383 Mass. 675

Massachusetts Electric Company vs. Department of Public Utilities.

Suffolk.

February 5, 1981. —

June 3, 1981.

Present: Hennessey, C.J., Braucher, Wilkins, & Abrams, JJ.

Margot Botsford (S. Stephen Rosenfeld with her) for the plaintiff.

Carl Valvo, Assistant Attorney General (Alycia K. Lyons with him) for the defendant.

Hennessey, C.J.

The question presented concerns the limits of the power of administrative bodies to establish rules of general application in adjudicatory proceedings. Specifically, the contested proposition is whether the Department of Public Utilities (department) improperly dismissed as patently deficient a rate filing of the Massachusetts Electric Company (company) when the filing complied with all applicable statutes and regulations but contravened *676a policy expressed by the department in earlier cases. Although the company, by its counsel, has ably and vigorously presented its views, we find persuasive the reasoning of Securities & Exch. Comm’n v. Chenery Corp., 332 U.S. 194 (1947), and therefore we affirm the department’s dismissal of the filing.

On February 15, 1980, the company filed with the department schedules of proposed increased retail rates and charges, to take effect on March 1, 1980. Along with the new rate schedules, the company filed prepared testimony and exhibits intended to support the requested increases. The testimony and exhibits consisted of estimates of expenses for the calendar year 1980, adjusted to reflect various changes in operating conditions which the company predicted would occur between September 1, 1980, and August 31, 1981 (the “future test year”1). No data were supplied *677which showed the company’s actual expenses and revenues or its realized rate of return for a recently completed twelvemonth period (the “historic test year” *2), adjusted for known and measurable changes. The department docketed the filing as D.P.U. 136, and thereafter suspended the effective date of the new rates until September 1, 1980.

On February 26, 1980, the Attorney General, an intervener in D.P.U. 136, filed a motion to dismiss the company’s filing. The principal ground cited for dismissal was the company’s use of future test year data, rather than historic test year data, in support of its rate filing, allegedly in contravention of established department precedent. The company filed a written response and memorandum opposing the motion. After a hearing on March 19, 1980, the department dismissed the February 15 filing, finding it to be patently deficient in that it was not supported by historic test year data. The company filed a petition for appeal from the department’s decision in the Supreme Judicial Court for Suffolk County on April 11, 1980.3 On Septem*678ber 12, 1980, a single justice of this court reserved and reported the appeal to the full court.

At the heart of the dispute is the distinction between the powers of a regulatory body to establish administrative policy through either formal rulemaking or ad hoc adjudicatory proceedings. While the company concedes that “ [i] t is a recognized tenet of administrative law that an agency can adopt policy decisions in the context of adjudicatory proceedings,” it qualifies this by urging that “[a]n automatic application of a policy or ‘rule’ articulated in previous adjudicatory decisions without investigation of the specific facts put at issue obliterates the essential difference between adjudication and rulemaking and cannot be sustained.” It is clear that the department has the power to promulgate regulations requiring that all filings be accompanied by historic test year data. See Cambridge Elec. Light Co. v. Department of Pub. Utils., 363 Mass. 474, 493-496 (1973). We note, too, that the department has previously expressed, in adjudicatory proceedings involving this company, its disapproval of future test year data. Massachusetts Elec. Co., 12 P.U.R. 4th 65, 67 (Mass. D.P.U. 1975) (“The chance of bias in the evidence and the difficulty of testing such testimony objectively are simply too great to assure reliable results. It has long been sound regulatory practice to fix rates of public utility companies on the basis of a past test year, adjusted for changes occurring within a reasonable time after the end of that period. An approach so consistently used should not be lightly overturned. . . . [T]he department continues to follow it as a matter of sound regulatory practice based on established precedent”). The only circumstances which might force the department to accept filings which lack historic test year data are inadequate adjudicatory precedent — a circumstance refuted by Massachusetts Electric, supra — or by the failure of the department to utilize its rulemaking powers.

*679We think that in the circumstances presented in this case, the department could act by either adjudication or rule-making. “[T]he choice made between proceeding by general rule or by individual, ad hoc litigation is one that lies primarily in the informed discretion of the administrative agency.” Securities & Exch. Comm’n v. Chenery Corp., 332 U.S. 194, 203 (1947). “To insist upon one form of action to the exclusion of the other is to exalt form over necessity.” Id. at 202. This is not to say that the choice lies in the exclusive discretion of the administrative body. Every administrative adjudication which involves the application of a new standard of conduct has a retroactive effect and must therefore be subject to judicial scrutiny. We indorse the proposition put forth in Chenery that the prudent administrative body, being mindful of the scrutiny given to rules of general application established in ad hoc adjudication, should proceed by rulemaking where possible and practical. Id. However, when the administrative agency does choose adjudication over rulemaking, judicial review must balance the adverse effects of retroactivity “against the mischief of producing a result which is contrary to a statutory design or to legal and equitable principles. If that mischief is greater than the ill effect of the retroactive application of a new standard, it is not the type of retroactivity which is condemned by law.” Chenery, supra at 203. Cf. Arthurs v. Board of Registration in Medicine, ante 299, 312-313 (1981).

If we accepted the company’s view that the department must here be confined to rulemaking, then in the absence of a valid regulation the department would be bound to conduct a full evidentiary hearing on any rate filing, no matter how facially defective or inadequate, no matter how contrary to well-known past practice, and no matter how burdensome on all other parties it might be. More importantly, the department would be forced to anticipate each of the myriad defects a rate filing might present and to establish regulations applicable outside of the contexts in which the problem might arise. This alone is sufficiently *680impractical to outweigh the adverse impact of retroactive application, at least where, as here, the department is working within a detailed, organized system of precedent which clearly established the necessity for the omitted data. The company’s view of the circumstances under which the department might dismiss a filing at the threshold is too limited and impractical and, far from improving the administrative process, would effectively remove a useful tool in attacking delay and promoting efficiency in the administrative process. See Gellhorn & Robinson, Summary Judgment in Administrative Adjudication, 84 Harv. L. Rev. 612 (1971).*

In this case, it is beyond dispute that the department had a well-established policy with respect to historical test year data. See Massachusetts Elec. Co., 12 P.U.R. 4th 65, 67-69 (Mass. D.P.U. 1975); New England Tel. & Tel. Co., 11 P.U.R. 4th 297, 298-300 (Mass. D.P.U. 1975). It is not disputed that the company failed to include historic test year data in its rate filing. These were the only material facts necessary for the department to conclude that the company’s application was deficient on its face and should be dismissed. The company was afforded an opportunity to be heard on the sufficiency of its filing and to rebut the adverse claims of the Attorney General. The department issued a written opinion detailing the deficiency in the filing and stating its reasons for requiring historic test year data. These procedures afforded the company all the rights to which it was entitled. See FPC v. Texaco, Inc., 377 U.S. 33 (1964); Tennessee Gas Pipeline Co. v. FPC, 561 F.2d 955, 958 (D.C. Cir. 1977). We conclude that the slight burden borne by the first party on whom this newly-applied but not newly-announced standard was imposed is outweighed by the avoidance of delay and the promotion of administrative efficiency resulting therefrom. See Chenery, supra at 203.

We do not intend to preclude a utility from presenting proof and argument intended to support its contention that there are unique and exceptional reasons why a policy *681should not be applied to it. See Southbridge Water Supply Co. v. Department of Pub. Utils., 368 Mass. 300 (1975). This the company was allowed to do. Neither do we wish to foreclose a utility from urging in other ways a change in methodology upon the department. So long as the foregoing opportunities are provided, however, we hold that where the department chooses to establish policy by adjudication, it may dismiss a filing as patently defective if (1) the policy to be enforced has been expressed by the department in earlier cases, (2) the furtherance of that policy lies within the department’s powers, and (3) the dismissal does not run afoul of the Chenery balancing test.

The decision of the department is affirmed.

So ordered.

Massachusetts Electric Co. v. Department of Public Utilities
383 Mass. 675

Case Details

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Massachusetts Electric Co. v. Department of Public Utilities
Decision Date
Jun 3, 1981
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383 Mass. 675

Jurisdiction
Massachusetts

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