WESTERN MASSACHUSETTS ELECTRIC COMPANY vs. DEPARTMENT OF PUBLIC UTILITIES (and a companion case [Note 1]).

WILKINS, J. These appeals concern orders and decisions of the Department of Public Utilities (department) which dealt with charges made by Western Massachusetts Electric Company (company) for fuel costs. The company appeals from a decision, and accompanying orders, which disapproved its fuel charge to be effective during July, 1976. The department concluded, we think correctly, that the company's proposed fuel charge failed to conform to the requirements of G. L. c. 164, Section 94G, inserted by St. 1974, c. 625, Section 1. The Attorney General, acting through his consumer protection division, has appealed from two decisions, and accompanying orders, which approved the company's fuel charges to be made during March and April, 1976. These two earlier filings of fuel charges were based on the same procedure which the department later concluded was not in conformity with G. L. c. 164, Section 94G. However, the department did not order any adjustment of the earlier fuel charges, and we conclude that, in the absence of any showing of substantial prejudice to the company's customers, the department acted properly within its discretion in declining to apply its ruling concerning the unlawfulness of the company's fuel charges to periods prior to July 1, 1976.

On August 26, 1974, in response to the requirements of St. 1974, c. 625, Section 4, [Note 2] the company filed an application with the department for approval of a fuel expense adjustment clause to be effective on September 16, 1974. [Note 3] Put in general terms, the proposed fuel clause provided that the company's fuel charge would be determined by dividing the company's fuel expense in a given month by the net kilowatt

Page 229

hours (KWH) supplied by the company during that month, with one exception which lies at the heart of the principal dispute in these appeals. The company proposed to exclude from the calculation of its fuel charge (a) those fuel costs which were attributable to any new nuclear unit which was not reflected in the rate base used in determining its rates currently in effect, and (b) the energy supplied by any such new nuclear unit during the appropriate month. The resulting "Current Period Cost per [KWH]" was to be charged uniformly to customers during the second successive month. [Note 4]

In 1974 and 1975, the provision concerning new nuclear units was of no consequence in the determination of the company's fuel charges because the company had no nuclear unit in commercial operation whose existence was not reflected in its rates. In January, 1976, however, a nuclear plant, known as Millstone Unit No. 2 (Millstone #2), in which the company had a 19% share, became operational commercially. When the fuel charge for March, 1976, came to be calculated (based on the January, 1976, experience), the exclusionary language of the company's fuel expense adjustment clause became significant in a practical sense for the first time. [Note 5]

It is clear beyond question that the cost of nuclear fuel per KWH was substantially less than the company's cost of fuel per KWH from other fuel sources. [Note 6] Therefore, if the exclusionary language of the company's fuel adjustment expense clause were disregarded, the March, 1976,

Page 230

fuel charge per KWH made uniformly to all customers of the company would have been lower.

As required by G. L. c. 164, Section 94G, the department held a public hearing on the company's filing of its proposed fuel charge to be effective during March, 1976. The Attorney General intervened and challenged the company's fuel expense adjustment clause as unauthorized by G. L. c. 164, Section 94G. The department concluded that the subject required further investigation, and on March 1, 1976, it approved the company's proposed fuel factor "reserving the right to make a subsequent determination in this matter." The department called for a further hearing and indicated that the March fuel factor would "be subject to further adjustment in our decision regarding the April fuel factor." We think it clear that the department authorized the company's March, 1976, fuel charge on a tentative basis and that the department did not make a final decision concerning the company's March, 1976, fuel charge until a later date. [Note 7]

The department continued in a state of uncertainty concerning the question whether the company's fuel expense adjustment clause met the requirements of G. L. c. 164, Section 94G. On March 31, 1976, after two further public hearings, the department issued its decision and orders relating to the company's April, 1976, fuel charge. The department authorized the company to impose fuel charges in April calculated as previously, ordered a further hearing on the lawfulness of the procedures followed by the company, and reserved the right to modify the fuel charge of any subsequent period to adjust for whatever conclusions it might reach on further consideration. The Attorney General has appealed from this decision and its associated orders. [Note 8]

Page 231

The next step in this administrative process, as far as the record discloses, led to the decision and orders of the department from which the company appeals. On July 13, 1976, the department filed a decision and entered orders concerning the company's application for approval of a fuel charge to be effective during July, 1976. The department also treated its action as supplemental to its decision of March 31, 1976, relating to the company's April, 1976, fuel charge. [Note 9] The department concluded that the exclusion of the fuel costs of, and energy supplied by, Millstone #2 produced a fuel charge which did not conform to G. L. c. 164, Section 94G. The department ordered that the company calculate its July, 1976, fuel factor by including the effect of the operation of Millstone #2. [Note 10]

The company appealed seasonably from the department's decision of July 13, 1976, and the Attorney General was permitted to intervene in the company's appeal. A single justice of this court permitted the company to collect fuel charges under bond pending the appeal in accordance with the terms of its original fuel expense adjustment clause. In May, 1976, the Attorney General had appealed the department's decisions of March 1 and March 31, 1976, concerning the fuel factors to be collected during the months of March and April, 1976, respectively. The company was permitted to intervene in that appeal. The two appeals were consolidated, and the consolidated cases were reserved and reported to the full bench by a single justice of this court.

Page 232

THE COMPANY'S APPEAL.

The company argues that the department was in error in concluding that its fuel expense adjustment clause produced a fuel charge which did not conform to the requirements of G. L. c. 164, Section 94G. It argues that its fuel expense adjustment clause was proper because it permitted the company to collect revenue which in part offset its investment in Millstone #2, a facility whose existence and operation were not reflected in the company's rates. The company concedes that the fuel charges developed pursuant to its fuel expense adjustment clause produced revenues in excess of its cost of fuel. The department, after a period of intermediate ambivalence, ultimately decided that a fuel charge could not be used for such a purpose. In its decision of July 13, 1976, the department stated that the recovery of capacity costs associated with Millstone #2 by use of a fuel expense adjustment clause was "an extraordinary procedure." It said that "[c]ustomarily costs of this nature are recovered through base rates approved in a rate case." We think that Section 94G of G. L. c. 164, does not permit a fuel charge to be used to recover costs which are not related in any way to the cost of fuel.

Section 94G of G. L. c. 164, which is set forth in part in the margin, [Note 11] deals exclusively with fuel charges imposed

Page 233

by electric companies. A fuel charge must "be billed at a single uniform rate per kilowatt-hour used by a customer" and must be itemized separately on the bill. See G. L. c. 164, Section 119A, as amended through St. 1974, c. 625, Section 2. See also Trustees of Clark Univ. v. Department of Pub. Utils., 372 Mass. 331, 336-337 & n.4 (1977). The fuel charge is "the fuel rate multiplied by the number of kilowatt-hours used by a customer." The "fuel rate" must "be calculated by dividing the total cost of fuel used in generating or supplying electricity which is applicable to a billing period by the total number of kilowatt-hours used by all customers." A fuel rate must "reflect the inclusion of all fuel costs in the fuel charge." St. 1974, c. 625, Section 1.

Putting aside, as unnecessary to our decision, the question whether an electric company may restrict its fuel charge to the cost and use of only fossil fuel (or, as the company did in this case, whether only a portion of its cost and use of nuclear fuel may be included in its calculations), we believe Section 94G is clear in prohibiting an electric company from employing a fuel charge to collect expenses

Page 234

unrelated to the cost of fuel. [Note 12] Section 94G permits only fuel costs to be included in the calculation of a fuel charge and requires that those costs be allocated among all customers based on their energy usage. The company's calculation of its fuel charges both (a) omitted from consideration kilowatt hours attributable to Millstone #2 and (b) in effect treated as fuel costs nonfuel expenses related to Millstone #2, in each instance in clear violation of the mandate of Section 94G. The company's departure from the requirements of Section 94G produced a fuel factor which failed to reflect solely the cost of fuel. If the company had wished to obtain rate relief because its operation of and investment in Millstone #2 were not reflected in its rates, it should have done so directly and not by imposing a fuel charge which was in excess of its needs to cover the cost of fuel.

The company argues that it is inequitable for the department to change its position concerning the company's fuel expense adjustment clause after approving it on numerous occasions since August, 1974. The company claims that it has relied on the department's determinations and that the department should be estopped from changing its

Page 235

position. See Boston Gas Co. v. Department of Pub. Utils., 367 Mass. 92, 104 (1975). Without deciding whether principles of estoppel appropriately might apply to an administrative agency in a given situation, we think it clear that the company had no valid basis to rely on the department's earlier action. From August, 1974, until January, 1976, the exclusionary language of the company's fuel expense adjustment clause had no practical significance because Millstone #2 was not in commercial operation. From the first occasion when the exclusionary language became significant (the March, 1976, fuel charge based on the January, 1976, experience), the department expressed uncertainty about the propriety of the company's fuel expense adjustment factor and granted only tentative approval of the company's fuel factors. In addition, the department did not impose a view contrary to that of the company until its order approving the fuel factor to be effective in July, 1976. In such a situation, the company had no reasonable basis after July 1, 1976, to rely on the department's earlier action, and the department was not barred from adopting a position which was the proper one as matter of law. Automobile Club v. Commissioner, 353 U.S. 180, 183 (1957). Chisholm v. FCC, 538 F.2d 349, 364 (D.C. Cir.), cert. denied, 429 U.S. 890 (1976). The issue here does not involve an unexplained, apparently whimsical vacillation from one position to another on a subject normally within the department's discretion. See Boston Gas Co. v. Department of Pub. Utils., 367 Mass. 92, 104 (1975). The question in dispute was one of law.

The company's claim that the department's decision was unsupported by an adequate statement of reasons (G. L. c. 30A, Section 11 [8]) and that its decision is not supported by substantial evidence (G. L. c. 30A, Section 14 [7] [e]) are without merit. As we have said, the question for decision was a question of law, that is, what was permitted and required by Section 94G. The essential facts from which the question of law arose were undisputed, and the department's decision amply demonstrates the reason why it disapproved of the company's fuel expense adjustment clause.

Page 236

THE ATTORNEY GENERAL'S APPEAL.

We turn then to the appeal of the Attorney General from the decisions of the department concerning the company's fuel charges for use during March and April, 1976. From what we have said already, it is clear that those fuel charges were not calculated in accordance with the requirements of G. L. c. 164, Section 94G. In our view, that fact is not dispositive of the question whether the department's earlier decisions must be reversed, fuel charges recalculated, and refunds made. Although it had reserved the right to do so, the department did not order any retroactive adjustment of the company's fuel charges when it finally decided in July, 1976, that the company's fuel expense adjustment clause was contrary to law. Before us, the department argues that its decision represented a major change in its position and that, in its discretion, it could act as it did "to protect the interests of the parties." Echoing, but only in part, a previously discussed argument advanced by the company, the department says that the company was entitled, as we said in New England Tel. & Tel. Co. v. Department of Pub. Utils., 371 Mass. 67, 84 (1976), to a "warning sufficient to enable the Company to adjust both its practices and its proof to the new situation." We think that the department was entitled, in its discretion, not to compel a retroactive adjustment in the company's fuel factors. The Attorney General has not shown that the company received revenues to which it was not entitled. All that has been shown is that the revenues attributable to Millstone #2 should not have been collected in the form of a fuel charge. A decision of an administrative agency based on an error of law is an adequate ground for setting that decision aside only where "the substantial rights of any party may have been prejudiced" by the agency's action. See G. L. c. 30A, Section 14 (7). Here the record fails to show any prejudice to the company's customers. See Duato v. Commissioner of Pub. Welfare, 359 Mass. 635, 637-638, 640 (1971).

Because of our conclusion that the Attorney General's appeal must fail on the merits, it is not important that we

Page 237

pass on the company's claim that the appeal should be dismissed as to the department's decision of March 1, 1976, because that appeal was not filed seasonably under the terms of G. L. c. 25, Section 5. [Note 13] As we observed earlier (see text accompanying note 7 supra), the department's decision of March 1, 1976, was a tentative one. That decision did not have an element of finality until at least the department's decision of March 31, 1976, from which (with an authorized extension) the Attorney General filed a timely appeal. Indeed, the latter decision was itself tentative because it called for further consideration of the question of the legality of the company's fuel expense adjustment clause. [Note 14] The final decision on the matter was the department's decision of July 13, 1976, because only then did the department conclude the proceedings on the issue in dispute.

CONCLUSION.

In summary, the department's decisions and orders are to be affirmed in the proceedings in which the company has appealed (DPU 18129-S [Supplemental] and DPU 18129-V) and in the proceedings in which the Attorney General has appealed (DPU 18129-R and DPU 18129-S). The company's motion to dismiss the appeal from DPU 18129-R should be denied. Any appropriate adjustment in the company's fuel factors for July, 1976, and subsequent months, during which fuel charges were collected in excess of those permitted under G. L. c. 164, Section 94G, and any resulting rebates to customers should be made under the supervision of the department. If the department stayed the effectiveness of the company's general rate filing of May 11, 1976 (see G. L. c. 164, Section 94G), as we infer it did, [Note 15] and

Page 238

the rates ultimately approved were higher than those in effect on May 11, 1976, the department may conclude that all or some portion of any refunds to customers which are indicated as a result of this decision should not be made.

So ordered.