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Watergate East, Inc. v. District of Columbia Public Service Com'n

DISTRICT OF COLUMBIA COURT OF APPEALS


July 17, 1995

WATERGATE EAST, INC., ET AL., PETITIONERS,
v.
DISTRICT OF COLUMBIA PUBLIC SERVICE COMMISSION, RESPONDENT. WASHINGTON GAS LIGHT COMPANY, INTERVENOR

Petition for Review of a Decision of the District of Columbia Public Service Commission.

Before Terry and Farrell, Associate Judges. and Tignor, Associate Judge of the Superior Court of the District of Columbia.*

The opinion of the court was delivered by: Farrell

FARRELL, Associate Judge: The Public Service Commission of the District of Columbia (the Commission) rejected petitioners' claim that intervenor Washington Gas Light Co. (WGL) had overcharged them for the cost of fuel during a 17-year period. In this court, petitioners challenge the Commission's decision on several grounds, among which is that the Commission failed to adhere to the "filed rate" doctrine. We reject this and petitioners' related contentions, and affirm.

I. Procedural History

On November 22, 1993, petitioners *fn1 filed a complaint with the Commission alleging that from 1976 through 1993, WGL overbilled them by more than $2.1 million by charging them a cost for fuel different from that set forth in WGL's contract rate for the Watergate complex (the Watergate). WGL's contract rate for the Watergate for these years was set forth in a schedule, Rate Schedule W, filed by WGL with the Commission in 1975. The complaint asserted that WGL had calculated the Watergate's fuel adjustment based upon Rate Schedule No. 3, the schedule applicable since 1976 to WGL's "interruptible" customers, rather than upon an earlier Rate Schedule I pertaining to the same class of customers, and to which Rate Schedule W referred. Petitioners alleged that WGL's billing of the Watergate for fuel based on Rate Schedule No. 3 violated the "filed rate" doctrine and D.C. Code § 43-529 (1990), *fn2 and that petitioners had not received adequate notice that WGL's rate for the Watergate might be changed. On December 3, 1993, WGL filed an answer to the complaint.

In Watergate Complex Council v. Washington Gas Light Co., Formal Case No. 932, Order No. 10419 (Pub. Serv. Comm'n April 29, 1994), the Commission issued an opinion dismissing petitioners' complaint without a hearing. It determined that once WGL, in conformance with the rate increase for interruptible customers granted in In re Washington Gas Light Co., Formal Case No. 647, Order No. 5833, 16 PUR 4th 261 (Oct. 29, 1976), had filed Rate Schedule No. 3 with the Commission, Rate Schedule I ceased to exist -- regardless of whether Rate Schedule W still referred to it. The Commission further found that, in early 1976, petitioners received adequate notice that in the proceeding culminating in Order No. 5833, WGL's rate for the Watergate might be changed. And it concluded that neither the filed rate doctrine nor D.C. Code § 43-529, its statutory counterpart, had been violated, because Rate Schedule No. 3 had superseded Rate Schedule I.

On May 31, 1994, petitioners filed with the Commission an application for reconsideration of Order No. 10419. In Watergate Complex Council v. Washington Gas Light Co., Formal Case No. 932, Order No. 10457 (Pub. Serv. Comm'n July 15, 1994), the Commission denied the application, holding that D.C. Code § 43-608 did not require the Commission to provide a formal hearing on petitioners' complaint, and reiterating that "the rates set in [Order No. 5833] were intended to apply to Watergate" and that pursuant to Order No. 5833 and WGL's filing with the Commission of Rate Schedule No. 3, "Rate Schedule No. 3 supplanted Rate Schedule I for purposes of [the purchased fuel adjustment clause of] Rate Schedule W."

Petitioners then filed the instant petition for review of Orders No. 10419 and 10457.

II. The Facts

A. WGL's service to the Watergate

WGL is a public utility with three types of customers: (1) "firm" customers, (2) "interruptible" customers, and (3) "steam and chilled water" customers. Firm customers are customers whom WGL supplies with natural gas. Interruptible customers are customers whom WGL supplies with fuel; for any given period, this fuel may be, in WGL's discretion, either natural gas or a substitute fuel (usually oil). See Office of People's Counsel v. Public Serv. Comm'n, 482 A.2d 404, 412 (D.C. 1984). Steam and chilled water customers are customers whom WGL supplies with steam and chilled water. The Watergate is WGL's only steam and chilled water customer. See Watergate Complex Council v. Washington Gas Light Co., Formal Case No. 932, Order No. 10457 at 3 n.1 (Pub. Serv. Comm'n July 15, 1994).

WGL supplies steam and chilled water to the Watergate for heating and air conditioning. To generate steam and chilled water, the plant facilities, which are located on the Watergate's premises, use natural gas as fuel. Oil is used as a substitute fuel at the Watergate whenever WGL suspends gas service to its interruptible customers. WGL's rate for the Watergate contains two main components: "demand" charges and "commodity" charges. See In re Washington Gas Light Co., Formal Case No. 922, Order No. 10307 at 199 (Pub. Serv. Comm'n Oct. 8, 1993). Demand charges cover the wages of workers who operate and maintain the plant facilities on the Watergate's premises. Commodity charges cover the cost of natural gas and, when substituted, oil.

B. WGL's contract rate for the Watergate

On July 29, 1964, WGL and the Watergate entered into a contract entitled "Agreement for Services" which set forth WGL's proposed rate for the Watergate. On March 18, 1965, the Commission approved the contract between WGL and the Watergate, subject to minor conditions. See In re Washington Gas Light Co., Formal Case No. 503, Order No. 4902, 58 PUR 3rd 1, 5, 23-24 (1965), aff'd per curiam sub nom. Association of Fair Competitive Practices in Air Conditioning, Inc. v. Public Serv. Comm'n, 125 U.S. App. D.C. 361, 372 F.2d 934 (1967). On a number of occasions from 1965 to the present, the Commission has, on application by WGL, modified WGL's rate for the Watergate. See, e.g., Watergate Improvement Ass'n v. Public Serv. Comm'n, 326 A.2d 778, 791-92 (D.C. 1974).

On March 21, 1975, WGL filed with the Commission a schedule, Rate Schedule I, setting forth WGL's rate for interruptible customers. On September 29, 1975, WGL filed with the Commission another schedule, Rate Schedule W, which set forth WGL's rate for the Watergate. The "purchased fuel adjustment" clause of Rate Schedule W revealed that WGL's commodity charges for the Watergate would be calculated partly by reference to the rate set forth in Rate Schedule I. Specifically, the commodity charge for the Watergate would increase or decrease each month along with that month's "[]cost[] for fuel input." Cost for fuel input, in turn, would be calculated in part by "pricing therms of gas used during the billing month at the billing month's rate per therm for 's Schedule 'I' rate minus $0.0324 per therm."

On September 30, 1975, WGL filed an application with the Commission requesting a rate increase of over $7.4 million. Order No. 5833, 16 PUR 4th at 262. On January 5, 1976, the Commission published in the D.C. Register a Public Notice and Notice of Prehearing Conference in Formal Case No. 647, which stated that WGL was proposing "three new firm rate schedules and a substantially amended interruptible schedule." 21 D.C. Reg. 3360-61 (1976). The public notice continued:

Interruptible customers' rates would be increased to $.20 for each therm of gas purchased.

In addition, proposes numerous changes in its tariffs. . . . And proposes to modify the purchased gas adjustment provision of its tariff.

Notice is hereby given that a prehearing conference has been scheduled [giving time, date, and place]. The Commission advises that the issues in this proceeding may encompass not only 's rate proposals, but also increases or decreases in any of 's rates and other changes in rate design or tariffs.

21 D.C. Reg. 3361.

In Order No. 5833, the Commission granted WGL a rate increase of over $6.7 million, including an increase in the rate for interruptible customers. Order No. 5833, 16 PUR 4th at 262, 281-83. In the same case, the Commission addressed the Watergate by name, declaring that "determinations herein of [WGL's] revenue need will include[, along with WGL's other operations,] the results of 's Watergate chilled water and steam services." *fn3 See 16 PUR 4th at 265 n.5.

On October 29, 1976, WGL filed with the Commission a schedule, Rate Schedule No. 3, effective the following day, which conformed to the rate increase for WGL's interruptible customers previously granted by the Commission in Order No. 5833. Rate Schedule 3 thus replaced Rate Schedule I as the schedule applicable to WGL's interruptible customers. See Order No. 10457 at 17.

WGL did not, until October or December of 1993, file with the Commission a schedule replacing Rate Schedule W as the schedule applicable to the Watergate. Thus, the purchased fuel adjustment clause of Rate Schedule W, indicating that WGL's commodity charges for the Watergate would be calculated partly by reference to Rate Schedule I, remained on file with the Commission until late 1993. From 1976 to 1993, WGL -- without protest -- based the Watergate's commodity charges on Rate Schedule No. 3 rather than Rate Schedule I.

III. Discussion

A. Standard of review

This court's review of an order of the Commission, governed by D.C. Code § 43-906 (1990), is "limited to questions of law, including constitutional questions; and the findings of fact by the Commission shall be conclusive unless it shall appear that such findings of the Commission are unreasonable, arbitrary, or capricious." Id. This scope of review "is the narrowest judicial review in the field of administrative law." Office of People's Counsel v. Public Serv. Comm'n, 610 A.2d 240, 243 (D.C. 1992) (citations and internal quotation marks omitted). "Of course, the must fully and carefully explain its ruling," id. at 243; but once it provides such an explanation, the petitioner challenging its order assumes "the heavy burden of demonstrating clearly and convincingly a fatal flaw in the action taken." See Washington Gas Light Co. v. Public Serv. Comm'n, 450 A.2d 1187, 1194 (D.C. 1982). Moreover, as § 43-906 implies, this court is bound by the Commission's findings of fact if supported by substantial evidence. See Watergate Improvement Ass'n, 326 A.2d at 783.

B. Rate Schedule 3 versus Rate Schedule I

Petitioners' basic challenge is to the Commission's determination that Rate Schedule No. 3 replaced Rate Schedule I in 1976 in the purchased fuel adjustment governing the Watergate. This determination is not in essence a factual finding, but rather a Conclusion about the legal effect of WGL's filings and the Commission's rate determinations in the 1975-76 period. See (infra) part D. But, although we therefore do not give the Commission's Conclusion the same deference owed factual determinations, we nonetheless will sustain it if it is "reasonable based upon factors within the Commission's expertise." Diamond Int'l Corp. v. Federal Communications Comm'n, 201 U.S. App. D.C. 30, 33, 627 F.2d 489, 492 (1980).

The Commission determined that when WGL, in late 1975, applied for an increase in its rate for interruptible customers (among others), it was seeking at the same time an increase in its commodity charges, and hence its utility rate, for the Watergate. This followed from the fact that the Watergate's rate was tied by Rate Schedule W directly to the existing schedule for interruptible customers. Thus, when the Commission granted the requested increase and WGL thereafter filed Rate Schedule No. 3 for its interruptible customers, *fn4 that schedule replaced Rate Schedule I as the applicable referent in the Watergate's purchased fuel adjustment clause.

Petitioners counter that since the January 5, 1976 public notice of WGL's rate increase application did not mention either the Watergate or WGL's steam and chilled water customers, the Commission was wrong in concluding that the proposed increase was intended to apply to the Watergate; or -- at the very least -- it was wrong in finding that the notice adequately informed the Watergate that its rates might be affected. We are not persuaded. Well before publishing the January 5, 1976 public notice, the Commission had made clear the fact that WGL's commodity charges for the Watergate were based upon WGL's rate for interruptible customers. In In re Washington Gas Light Co., Formal Case No. 567, Order No. 5571, 99 PUR 3d 139 (March 28, 1973), the Commission, in granting WGL's application for an increase of WGL's rate for the Watergate, had stated:

It is sensible . . . to expect that the gas used [by WGL] in providing the steam and chilled water [to the Watergate] will produce revenues in excess of its cost at least equal to the amount which would be produced if the gas were sold [by WGL] at the interruptible rate. Moreover, this [WGL's rate for interruptible customers] was clearly the basis used for "costing" gas in setting the original Watergate rates and we reject as inherently improbable, any claim that Watergate did not understand that this was the basis for setting its rate at that time.

99 PUR 3d at 145 (emphasis added). Indeed, two years before the Commission published the 1976 public notice, this court, rejecting a lack-of-notice argument almost identical to the one petitioners now raise, had acknowledged that WGL's rate for the Watergate depended, at least in part, on WGL's rate for its interruptible customers. In Watergate Improvement Ass'n, the Court stated:

Petitioner correctly points out that WGL's initial application and public notice were captioned as requests for increases in gas rates and thus did not clearly indicate that changes in steam and chilled water rates were also being sought. It is important to note, however, that the steam and chilled water rates are partially dependent on the interruptible gas rate charged other WGL customers and to that extent Watergate was on notice that its rates might be changed.

326 A.2d at 786 (emphasis in original).

Finally, of course, Rate Schedule W made explicit reference to the then-existing schedule for interruptible customers, and in Order No. 5833 (granting the increase in the interruptible customer rate) the Commission explicitly took into account WGL's provision of chilled water and steam to the Watergate in determining WGL's revenue need. All told, we cannot say that the Commission was unreasonable in concluding that Order No. 5833 approved an increase in WGL's rate for the Watergate, and that the January 5, 1976 public notice informed petitioners that "the interruptible rate . . . would possibly be amended" in Order No. 5833, "thus affecting rate [for the Watergate]." Order No. 10419 at 13.

Petitioners seek contrary support from the fact of the parallel 1976 proceeding that explicitly dealt with the Watergate. In In re Washington Gas Light Co., Formal Case No. 648, Order No. 5771 (Pub. Serv. Comm'n March 1, 1976), the Commission approved an application by WGL for an increase in its rate for the Watergate. Petitioners argue that since the Commission published public notice of the proceeding underlying Order No. 5771 and the proceeding underlying Order No. 5833 on the same date, see 21 D.C. Reg. 3360-63 (1976), the latter proceeding must have addressed an increase in the rate for interruptible customers only, whereas the Commission "separately" addressed the increase in WGL's rate for the Watergate in Order No. 5771. The Commission persuasively answered this argument, explaining that Orders No. 5771 and 5833 "did not address the same issues and are not comparable." Order No. 10457 at 9. Order No. 5771 did not deal with the issue of what rate (namely, the rate set forth in Rate Schedule No. 3 or that in Rate Schedule I) WGL's commodity charges for the Watergate were to be based on, but rather with the issue of whether WGL was to be allowed to realize a profit when it used oil, rather than natural gas, to generate steam and chilled water for the Watergate. *fn5 Id. By contrast, Order No. 5833 "was a general rate case" in which the Commission explicitly took into account the results of WGL's provision of steam and chilled water to the Watergate in determining WGL's revenue need. Id. Though petitioners view this skeptically as a post hoc differentiation, the Commission's interpretation of the particular contexts in which its proceedings arose is certainly a matter "within expertise," Diamond Int'l Corp., 201 U.S. App. D.C. at 33, 627 F.2d at 492, and to which we therefore defer. Since, as the Commission reasonably determined, Order No. 5771 was not a comprehensive ruling on increases in WGL's rate for the Watergate, it was not inconsistent with Order No. 5833's approval of an increase not just in WGL's rate for interruptible customers, but in its rate for the Watergate as well.

C. The filed rate doctrine

In what is really only a variation on the previous arguments, petitioners contend that the filed rate doctrine required the Commission to base WGL's 1976-1993 commodity charges for the Watergate on Rate Schedule I rather than Rate Schedule No. 3, inasmuch as WGL did not, until 1993, file a schedule replacing Rate Schedule W (incorporating Schedule I) as the tariff applicable to the Watergate.

The filed rate doctrine "forbids a regulated entity to charge rates for its services other than those properly filed with the appropriate . . . regulatory authority." Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571, 577, 69 L. Ed. 2d 856, 101 S. Ct. 2925 (1981). As the Commission pointed out, Order No. 10457 at 12, the doctrine acts as a check on the courts, requiring them to defer to the ratemaking agency's determination that a filed rate is (or is not) reasonable. See Arkansas Louisiana Gas Co., 453 U.S. at 578-80 (utilizing filed rate doctrine to strike down a lower court's substitution of its judgment for that of the ratemaking agency concerning what rate is "reasonable"); Montana-Dakota Utilities Co. v. Northwestern Pub. Serv. Co., 341 U.S. 246, 250-52, 95 L. Ed. 912, 71 S. Ct. 692 (1951) (same). This use furthers the doctrine's oft-stated purpose of "preserving . . . the agency's primary jurisdiction over reasonableness of rates . . . ." Arkansas Louisiana Gas Co., 453 U.S. at 477 (citation omitted).

In this case, of course, there is no question that the Commission considers the rate charged the Watergate by WGL since 1976 to be reasonable. Petitioners, however, point to another purpose of the doctrine which they say the Commission contravened by refusing to recognize the continuing application of Rate Schedule W to the Watergate. That purpose is exemplified by Electrical Dist. No. 1 v. Federal Energy Regulatory Comm'n, 249 U.S. App. D.C. 190, 774 F.2d 490 (1985) (Scalia, J.), in which the United States Court of Appeals invalidated a FERC policy as frustrating a core purpose of the filed rate doctrine -- to insure the "predictability" of rates and prevent "unforeseeable liabilities" on the part of utilities and purchasers. Id. at 193, 774 F.2d at 493. We of course have no quarrel with this as one of the doctrine's aims. *fn6 But petitioners' reliance on it in essence merely restates their disagreement with the Commission's characterization of the effect of the 1975-76 proceedings. In January 1976, petitioners were on notice that if the Commission granted WGL's application for (among other changes) an increase in its rate for interruptible customers, WGL's commodity charges for the Watergate, and thus its rate for the Watergate, would also increase. Petitioners thus experienced no unforeseeable liability, a fact of which, we think, their failure to challenge the modified rate for the next seventeen years provides substantial confirmation.

Petitioners' citation to D.C. Code § 43-529, which amounts to a codification of the filed rate doctrine, fares no better. *fn7 As the Commission explained, since Rate Schedule I had been superseded, "Rate Schedule No. 3 is the only interruptible rate schedule in force which can be used to calculate Watergate's rate under Rate Schedule W." Order No. 10457 at 15. Accordingly, Rate Schedule W's continued reference to Rate Schedule I was, in effect, a dead letter on which petitioners could not -- and did not in the intervening years -- place any reliance. The "specified" rate under § 43-529 was Rate Schedule 3.

D. A Hearing

Petitioners contend that D.C. Code § 43-608 required the Commission to provide a formal hearing on their complaint. *fn8 Section 43-608 provides in relevant part:

Upon its own initiative or upon reasonable complaint made against any public utility that any of the rates, tolls, charges, or schedules, or services, . . . are in any respect unreasonable or unjustly discriminatory, or that any time schedule, regulation, or act whatsoever affecting or relating to . . . the production, transmission, delivery, or furnishing of heat, light, water, or power, or any service in connection therewith, is in any respect unreasonable, insufficient, or unjustly discriminatory, . . . the Commission may, in its discretion, proceed, with or without notice, to make such investigation as it may deem necessary or convenient. But no order affecting said rates, tolls, charges, schedules, regulations, or act complained of shall be entered by the Commission without a formal hearing. [Emphasis added.]

Section 43-608 thus requires the Commission to hold a "formal hearing" before entering an "order affecting," among other things, "rates" or "schedules." This court has not had occasion to define an "order affecting . . . rates . . . schedules" for purposes of that statute. *fn9 It is therefore an open question whether an order granting or denying a request for a rate refund "affect . . . rates . . . schedules," thereby necessitating a formal hearing pursuant to § 43-608. *fn10

We need not determine, however, whether a rate refund proceeding would otherwise require a formal hearing, because

even when an agency is required by statute or by the Constitution to provide an oral evidentiary hearing, it need do so only if there exists a dispute concerning a material fact. An oral evidentiary hearing is never required if the only disputes involve issues of law or policy.

1 KENNETH C. DAVIS & RICHARD J. PIERCE, JR., ADMINISTRATIVE LAW TREATISE (3d ed. 1994) (emphasis in original). This "fundamental principle," id., applies to hearings before the Commission. See Potomac Elec. Power Co. v. Public Serv. Comm'n, 457 A.2d 776, 789 (D.C. 1983) ("A hearing is not necessary where no material facts are in dispute or where the Disposition of claims turns not on the determination of facts, but inferences and legal Conclusions to be derived from facts already established"); see also Citizens for Allegan County, Inc. v. Federal Power Comm'n, 134 U.S. App. D.C. 229, 232, 414 F.2d 1125, 1128 (1969) ("no evidentiary hearing is required where there is no dispute on the facts and the agency proceeding involves only a question of law"). Here, the only issues asserted to be in dispute are (in petitioners' words) "the contradictory and ambiguous tariffs filed by WGL, and the effect, if any, of WGL filings in [the respective proceedings underlying Orders No. 5771 and 5833] (involving Rate Schedule W.)" But there is no dispute, let alone a material dispute, about the dates on which WGL filed schedules with the Commission, or about the language contained in any of these schedules. The parties disagree only on the interpretation and effect to be given the schedules filed by WGL setting forth WGL's rates for the Watergate and interruptible customers. As the Commission recognized, these disputes involve issues of law, not fact. A formal hearing was unnecessary to their proper resolution. *fn11

IV. Conclusion

For the foregoing reasons, Orders No. 10419 and 10457 of the Commission are


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