” Id.
9
Although Bangor Hydro and MPS’s filing requested an exemption from the requirement of
reorganization approval, the Commission treated their petition as a request for reorganization.
10
[¶16] In August 2011, the Public Advocate and Houlton Water, among
others, moved to dismiss the petitions on the ground that the Commission’s
approval of the reorganization petitions would violate the Restructuring Act by
allowing T&D utilities’ corporate owner to own generation assets in Maine. The
Commission denied the motion, concluding that 35-A M.R.S. § 3204(5)10 “clearly
prohibits utilities from owning generation assets, but does not explicitly prohibit
such ownership by utility affiliates.” The Commission reasoned that “the
Legislature was aware of affiliate issues at the time it enacted the [Restructuring
Act] . . . and could have explicitly prohibited affiliated ownership if that was the
intent.”
[¶17] In preparation for the hearing on the reorganization requests, Bangor
Hydro and MPS filed testimony from officers at Emera Energy, Inc.;11 First Wind;
Algonquin Energy Services, Inc.;12 and Bangor Hydro. The Public Advocate filed
the testimony of a consultant. The hearing examiners for the Commission
conducted a hearing in the Commission’s presence over the course of four days in
10
Title 35-A M.R.S. § 3204(5) (2013) provides, “Ownership of generation prohibited. Except as
otherwise permitted under this chapter, on or after March 1, 2000, an investor-owned transmission and
distribution utility may not own, have a financial interest in or otherwise control generation or
generation-related assets.”
11
Emera Energy, Inc., is a wholly-owned direct subsidiary of Emera.
12
Algonquin Energy Services, Inc., is a wholly owned indirect subsidiary of APUC and is currently a
Maine competitive electricity provider. See 35-A M.R.S. § 3201(5) (2013).
11
December 2011, and heard testimony from several of the witnesses who had
pre-filed testimony and from Emera’s president and chief executive officer. See id.
§ 1305(2) (2013).
[¶18] In January 2012, the hearing examiners issued their report. See id.;
9 C.M.R. 65 407 110-7, -23 to -24 §§ 105(p), 750-752 (1999).13 The hearing
examiners recommended that both reorganization requests be denied. Although
the examiners’ report concluded that the proposed transactions were not prohibited
by the financial interest or control prongs of 35-A M.R.S. § 3204(5), the examiners
concluded that the net result to the public would be harmful, see id. § 708(2)(A)(9).
Finding “that the risk of harm to ratepayers exceeds the benefits, even if conditions
intended to mitigate the risk of harm to ratepayers were imposed,” the examiners
concluded that Bangor Hydro and MPS “have not met their burden of
demonstrating no net harm to ratepayers as set forth in [section] 708.” The
examiners also rejected the APUC transaction because of “the lack of benefits and
the risks of undue preference created by the affiliation” between MPS and APUC.
In the event that the Commission were to allow the reorganization, the examiners’
report recommended that “any approval of the Proposed Transactions must include
substantial and comprehensive conditions.” The examiners listed nearly thirty
conditions that would protect against “harm to ratepayers of [Bangor Hydro] and
13
Chapter 110 of the Commission’s rules was recently replaced, effective November 26, 2012, and
codified at 9 C.M.R. 65 407 110 -1 to -13 §§ 1-14 (2013).
12
MPS in the form of higher T&D rates” and harm to the competitive market from
preferential treatment of Emera affiliates.
[¶19] Pursuant to 9 C.M.R. 65 407 110-32 § 1001 (1999), Bangor Hydro
and MPS filed exceptions to the examiners’ report. APUC then filed a letter
informing the Commission that it had withdrawn from the Northeast Wind and JV
Holdco transactions. The examiners ordered Bangor Hydro and MPS to provide a
statement of clarification regarding changes to the proposed reorganization and
provided the intervenors with an opportunity to respond. The statement of
clarification explained that the First Wind transaction would remain substantially
the same except that APUC would not have any ownership interest in JV Holdco
and instead Emera would finance 100% of the investment in Northeast Wind.
[¶20] The Commission then reopened the record, over the intervenors’
objections, “for the sole and limited purpose of . . . develop[ing] the record on . . .
issues related to APUC’s withdrawal from the First Wind transaction.” The
Commission took evidence concerning (1) “[t]he financial impact on Emera and its
Maine utility affiliates from APUC’s withdrawal” and (2) “[t]he impact on the
northern Maine market issues resulting from APUC’s withdrawal.”14
14
On February 2, 2012, the intervenors moved to dismiss the reorganization approval proceeding
based on (1) the unauthorized filing of First Wind’s exceptions and APUC’s letter and (2) Bangor Hydro
and MPS’s proposal of new conditions in their exceptions to the examiners’ report. Although
acknowledging that Bangor Hydro and MPS’s “actions in response to the Examiners’ Report created
substantial substantive and procedural concerns and may not constitute proper practice,” the Commission
13
[¶21] After deliberations, the Commission approved both the APUC and
First Wind transactions with extensive conditions. The Commission interpreted
section 3204(5) as not prohibiting the affiliation of T&D utilities and generation
entities with a shared parent company. It then turned its focus to section 3204(5)’s
provision that utilities “may not own, have a financial interest in or otherwise
control generation or generation-related assets,” and determined that, to contravene
the statute, the T&D utility would have to hold “some type of control over the
affiliates’ generation assets.” The Commission reasoned that such control “would
occur, for example, if a utility owned a subsidiary that owns and operates
generation assets,” but that Bangor Hydro and MPS “will have only the type of
financial interest that any entity has in the success of its affiliates.”
[¶22] The Commission imposed more than fifty conditions on Bangor
Hydro and MPS as well as on nonparties First Wind, Emera, APUC, and their
affiliates to mitigate the risk that the proposed transactions would not be
“consistent with the interests of the utility’s ratepayers and investors.”
35-A M.R.S. § 708(2)(A). The Commission explained that the proposed
transactions, considered together, “would provide significant benefits to Maine
concluded that “those actions [did] not justify dismissal of this proceeding.” The decision “emphasize[d]
that the Commissioners (as is the case with judges) are capable of . . . disregarding information that is
outside the record” and rejected the intervenors’ claims that First Wind’s and APUC’s filings constituted
ex parte communications. Furthermore, the Commission concluded that the suggestion of new conditions
by Bangor Hydro and MPS “was not improper” because “[a] party’s exceptions provide the only
mechanism to respond to conditions proposed for the first time in an Examiners’ Report.”
14
ratepayers,” and that the imposed conditions would “sufficiently mitigate” the
potential risks. Therefore, according to the Commission, the transactions “will not,
on net, be harmful to ratepayers.”
[¶23] After the Commission ruled on a motion for reconsideration and
modified one of the conditions it imposed, the intervenors filed a timely appeal
from the Commission’s order approving reorganization. See 35-A M.R.S. § 1320
(2013); M.R. App. P. 2(b)(3), 22.
III. DISCUSSION
[¶24] In an appeal from a decision of the Public Utilities Commission, our
review is deferential, and “[o]nly when the Commission abuses the discretion
entrusted to it, or fails to follow the mandate of the legislature, or to be bound by
the prohibitions of the constitution” will we intervene. Dunn v. Pub. Utils.
Comm’n, 2006 ME 4, ¶ 5, 890 A.2d 269 (quotation marks omitted). We apply a
two-part inquiry when reviewing the Commission’s interpretation of a statute that
it administers and is within its expertise. Competitive Energy Servs., 2003 ME 12,
¶ 15, 818 A.2d 1039. First, we determine de novo whether the statute is
ambiguous. Id. “An ambiguous statute has language that is reasonably susceptible
of different interpretations.” Dep’t of Corr. v. Pub. Utils. Comm’n, 2009 ME 40,
¶ 8, 968 A.2d 1047 (2009) (quotation marks omitted). Second, if the statute is not
ambiguous, we determine whether the Commission misconstrued the statute’s
15
plain meaning. Id. If the statute contains any ambiguity, however, we review the
Commission’s construction for reasonableness, according “great deference to the
Commission’s interpretation.” Id. (quotation marks omitted); see also Competitive
Energy Servs., 2003 ME 12, ¶ 15, 818 A.2d 1039.
A. Does Section 3204(5) Impose a Blanket Prohibition Against Maine T&D
Utilities Sharing an Affiliate with Maine Generation and Generation-related
Assets?
[¶25] All parties agree that the proposed transactions involving Emera, First
Wind, and APUC would result in Emera—a company with an affiliated interest in
Maine T&D utilities Bangor Hydro and MPS—also holding what would constitute
an “affiliated interest” in subsidiaries engaged in electric generation in Maine if
that term applied to generators. See 35-A M.R.S. § 707(1)(A)(1)(a) (defining
“affiliated interest” with respect to a T&D utility to include “[a]ny person who
owns directly, indirectly or through a chain of successive ownership 10% or more
of the voting securities of a public utility”). Specifically, the Commission found
that “Emera would have a greater than 10% ownership interest in APUC, NE Wind
and JV Holdco.”
[¶26] The intervenors argue that the Commission’s interpretation of the
Restructuring Act as not expressly prohibiting affiliate-type ownership of Maine
electric generation assets is unreasonable and inconsistent with the intent of the
Restructuring Act. They contend that the Commission’s interpretation is contrary
16
to the plain language of section 3204(5) and violates rules of statutory
interpretation.
[¶27] The intervenors are correct that the Act unambiguously required that
owners of T&D utilities initially divest themselves of the generation assets that
they owned. See 35-A M.R.S. § 3204(1) (requiring, with some exceptions, that
“on or before March 1, 2000, each investor-owned electric utility shall divest all
generation assets and generation-related business activities”). The Act does not,
however, expressly prohibit a parent company from owning both generation and
T&D assets after divestiture. Instead, the Act prohibits any T&D utility from
having certain interests in generation assets: “Ownership of generation
prohibited. Except as otherwise permitted under this chapter, on or after March 1,
2000, an investor-owned transmission and distribution utility may not own, have a
financial interest in or otherwise control generation or generation-related assets.”
Id. § 3204(5).
[¶28] Thus, the statute does not expressly prohibit affiliation between a
parent company that owns and operates generation assets and a T&D utility.
See id. The Legislature used the terms “affiliate,” “affiliated,” or “affiliated
interest” in other parts of section 3204, see, e.g., id. § 3204(1), (8), and in other
parts of the Restructuring Act, see, e.g., id. §§ 3201(1), 3202(4)(A), 3205 to
3206-A, 3212(2)(C). It could easily have drafted section 3204(5) to prohibit the
17
owners of T&D utilities from having any “affiliation” or “affiliated interest” with
generation companies after divestiture. For example, as first introduced, the bill
provided that “a large, investor-owned transmission and distribution utility may not
have an affiliated interest in a competitive generation provider.” L.D. 1804 § 1
(118th Legis. 1997) (emphasis added) (proposed as section 3204(4)).15
[¶29] After multiple amendments, however, the Legislature chose not to use
“affiliate” language in section 3204(5), but instead directed that T&D utilities
“may not own, have a financial interest in or otherwise control generation or
generation-related assets.” 35-A M.R.S. § 3204(5). Thus, construing the plain and
unambiguous language of the statute, and consistent with our prior rulings, we
conclude that section 3204(5) does not explicitly prohibit all affiliation, as defined
by the Restructuring Act, between a T&D utility’s corporate owner and entities
that own generation or generation-related assets. See id. §§ 707(1)(A), 3201(1);
Dep’t of Corr., 2009 ME 40, ¶ 8, 968 A.2d 1047. Whether any specific proposed
affiliation runs afoul of the prohibition against a T&D utility having ownership of,
15
A committee amendment made three changes to the bill that are relevant to this dispute. Comm.
Amend. A to L.D. 1804, No. H-568, § 3 (118th Legis. 1997). First, the amendment eliminated the
language prohibiting investor-owned T&D utilities from having “an affiliated interest” in generation
companies. Id. Second, the amendment eliminated the section entitled “Interests in generation
restricted,” which had provided that T&D utilities may not “[a]cquire or hold any financial or ownership
interest in generation assets or generation-related business activities or contracts for generation.” L.D.
1804, § 1 (118th Legis. 1997) (proposed as section 3204(2)); see Comm. Amend. A to L.D. 1804,
No. H-568, § 3 (118th Legis. 1997). Third, the amendment added a subsection entitled “Ownership of
generation prohibited” that provided that T&D utilities “may not own, have a financial interest in or
otherwise control generation or generation-related assets.” Comm. Amend. A to L.D. 1804, No. H-568,
§ 3 (118th Legis. 1997) (codified at 35-A M.R.S. § 3204(5)). The Legislature enacted the amended bill.
2 Legis. Rec. S-1124 (1997).
18
a financial interest in, or otherwise exercising control over a generator must
therefore be addressed individually.
B. Must a T&D Utility Have Control of Generation Assets or
Generation-Related Assets for It to Have a “Financial Interest” in Them
Pursuant to Section 3204(5)?
[¶30] Section 3204(5) provides that, after divestiture, T&D utilities “may
not own, have a financial interest in or otherwise control generation or
generation-related assets.” 35-A M.R.S. § 3204(5). The proposed transactions
will not result in Bangor Hydro or MPS directly owning generation companies or
assets. The question, therefore, is whether the Commission’s approval of the
proposed transactions contravenes section 3204(5) by permitting Bangor Hydro
and MPS to “have a financial interest in or otherwise control” electric generation
by virtue of the mutual relationship with the parent company, Emera. See id.
[¶31] The Commission construed “financial interest in or otherwise control”
to require the T&D utility “to have some type of control over the affiliates’
generation assets” for the restructuring to be barred by section 3204(5). In so
doing, the Commission reasoned that “financial interest” must mean “something
more than the interest that any corporate entity would have in the financial success
of its affiliates.” As an example, the Commission explained that such control
would arise if a T&D utility “owned a subsidiary that own[ed] and operat[ed]
generation assets.”
19
[¶32] The language of section 3204(5) is ambiguous. Given the
grammatical structure of the sentence, it is not clear whether the Legislature
intended the word “otherwise” to result in the concept of control being imported
into each of the first two prohibited acts: ownership and financial interest. “An
agency’s interpretation of an ambiguous statute it administers is reviewed with
great deference and will be upheld unless the statute plainly compels a contrary
result.” Competitive Energy Servs., 2003 ME 12, ¶ 15, 818 A.2d 1039 (quotation
marks omitted).
[¶33] Read in the context of the Act’s expressly stated goals, and its
limitations on relationships between and among generators and T&D utilities,
however, we conclude that each of the three types of relationships set forth in
section 3204(5)—to own, to have financial interest, or to otherwise control—must
be interpreted to have independent meaning. See Carrier v. Sec’y of State, 2012
ME 142, ¶ 12, 60 A.3d 1241 (stating that, in construing a statute based on its plain
meaning, we are “attempting to give all of [the statute’s] words meaning”).
Although the Commission interpreted the term “otherwise” to suggest that all three
types of relationship required that the T&D utility have control over generation or
generation-related assets, we do not interpret the statute in that manner because
such a reading would run completely contrary to the goal of the act to preserve the
independence of T&D utilities from generators. See Competitive Energy Servs.,
20
2003 ME 12, ¶ 18, 818 A.2d 1039 (stating that we “avoid statutory constructions
that create absurd, illogical or inconsistent results” (quotation marks omitted)).
[¶34] For instance, using the Commission’s interpretation, a T&D utility
could own a large percentage of non-voting shares in generation or
generation-related assets as long as the T&D utility did not have control of the
governance of those assets. Despite the absence of controlling ownership, the
T&D utility would be highly motivated to enhance the success of its asset, the
generator, thus providing a competitive advantage to that generator. Such an
interpretation would run entirely counter to the Act’s purpose to separate T&D
from generation sufficiently to ensure competition among electricity generators
and developers of electricity generation projects, and prevent incentives that would
favor one or more of those developers or generators over others in obtaining the
services of a T&D utility.
[¶35] Because the Commission’s interpretation is not reasonable when
considered in light of the explicit goals of the Act, we conclude that a T&D utility
may be prohibited from having a financial interest in generation assets or
generation-related assets even without exercising control over those assets. We
therefore hold that a T&D utility has a prohibited “financial interest” in generation
assets or generation-related assets pursuant to section 3204(5) if there exists a
21
sufficient financial interest in the assets of a generator that the interest is likely to
produce incentives for favoritism that would undermine the purpose of the Act.
[¶36] This financial interest may, but need not, arise from a parent
company’s affiliate-type relationship with both T&D utilities and generation or
generation-related assets. See 35-A M.R.S. §§ 707(1)(A), 3201(1). Although the
statute uses language other than “affiliate,” there is no indication that the
Legislature thereby intended to authorize or prohibit all affiliate-type relationships
between a parent company and its T&D and generation or generation-related
assets. We interpret the statute to prohibit a T&D utility from having a “financial
interest” in generation or generation-related assets, which may or may not involve
relationships similar to utility affiliation as defined in section 707(1)(A). If the
financial relationship is sufficient to create an incentive for the T&D utility to
favor certain generation assets or generation-related assets over others, whether
through affiliate-type or other relationships, the Act’s prohibition comes into
effect. Thus, although a parent company of a T&D utility is not flatly prohibited
from having the kind of affiliated interest defined in section 707(1)(A) with an
entity possessing generation or generation-related assets, if the relationship among
the entities results in the T&D utility having a financial interest that would provide
an incentive to favor certain generators over others, the proposed corporate
restructuring is prohibited pursuant to section 3204(5).
22
[¶37] In sum, we conclude that the statute requires an interpretation of
section 3204(5) that is contrary to that of the Commission. See Dep’t of Corr.,
2009 ME 40, ¶ 8, 968 A.2d 1047. The Commission’s interpretation too strictly
requires a financial interest that is tantamount to a controlling interest. Because the
Commission misinterpreted the statute to prohibit a T&D utility’s financial interest
only if that interest gives the T&D utility control of the generation or
generation-related assets, the Commission must reexamine the transactions
proposed here, applying section 3204(5) as construed herein.
[¶38] Finally, the intervenors argue that the Commission did not have the
authority to impose the more than fifty separate conditions, many of which appear
to “re-regulate” the unregulated generation of electricity. Moreover, the
imposition of this substantial number of conditions could be seen as an indication
that the financial relationships between the regulated T&D utilities and the
“unregulated” generators run afoul of section 3204(5). We are cognizant of our
role as an appellate body, however, and we therefore decline to make such
determinations. We are confident that, with guidance on the meaning of the
statute, the Commission will undertake a thoughtful and thorough reexamination of
the proposals to determine whether the Act permits the reorganization proposed in
this case. Accordingly, we vacate the Commission’s decision and remand for
further consideration consistent with this opinion.
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The entry is:
Order of the Public Utilities Commission vacated.
Remanded for further proceedings consistent with
this opinion.
On the briefs:
Alan G. Stone, Esq., and Adam R. Lee, Esq., Skelton, Taintor
& Abbott, Auburn, for appellant Houlton Water Company
Eric Bryant, Esq., Office of the Public Advocate, Augusta, for
appellant Office of the Public Advocate
Andrew Landry, Esq., Anthony W. Buxton, Esq., Robert B.
Borowski, Esq., and Todd J. Griset, Esq., Preti Flaherty, LLP,
Augusta, for appellant Industrial Energy Consumer Group
Charles Cohen, Esq., and Mitchell M. Tannenbaum, Esq.,
Maine Public Utilities Commission, Augusta, for appellee
Public Utilities Commission
William S. Harwood, Esq., Verrill Dana LLP, Portland, for
appellees Bangor Hydro Electric Company and Maine Public
Service Company
At oral argument:
Adam R. Lee, Esq., for appellant Houlton Water Company
Eric Bryant, Esq., for appellant Office of the Public Advocate
24
Anthony Buxton, Esq., for appellant Industrial Energy
Consumer Group
Charles Cohen, Esq., for appellee Public Utilities Commission
William S. Harwood, Esq., for appellees Bangor Hydro Electric
Company and Maine Public Service Company
Public Utilities Commission docket number 2011-170
FOR CLERK REFERENCE ONLY