Office of the Public Advocate v. Public Utilities Commission et al.

MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 2023 ME 77Docket: PUC-23-65
Argued: September 14, 2023
Decided: December 28, 2023
Panel: STANFILL, C.J., and MEAD, JABAR, CONNORS, LAWRENCE, and DOUGLAS, JJ.
OFFICE OF THE PUBLIC ADVOCATE
v.
PUBLIC UTILITIES COMMISSION et al.
JABAR, J.
[¶1] The Office of the Public Advocate appeals from an order of the Public
Utilities Commission approving an amended special rate contract between
Bangor Natural Gas Company (Bangor Gas) and Bucksport Generation LLC. See
35-A M.R.S. § 1320 (2023); M.R. App. P. 22. The Public Advocate argues that the
Commission reviewed the proposed contract under the wrong standard, and
that its decision resulted in “unjust or unreasonable” rates, in violation of
35-A M.R.S. § 301(3) (2023), and “undue or unreasonable preference” of
Bucksport Generation over other Bangor Gas customers, in violation of
35-A M.R.S. § 702(1) (2023). The Public Advocate also argues that the
Commission’s order should be vacated because the Commission relied on
information not included in the evidentiary record. We disagree with the Public
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Advocate’s first argument, find the second argument waived, and affirm the
Commission’s order.
I. BACKGROUND
[¶2] The following background is drawn from the administrative record
and the Commission’s order dated January 27, 2023. See Bangor Nat. Gas Co.,
Request for Approval of Special Rate Agreement, No. 2022-333, Order
(Me. P.U.C. Jan. 27, 2023).
[¶3] On November 9, 2022, pursuant to 35-A M.R.S. § 703(3-A) (2023),
Bangor Gas petitioned the Commission for approval of an amendment to its
existing special rate contract with Bucksport Generation. The proposed
amendment extended the terms of the existing contract, which was set to expire
on January 31, 2023. On November 16, 2022, the hearing examiners1 issued a
notice of proceeding and opportunity to intervene. The Public Advocate,
Bucksport Generation, and ND OTM LLC (ND Paper) all filed timely petitions to
intervene, and at a preliminary case conference on November 29, the hearing
examiners permitted the Public Advocate and Bucksport Generation to
participate as parties to the proceeding. See 65-407 C.M.R. ch. 110, § 8(B)(1),
(3) (effective Nov. 26, 2012). The hearing examiners then issued a written
A “hearing examiner” is a presiding officer in an adjudicatory proceeding at the Commission.
1
65-407 C.M.R. ch. 110, § 2(N) (effective Nov. 26, 2012).
3
order granting ND Paper discretionary intervenor status, but limiting its role to
commenting on, briefing, and filing exceptions or objections relating to issues
of law and policy relevant to special rate contracts in general. See id. § 8(B)(2).
[¶4] On December 6, the hearing examiners issued a procedural order
establishing a schedule that allowed for discovery, intervenor comments or
testimony in response to Bangor Gas’s petition, a response by Bangor Gas, and
briefing from the parties. On December 9, the Public Advocate filed comments
on the proposed amendment, and Bucksport Generation filed direct testimony
that same day. Soon after, Commission staff, the Public Advocate, and Bangor
Gas each served data requests2 on Bucksport Generation. On December 22, the
hearing examiners held a technical conference, at which the parties and
Commission staff posed questions to Bucksport Generation and followed up on
data requests. On December 28, Bangor Gas filed rebuttal testimony in
response to the Public Advocate’s comments and Bucksport Generation’s direct
testimony.
[¶5] The parties submitted briefing and, on January 13, 2023, the hearing
examiners issued a report recommending that the Commission approve the
amended special rate contract. On January 17, Bucksport Generation filed
2 “In addition to the discovery rights provided by the Maine Rules of Civil Procedure, all parties
shall have the right to serve data requests upon any other party.” 65-407 C.M.R. ch. 110, § 9(B)(2).
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comments in support of the hearing examiners’ report, and the next day Bangor
Gas and the Public Advocate filed exceptions. On January 27, the Commission
issued a written order adopting the hearing examiners’ report.
[¶6] In its order, the Commission found that the “annual revenue from
[the special rate contract] would exceed the annual marginal costs of service at
recent usage levels.” It also found that, under the special rate contract,
Bucksport Generation would make “a positive revenue contribution when
compared to the costs of operating” the pipeline serving Bucksport Generation.
Based on these findings, the Commission concluded that the proposed special
rate contract was “beneficial to Bangor Gas’s other ratepayers” and ordered
that it be approved. The Public Advocate timely appealed the Commission’s
order. M.R. App. P. 2B(c)(1), 22.
II. DISCUSSION
A. Standard of Review
[¶7] Generally, we review the Commission’s decisions with great
deference, looking “only to determine whether the agency’s conclusions are
unreasonable, unjust or unlawful in light of the record.” Cent. Me. Power Co. v.
Pub. Utils. Comm’n, 2014 ME 56, ¶ 18, 90 A.3d 451 (alteration and quotation
marks omitted). More specifically, we “will disturb a decision only when the
5
Commission abuses the discretion entrusted to it, or fails to follow the mandate
of the [L]egislature, or to be bound by the prohibitions of the [C]onstitution.”
Off. of the Pub. Advoc. v. Pub. Utils. Comm’n, 2015 ME 113, ¶ 15, 122 A.3d 959(quotation marks omitted). It is the appellant’s burden to establish that the
Commission’s action violates one or more of these standards. Cent. Me. Power
Co., 2014 ME 56, ¶ 19, 90 A.3d 451.
[¶8] We particularly defer to the Commission’s “expert judgment in
choosing among various ratemaking techniques or methodologies.” New
England Telephone & Telegraph Co. v. Pub. Utils. Comm’n, 448 A.2d 272, 279
(Me. 1982); see New England Telephone & Telegraph Co. v. Pub. Utils. Comm’n,
470 A.2d 772, 776 (Me. 1984) (“The Commission has broad discretion in
selecting among various rate-making methodologies, provided that they are
reasonably accurate. The Commission is not required to manipulate its
methodologies to eliminate every shred of suggested inaccuracy.” (citation
omitted)); Indus. Energy Consumer Grp. v. Pub. Utils. Comm’n, 2001 ME 94, ¶ 11,
773 A.2d 1038; see also Pub. Advoc. v. Pub. Utils. Comm’n, 1998 ME 218, ¶ 5, 718
A.2d 201; Quirion v. Pub. Utils. Comm’n, 684 A.2d 1294, 1297 (Me. 1996); Am.
Ass’n of Retired Persons v. Pub. Utils. Comm’n, 678 A.2d 1025, 1029 (Me. 1996);
City of Portland v. Pub. Utils. Comm’n, 656 A.2d 1217, 1221 (Me. 1995);
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Pub. Advoc. v. Pub. Utils. Comm’n, 655 A.2d 1251, 1253 (Me. 1995); Millinocket
Water Co. v. Me. Pub. Utils. Comm’n, 515 A.2d 749, 752 (Me. 1986); Mech. Falls
Water Co. v. Pub. Utils. Comm’n, 381 A.2d 1080, 1097-98 (Me. 1977); Cent. Me.
Power Co. v. Pub. Utils. Comm’n, 153 Me. 228, 230-31, 136 A.2d 726, 729 (1957).
[¶9] We also apply a deferential approach when reviewing an agency’s
interpretation of a statute it administers, in recognition of the agency’s “greater
expertise in matters of [relevant] concern and greater experience
administering and interpreting those particular statutes.” S.D. Warren Co. v. Bd.
of Env’t Prot., 2005 ME 27, ¶ 5, 868 A.2d 210. Therefore, “[w]hen reviewing [the
Commission’s] interpretation of a statute that is both administered by the
[Commission] and within [its] expertise,” we first determine de novo whether
the statute is ambiguous, i.e., “reasonably susceptible of different
interpretations.” Cent. Me. Power Co., 2014 ME 56, ¶ 18, 90 A.3d 451 (quotation
marks omitted). We then “either review the Commission’s construction of the
ambiguous statute for reasonableness or plainly construe the unambiguous
statute.” Id. (quotation marks omitted). “Although the Commission’s
interpretation of a statute that it administers is not conclusive or binding on us,
such an interpretation . . . should be upheld unless the statute plainly compels
a contrary result.” Off. of the Pub. Advoc., 2015 ME 113, ¶ 15, 122 A.3d 9597
(quotation marks omitted). The same standard also applies to the
Commission’s interpretation of its own technical regulations, provided those
regulations comport with the relevant statutes. Cent. Me. Power Co., 2014 ME
56, ¶ 19, 90 A.3d 451.
[¶10] With these principles in mind, we turn to the merits.
B. Whether the Commission reviewed the amendment to the special
rate contract under the proper standard.
[¶11] The Public Advocate argues that the Commission erred by
reviewing the proposed amendment to the special rate contract under the
wrong standard. Appellees counter that the standard applied by the
Commission comports with precedent, the relevant statutes, and the
Commission’s prior decisions. We agree with the appellees.
[¶12] The rates charged for utility service in Maine are established in
accordance with Title 35-A. Under section 309 of that title, utility rates
generally must be charged uniformly, according to schedules, or “tariffs,”
published by the utility:
Except as otherwise provided in section 703, it is unlawful for any
public utility to charge, demand, collect or receive, for any service
performed by it within the State or for any service in connection
with that performance, a greater or lesser compensation than is
specified in such printed schedules as may at the time be in force,
or to demand, collect or receive any rate, toll or charge not specified
in the schedules. The rates, tolls and charges named in the schedule
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are the lawful rates, tolls and charges until they are changed as
provided in this Title.
35-A M.R.S. § 309(1) (2023); see Harwood, Maine Regulation of Public Utilities
104 (2d ed., 2018); see also 35-A M.R.S. § 703(1) (echoing section 309’s tariff
rate requirement). However, section 703 provides an exception to the tariff
rate requirement for special rate contracts:
A public utility, subject to the commission’s approval, may make a
contract for a definite term for its product or service, but the
published rates for the product or service may not be changed
during the term of the contract without the commission’s consent.
35-A M.R.S. § 703(3-A); Taylor v. Pub. Utils. Comm’n, 2016 ME 71, ¶ 11, 138 A.3d
1214. We have previously recognized that Title 35-A and the Commission’s
regulations “provide no guidance regarding by what standard a special [rate]
contract is reviewed or approved and are therefore ambiguous on that basis.”
Taylor, 2016 ME 71, ¶ 11, 138 A.3d 1214 (alterations and quotation marks
omitted).
[¶13] In the absence of a strict legislative or regulatory mandate, the
Commission has reviewed special rate contracts under several different
standards, depending on the type of utility service at issue. When reviewing a
special rate contract for electric transmission and distribution (T&D) service,
the Commission typically asks three questions:
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1. Is the rate discount in fact necessary?
2. If so, is the rate above the marginal cost of service to the customer?
3. Is the contribution above marginal costs substantial and is the
contribution maximized?
Cent. Me. Power Co., Request for Approval of Special Rate Contract with
Newpage Corporation (Formerly Mead Oxford Corp.), No. 2005-451, Order Part
II at 3 (Me. P.U.C. Feb. 17, 2006). The requirement that the customer’s
contribution above marginal costs be “maximized” essentially means that the
discount below the normal tariff rate must be as small as possible. Id. at 3-4.
[¶14] However, when the Commission reviews a special rate contract for
natural gas service—like the contract at issue in this case—it asks whether a
proposed special rate contract will provide certain discrete benefits to the
utility and its customers, such as encouraging large-volume customers to use
gas provided by the utility instead of other fuels, and whether the “revenue
produced by the contract rates would exceed the marginal cost of providing
service.” Bangor Nat. Gas Co., Request for Approval of Special Rate Agreement,
No. 2022-333, Order at 10 (Me. P.U.C. Jan. 27, 2023); see, e.g., N. Utils., Inc.,
Request for Approval of a Firm Gas Transportation Agreement, No. 2000-848,
Order at 2 (Me. P.U.C. Dec. 7, 2000). Thus, in contrast to special rate contracts
for T&D service, the Commission does not require that special rate contracts
10
for natural gas service maximize revenues above the marginal cost of service.
The Public Advocate takes issue with this approach, arguing that the
Commission must consider whether a special rate contract for natural gas
service maximizes revenues above the marginal cost of service.
[¶15] However, neither Title 35-A nor the Commission’s regulations
mandate a particular standard of review for special rate contracts. See Taylor,
2016 ME 71, ¶ 11, 138 A.3d 1214. Furthermore, the Commission’s decision to
apply a different standard of review depending upon whether it is reviewing a
special rate contract for natural gas service or for T&D service is a rational one,
because natural gas utilities are subject to market forces that do not apply to
T&D utilities. See Pub. Utils. Comm’n, Investigation of Request to Order Natural
Gas Companies to Make Available Commercial Customer Lists, No. 2006-83,
Order at 6 (Me. P.U.C. June 29, 2006) (“The nature of competition in the gas and
electric industries is distinctly different. Unlike for electricity, other fuels can
be substituted for natural gas for virtually all natural gas end uses.”); Harwood,
supra at 189. As the Commission noted in its order, the standard it used to
review this special rate contract
recognizes the reality of the competitive nature of the natural gas
market in Maine, where large customers like Bucksport
[Generation] often have viable options in choosing fuels and
suppliers, and natural gas utilities compete for customers with one
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another. The market realities of [the] natural gas industry do not
allow utilities the leverage that electric utilities have over their
large customers for a utility to “maximize” its revenue in
negotiating [a special rate contract].
Bangor Nat. Gas Co., Request for Approval of Special Rate Agreement,
No. 2022-333, Order at 12 (Me. P.U.C. Jan. 27, 2023). These are relevant
considerations that fall within the Commission’s expertise and discretion.
[¶16] We therefore hold that, barring an express prohibition under
Title 35-A or the Commission’s regulations, it was not “unreasonable, unjust or
unlawful” for the Commission to apply different standards of review to special
rate contracts arising under different market conditions. Cent. Me. Power Co.,
2014 ME 56, ¶ 18, 90 A.3d 451.
C. Whether the Commission’s approval of the amended special rate
contract resulted in an unjust, unreasonable, or discriminatory rate.
[¶17] The Public Advocate also urges us to vacate the Commission’s
order because, the Public Advocate claims, it resulted in unjust and
unreasonable rates that are prohibited by section 301, and discriminatory rates
that are prohibited by section 702.
[¶18] Section 301 requires that rates charged for utility service in Maine
be “just and reasonable.” 35-A M.R.S. § 301(2). We have previously explained
that this requirement encompasses “a range” rather than “a particular single
rate” and held that “[i]t is within the sound discretion of the Commission” to fix
12
rates within that range. Cent. Me. Power Co. v. Pub. Utils. Comm'n, 382 A.2d 302,
327-28 (Me. 1978). Generally, we will not hold that a rate approved by the
Commission violates section 301 unless it is “so low as to constitute an
unconstitutional confiscation of private property” or “so high as to constitute
an unreasonable burden on ratepayers.” New England Telephone & Telegraph
Co. v. Pub. Utils. Comm'n, 390 A.2d 8, 30 (Me. 1978).
[¶19] Section 702 provides in relevant part that it is “unlawful for a
public utility to give any undue or unreasonable preference, advantage,
prejudice or disadvantage to a particular person.” 35-A M.R.S. § 702(1). This
means that, in general, the starting point for setting rates should ensure that
each member of a class of ratepayers pays the same rate, tied to the cost of
serving that class. See Holmquist v. New England Telephone & Telegraph Co., 637
A.2d 852, 853 (Me. 1994); Me. Water Co. v. Pub. Utils. Comm’n, 482 A.2d 443,
458 (Me. 1984).
[¶20] As noted above, however, section 703 expressly allows individual
customers to enter into special rate contracts. This allowance is based on the
economic theory that a ratepayer contributing something greater than the
marginal cost of serving that customer benefits the other ratepayers if the
alternative to the special rate would be that the individual customer would exit
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the system, contributing nothing to the payment of the utility’s fixed costs. See
Harwood, supra at 134. “Mere differences” in the rates charged for utility
service “are not unjust discrimination.” Holmquist, 637 A.2d at 853. Rather,
“[o]nly differences which cannot be justified on a legitimate basis” violate
section 702. Id.
[¶21] As also noted above, the Commission is given broad discretion in
establishing the appropriate test and applying it to determine whether a
particular special rate contract will sufficiently benefit other ratepayers.
Applying the Commission’s test, we see nothing in the record suggesting that
the Commission’s approval of the amendment to the special rate contract here
will result in unjust or unreasonable rates for other Bangor Gas customers. To
the contrary, the Commission found that the special rate contract not only
allows Bangor Gas to cover any marginal costs associated with serving
Bucksport Generation, but also allows Bangor Gas to defray some of its fixed
costs. The Public Advocate concedes this point but argues that Bucksport
Generation should be on the hook for a larger portion of the fixed costs.
However, as the Commission noted in its order, Bucksport Generation’s status
as a Bangor Gas customer is not a given. If the cost of taking service from
Bangor Gas is too high, Bucksport Generation can use other fuels. If it did so,
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Bucksport Generation would not defray any of Bangor Gas’s fixed costs.
Instead, those costs would fall to other Bangor Gas ratepayers.
[¶22] Given these specific circumstances, we cannot conclude that the
amended special rate contract resulted in a discount for Bucksport Generation
that was “so high as to constitute an unreasonable burden on” other ratepayers
served by Bangor Gas. New England Telephone & Telegraph Co., 390 A.2d at 30.
The value of incentivizing continued financial contributions from Bucksport
Generation to Bangor Gas’s fixed costs also justifies disparate rate treatment,
where the alternative would be no contribution.
[¶23] To the extent that the Public Advocate is arguing that a general
cost-of-service study is needed to determine whether the terms of this special
rate contract are reasonable or nondiscriminatory, the Commission disagreed,
which was a reasonable conclusion.
[¶24] Requiring a general cost-of-service study makes sense when
setting general rates. “Establishing cost of service for rate design is a complex
process,” Cent. Me. Power Co. v. Pub. Utils. Comm’n, 405 A.2d 153, 186
(Me. 1979), and a comprehensive study may be needed to set general rates. If
the Public Advocate believes that such a general review is necessary, it can
15
petition the Commission to initiate proceedings to review Bangor Gas’s general
rates pursuant to 35-A M.R.S. § 1702(3) (2023).
[¶25] As the Commission indicated in its order, it may sometimes be
necessary to perform a cost-of-service study to determine the cost of serving a
customer seeking a special rate contract and ensure that other ratepayers
would not be subsidizing service to that customer. But the Commission
reasoned that such a costly and time-consuming study was not required in this
case, given that Bucksport Generation is connected directly to the transmission
network and uses no distribution services. As the Commission also noted, the
Public Advocate did not articulate what additional information it believed was
needed to determine the size of any discount being given to Bucksport
Generation. Nor has the Public Advocate articulated before us on appeal what
additional information may be necessary.
[¶26] In summary, because the Commission did not apply an improper
standard of review, and its approval of the special rate contract did not result
in unjust, unreasonable, or discriminatory rates, we decline to disturb its
decision.
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D. Whether the Commission created an evidentiary record.
[¶27] The Public Advocate next argues that the Commission failed to
create an evidentiary record in this proceeding and that the Commission’s
order is therefore unsupported by the record. While appellees argue that the
evidentiary record includes everything in the administrative record, the Public
Advocate argues that this cannot be the case because the Commission did not
make any rulings on the admissibility of evidence in the record.
[¶28] Appellees also contend that because the Public Advocate failed to
raise the issue to the Commission, its argument is waived on appeal. On this
point, we agree. The Public Advocate could have raised this issue to the
Commission at the preliminary case conference, in its comments submitted in
response to Bangor Gas’s petition, in the technical conference, in its briefing
prior to the Examiners’ report, or in its exceptions to the Examiners’ report. See
65-407 C.M.R. ch. 110, § 11(D). Because it failed to do so, the Public Advocate’s
argument is waived on appeal. See Forest Ecology Network v. Land Use Regul.
Comm'n, 2012 ME 36, ¶ 24, 39 A.3d 74 (“Issues not raised at the administrative
level are deemed unpreserved for appellate review.”).
[¶29] We acknowledge, however, that the Public Advocate may have a
point when it suggests that not every item generated in the course of a
17
Commission proceeding is a part of the evidentiary record. The Commission’s
regulations are not clear on this point.
[¶30] Bangor Gas initiated this proceeding by seeking approval of its
special rate contract with Bucksport. This was followed by the Public
Advocate’s intervention and discovery was taken through responses to data
requests and at a technical conference. The Commission did not then hold an
evidentiary hearing before issuing its approval. It appears fairly clear that this
approval process constituted an “[a]djudicatory [p]roceeding” as that term is
defined by 65-407 C.M.R. ch. 110, § 2(A), which means that Bangor Gas was
entitled to a hearing if it had wanted one. It also seems fairly clear that when
an evidentiary hearing is held, discovery materials are not considered to be a
part of the evidentiary record upon which the Commission will make its
decision in the absence of a specific procedural order or submission of the
discovery material to the hearing examiner, who may admit it into the record.
See 65-497 C.M.R. ch. 110, §§ 8(F)(1)(b), 9, 10. Confusing this issue is 65-497
C.M.R. ch. 110, § 8(F)(1)(b), which provides that the presiding officer may “rule
on the admissibility of evidence, and admit into the record material relied upon
by the Commission pursuant to section 8(I)4, provided that the presiding
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officer is either authorized to practice before the Maine Supreme Judicial Court
or a Commissioner.” There is no section 8(I)4.
[¶31] It is unclear what materials are considered to be a part of the
evidentiary record upon which the Commission may make its determination
when an evidentiary hearing is not held. Taking the position that everything
submitted by the parties is included in the record upon which it can make its
determination (in the absence of an evidentiary hearing that apparently culls
that record), the Commission points to 65-407 C.M.R. ch. 110, § 8(H),
identifying the contents of the “record,” and providing that “[i]n an adjudicatory
proceeding, the Administrative Director shall maintain and preserve a record
which shall consistent of . . . (b) evidence received or considered.” The
Commission argues that whatever the administrative director includes in the
administrative record constitutes the evidence on which the Commission may
rely. But this argument conflates the administrative record—a record of
anything filed with the Commission—with evidence admitted upon which the
Commission may make its determination. Under the framework outlined in the
rules, it is the hearing examiner who decides what material is included as a part
of that evidentiary record, not the administrative director. Section 8(F)(b) also
indicates that a hearing examiner must be a lawyer or commissioner with the
19
ability to review the admissibility of evidence, consistent with 65-407 C.M.R.
ch. 110, § 10(B), which provides that the Maine Rules of Evidence “shall be
followed in Commission adjudicatory proceedings,” with limited enumerated
exceptions.
[¶32] Parties before the Commission are entitled to adequate notice of
what materials are evidence upon which the Commission will make its decision.
We presume that the Commission will clarify its regulations. For purposes of
this appeal, however, we need not address whether this lack of clarity violated
any procedural due process right of the Public Advocate, because, as noted, the
Public Advocate has waived this argument.
The entry is:
Judgment affirmed.
William S. Harwood, Esq. (orally), Richard P. Hevey, Esq., and Kristina R.
Winther, Esq., Office of the Public Advocate, Augusta, for appellant Office of the
Public Advocate
Robert A. Creamer, Esq. (orally), Carol MacLennan, Esq., and Jordan McColman,
Esq., Maine Public Utilities Commission, Augusta, for appellee Maine Public
Utilities Commission
Benjamin James Smith, Esq., Smith Legal LLC, Augusta, for appellee Bangor
Natural Gas Company
Joseph G. Donahue, Esq., and Steven A. Hudson, Esq., Preti Flaherty Beliveau &
Pachios, LLP, Augusta, for appellee ND OTM LLC
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David P. Littell, Esq., and Eben M. Albert, Esq., Bernstein Shur, Portland, for
appellee Bucksport Generation, LLC
Public Utilities Commission docket number 2022-00333
FOR CLERK REFERENCE ONLY