Opinion
No. CV 04 0528294S
April 26, 2005
MEMORANDUM OF DECISION
This case is an administrative appeal of a final decision by the defendant, Department of Public Utility Control (DPUC). This administrative appeal is authorized pursuant to Connecticut General Statutes § 16-35 and the Uniform Administrative Procedure Act (UAPA) General Statutes §§ 4-166 et seq. and 4-183. The underlying decision of the DPUC was issued on May 17, 2004 and is identified as docket number 02-10-01 entitled "DPUC semi-annual investigation of the purchase gas adjustment clause charges or credits filed by: Connecticut Natural Gas Corporation, the Southern Connecticut Gas Company and Yankee Gas Services Company."
The plaintiff in this case is the Office of Consumer Counsel (OCC), which is the statutory advocate for Connecticut ratepayers in utility matters pursuant to Connecticut General Statutes § 16-2a. The OCC was a party to the proceedings in the underlying DPUC case which is the subject of this appeal.
The defendant DPUC is an agency of the state of Connecticut, charged by statute with the regulation and supervision of public service companies in the establishment and adjustment of their level of rates, including the purchased gas adjustment (PGA) which was at issue before the DPUC in the underlying case. The authority of the DPUC with respect to PGA clauses is set forth in Connecticut General Statutes § 16-19b. The defendants, Connecticut Natural Gas Corporation (CNG); Southern Connecticut Gas Company (SCG) and Yankee Gas Services Company (Yankee) are public service companies as defined in Connecticut General Statutes § 16-1 and were all parties to the DPUC case docket number 02-10-01.
The defendant public service companies are gas local distribution companies (LDCs) in Connecticut.
As public service companies the gas LDCs are subject to DPUC review and approval of their rate schedule by which they are compensated for the provision of gas to their customers. The rate procedure is set forth in Connecticut General Statutes §§ 16-19 and 16-19a.
In that the cost of gas to the LDCs will vary from the cost upon which the rate was calculated; the PGA procedure set forth in Connecticut General Statutes § 16-19b allows for an adjustment to the existing rate schedule. The DPUC after investigation and public hearing approves a PGA clause to be "superimposed upon the existing rate schedule of the company . . . to allow the gas company to charge or to reimburse the consumer only for the changes in the cost of purchased gas which occur when the actual price of purchased gas differs from the price reflected in the base rates of the company." Connecticut General Statutes § 16-19(b).
As noted at page 10 of the underlying DPUC decision "a primary purpose of each PGA docket is for the department to insure that the LDCs have properly charged an allocated gas cost through the PGA to firm rate payers. Connecticut LDCs are required to allocate for rate making purposes the least cost gas to firm rate payers when calculating the PGA." This allocation has come to be known as the "Southern Methodology." The Southern Methodology originated in a DPUC decision dated January 2, 1985, docket number 84-06-02 involving the SCG company which is a defendant in this case.
Despite having been in effect for years, the Southern Methodology for allocation of lowest cost gas has not been applied uniformly by the Connecticut LDCs (the defendant gas companies). This first became apparent to the DPUC as noted in its May 28, 2003 decision in docket number 02-04-01. The decision in docket number 02-04-01 details the company practices. The least cost gas available to Connecticut LDCs is what is known as Alberta Northeast Gas (ANE) from Canada. The DPUC noted that SCG sells ANE gas in off-site transactions after the firm daily load to its rate-paying customers is met. CNG was also selling low-cost ANE gas to interruptible customers on a daily basis, after the firm load was met. Neither CNG nor SCG accounted for any ANE gas being credited to firm storage (storage used on behalf of rate-paying customers) when calculating the PGA factor. The DPUC decision in docket number 02-04-01 includes at page 7 a statement that the DPUC "believes that CNG and Southern may be allocating these costs incorrectly." DPUC goes on to express its intent to explore the application of the Southern Methodology by all of the LDCs in docket number 02-10-01 (the decision which underlies this appeal). Yankee Gas apparently uses the low-cost ANE gas allocation for firm storage when calculating the PGA factor. The DPUC also in its docket number 02-04-01 decision suggests that the PGA factors may be adjusted for application of the Southern Methodology cost allocations.
The DPUC rather than resolving the issue of the appropriate application of the Southern Methodology in establishing consistent allocation method for the three LDCs in the underlying decision docket number 02-10-01; deferred the issues for a future generic proceeding noting as follows at page 17:
During this proceeding it has become clear to the department that the LDCs while each allocating lowest cost gas to firm load, otherwise differ in their interpretation and application of the Southern Methodology. Recognizing the evolution of the gas industry since the Southern Methodology was first introduced, the importance of having a method of allocating gas cost that is consistently applied across the three LDCs, and in light of the concerns/clarifications regarding the Southern Methodology raised by each of the LDCs in the instant proceeding, the Department will expeditiously initiate a generic proceeding for the purpose of reviewing the Southern Methodology, determining what, if any, changes should be made to the methodology, in establishing a consistent allocation method of gas costs across the three LDCs.
The plaintiff, in its brief, sets forth six arguments in support of its appeal seeking to overturn the DPUC decision.
A. The decision acknowledges the regulatory requirements of the southern methodology but fails to apply such requirement to CNG and SCG.
B. The decision says that there is only one exception to the southern methodology, then contradicts itself by establishing a second exception for CNG and SCG.
C. The department allows CNG and SCG to use their own "interpretation" of the southern methodology because they allegedly have been using this interpretation since FERC order 636. Meanwhile the department, contradictorily, affirms that it did not change the southern methodology in the 636 decision or in the last 20 years.
D. The decision violates Connecticut General Statutes § 16-19b(b) by establishing one PGA clause that applies to Yankee and a second, different PGA clause that applies to CNG and SCG. Conn. Gen. Stat. § 16-19b(b) requires the clauses to be uniform.
E. The decision demonstrates that CNG and SCG are not complying with the department's stated southern methodology requirements yet the department failed to order CNG and SCG to recompute their PGA factors in accordance with such requirements.
F. Any arguments by CNG and SGC that the department cannot order a recomputation of PGA factors in a PGA proceeding based on a southern methodology because such would constitute" retroactive rate making" should be completely disregarded.
All issues raised in the appeal but not briefed are viewed as abandoned. Collins v. Goldberg, 28 Conn.App. 733, 738 (1992).
The appellant OCC maintains that all of its arguments present issues of law.
"The standard of review of an agency decision is well established. Ordinarily, the court affords deference to the construction of the statute applied by the administrative agency empowered by law to carry out the statute's purposes . . . An agency's factual and discretionary determinations are to be accorded considerable weight by the courts . . . Cases that present pure questions of law, however, invoke a broader standard of review that is ordinarily involved in deciding whether, in light of the evidence, the agency has acted unseasonably, arbitrarily, illegally, or in abuse of its discretion . . . Furthermore, when a state agency's determination of a question of law has not previously been subjected to judicial scrutiny . . . the agency is not entitled to special deference . . . It is for the courts, not administrative agencies, to expound and apply governing principles of law." (Citations omitted, emphasis in original; internal quotation marks omitted.) Assn. Of Not-For-Profit Providers For The Aging v. Dept. of Social Services, 244 Conn. 378, 389 (1998).
In reviewing the DPUC decision at issue in the appeal, the court is mindful that PGA hearings pursuant to § 16-19b are in effect rate cases. In a case involving rate making for a water company, Greenwich v. Department of Public Utility Control, 219 Conn. 121 (1991), the scope of the grant of authority from the legislature to the DPUC was recognized. "The DPUC's enabling statute (referring to § 16-19) thus evinces a legislative intent to rely on the DPUC to regulate and supervise public utilities, and to establish rates that are not unreasonable. The legislature, however, has not imposed upon the DPUC any specific formula or policy to use in setting rates. In view of the remedial purpose of the statute, the lack of an express statutory formula and evident legislative intent to rely on the DPUC expertise, we conclude that the language of the enabling statute is sufficiently flexible to permit the DPUC to create necessary policies, including rate equalization, to guide its rate-making decisions." 219 Conn. at 126.
In a footnote containing the above-referenced quote, the Supreme Court notes:
Fn. 4 "Rate-making bodies (are not bound) to the service of any single formula or combination of formulas. The agency to whom the legislative power has been delegated are free, within the ambit of their statutory authority, to make the pragmatic adjustments which may be called for by particular circumstances." Power Commission v. Pipeline, Co., 315 U.S. 575, 586, 62 S.Ct. 736, 86 L.Ed. 1037.
(1942). 219 Conn. at 126.
Recognizing the broad discretion of authority granted the DPUC, the court is unpersuaded by the OCC's arguments and affirms the decision of the DPUC.
There has without doubt, been an evolution, if not a revolution, in the role of the Connecticut gas companies since the initial recognition by the DPUC in 1985 of the Southern Methodology of allocating lowest cost gas to the firm (rate-paying) customers. At that time the Connecticut gas companies purchased gas from pipeline companies which controlled the production, transportation and storage of gas. The only allocation would be between firm and interruptible customers. In the same year, the Federal Energy Regulation Commission (FERC) issued Order 436 which enabled the LDCs to purchase gas directly through producers and pay the pipeline companies to transport the gas. A more dramatic change followed FERC's Order 636 in 1994. FERC Order 636 mandated that pipeline companies unbundle their transportation, storage and other services. Natural gas procurement became the responsibility of the LDCs and interstate pipelines converted to common carriers. This radically changed the industry. The LDCs not only procured gas for their rate-paying customers in their service areas, but engaged in purchases and sales of gas which never reached their service area. The facts underlying the Greenwich v. Department of Utility Control case concerned rate equalization or the raising of the water rates for Greenwich to equalize the rates paid by residents of Mystic, Connecticut. The appellant town in challenging the practice argued that the DPUC had opposed rate equalization in the past. The court recognized that, in the face of changed circumstances, an agency is permitted to change positions. See footnote 5 at 219 Conn. 127.
Interruptible customers are those with alternative energy sources, that use gas only when economically dictated.
All the appellant's claims deal with the DPUC application of its authority pursuant to § 16-19b. With respect to the guidelines for the standard of review by the court of the DPUC decision the court notes: ". . . We have determined, therefore, that the traditional deference accorded to an agency's determination of a statutory term is unwarranted construction of a statute . . . has not previously been subjected to judicial scrutiny (or to) . . . a governmental agency's time-tested interpretation . . ." (Citations omitted, internal quotation marks omitted.) Southern New England Telephone Company v. Department of Public Utility Control, 261 Conn. 1, 13 (2002). The issues of whether the DPUC properly exercised jurisdiction over the PGA proceedings for the defendant gas companies present questions of law. The defendants do not claim that their interpretation of the statute with respect to issues raised in this appeal is time-tested. Accordingly, the court exercises plenary review over the plaintiff's claims.
The court engaging in such review finds the determinative language as to the scope of the PGA proceeding in the second sentence of § 16-19b(b) which reads: "The department shall design any such purchased gas adjustment clause to allow the gas company to charge or to reimburse the consumer only for the changes in the cost of purchased gas which occur when the actual price of purchased gas differs from the price reflected in the base rates of the company."
The OCC in this appeal seeks as relief from the court, or upon remand the DPUC, an order reallocating the gas costs. This would essentially involve attributing the low-cost gas (ANE gas) to storage for firm customers in accordance with their construction of the Southern Methodology requirements. The court finds that as a matter of law such a reallocation of rate costs is not encompassed within a PGA proceeding which by statute is to "charge or to reimburse the consumer only for the changes in the cost of purchase gas which occur when the actual price of purchase gas differs from the price reflected in the base rates." The parties to this appeal correctly refer to the § 16-19b PGA proceedings as rate cases but they are mini-rate cases as they are strictly circumscribed by statute. Clearly the PGA adjustments are only to reflect changes in the price of purchased gas from what was anticipated in the underlying rate structure as opposed to what the actual costs were. The retroactive reallocation sought by the OCC is not within the scope of the PGA statute § 16-19b; and a consideration of the practical consequences of reallocation provides a compelling rationale for the limits of the PGA proceeding. The reallocation of all the ANE low-cost gas to storage rather than for other sales would shift cost from the firm rate payers to interruptible and off-system customers. As a consequence, the rate payers would receive refunds and the gas companies would be unable to recover the costs retroactively shifted to other parties.
The reallocation sought by the OCC has nothing to do with the change in gas prices and the merits of the allocation should be addressed either in the generic proceeding proposed by the DPUC or certainly in the base rate cases of the LDC gas companies.
A further legal issue concerning the construction of § 16-19b is created by the last sentence of § 16-19b(b) which states: "A purchase gas adjustment clause approved pursuant to this section shall apply to all gas companies similarly affected by the costs which form the basis for the adjustment clause." The OCC argues that this is not accomplished by the underlying DPUC decision since Yankee Gas, unlike SCG and CNG, allocates the lowest cost gas to storage. That is unquestionably the case as found by the DPUC and conceded by the defendant gas companies. The short answer to this claim is that since they allocate their low-cost gas differently, the companies are not "similarly affected by the cost." Thus, the requirement of uniformity does not mandate a reallocation of costs in a statute which specifically limits the PGA to the price differential of purchase price versus the base rate anticipated price.
The OCC argues at length about the history of the "Southern Methodology" and what is required by it. The court finds that the DPUC in the subject decision did not decide the allocation issues under the Southern Methodology as it relates to off-site sales and storage. Accordingly, it is not before the court. These issues could not properly be resolved in the context of a PGA proceeding before the DPUC or appeal thereof.
A review of §§ 16-19, 16-19a and 16-19b establish that it is the DPUC not the courts which must make the policy determinations as to the allocation of gas costs. The DPUC has not determined these issues; thus, there is no decision of allocation for the court to consider in its statutorily circumscribed review of an administrative agency's decision. Connecticut Light Power v. Department of Public Utility Commission, 216 Conn. 627, 637 (1990). The resolution of the parties' disparate claims on the lowest cost gas allocation must await either the DPUC generic hearing, or LDC rate cases.
The decision of the DPUC is affirmed and the appeal is dismissed.
Robert F. McWeeny, J.