In re Central Vermont Public Service Corp.
Annotate this Case
In re Central Vermont Service Corp. (98-214); 172 Vt. 14; 769 A.2d 668
[Filed 09-Feb-2001]
NOTICE: This opinion is subject to motions for reargument under
V.R.A.P. 40 as well as formal revision before publication in the Vermont
Reports. Readers are requested to notify the Reporter of Decisions,
Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
any errors in order that corrections may be made before this opinion goes
to press.
No. 98-214
In re Tariff Filing of Central Supreme Court
Vermont Public Service Corporation
On Appeal from
Public Service Board
March Term, 1999
Richard H. Cowart, Chair
Robert A. Mello and John H. Klesch (On the Brief), South Burlington, for
Appellant Central Vermont Public Service Corp.
James Volz, Director for Public Advocacy, and Aaron Adler, Special Counsel,
Montpelier, for Appellee Department of Public Service.
Trevor R. Lewis of Primmer & Piper, P.C., Montpelier, for Amicus Curiae
Vermont Public Power Supply Authority.
PRESENT: Amestoy, C.J., Dooley, Morse and Skoglund, JJ., and Zimmerman, D.J.,
Specially Assigned
DOOLEY, J. Central Vermont Public Service Corporation (CVPS) brings
this interlocutory appeal from a decision of the Public Service Board
holding that it may consider in a rate case whether the cost of power CVPS
purchases from Hydro-Quebec (HQ) may be excluded, in whole or in part,
from expenses covered by utility rates. CVPS argues that the Board was
precluded under principles of res judicata, collateral estoppel or
equitable estoppel from considering whether CVPS acted prudently by
entering into, and waiving termination rights with respect to, a
thirty-year purchase power contract with HQ in August 1991, and whether
the power purchased from HQ is uneconomical and therefore not "used and
useful."
We hold that the Board (FN1) is collaterally estopped, based on its
prior determinations in a 1994 rate case, from considering further whether
CVPS acted imprudently by locking into the HQ contract in August 1991. We
conclude that it is premature to determine whether the Board may take any
further action in this rate case based on the imprudence it found in the
1994 rate case. Finally, we remand for further proceedings on whether the
Board may determine if the power purchased from HQ is useful. In all
other respects, the order of the Board is affirmed.
A brief history of the HQ contract is helpful to understand the
context in which these issues come before us. In 1987, the Vermont Joint
Owners (VJO) of the Highgate interconnection facilities - a group of nine
Vermont utilities that included CVPS - entered into a contract to purchase
electricity from HQ over a thirty-year period, from 1990 to 2020. In
1988, the contract was amended to extend the time until April 30, 1991,
for any party to terminate the contract if necessary regulatory approvals
were withheld or tendered upon terms unsatisfactory to that party. In
1991, the Board granted interim approval for both the HQ contract and a
participation agreement between the nine Vermont utilities. See 30 V.S.A.
§ 248(a) (requiring Board to issue certificate of public good before
utility may purchase energy from outside Vermont for period exceeding five
years). We affirmed the Board's order in In re Petition of Twenty-Four
Vt. Utilities, 159 Vt. 339, 618 A.2d 1295 (1992) (HQ I).
In early 1991, HQ informed VJO that it was not satisfied with a
condition of the regulatory
approval it obtained from the National Energy Board of Canada and was
appealing that condition to the Canadian Federal Court of Appeals.
Consequently, HQ sought to extend the deadline for terminating the
contract based on its dissatisfaction with a regulatory requirement. In
April 1991, the parties signed a waiver and release, extending the
parties' right to terminate the contract on the basis of unsatisfactory
regulatory approvals until December 1, 1991. On April 30, 1991, the Board
approved the waiver and release, and this Court affirmed the Board's order
in In re Petition of Twenty-Four Vt. Utilities, 159 Vt. 363, 618 A.2d 1309
(1992) (HQ II).
In July 1991, the Canadian Federal Court of Appeals affirmed the
export license to HQ and struck down the condition to which HQ had
objected, and HQ informed VJO that it was willing to commit to the
contract at that time despite the uncertainty of an appeal to the Canadian
Supreme Court. On August 28, 1991, HQ agreed to forego its regulatory
termination right, thereby waiving any right to terminate the agreement in
the event the Supreme Court of Canada reinstated the unsatisfactory
regulatory condition. VJO responded on August 29, agreeing to waive any
right to terminate the contract based on unsatisfactory regulatory
conditions. As do the parties and the Board, we refer to the action of
waiving the termination right as locking into the contract. The Board did
not review the early lock-in decision at the time because it concluded that
it did not have jurisdiction to review the matter while HQ I and HQ II
were pending in this Court.
In February 1992, the Board approved the allocation of HQ electricity
to the individual utilities, a condition of its earlier contract approval,
and this Court affirmed that decision in In re Twenty-Four Electric
Utilities, 160 Vt. 227, 627 A.2d 355 (1993) (HQ III). In October 1994, the
Board granted CVPS a rate increase of 4.27 percent in the first litigated
CVPS rate increase to include HQ contract costs (the 1994 rate case). As
discussed in more detail below, in 1994, the Public Service Department had
argued that CVPS should not be able to recover in rates the full HQ
contract costs because CVPS was imprudent in locking into the contract and
the purchased power was not used and useful at the price set in the
contract. In reaching its decision, the Board found that CVPS made a
management error in prematurely locking into the contract and, as a result
of this and
other findings, reduced CVPS's allowed rate of return by 75 basis points.
It rejected the Department's theory that the costs of HQ power above what
other sources would cost, over the life of the HQ contract, was not used
and useful. The Board's decision was not appealed to this Court.
In September 1997, CVPS filed with the Board a petition to increase
its rates by 6.6 percent, seeking a revenue increase of $15.4 million.
Several organizations moved to intervene and for appointment of
independent counsel to oppose rate increases associated with the HQ
contract. CVPS objected on the grounds that res judicata, collateral
estoppel or equitable estoppel precluded relitigation of issues concerning
the HQ contract, as they were resolved in the 1994 rate case. The Board
granted the motions to intervene and appointed an independent investigator
to present evidence on CVPS's decisions to negotiate, execute, lock in,
and manage its contract with HQ.
In January 1998, CVPS moved to expedite the decision on preclusion,
and in February moved twice to strike prefiled testimony pertaining to the
HQ contract issues. In April 1998, the Board determined that it was not
precluded in this rate case from considering the prudence of CVPS's
decision to enter into the HQ contract, particularly the early lock-in
decision, and the usefulness of power supplied by the contract in relation
to other power that could be obtained at lower costs (the 1998 decision).
Specifically, it ruled that: (1) res judicata, or claim preclusion, does
not apply in rate cases; (2) collateral estoppel, or issue preclusion,
applies but has no preclusive effect in this case because the issues
actually litigated in the 1994 rate case were different from those
presented in this case; and (3) the elements of equitable estoppel are not
satisfied in this case. On April 30, the Board granted CVPS permission to
take an interlocutory appeal to this Court on the preclusion issues and
stayed further proceedings pending the appeal. CVPS argues here that each
of the Board's reasons for rejecting the 1994 rate case as preclusive is
wrong.
I. Introduction
Generally, in reviewing decisions of the Board, "we give great
deference to the particular expertise and informed judgment of the Board."
In re Vermont Power Exchange, 159 Vt. 168, 179, 617 A.2d 418, 424 (1992).
We uphold findings of fact unless clearly erroneous. See id. "Our
standard of review is based, however, on the nature of the Board's
expertise and the appropriateness of paying deference to it." Id. The
applicability of judicially-created doctrines such as claim preclusion or
issue preclusion in rate cases is not an issue within the Board's expertise
of utility law. Moreover, whether preclusion applies to a given set of
facts is a question of law, which we review de novo. See State v.
Pollander, 167 Vt. 301, 304, 706 A.2d 1359, 1360 (1997). Thus, we give no
deference to the Board's decisions on claim preclusion and issue
preclusion.
The doctrine of res judicata, also called claim preclusion, "bars the
litigation of a claim or defense if there exists a final judgment in
former litigation in which the 'parties, subject matter and causes of
action are identical or substantially identical.'" Berlin Convalescent
Ctr. v. Stoneman, 159 Vt. 53, 56, 615 A.2d 141, 143 (1992) (quoting
Berisha v. Hardy, 144 Vt. 136, 138, 474 A.2d 90, 91 (1984)). The doctrine
does not require that the claims were actually litigated in the prior
proceeding; rather, it applies to claims that were or should have been
litigated in the prior proceeding. See Lamb v. Geovjian, 165 Vt. 375,
380, 683 A.2d 731, 734-35 (1996). For example, res judicata applies to
both affirmative defenses that could have been raised before, see id. at
381, 683 A.2d at 735, and compulsory counterclaims that should have been
raised before, but not to permissive counterclaims. See Cold Springs Farm
Dev., Inc. v. Ball, 163 Vt. 466, 473, 661 A.2d 89, 93 (1995).
The doctrine of collateral estoppel, also called issue preclusion, is
similar in effect but more narrow in scope. See Berlin Convalescent Ctr.,
159 Vt. at 56, 615 A.2d at 144. It bars the relitigation of an issue,
rather than a claim, that was actually litigated by the parties and decided
in a prior case. See id. The elements of collateral estoppel are: (1)
preclusion is asserted against one who was a party in the prior action;
(2) the same issue was raised in the prior action; (3) the issue was
resolved by a final judgment on the merits; (4) there was a full and fair
opportunity to litigate the issue in the prior action; and (5) applying
preclusion is fair. See State v. Dann, 167 Vt. 119, 126, 702 A.2d 105,
110 (1997).
The purposes of both claim preclusion and issue preclusion are: (1) to
conserve the resources of courts and litigants by protecting them against
piecemeal or repetitive litigation; (2) to prevent
vexatious litigation; (3) to promote the finality of judgments and
encourage reliance on judicial decisions; and (4) to decrease the chances
of inconsistent adjudication. See Berlin Convalescent Ctr., 159 Vt. at
57, 60, 615 A.2d at 144-46; Ball, 163 Vt. at 473, 661 A.2d at 94. We keep
these purposes in mind in determining whether either doctrine applies in
the rate cases before us. See Berlin Convalescent Ctr., 159 Vt. at 60,
615 A.2d at 145-46 (in resolving whether to apply issue preclusion, we
balance desire not to deprive litigant of adequate day in court against
desire to prevent repetitious litigation of essentially same dispute).
II. Collateral Estoppel
We begin with collateral estoppel because CVPS argues that the issues
the Department raises in this case are issues that were actually litigated
in the 1994 rate case. As noted above, the Board found that collateral
estoppel applies in rate proceedings, but that the issues actually
litigated in the 1994 rate case were different from those before it in
this case. (FN2) We agree that collateral estoppel or issue preclusion
generally applies in administrative proceedings, see In re Carrier, 155
Vt. 152, 157-58, 582 A.2d 110, 113 (1990), and may apply in a utility rate
case if all five elements are met, see Vermont Power Exchange, 159 Vt. at
181, 617 A.2d at 425 (utility precluded in rate case by collateral
estoppel from relitigating issues resolved in previous case). CVPS
contends that both the prudence of the August 1991 lock-in of the HQ
contract and the usefulness of power under that contract were litigated
and resolved in its 1994 rate case. Thus, we start with detailing what
occurred in that case.
The 1994 rate case began in November 1993 when the Board issued an order
opening an investigation into CVPS's rates. The order lists the elements
of the investigation, including:
Power costs. Has the Company prudently acquired its generation
entitlements, both purchased and owned? Has it prudently managed
its power costs, including off-system sales (in particular, of
Hydro-Quebec power) and nuclear decommissioning costs? Market
prices for oil and gas are at their lowest levels in recent
years, and further declines are predicted; what savings should
those changes produce for ratepayers?
In February 1994, CVPS filed a request to increase rates, which was
consolidated with the investigation case. In early May 1994, the Board
sent the parties a memorandum listing the issues upon which the parties
were to offer evidence at the formal proceeding, including: "Was the
decision to accelerate the 'lock-in' date of the Hydro-Quebec/VJO contract
appropriate?" Later in the month, the Board sent a second memorandum
indicating that the primary intent of the Board's questions was to
evaluate CVPS's management of resources during 1989-1994, including HQ
entitlements, and not to focus on the prudence of resource acquisitions
prior to 1989.
CVPS submitted detailed prefiled testimony explaining why CVPS
believed its actions leading to and including the early lock-in were
prudent. The Department also submitted prefiled testimony on these issues.
The main expert testimony came from Dr. Richard Rosen of Tellus Institute
in Massachusetts. Dr. Rosen stated that the only significant resource
acquisition that required a prudence review for the five-year period in
issue was the HQ contract. To determine the prudency of the lock-in
decision, he looked at the four-to-six-month period before that decision
was made. He found that no coherent economic analysis of the overall
benefit of the contract was done in that period even though it was clear
that projections showed the benefits, if any, were declining from month to
month. He concluded that he could not determine "that the Company was
prudent in locking into the HQ contract in August, 1991" because of
inadequate documentation of the company's decision making. He concluded,
however, that the company was "irresponsible" in not documenting its
decision making and that because the risk of a bad economic decision was
great, and growing in the summer of 1991, "the Company has substantial
responsibility for the outcome
of the economic risks it took in August, 1991 by locking into the HQ
contract."
Dr. Rosen also testified that CVPS's "power supply portfolio will be
excessively costly to its ratepayers over the next 20 years, or so," and
the "excess costs derive in large part from the HQ contract." On the
usefulness of the HQ power at the contract price, he concluded that the
excess cost of the power, above the price of alternative power available,
was not "useful" as that term is used in traditional utility regulation.
He concluded that the excess costs of CVPS's power supply, totaling $79
million dollars over the life of the contract, should be shared fifty
percent each between the ratepayers and the shareholders of CVPS because
this split reflects "a reasonable balancing of the risks and
responsibilities that the Company management and various agencies
representing the public took in approving the HQ contract and other
problematic elements of the Company's current supply portfolio."
In rebuttal testimony, CVPS strongly challenged Dr. Rosen's theory -
on when a generating asset, including a purchased power contract, was
economically useful - as a radical departure from traditional rate-making
theory that would impose an inappropriate and asymmetric burden on CVPS
and its shareholders. The Department submitted Dr. Rosen's surrebuttal
testimony, supporting his original conclusion and arguing that his
approach to economic usefulness of power sources was consistent with
traditional utility regulation theory.
The Board then held twenty days of hearings during July, August and
September of 1994. Following the hearings, both parties submitted briefs
addressing at length the prudence of the HQ contract and the early
lock-in, as well as the usefulness of the HQ power at the contract price,
and the consequences of holding it not useful.
On October 31, 1994, the Board issued its decision, including findings
and conclusions on the HQ contract in general, the usefulness of the power
provided by it at the contract price and the early lock-in decision.
Concerning the lock-in, the Board made extensive findings on the period
before the lock-in decision, including (1) the relationship of that
decision to HQ's agreement to buy back some of the power; (2) the changing
demand and supply situation, which was making the
contract less beneficial as time passed; and (3) CVPS's analyses, or lack
of analyses, on the benefits of the contract. The Board noted that in
February 1991, CVPS had estimated that its share of the HQ contract had a
net present value of $65 million. In April, the estimate of the benefit
had ranged from $45 million to $16.2 million, and in July, the estimate
had been about $16 million. In addition, the early year losses - due to
above-market costs during the first years of the contract - continued
further into the future. Based on its findings, the Board, in essence,
adopted Dr. Rosen's opinion on prudency. Thus, the Board determined that
CVPS had "failed to adequately document its assessments of the risks
associated with the declining economics of its entitlements" and concluded:
In the absence of any detailed economic analysis of and
consideration of the alternatives to the HQ Contract during the
six-month period prior to the lock in (August 28, 1991), the
prudence of the Company's decision to lock in cannot be
established. However, the failure to perform the requisite
analysis during this period was imprudent.
(Emphasis added.) In its discussion, the Board found a number of
management "errors," including: (1) the "decision to prematurely lock in
the HQ contract before considering all possible alternative strategies for
managing the Contract and potential return sales;" (2) the "failure to have
developed an assessment of the appropriate level of return sales prior to
beginning serious negotiations with Hydro-Quebec;" (3) the failure to
negotiate a return sale for a period in excess of five years; and (4) a
pattern of providing misleading information to the public and the Board.
The Board noted that it took CVPS's failure to produce documentation of
any coherent analyses done in the period immediately before the lock-in
decision as "evidence that the required analyses were simply not
undertaken or were purposely not documented."
The Board, however, rejected Dr. Rosen's proposed analysis of the
usefulness of the power costs and his proposed remedy of sharing the
excess costs between the ratepayers and the shareholders of CVPS. It
reasoned:
In essence, the Department's "economic used and useful (or excess
capacity) test" is a market-based approach and operates, in part,
on the logic that ratepayers should not have to pay more for
electricity than it would - at one specific point in time - cost
to purchase on the open market. That idea has an obvious appeal,
particularly in situations where embedded monopoly costs exceed
market costs. However, for the reasons which follow, we conclude
that under current conditions Dr. Rosen's proposed adjustment is
flawed and must, therefore, be rejected.
. . . .
Dr. Rosen's proposal differs from our traditional method in a
very critical way. He states that his test can be applied at any
time during the life of a prudently-acquired asset to determine
its used-and-usefulness; the effect would be that costs incurred
at a time when the resource was deemed economically used and
useful would remain at risk for a potential future disallowance.
This test could also be applied to a resource portfolio as a
whole, which in fact is what Dr. Rosen did in this case. It is
this aspect of the proposal - the life-cycle analysis of an
existing resource, which includes past and projected costs - that
the Company argues constitutes retroactive ratemaking. In this
way, contends the Company, it is arbitrary and capricious.
The Company's arguments have merit. As structured, Dr.
Rosen's test would penalize investors for prudent investments that
are, or had been, reasonably expected to yield net present value
benefits over their lifetime, that are not excessive in scope, and
that are still in service, but whose costs may exceed market
prices at a particular moment in time. In this way . . ., Dr.
Rosen's ratemaking approach may discourage utilities from making
least-cost investments that fail a short-term market
cost-effectiveness test.
When a utility petitions the Board to recognize an asset in
rates, we may conduct an investigation into the prudence and used-
and-usefulness of that asset. If an explicit review is conducted,
those asset costs that are found to be prudently incurred and
economically justified at the time the asset is put into service
are allowed into rates. Only one-half of the costs associated
with the non-used-and-useful portions of the asset, if any, are
put into rates.
After such a review, if an asset is "explicitly approved for
placement in rate base" and its costs are deemed used and useful,
it would be inappropriate to subject their continued recovery
over many years to a year-by-year market test.
Dr. Rosen's proposal also raises another concern; it would
impose additional risks upon shareholders without offering
commensurate returns for them. His approach provides that
ratepayers will pay the lower of either embedded (historic) cost
or market cost for a resource. If market cost is lower than
embedded cost, shareholders will recover only one-half of the
difference. In contrast, however, if market cost exceeds
embedded, shareholders will recover only the full embedded costs:
the difference between market costs and embedded costs flows to
the ratepayers in the form of below-market electricity rates.
In competitive markets, a company will not be able to recover
costs that exceed the market costs of its products. Investors
bear the risk that their investments will be uneconomic, in full
or in part. However, that risk is symmetrical, which is to say
that investors also reap additional benefits if they are able to
produce their product at a cost well below its market price. Dr.
Rosen's portfolio adjustment proposal does not offer CVPS's
investors that opportunity and, therefore, must be rejected.
We note, however, that our ruling in the present matter
should not be construed as a finding that a market-value test is
fundamentally acceptable. . . . As utility markets become more
open and competitive, it may become increasingly possible and, in
many cases, desirable to employ market-based tests to govern the
utility's total return.
Based on this rationale, the Board rejected imposing any cost disallowance.
Rather, it imposed a 75-basis-point reduction in return on equity as the
penalty for CVPS's "mismanagement of power supply options" and "failed
efforts to acquire all cost-effective energy efficiency resources."
Neither party appealed the Board's decision.
A. Prudence
To determine whether the 1994 rate case has any preclusive effect, we
examine the prudency issues separately from the used-and-useful issue and
apply the five elements of collateral estoppel to each issue, beginning
with those related to prudency. First, it is undisputed that the first
element is met because CVPS is asserting collateral estoppel against a
party - that is, the Department - who was a party in the prior action.
(FN3) The Department has not argued otherwise.
The second element requires that the same issue was raised in the
earlier proceeding. This element is complicated because, here, the
Department claims, through its expert witness, that CVPS acted imprudently
in eleven different ways. The witness stated in prefiled testimony that
some of the allegedly imprudent actions occurred during the period from
1986 to 1990, while CVPS was negotiating the contract, on its own behalf
and then for the Vermont Joint Owners, and then seeking approval for the
contract from the Board. It is clear that none of these imprudency
theories were solicited by the Board in 1994, and none were presented by
the Department. Thus, CVPS has not established this element for these
theories. (FN4)
The remainder of the imprudency theories advanced by the Department
involve the period in 1991 leading up to the decision to lock in the
contract, and the lock-in decision itself. The Board addressed this
period in the 1994 rate case. Nevertheless, the Board concluded that the
prudency issues raised by the Department in this case are different from
those presented in the 1994 case because, in the 1994 case: (1) "the
Department ultimately decided not to litigate the issue of whether the
Company's entry into and management of the Contract (including its decision
to lock in the Contract) were prudent;" and (2) instead, the Department
presented the issue of whether CVPS mismanaged its entire power supply
portfolio. We conclude that the Board's first distinction is inaccurate,
and the second, although more accurate, is irrelevant.
First, we note that, in the 1994 case, the Board ordered the parties
to specifically address whether the lock-in decision was prudent. Thus,
the parties were not at liberty to "ultimately decide not to litigate the
issue," as the Board states in its 1998 decision. CVPS had the burden of
proof in establishing that the lock-in decision was prudent. See In re
Green Mountain Power Corp., 147 Vt. 509, 519, 519 A.2d 595, 601 (1986)
(utility has burden of showing prudence of its decisions). (FN5) It
vigorously and thoroughly addressed the issue raised by the Board. Insofar
as the evidence submitted to the Board was insufficient to establish the
prudence of the lock-in, the conclusion that must be drawn is that the
decision to lock in was imprudent. See Coalition of Cities for Affordable
Utility Rates v. Public Utility Comm'n, 798 S.W.2d 560, 563-64 (Tex. 1990)
(utility has burden of proving prudence of expenditure and is not entitled
to second trial to present more evidence where
it fails to meet burden).
The Board states, however, that "the Department elected not to present
testimony either challenging the prudence of the Company's decision to
lock in the Contract or supporting that decision." (Emphasis added). The
record shows otherwise. As set out above, the Department presented the
testimony of Dr. Rosen who stated that he could not conclude that the
lock-in decision was prudent, and that CVPS was imprudent in not
documenting its decision-making process in the summer of 1991. Dr.
Rosen's testimony supported a conclusion that CVPS was imprudent, and the
Department argued for this conclusion.
When we compare the testimony that the Department is prepared to offer
in this case with the testimony it presented in 1994, we see that it
intends to present a more thorough, aggressive and detailed case than it
did in1994. Indeed, there is an indication that, in the 1994 case, the
Board was frustrated with the quality of the Department's presentation,
(FN6) and the Board did not accept the main part of Dr. Rosen's testimony
dealing with the usefulness of the HQ power at the contract price. In
applying issue preclusion, however, the question is whether an issue was
litigated in the past, not whether it was litigated well. The record shows
that the issue of the prudency of CVPS's action in evaluating its options
in 1991 and locking into the HQ contract was litigated in 1994.
The Board also concluded that the issue presented in 1994 was
different because the Department contested the prudency of the management
of all of CVPS's power resources. Thus, the Department argues here that
the Board did not decide that CVPS's actions leading to its decision to
lock into the HQ contract were imprudent, but rather decided that CVPS had
a pattern of mismanaging its overall power supply portfolio. We agree
that the Department submitted evidence on CVPS's overall management of its
power supply portfolio, and the Board made general conclusions concerning
that management. The Board made clear, however, that the most significant
CVPS action, and the one with the greatest impact on rates, was its
decision to lock in the HQ contract early. Thus, the Board directed the
parties to submit specific evidence on the prudency of that action, and
the parties did so. (FN7) The Department's responsive testimony was that
of Dr. Rosen, and he stated "I will only address the [Board's] questions
with reference to the Company's decision to acquire the Hydro-Quebec
contract, since that is the only major resource to be initially acquired
since 1989."
If CVPS were arguing that the 1994 decision was preclusive with
respect to a power source other than HQ, we would understand the
Department's argument. In 1994, however, the Board was focused primarily
on the HQ power, and Dr. Rosen's testimony on prudence addressed only the
HQ lock-in decision. Under these circumstances, the presence of other
resource management issues is largely irrelevant to whether CVPS has
established the second element of collateral estoppel. We hold that it
has established this element as to the prudency of actions it took leading
up to the decision to lock into the contract, and the prudency of its
lock-in decision.
The third element requires that the issue actually litigated was
resolved by a final judgment on the merits. Much of our discussion above
applies to this element. The conclusion reached by the Board - that the
prudence of CVPS's decision to lock into the HQ contract cannot be
established due to the absence of any detailed economic analysis of the
alternatives to the contract during the six-month period prior to the
lock-in - is the same conclusion that the Department urged the Board to
reach based on the testimony of Dr. Rosen. In fact, the Board went further
and concluded that CVPS's actions leading to and including the early
lock-in decision were integral parts of the pattern of mismanagement by
CVPS. Thus, it found that the evidence demonstrated CVPS's "significant
failures and errors of judgment" in power-cost management decisions between
April and October 1991, including, first and foremost "[t]he decision to
prematurely lock in the HQ Contract before considering all possible
alternative strategies for managing the Contract and potential return
sales." The historical facts concerning the early lock-in decision, the
lack of analysis and documentation in the months preceding the August 1991
lock-in decision, and the prudence of CVPS's actions and decisions in this
regard were litigated and resolved by the Board in the 1994 rate case.
The Board's decision in the 1994 rate case became a final judgment on
the merits when neither party appealed it to this Court. Nevertheless,
relying on Zingher v. Department of Aging and Disabilities, 163 Vt. 566,
664 A.2d 256 (1995), the Department argues that the Board's decision was
not final on these issues because the Board reserved the right to
reconsider the issues in future proceedings. In Zingher, we held that an
administrative decision was not final, and therefore did not have
preclusive effect, because the plain language of the order left open the
possibility of later review. See id. at 571, 664 A.2d at 258
(petitioner's request should be denied at the present time because
petitioner has yet to show that services are necessary to his obtaining
employment). Here, we need not decide whether the Board has the authority
to reserve the right to retry an issue where there has been a failure of
evidence because there is no such reservation in the Board's decision in
the 1994 rate case. Cf. Coalition of Cities, 798 S.W.2d at 564
(concluding that public utility commission does not have authority to
reserve right to rehear prudence issue in subsequent proceeding where
utility failed to present sufficient evidence to prove prudence). Contrary
to the Department's contention, statements by the Board in decisions
issued prior to the 1994 rate case indicating that the prudence of the HQ
lock-in would be decided in a future rate case do not support the
contention that the 1994 rate case did not decide that issue.
Related to the third element of a final judgment on the merits is the
requirement that the issues be necessary to the previous decision. Our
review of the record in the 1994 rate case indicates that resolution of
the HQ prudence issues was necessary to the Board's decision in determining
the appropriate penalty to impose against CVPS for excessive power costs.
Despite the Department's
request for a disallowance of HQ power costs, and the Board's determination
that CVPS was imprudent in failing to do adequate analysis before locking
into the contract, the Board rejected any disallowance of costs, imposing
instead a 75-basis-point reduction in return on equity. Based on the
detailed decision of the Board, we have no doubt that it considered
carefully the events during the six months prior to the lock-in and the
lock-in decision in determining the appropriate penalty.
The fourth and fifth elements of collateral estoppel - whether there
was a full and fair opportunity to litigate the prudence issues in the
1994 rate case, and whether it is fair to apply preclusion here - are
generally considered together. Among the factors to consider are the
choice of forum, the incentive to litigate, the foreseeability of future
litigation, the legal standards and burdens in each action, the procedural
opportunities of each forum, and the possibility of inconsistent
determinations. See Trepanier v. Getting Organized, Inc., 155 Vt. 259,
265, 583 A.2d 583, 587 (1990). The party opposing application of
collateral estoppel has the burden of showing that circumstances make it
appropriate for an issue to be relitigated. See id. at 265-66, 583 A.2d at
587-88. We conclude that there was a full and fair opportunity to
litigate the prudence issues related to the lock-in in the 1994 rate case.
Both the prior and instant actions were brought by CVPS in the same forum
to increase its rates; thus, the standards, burdens and procedures, as well
as the incentive to litigate were all the same. The Department has not
shown that it was deprived of an adequate day in court. Accordingly, it
is fair to apply preclusion here to prevent repetitious litigation of the
same issues. See id. at 266, 583 A.2d at 588 (critical inquiry is whether
party to be bound had full and fair opportunity to contest issue resolved
in earlier action so that it is fair to refuse relitigation of same
issue); see also Berlin Convalescent Ctr., 159 Vt. at 60, 615 A.2d at
145-46 (we balance desire not to deprive litigant of adequate day in court
against desire to prevent repetitious litigation).
The Department argues that it is not fair to apply collateral estoppel
here for several reasons, but notably does not assert that it was denied a
full and fair opportunity to litigate the prudence issues in the previous
rate case. Instead, the Department contends that the application of
collateral estoppel: (1) will turn each rate case into an expensive,
unworkable litigated proceeding because it
will prevent later litigation of any issue that could have been litigated;
(2) will significantly undermine the Board's authority to protect the
public and ensure that ratepayers bear only just and reasonable costs; and
(3) will result in ratepayers bearing all the substantial above-market
costs associated with the HQ contract. Consequently, the Department
contends that the interests in finality underlying the doctrine of
collateral estoppel are outweighed by the public policy concerns involved
in regulating a monopoly and the serious harm to the public that will
result by applying it here.
We briefly outline our disagreement with the Department's arguments.
First, we are dealing here only with issue preclusion. Thus, the
Department's concern that preclusive effect may flow from everything that
could have been litigated in 1994 is misguided. Second, our earlier
decisions to apply issue preclusion in rate cases mean that we have
concluded that expensive and time-consuming relitigation of contested
issues is in the interest of neither the public nor the utilities. "The
same finality that benefits the utility investors can serve the interests
of consumers who know that if a utility is once denied relief because of
its failure to prove its case, it may not return repeatedly on the facts
until the [Board] yields." Coalition of Cities, 798 S.W.2d at 565.
Moreover, finality of decisions also conserves the resources of the
administrative tribunal.
Finally, we recognize that the financial impact on ratepayers of the
cost of the HQ contract is much greater in 1998 than in 1994 because CVPS
is obligated to buy a greater quantity of power in later years under the
contract. Nevertheless, the Department was fully aware in 1994 of the
purchase terms of the contract and their likely impact on future rates.
Indeed, the life-cycle analysis the Department presented in 1994
demonstrated that impact dramatically. Moreover, the Board's 1994 order
offers at least some protections for ratepayers, as explained infra. We
cannot conclude that it is unfair to apply collateral estoppel on the
prudency of CVPS's decision to lock into the HQ contract. Consequently,
we agree with CVPS that collateral estoppel applies to the Board's 1994
decision on the prudency of the lock-in decision.
On the other hand, we disagree with CVPS's position that the Board is
also collaterally estopped by the 1994 decision from declaring any further
consequences to CVPS. As the
Department emphasizes, the Board found CVPS's actions imprudent, not
prudent. Some of the confusion on this point results from the Board's
decision to label its 75-basis-point reduction of CVPS's rate of return as
a penalty, which CVPS argues in turn must be a one-time reduction. We
emphasized in the very recent case of In re Citizens Utility Co. "that the
purpose of a rate-of-return reduction is not to penalize a company for
specific acts of misconduct but rather to set reasonable rates in cases
where the consumers are not being adequately served 'due to inefficiency or
improvidence or other like reasons.'" No. 97-436, slip op. at 10 (Vt. Dec.
15, 2000) (quoting In re New England Tel. & Tel. Co., 115 Vt. 494, 513, 66 A.2d 135, 147 (1949)). Consistent with that purpose, the Board in the
1994 rate case imposed the reduction in rate of return to "remain in place
until the Company demonstrates, through tangible results, that it has
eliminated the excessive power costs imposed on customers by ineffective
and improvident management decisions, or that it is on a reasonable and
equitable path towards doing so." Irrespective of the Board's label, the
rate-of-return reduction - based in part on the imprudence it found - may
remain in force as long as CVPS's service is being impaired as a result of
the high price of its power. In sum, although the Department cannot
relitigate the question of CVPS's prudency in making the lock-in decision,
the Board may continue the reduction to CVPS's rate of return based on the
imprudency it has already found and the failure of CVPS to eliminate the
effect of that imprudency on its rates.
The Board specifically addressed this point in its 1998 decision. It
held that, even if it is required to give preclusive effect to the 1994
decision, it can continue the reduction to CVPS's rate of return. In
fact, the Board concluded that it can increase the reduction in future
cases:
If the Company fails to correct these problems [of excessive
costs], the Board plainly retains jurisdiction to impose a
different remedy to ensure that ratepayers do not bear the
financial burden alone. The remedies imposed in [the 1994 rate
case] may be adjusted over time, as costs and conditions change,
as a matter of fairness to both the utility and its ratepayers
. . . .
[T]he appropriate remedy in the earlier docket may no longer be
reasonable in light of the new facts and changed Contract power
costs. It is difficult to understand how increased power costs
could be used by the Company to justify its request for a rate
increase, but could not be used by the Department as a basis for
requesting a
modification in the remedies that partially protect the ratepayers
from excessive power costs. The Company obviously believes that
the Board retains jurisdiction to raise rates in response to the
changing Contract costs. Collateral estoppel is not a bar to
consideration of a different remedy based upon higher power costs
included in this rate case.
Although CVPS attacks this holding in general terms, we believe it is
premature to determine whether collateral estoppel precludes the Board
from adopting a modified or increased rate-of-return reduction in this
case for the imprudency it found in 1994. At this point, we can only
speculate on what basis the Board may act, and the nature and extent of
the reduction it might adopt. Thus, we leave this issue, if it becomes
real, to review of the final judgment of the Board should such review be
sought.
B. Use and Usefulness
We now consider whether the Board is precluded by collateral estoppel
from reducing the amount of HQ power costs that CVPS can recover in its
rates if the Board concludes that the high price of that power makes it
non-useful in part. Generally, the arguments of the parties and our
reasoning on this issue follow our analysis of issue preclusion on the
prudency of the lock-in decision, although the nature of the issue may
require a different result. On the first element, again, estoppel is
asserted against the Department, which was a party in the prior action.
We have set out above the Board's conclusion in the 1994 rate case.
According to the prefiled testimony of its expert witness on the economics
of the contract, the position of the Department in this case is: (1) the
HQ power purchased by CVPS is used, "but not economically useful," because
it will cost $126 million dollars more than market value of the power over
the term of the contract; (2) the Board's policy, as expressed in a number
of decisions, "is to share uneconomic costs between ratepayers and
stockholders;" (3) that policy is "fair and efficient;" and (4) the
appropriate remedy is to share excess costs between ratepayers and
shareholders. The witness distinguished his testimony from that of Dr.
Rosen because Rosen's testimony "differed from the Board's traditional
method for addressing resources that are not used and useful;" applied the
"used and useful test . . . at any time during the life of a
prudently-acquired asset;" and applied the test to
CVPS's "resource portfolio as a whole," not just the HQ power. In its
1998 order on preclusion, the Board accepted these differences. It found
that the Department presented a novel theory in 1994, that the theory
covered all of CVPS's resources and not just the HQ power, and that the
theory allowed exclusion of costs if at any point in time the "life-cycle
cost" of the power exceeded market value.
On the second element of collateral estoppel, identity of issues, we
find no real differences between the issue litigated in 1994 and that
presented in this case. In 1994, Dr. Rosen characterized his position as
fully consistent with traditional ratemaking theory, although he cited
out-of-state, rather than Vermont, cases in support of his theory. Thus,
we do not find the Department's current theory that the above-market costs
of HQ power are non-useful any more or less novel than Dr. Rosen's
position in 1994. (FN8) In any event, we find the point to be
insignificant. We are dealing here with labels rather than substance.
The Department cannot escape the application of collateral estoppel by
labeling the same argument as novel in one case and traditional in another.
The question for us is whether the arguments were the same.
We believe that the Department's position in 1994 was essentially the
same as its position today. Putting aside for the moment what power
sources are covered by the position, the only difference suggested is that
Dr. Rosen testified that the Board could compare the total cost of a power
resource to market costs at any point in time, and the current witness
argues that the Board should make such a comparison "only at key times in
the life of a resource." We have looked carefully at the testimony of Dr.
Rosen, as well as that of the Department's current witness, and
cannot conclude that the timing of comparison is a significant difference.
In 1994, Dr. Rosen gave testimony in response to the Board's
questions, and the timing of the comparison of costs to determine whether
power resources were useful did not come up in his initial testimony.
CVPS witnesses attacked the testimony arguing, among other things, that
predictions of future cost comparisons would vary depending upon when the
predictions were made. Dr. Rosen answered that the CVPS witnesses raised
a legitimate concern; specifically, he suggested that "the degree to which
each supply resource is useful could be reviewed in general ratecases when
warranted." Although the Board described Dr. Rosen as proposing that the
comparison be done at any time, the question of timing played no part in
the Board's decision as set forth above.
We do not view the current Department witness as proposing anything
significantly different from Dr. Rosen. His testimony argues that the
comparison should be made at "key times" and states that this is a key
time because CVPS is requesting that "new costs be put into rates." Of
course, the request that the costs be put into rates has generated a rate
case, exactly when Dr. Rosen recommended that the comparison be made. To
the extent there is a difference between the Department's position now and
that in 1994, it is inconsequential.
Finally, as with the prudency issue, the Department argues that
collateral estoppel cannot apply because the 1994 rate case dealt with all
of CVPS's power resources, and this case deals only with HQ power. In
1994, Dr. Rosen did propose that the cost of all of CVPS's power sources be
compared with predicted market costs for the same power, and that any
predicted excess costs be split between the ratepayers and CVPS
stockholders. Nonetheless, he itemized the excess costs by source so that
the Board had a specific excess cost prediction for HQ power. As expected,
HQ costs constituted a large percentage of the predicted excess costs.
Again, the Department's argument would be more understandable if it
were claiming that the resolution of this case had a preclusive effect on
litigation in the broader inquiry in the 1994 rate case. We fail to see
how the Department can avoid collateral estoppel from the 1994 case by
claiming that it litigated more issues in that case than it is seeking to
litigate here. The whole point
of collateral estoppel is that preclusive effect is determined on an issue
by issue basis. The exact issue that the Department seeks to litigate
here was litigated in 1994, albeit with others.
We also conclude that the third element of collateral estoppel - that
the issue was actually litigated and resolved in a final judgment - is met
with respect to the usefulness of the HQ power. As we set out above,
supra, at 8-9, in 1994, the Board clearly rejected the Department's
argument that the excess cost of the HQ power purchased by CVPS made it
non-useful, so CVPS was not entitled to recover all its costs in rates.
That determination was necessary to its decision to allow the full cost of
the HQ power to be reflected in rates.
The Department argues that the Board did not render a final judgment
on the issue because it stated that it may employ a market-based approach
in future cases. Thus, the Department argues, it is entitled to try to
persuade the Board to employ the market-based approach in this case.
In 1994, the Board rejected the proposition that it could revisit the
issue - whether power costs were useful during the life of a
purchase-power contract - once it had found that, at the time the contract
was entered into, it had been prudent to enter into the contract and the
power would be economically useful over its life. We agree that it left
open the possibility that it might use a market-value approach in the
future, and deny recovery of costs that exceed market value, but under very
limited circumstances. It stated: "As utility markets become more open and
competitive, it may become increasingly possible and, in many cases,
desirable to employ market-based tests to govern the utility's total
return."
There is no suggestion in the prefiled testimony, or the Department's
brief, that utility markets have become more open and competitive since
1994. Thus, while the Department seeks to rely on the Board's openness to
a policy shift, it makes no claim that the changed conditions that would
underlie that shift are present. Indeed, we take judicial notice that,
since 1994, various proposals have been made in the Legislature and to the
Board to open electricity markets to retail competition, but none have
been adopted. As far as we can determine, Vermont has essentially the
same electric regulatory system as it had in 1994 and that system is based
on regulation of electric
service monopolies, not competition. Thus, we reject the Department's
contention that the judgment of the Board was not final with respect to
the usefulness of the HQ power at its above-market cost.
For the reasons discussed above concerning prudence, we reject the
Department's argument that the fourth and fifth elements of collateral
estoppel are not met with respect to the usefulness of the HQ power.
Although we do not accept the Department's arguments, there is a related
reason to question the application of collateral estoppel to the issue of
the usefulness of HQ power. The prudency question is one of historical
fact. The usefulness issue is a question of law, or at least of utility
regulation policy. Courts have often treated issues of law and fact
differently for purposes of collateral estoppel. The Restatement of
Judgments (Second) recognizes that collateral estoppel generally applies
to issues of law, Restatement of Judgments (Second) § 27 (1982), but
provides exceptions to the general rule when:
(2) The issue is one of law and (a) the two actions involve claims
that are substantially unrelated, or (b) a new determination is
warranted in order to take account of an intervening change in
the applicable legal context or otherwise to avoid inequitable
administration of the laws[.]
Id. § 28(2). In this case, the first part of the exception is
inapplicable; this case and the 1994 rate case are related. The second
prong of the exception is, however, arguably applicable. See Keystone
Water Co. v. Pennsylvania Pub. Util. Comm'n, 474 A.2d 368, 372 (Pa. Commw.
Ct. 1984) (collateral estoppel does not apply in rate case with respect to
an issue on which the law was changed by a decision of the Pennsylvania
Supreme Court). Indeed, it may have more force in administrative agency
proceedings because "[a]gencies need more freedom to change policies and
meet new law enforcement exigencies." 1 C. Koch, Administrative Law and
Practice § 6.63, at 512 (1985); see also Restatement of Judgments (Second)
§ 83 cmt. h (the exception for relitigation of issues of law "has perhaps
its most salient application in situations where issue preclusion is
invoked against the government in adjudications before an administrative
agency").
We cannot fully determine the application of the second prong on the
current record. We know that on February 27, 1998, the Board issued an
order in the Green Mountain Power
Corporation (GMP) rate case, which was joined with this case on appeal
because of an overlap in the issues, but that case has now been settled.
See In re Green Mountain Power Corp., No. 5983 (Vt. Pub. Serv. Bd. Feb.
27, 1998). That decision found the HQ power supplied under the VJO
contract to GMP was non-useful because of its excessive cost over its life
in relation to other available sources. In reaching that decision, the
Board attempted to distinguish its decision in the 1994 CVPS rate case, on
the same grounds that we have found unpersuasive in this decision. Thus,
we must view the 1998 GMP order as a decision to fundamentally change
regulatory policy from that announced in 1994.
The Board's preclusion decision in this case was announced one month
after the GMP decision was issued. Apparently, because the Board
characterized its GMP and CVPS decisions as consistent, the Department has
never raised the GMP decision as relevant to the issue preclusion
determination before us. In fact, the Board itself never mentioned the GMP
decision as relevant to its preclusion decision. Thus, we have no
analysis, either from the Board or from the Department, on why it would be
fair or unfair to apply the same policy on the usefulness of
excessively-costly purchased power to both of Vermont's largest utilities,
GMP and CVPS. The matter is further complicated by the fact that the GMP
rate case has now been settled on terms more favorable to GMP than the
February 1998 decision reflects.
We believe that the only prudent action for us to take is to remand
this interlocutory appeal back to the Board to evaluate the application of
collateral estoppel to the issue of the usefulness of the HQ power under §
27(b)(2) of the Restatement of Judgments (Second) in light of the new
events. Either party may, of course, challenge the Board's evaluation of
this question by review of the final rate determination in this Court.
III. Res Judicata
Having determined that collateral estoppel, or issue preclusion,
prevents relitigation of at least some of the issues the Department seeks
to raise in this proceeding, we now consider whether res judicata, or
claim preclusion, also applies as argued by CVPS. As we set out in the
beginning of
this opinion, claim preclusion is broader than issue preclusion because it
applies not only to issues that were litigated in the prior proceeding,
but also to issues that should have been litigated. See Lamb, 165 Vt. at
380, 683 A.2d at 734. It requires, however, that the parties, subject
matter and causes of action in the two proceedings be identical or
substantially identical. See Berlin Convalescent Ctr., 159 Vt. at 56, 615 A.2d at 143. If it applies, the significance of claim preclusion to this
case is that it would preclude relitigation of any claim that should have
been litigated in the 1994 rate cases. Thus, CVPS argues that it would
preclude litigation of any claim that CVPS was imprudent in negotiating or
entering into the HQ contract because those claims should have been raised
in the 1994 rate case.
We have not decided whether claim preclusion is applicable in rate
cases. In general, the doctrine applies to administrative decisions if
the administrative agency acts in a judicial capacity, and the proceeding
resulting in the decision included the essential elements of adjudication.
See Delozier v. State, 160 Vt. 426, 429, 631 A.2d 228, 230 (1993). "These
elements include adequate notice to interested parties, the right of
parties to present evidence and legal argument, final judgment, and
procedural elements necessary to afford fair determination of the matter in
light of the magnitude and complexity of the matter." Id. It cannot be
disputed that proceedings before the Board contain each of the essential
elements of adjudication.
The Department argues, however, that claim preclusion is not
applicable in rate cases because these proceedings are legislative, rather
than judicial, in nature. The determination of a just and reasonable rate
of return has long been recognized as a policy decision involving numerous
policy considerations. See Allied Chemical v. Niagara Mohawk Power Corp.,
528 N.E.2d 153, 156 (N.Y. 1988). Therefore, courts, including this Court,
have generally concluded that ratemaking is legislative rather than
quasi-judicial in character. See Ratepayers Coalition of Rochester v.
Rochester Elec. Light and Power Co., 153 Vt. 327, 332, 571 A.2d 606, 609
(1989). "Because a ratemaking agency must be free to reassess the
reasonableness of rates, it would be illogical, and inconsistent with the
agency's function, to give preclusive effect to a prior ratemaking
determination,
and courts have refused to do so." Allied Chemical, 528 N.E.2d at 156
(emphasis added); see also Energy Gulf States, Inc. v. Louisiana Pub.
Serv. Comm'n, 730 So. 2d 890, 925 (La. 1999) (rate orders not generally
given res judicata effect). Although some courts have held that res
judicata applies to rate cases, a close examination of the cases shows
that the courts were applying issue preclusion and not claim preclusion.
See, e.g., Allied Chemical, 528 N.E.2d at 156-57; Coalition of Cities, 798 S.W.2d at 565; Philadelphia Elec. Co. v. Pennsylvania Pub. Util. Comm'n,
433 A.2d 620, 625-26 (Pa. Commw. 1981). We have found no case in which
res judicata - claim preclusion - is applied in a rate proceeding to
preclude litigation of claims, or issues, that were not previously
litigated and decided.
The Board analyzed the application of claim preclusion only briefly
because it accepted the Department's argument that rate-making is
legislative, and therefore, the doctrine of claim preclusion does not
apply. Nonetheless, its analysis of collateral estoppel suggests practical
reasons why it would be inappropriate to apply claim preclusion to a
rate-case determination.
A regulated utility's rates contain thousands of cost items. It
would be an overly burdensome task for litigants and the Board to
be required to make an affirmative determination about every
possible relevant variable which might have an impact upon the
cost of service, particularly within the seven months prescribed
by 30 V.S.A. s 227(a). Therefore, to reasonably manage the
ratemaking process, we rely upon the use of evidentiary
presumptions to facilitate reaching a conclusion about the
overall justness and reasonableness of rates without requiring an
exhaustive review of hundreds or thousands of detailed cost of
service items in every rate case; according to Board practice, in
each rate case, a utility's filing receives the benefit of a
rebuttable presumption that "expenditures claimed to support the
rates were reasonable and prudent." Rate proceedings then focus
on those aspects of a filing that parties choose to examine and
present to the Board. Unless a party brings forth evidence
challenging the reasonableness of a particular cost item, these
working presumptions operate to allow the inclusion of those
costs in rates, without requiring the Board to resolve the issue
through an affirmative judgment on the merits.
If we apply claim preclusion to rate cases and broadly define claims that
should have been litigated during a rate case, we agree with the Board
that rate cases will become far more complicated as parties seek to ensure
that issues are actually litigated, and not subject to claim preclusion by
default.
Although the precedents and the practical considerations suggest that
we should not apply claim preclusion to rate-case determinations, we need
not go that far at this time. In this case, CVPS is seeking to have a
decision that set the rates for an earlier period preclude claims involved
in this case that will set rates for a later period. Under our statutory
scheme, the Board is authorized to investigate and change existing rates,
and the utilities are authorized to seek rate changes. See 30 V.S.A. §
218(a) (board may change unreasonable or unjust rate); 30 V.S.A. § 227(b)
(board may order investigation of justness and reasonableness of rates);
30 V.S.A. § 225(a) (company may file for change in rate by giving
forty-five days notice). We do not believe that the statutory scheme
contemplates that the Board is bound in a rate case by claims that parties,
or the Board, could have litigated in prior rate cases, although they
chose not to do so. Thus, we hold that the claims in the later rate case
are not identical to those in the earlier rate case simply because the
cases involve different periods for which the rates will be in effect.
See Dann, 167 Vt. at 125, 702 A.2d at 109 (determination that criminal
statute prohibiting sale of fireworks is unconstitutional in one criminal
case does not bar prosecution, and new adjudication of constitutionality,
for a different act of selling fireworks; "[e]ach event is separate . . .
and gives rise to separate liability"); American Trucking Ass'ns v.
Conway, 152 Vt. 363, 371, 566 A.2d 1323, 1328 (1989) (res judicata does not
apply where evidence in the two cases is "sufficiently different" such
that the claims are not "identical for claim preclusion purposes); Hill v.
Grandey, 132 Vt. 460, 463, 321 A.2d 28, 31 (1974) (for res judicata
purposes claims are same if same evidence will support action in both
instances). Because a required element of claim preclusion is missing,
the doctrine does not apply to preclude raising any claims in this case.
IV. Equitable Estoppel
Finally, CVPS argues that the Board is precluded, under the doctrine
of equitable estoppel, from considering the prudency and usefulness
issues. As CVPS concedes, it must prove four elements to establish
equitable estoppel:
(1) the party to be estopped must know the facts; (2) the party
being estopped must intend his conduct shall be acted upon or the
acts must
be such that the party asserting the estoppel has a right to
believe it is so intended; (3) the party asserting estoppel must
be ignorant of the true facts; and (4) the party asserting
estoppel must rely on the conduct of the party to be estopped to
his detriment.
Wesco, Inc. v. City of Montpelier, 169 Vt. 520, 524, 739 A.2d 1241, 1244-45
(1999). Moreover, the application of "estoppel against the government is
rare; it is appropriate only when the injustice that would ensue from a
failure to find an estoppel sufficiently outweighs any effect upon public
interest or policy that would result from estopping the government in a
particular case." Agency of Natural Res. v. Godnick, 162 Vt. 588, 593,
652 A.2d 988, 991 (1994).
CVPS's argument on each of the elements is as follows:
(1) Although it never stated so, the Board intended to
revisit the prudency of CVPS's actions with respect to the
signing of the HQ contract and the premature lock-in, and the
usefulness of the HQ power, facts known only to the Board;
(2) the Board intended that CVPS act on the Board's
non-disclosure of its future intentions by failing to appeal the
1994 rate case decision, and CVPS had a right to believe no
future adverse action would be taken;
(3) CVPS was ignorant of the fact that the Board intended to
revisit its decision on prudency and usefulness; and
(4) CVPS relied upon the limits of the Board's 1994 decision
by not appealing it.
We note that following CVPS's logic, the estoppel would operate against the
Board and not the Department.
We conclude that CVPS has not demonstrated that it meets any of the
four elements of equitable estoppel. In effect, it would use equitable
estoppel to create a new preclusion doctrine similar in effect to res
judicata, at least where it did not appeal from the earlier decision. We
do not believe that the possibility that the Board would visit or revisit
issues or penalties in future rate cases is a "fact" for purposes of
equitable estoppel, nor that a utility can rely on its own opinion of the
preclusive effect of a rate case decision, however erroneous that opinion
may be. Indeed, we see no
reason to try to mold equitable estoppel into a preclusion doctrine
applicable to the contested case adjudication by the Board. See American
Trucking Ass'n, 152 Vt. at 370, 566 A.2d at 1328 (claim preclusion is a
"theory of estoppel"). CVPS's reliance and finality interests are
adequately protected by issue and claim preclusion, as we have explained
the application of these doctrines in this case.
In summary, we hold that, based on issue preclusion arising from the
1994 rate case, the Board is precluded from considering whether CVPS was
prudent in connection with its decision to lock into the HQ contract.
This decision does not preclude the Department from litigating whether
CVPS was prudent in negotiating and entering into the HQ contract and does
not determine what sanctions the Board may impose in this rate case based
on its 1994 imprudency decision. We remand for further consideration on
whether the Board is precluded from considering in this rate case whether
the HQ power is non-useful because it is uneconomical. We reject CVPS's
arguments that the Board is further precluded from considering claims or
issues based on claim preclusion (res judicata) or equitable estoppel.
Reversed and remanded for further proceedings consistent with this
decision.
FOR THE COURT:
_______________________________________
Associate Justice
------------------------------------------------------------------------------
Footnotes
FN1. At various points, CVPS has argued that it is the Public Service Board
that is estopped from determining whether CVPS was prudent concerning the
HQ contract or whether the HQ power is used and useful. At other points,
it has argued that the Department is estopped. Certainly, the concept of
party can vary in an administrative proceeding, like those before the
Board, in which the adjudicatory authority can also raise and shape
issues. Indeed, the issues in the 1994 rate case were initially defined
by the Board, and the Board initially specified the evidence it wanted
presented by the parties. Moreover, its evaluation of the evidence went
well beyond the presentation of the Department. In view of our analysis,
we do not believe we have to reach whether it is the Board or the
Department, or both, that is estopped. Solely for convenience, we refer to
the estopped party as the Board.
We also note that there are other parties in this proceeding, but they
have not participated in this appeal. CVPS has argued that they are bound
by any preclusion decision that binds the Department. Because the other
parties have not participated in this appeal, we accept CVPS's position.
FN2. Although the Board acknowledged that collateral estoppel applies, it
cited an unpublished decision of this Court, In re Tariff Filing of
Franklin Elec. Light Co., No. 88-182 (Vt. March 21,1989), for the
proposition that "the Vermont Supreme Court has ruled that utility
proceedings can - and sometimes must - allow reconsideration of issues
considered by the Board in prior cases." The decision in Franklin Elec.
Light Co. reads in its entirety: "The Board's findings do not support its
order denying the Company's request for a one percent penalty on overdue
electric bills." It was an unpublished decision, issued after a brief
argument before five Justices, pursuant to the summary procedures used for
a short time before the Court adopted V.R.A.P. 33.1 allowing such cases to
be heard by three justices. Even if the decision directly addressed the
point raised by the Board, which it does not, it is of limited
precedential value.
FN3. Our conclusion on this element is no different if we say that the
Board is the party which is estopped. In determining the issues, and
addressing the issues it finds in the evidence, the Board functions as a
party.
FN4. Of course, other proceedings might have preclusive effect as to these
theories. In fact, CVPS argued that the § 248 certificate-of-public-good
proceeding in which the Board had to approve the contract, as affirmed by
this Court in HQ I, had preclusive effect as to theories involving
prudency in negotiating and presenting the contract to the Board. The
Board rejected that argument, and CVPS has not appealed that decision.
Because In re Green Mtn. Power Corp., No. 98-296 was consolidated with
this case for argument, we know that the Board could not conclude in that
proceeding that Green Mountain Power was imprudent in negotiating the HQ
contract and seeking its approval. That conclusion may have preclusive
effect against the Department, which apparently used the same arguments and
evidence on prudency in that proceeding.
FN5. In its 1998 decision, the Board noted that it relies upon a rebuttable
presumption that expenditures claimed to support the rates are reasonable
and prudent unless a particular expense item is actually litigated. In
this case, we believe that the prudency of the lock-in was actually
litigated so that the presumption does not control.
FN6. The Board noted that the rate case "has been the most lengthy and
contentious electric case in Vermont since the nuclear-era cases of the
1980's," but added that "[u]nfortunately, the advocacy has at times seemed
to focus inordinate attention on relatively minor aspects of the costs of
service, thus diverting attention from far more important elements of
CVPS's costs."
FN7. In its 1998 decision, the Board found that the Department presented
testimony "in the context of an investigation into the Company's resource
portfolio management practices, not specifically the prudence of the
contract itself" and went on to say that the "distinction is more than
semantic" because a finding that the lock-in "was imprudent would have
affected CVPS's ability to recover costs associated with the Contract for
its remaining life." We find the Board's current characterization of what
was in issue in 1994 to be inconsistent with its definition of the issues
at that time. The Board sought to litigate the prudency of the lock-in in
1994 and directed the parties to submit evidence to do so.
FN8. Again we disagree with the Board's characterization of the 1994 issues
and the Board's actions in its 1998 preclusion decision. In the 1998
decision, the Board stated that the Department did not litigate in 1994
whether the HQ power was used and useful as "that ratemaking principle had
been consistently applied by the Board over a prolonged period," but
instead litigated a "new 'economic used-and-useful' test and urged that
the Board modify its traditional method of evaluating
used-and-usefulness." As we state in the text, we do not believe that this
is a fair characterization of what occurred in 1994. Moreover, we have
difficulty accepting that the Board would have rejected the Department's
position because it was labeled "new" when it would have accepted the exact
same theory if it had been labeled "traditional."
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