462 Mass. 381 - Appellant NSTAR Brief - Mass Cases

COMMONWEALTH OF MASSACHUSETTS
SUPREME JUDICIAL COURT
Case No. SJC-10904
_________________________________________
NSTAR ELECTRIC COMPANY,
Petitioner
v.
MASSACHUSETTS DEPARTMENT OF
PUBLIC UTILITIES,
Respondent
_________________________________________
On Reservation and Report From
the Supreme Judicial Court
for Suffolk County
_________________________________________
BRIEF FOR THE PETITIONER,
NSTAR ELECTRIC COMPANY
_________________________________________
Dated: May 11, 2011
Robert J. Keegan, BBO# 263900
Cheryl Kimball, BBO# 629655
Keegan Werlin LLP
265 Franklin Street
Boston, Massachusetts 02110
(617) 951-1400

SJC RULE 1:21 CORPORATE DISCLOSURE STATEMENT
NSTAR Electric Company is a Massachusetts
corporation, and is a wholly-owned subsidiary of
NSTAR. No publicly held company has a 10 percent or
greater ownership interest in NSTAR.

TABLE OF CONTENTS
TABLE OF CONTENTS................................... ii
TABLE OF AUTHORITIES............................... iii
STATEMENT OF THE ISSUE PRESENTED..................... 1
STATEMENT OF THE CASE................................ 1
STATEMENT OF FACTS................................... 7
SUMMARY OF ARGUMENT................................. 17
ARGUMENT............................................ 20
I. THE DEPARTMENT’S FAILURE TO APPLY THE PLAIN
LANGUAGE OF THE D.T.E. 05-85 RATE SETTLEMENT IN
REACHING ITS DETERMINATION ON BAD-DEBT RECOVERY
IS AN ERROR OF LAW. .......................... 22
A. The Department Is Legally Obligated to Examine
the Express Language of the D.T.E. 05-85 Rate
Settlement in Rendering Its Determination in
D.T.E./D.P.U. 07-04. ....................... 24
B. The D.T.E. 05-85 Rate Settlement Expressly
Incorporates Exhibits Showing the Removal of
Supply-Related Bad Debt. ................... 28
C. There Is No Requirement or Imperative to
Address the Recovery of Supply-Related Bad
Debt in a Separate Settlement Provision. ... 31
II. THE DEPARTMENT’S FAILURE TO ADDRESS THE EVIDENCE
IN THE RECORD CONSTITUTES AN ERROR OF LAW AND IS
ARBITRARY AND CAPRICIOUS ..................... 38
III. THE DEPARTMENT’S DECISION IN D.P.U. 07-04-B IS
NOT ENTITLED TO DEFERENCE, NOR SHOULD THE CASE
BE REMANDED FOR FURTHER DELIBERATION. ........ 46
CONCLUSION.......................................... 49
-ii-

Cases
TABLE OF AUTHORITIES
116 Commonwealth Condominium Trust v. Aetna Casualty &
Surety Co., 433 Mass. 373 ......................... 25
Allmerica Fin. Corp. v. Certain Underwriters at
Lloyd's, London, 449 Mass. 621 .................... 26
Boston Gas Company v. Century Indemnity Company, 454
Mass. 337 ......................................... 26
Boston Gas v. Department of Telecommunications and
Energy 436 Mass. 233 .............................. 48
Cobble v. Commissioner of the Department of Social
Services, 430 Mass. 385 ........................... 48
Costello v. Department of Pub. Utils., 391 Mass. 527 21
Freelander v. G. & K. Realty Corp., 357 Mass. 512... 26
Hogan v. Labor Relations Com’n, 430 Mass. 611....... 47
Massachusetts Inst. of Tech. v. Department of Pub.
Utils., 425 Mass. 856 ............................. 21
Providence and Worcester Railroad Company v. Energy
Facilities Siting Board, 453 Mass. 135 ........ 21, 47
Raytheon Co. v. Director of Div. of Employment Sec.,
364 Mass. 593 ..................................... 47
Southern Union Co. v. Department of Public Utilities,
458 Mass. 812 ................................. 22, 26
Southern Union Company v. Dep’t of Public Utilities,
458 Mass. at 820 .................................. 25
Tabroff v. Contributory Retirement Appeal Board, 69
Mass.App.Ct. 131 .................................. 21
Town of Hamilton v. Department of Public Utilities,
346 Mass. 130 ..................................... 21
Wolf v. Department of Pub. Utils., 407 Mass. 363.... 21
Statutes
G.L. c. 164, § 1B(d)................................. 2
G.L. c. 164, § 94................................ 8, 44
G.L. c. 25, § 5................................. 17, 20
G.L. c. 30A......................................... 21
G.L. c. 30A, § 11(8)................................ 20
G.L. c. 30A, § 14................................... 21
G.L. c. 30A, § 14(7)................................ 20
Other Authorities
Bay State Gas Company, D.T.E. 05-27................. 36
-iii-

Boston Edison Company, Cambridge Electric Light
Company, Commonwealth Electric Company and NSTAR Gas
Company, D.T.E. 05-85 ......................... passim
Boston Edison, D.P.U./D.T.E. 96-23.................. 37
Boston Gas Company, D.P.U. 96-50................. 3, 36
Costs To Be Included in Default Service, D.T.E. 03-
88A-F ......................................... passim
D.T.E. 03-88......................................... 8
D.T.E./D.P.U. 07-4-A................................ 14
Default Service Costs, D.T.E. 03-88............. passim
Fitchburg Gas and Electric Light Company, D.T.E. 02-
24/25 .......................................... 3, 36
National Grid, D.P.U. 09-139........................ 36
NSTAR Electric Company, D.T.E./D.P.U. 06-107-B.. 24, 25
NSTAR Electric Company, D.T.E./D.P.U. 07-4...... passim
NSTAR Electric Company, D.T.E./D.P.U. 07-4-B.... passim
-iv-

STATEMENT OF THE ISSUE PRESENTED
Whether the decision of the Department of Public
Utilities (“Department”) to deny NSTAR Electric
Company (“NSTAR Electric” or the “Company”) recovery
of supply-related bad-debt costs on a fully
reconciling basis through the Basic Service rate
constitutes an error of law, is unsupported by
substantial evidence, and is otherwise arbitrary and
capricious.
STATEMENT OF THE CASE
This case is an appeal of an order issued by the
Department on May 28, 2010 in NSTAR Electric Company,
D.T.E./D.P.U. 07-4-B (the “Reconsideration Order”),
rendering a final decision on reconsideration of an
earlier decision issued on June 28, 2007, in NSTAR
Electric Company, D.T.E./D.P.U. 07-4 (the “Initial
Order”) (together, the “Orders”). JA 1-9, 40-62. 1 The
Orders related to the Department’s review of a request
by NSTAR Electric for recovery of its supply-related
bad-debt costs through a rate factor referred to as
the “Basic Service Adder,” 2 which is a component of the
1
References to the parties’ Joint Appendix are
designated by “JA” followed by the page number(s) of
the relevant documents in the record appendix.
2
The “Basic Service Adder” recovers certain nonenergy
costs incurred by the Company in the course of
providing Basic Service to customers, such as
administrative costs, customer communication costs and
bad-debt expense. JA 43.

Company’s Basic Service rate. 3 In the Orders, the
Department denied the Company’s request based on the
Department’s erroneous determination that NSTAR
Electric had not previously removed supply-related
bad-debt costs from its base distribution rates
through a general distribution rate proceeding. 4 JA 5-
6, 52-61.
The Department’s policy framework in this area is
well established. Utilities are required to recover
all supply-related costs (including “uncollectible” or
“bad debt” amounts) through the reconciling Basic
Service rate, in order to assure that the Basic
Service rate sends the proper price signal to
customers and does not impede the ability of
competitive retail suppliers to compete with an
3
“Basic Service” is the electric supply provided
to customers who do not purchase electricity directly
from a competitive supplier (which is the bulk of the
Company’s customers). Within the Company’s tariffs,
Basic Service is also referred to as “Default Service”
in accordance with G.L. c. 164, § 1B(d). The costs of
procuring electric supply are recovered through Basic
Service rates as a “pass-through,” meaning that the
rates reimburse the utility for its procurement costs
on a fully reconciling basis without any margin of
profit. JA-3, fn. 4.
4
Base distribution rates recover the cost of
delivering power to customers, including the cost of
building and maintaining poles, wires, meters, billing
services and other functions. Base rates are set by
the Department periodically based on a representative
“test year” cost of service. Base rates do not
fluctuate with a company’s actual costs, nor provide
cost recovery on a fully reconciling basis.
-2-

electric utility’s Basic Service rate. 5 However, to
accomplish this result, a transitional step is
required because supply-related bad-debt cost was
historically collected through a utility’s fixed base
distribution rate. Accordingly, the Department’s
policy is that supply-related bad debt costs must be
removed from distribution base rates as a prerequisite
to their inclusion in the Basic Service rate. This
process of “removal from base rates” serves the
function of coordinating cost recovery through the
Basic Service rate and distribution rates and prevents
the utility from “double recovering” supply-related
bad-debt costs through base distribution rates and
Basic Service rates at the same time. 6
The dispute in this case arises from the
Department’s determination in its Orders that NSTAR
Electric failed to show that supply-related bad-debt
5
See, e.g., JA 4-5; Default Service Costs, D.T.E.
03-88, at 1 (2003) (Order Opening Investigation);
Fitchburg Gas and Electric Light Company, D.T.E. 02-
24/25, at 170-172 (2003); Boston Gas Company, D.P.U.
96-50, at 72-73 (1996).
6 Where no general distribution rate proceeding has
occurred, the Department views there to be a
possibility that supply-related bad-debt costs remain
embedded in base rates, and therefore, the Department
will allow reconciling recovery of bad-debt expense
through the Basic Service Adder only to the extent
that a corresponding reduction to base rates is
instituted. JA 2-3. Because a corresponding
reduction to base rates is required, recovery is
“fixed” at the amount of the reduction.
-3-

costs were removed from distribution rates in its most
recent general distribution rate proceeding. JA 4-6,
52-61. The Company’s most recent distribution rate
proceeding occurred in December 2005 and took the form
of a rate settlement between NSTAR Electric and the
Attorney General of the Commonwealth of Massachusetts,
and other parties. 7 The Department’s review of the
rate settlement occurred in Boston Edison Company,
Cambridge Electric Light Company, Commonwealth
Electric Company and NSTAR Gas Company, D.T.E. 05-85
(2005) (“D.T.E. 05-85” or the “D.T.E. 05-85
Settlement”). 8 JA 207-208.
The Department approved the D.T.E. 05-85
Settlement and the rates and tariffs that the
settlement implemented on December 30, 2005. JA 207-
208. Distribution rate changes associated with the
approved D.T.E. 05-85 Settlement took effect in two
stages. JA 214-215. The first change to distribution
rates occurred on January 1, 2006, accomplishing the
removal of supply-related bad-debt costs (although the
7 Although not relevant to the appeal, the two
other signatories were the Low-Income Affordability
Network and Associated Industries of Massachusetts.
8 Boston Edison Company (“Boston Edison”),
Cambridge Electric Light Company (“Cambridge”) and
Commonwealth Electric Company (“Commonwealth”) are the
predecessor companies of NSTAR Electric. Boston
Edison, Cambridge and Commonwealth were merged into
NSTAR Electric as of January 1, 2006.
-4-

Department has not recognized this removal in its
Orders). JA 214-215. The second change to
distribution rates took effect on May 1, 2006,
accomplishing a $30 million base-rate increase allowed
by the settlement. JA 210-211.
On February 7, 2007, NSTAR Electric filed the
first annual reconciliation of Basic Service costs
following the implementation of the D.T.E. 05-85
Settlement. JA 1. Among other things, the filing
requested recovery of supply-related bad-debt costs on
a fully reconciling basis for calendar year 2006. 9
JA 3. The Basic Service filing was docketed by the
Department as NSTAR Electric, D.T.E./D.P.U. 07-4
(2007), and is the subject of this appeal.
In its Orders in D.T.E./D.P.U. 07-4, the
Department found that the D.T.E. 05-85 Settlement “did
not identify any changes to the level of bad debt
included in the Company’s base distribution rates,”
and further that NSTAR Electric did not demonstrate
that “its supply-related bad-debt cost was removed
9 The reconciliation addressed (1) an underrecovery
of Basic Service costs from 2005 and 2006;
(2) recovery of actual supply-related Basic Service
bad-debt expenses for calendar year 2006; (3) a
forecast of supply-related bad-debt expense for 2007,
and (4) recovery of other costs associated with the
Company’s energy procurement activities. JA 3. The
recovery of supply-related bad-debt expense is the
only issue under appeal.
-5-

from the base distribution rates approved in the
D.T.E. 05-85 Settlement.” JA 5, 61. This
determination precludes NSTAR Electric from recovering
any supply-related bad-debt cost through the Basic
Service Adder unless it makes an equal, corresponding
reduction to its base distribution rates. However,
the corresponding reduction has the effect of
nullifying recovery of this significant expense for
NSTAR Electric.
The Department’s determination that supply-
related bad-debt cost was not removed from base
distribution rates in D.T.E. 05-85 rests on two flawed
conclusions, which are that: (1) “a specific and
explicit provision” removing supply-related bad debt
from base distribution rates should have been included
in the D.T.E. 05-85 Settlement Agreement, but was not
(JA 56-58); and (2) NSTAR Electric provided no
evidence in the D.T.E./D.P.U. 07-4 proceeding showing
that supply-related bad debt was removed from the
distribution rates established by the D.T.E. 05-85
Settlement (JA 52-54).
In reaching these two conclusions, the Department
ignored the plain language of the D.T.E. 05-85
Settlement, which incorporated tariffs and supporting
workpapers effecting the removal of supply-related bad
debt from base distribution rates as of January 1,
2006 and allowing reconciling recovery of supply-
-6-

elated bad-debt cost on a fully reconciling basis.
The Department also ignored all of the evidence that
the Company submitted in the D.T.E./D.P.U. 07-4
proceeding showing that: (1) the settlement parties
addressed the removal of supply-related bad-debt cost
through tariffs and workpapers incorporated by
reference the D.T.E. 05-85 Rate Settlement; and
(2) the computation of the supply-related bad debt so
removed was accurate and in accordance with Department
precedent. The combination of the tariffs and
supporting workpapers expressly incorporated through
the D.T.E. 05-85 Rate Settlement and the additional
evidence and explanation submitted on reconsideration
conclusively demonstrated that, in approving the
D.T.E. 05-85 Settlement, the Department put base
distribution rates in place on January 1, 2006,
excluding supply-related bad-debt cost.
Thus, the Department’s erroneous conclusion that
NSTAR Electric had not removed supply-related bad-debt
cost from the rates taking effect on January 1, 2006
constitutes legal error and is arbitrary and
capricious, and should therefore be reversed by the
Court.
Policy Background
STATEMENT OF FACTS
On November 17, 2003, the Department commenced a
generic proceeding for the Massachusetts electric
-7-

distribution companies to identify the costs
associated with default service that should be
transferred from base distribution rates for recovery
through Basic Service rates. Default Service Costs,
D.T.E. 03-88, at 3 (2003) (Order Opening
Investigation) (“D.T.E. 03-88”). Prior to 2003, both
supply-related bad-debt cost and delivery-related bad-
debt cost were recovered through base distribution
rates, with a fixed amount of bad-debt expense
included in base rates at the time of a general rate
proceeding occurring under G.L. c. 164, § 94.
On March 31, 2005, the Department approved a
series of company-specific settlement agreements
between each Massachusetts electric company, the
Attorney General and other parties, resolving the
issues involved in the D.T.E. 03-88 generic proceeding
relating to the recovery of default-service costs
through Basic Service rates. 10 JA 2-3, citing Costs To
Be Included in Default Service, D.T.E. 03-88A-F (2005)
(the “D.T.E. 03-88A-F Settlement”). As approved by
the Department, the D.T.E. 03-88A-F Settlement
authorized NSTAR Electric and the other electric
companies to recover a fixed level of supply-related
10 The company-specific settlements were designated
as D.T.E. 03-88-A through D.T.E. 03-88-F, with NSTAR
Electric’s settlement designated as D.T.E. 03-88-F.
Although differentiated for docket purposes, the
settlement agreements were identical.
-8-

ad-debt costs through the Basic Service Adder. JA 2-
3; D.T.E. 03-88A-F at 4-5 (D.T.E. 03-88A-F Settlement
Agreement at 2.4). At the same time, the D.T.E. 03-
88A-F Settlement required each electric company to
offset the fixed amount of supply-related bad-debt
cost to be recovered through the Basic Service rate
with a corresponding reduction to distribution rates,
so that the impact of the transfer would be “revenue
neutral.” 11 JA 2-3, D.T.E. 03-88A-F at 4-6 (D.T.E. 03-
88A-F Settlement Agreement at 2.1, 2.4 and 2.6).
Lastly, the D.T.E. 03-88A-F Settlement designated
that the supply-related costs transferred to Basic
Service rates for recovery “shall be fixed until the
next general distribution rate case in which a
Distribution Company proposes or the Department
directs the removal of Default Service-related costs,
or unless otherwise proposed to be adjusted by the
Distribution Company.” D.T.E. 03-88A-F Settlement at
2.4 (emphasis added).
On July 1, 2005, rate tariffs implementing the
provisions of the D.T.E. 03-88A-F Settlement for NSTAR
11 The proceeding docketed as D.T.E. 03-88 was a
generic docket to set policy and was not a general
distribution rate proceeding. Therefore, the transfer
of bad-debt recovery from base distribution rates to
Basic Service rates had to be accomplished on a
“revenue neutral” basis to avoid the possibility of
any double recovery through distribution rates and
Basic Service rates. D.T.E. 03-88A-F, at 4-5, 8-9.
-9-

Electric went into effect. JA 3, fn.5. Thus, as of
this date, the NSTAR Electric’s Basic Service Adder
was set to recover a fixed amount of supply-related
bad-debt expense and base distribution rates were
reduced by the same amount of supply-related bad-debt
cost in order to maintain revenue neutrality. JA 3.
2005--General Distribution Rate Proceeding
On December 5, 2005, just five months after the
implementation of the D.T.E. 03-88A-F tariffs, NSTAR
Electric submitted a comprehensive 7-year rate plan to
the Department in D.T.E. 05-85 (referenced previously
as the “D.T.E. 05-85 Rate Settlement”). The D.T.E.
05-85 Rate Settlement instituted certain changes to
the distribution rates that were put into place as of
July 1, 2005 as a result of the D.T.E. 03-88A-F
Settlement. JA 211-212. In its Orders, the
Department acknowledged that the D.T.E. 05-85
Settlement qualified as NSTAR Electric’s next “general
distribution rate case,” as contemplated in the D.T.E.
03-88A-F Settlement, at paragraph 2.4. JA 29.
When NSTAR Electric filed the proposed D.T.E. 05-
85 Rate Settlement for the Department’s approval on
December 5, 2005, NSTAR Electric submitted 23
supporting exhibits designated at Exhibit NSTAR-1
(Settlement) through Exhibit NSTAR-23 (Settlement).
See, D.T.E. 05-85, at 1, fn.1, citing, Joint Motion
-10-

for Approval of Settlement, at Appendix A. 12 The first
of these exhibits, Exhibit NSTAR-1 (Settlement), was
comprised of a full rate-case filing, including pre-
filed witness testimony, supporting schedules and rate
tariffs supporting a total revenue requirement
increase of $89.3 million. 13 D.T.E. 05-85, at 1 [Add.
76]. Exhibits NSTAR-3 (Settlement) through NSTAR-22
(Settlement) presented the tariffs and supporting
workpapers necessary to implement the provisions of
the D.T.E. 05-85 Rate Settlement and, unlike Exhibit
NSTAR-1 (Settlement), were specifically incorporated
to the substantive provisions of the D.T.E. 05-85 Rate
Settlement Agreement (at Paragraph 2.5). JA 342.
On December 30, 2005, the Department approved the
D.T.E. 05-85 Rate Settlement without modification.
D.T.E. 05-85, at 33-34. The rate changes resulting
from the D.T.E. 05-85 Settlement took effect on
January 1, 2006 and May 1, 2006, in full accordance
with the tariffs and supporting workpapers
incorporated in paragraph 2.5, which implemented the
12
For ease of reference, the Joint Motion for
Approval of Settlement, including Appendix A is
provided in the Petitioner’s Addendum at Add. 63-67.
13
In its orders in D.T.E. 05-85 and D.T.E./D.P.U.
07-4, the Department generically refers to the
exhibits submitted with the D.T.E. 05-85 Rate
Settlement as “illustrative”. JA 53; D.T.E. 05-85, at
1. This term does not accurately characterize the
nature of the exhibits submitted to support the D.T.E.
05-85 Rate Settlement.
-11-

provisions of the D.T.E. 05-85 Rate Settlement. JA
210-211, 342.
2007—Request for Approval of Basic Service Adder
On February 7, 2007, NSTAR Electric submitted its
first annual reconciliation of costs recovered through
the Basic Service Adder, as initially established on
July 1, 2005 in accordance with the D.T.E. 03-88A-F
Settlement. JA 1. Because the Basic Service Adder is
designed to be adjusted based on year-end data,
February 2007 was the first occasion for NSTAR
Electric to request recovery of supply-related bad-
debt cost through the Bad Debt Adder following the
Department’s approval of the D.T.E. 05-85 Rate
Settlement on December 30, 2005. The Company’s
request for recovery of costs through the Basic
Service Adder was made in accordance with rate tariffs
approved as part of the D.T.E. 05-85 Rate Settlement.
JA 365-391 (M.D.T.E. No. 103N at 5-6, M.D.T.E.
No. 203N at 5-6, M.D.T.E. No. 303N at 5). 14 These
approved rate tariffs expressly allow for the
reconciling recovery of the Company’s actual supply-
related bad-debt cost through the Basic Service Adder
on an annual basis, without a corresponding reduction
14 Separate rates are maintained for the Boston
Edison, Cambridge and Commonwealth service
territories, rendering three sets of tariffs and
supporting workpapers necessary to implement the
settlement provisions.
-12-

to base distribution rates. JA 3, 5, 369-370 (Boston
Edison), 378-379 (Cambridge), 387-388 (Commonwealth).
On June 28, 2007, the Department issued its
Initial Order in D.T.E./D.P.U. 07-4. JA 1-9. In the
Order, the Department ruled that the Company should
update the amount of bad-debt cost to be recovered
through the Basic Service Adder in order to reflect
the Company’s actual level of supply-related bad-debt
cost in the period July 2005 through June 2006. 15
JA 7. However, the Department also directed NSTAR
Electric to make a corresponding reduction to its base
distribution rates of approximately $3.6 million in
order to maintain revenue neutrality under the
standard established in D.T.E. 03-88A-F Settlement.
JA 4-8, 13. The Department premised its decision to
require the corresponding reduction to base rates on
the finding that the D.T.E. 05-85 Settlement “did not
identify any changes to the level of bad debt included
in the Company’s base distribution rates” and on the
conclusion that the D.T.E. 05-85 Settlement is
“silent” on the “total level of bad debt, and on what
level of supply-related bad debt, if any, was removed
15 The amount of supply-related bad debt cost
already being recovered through the Basic Service
Adder as of January 1, 2006 was based on the Company’s
actual supply-related bad-debt cost in 2003, per the
D.T.E. 03-88A-F Settlement. JA 204-205.
-13-

from the Company’s base distribution rates in that
case.” JA 5.
On July 18, 2007, the Company filed a Motion for
Reconsideration of the Initial Order requesting, inter
alia, that the Department review the record in D.T.E.
05-85, or allow the Company to produce additional
evidence demonstrating that supply-related bad-debt
cost was removed from the distribution rates set by
the Department in D.T.E. 05-85. JA 101-127.
On December 14, 2007, the Department issued its
decision on the Company’s Motion for Reconsideration
(D.T.E./D.P.U. 07-4-A) stating that it would
reconsider its Initial Order and would reopen the
record in the D.T.E./D.P.U. 07-4 proceeding to permit
NSTAR Electric to present additional evidence on the
issue of whether Basic Service-related bad-debt costs
were removed from the distribution rates approved as
part of the D.T.E. 05-85 Settlement. JA 10-38.
On April 9, 2008, the Company submitted testimony
and supporting exhibits demonstrating that bad-debt
costs associated with Basic Service were removed from
the distribution rates established by the D.T.E. 05-85
Rate Settlement. JA 195-303. The evidence presented
to the record on reconsideration by NSTAR Electric
included documentation from the D.T.E. 05-85
proceeding showing the computation of supply-related
bad-debt cost in the test year, as well as new
-14-

testimony and documentation not produced in D.T.E. 05-
85, which elucidated the operation of the tariffs and
supporting workpapers referenced in paragraph 2.5 of
the D.T.E. 05-85 Rate Settlement and implementing its
provisions.
The exhibits that were specifically incorporated
to the D.T.E. 05-85 Settlement by reference in
paragraph 2.5 (Exhibits NSTAR-5 (Settlement), NSTAR-12
(Settlement) and NSTAR-19 (Settlement)) show precisely
how supply-related bad-debt costs were removed from
the distribution rates that went into effect on
January 1, 2006. 16 JA 257-303. Testimony in the
reconsideration phase of the proceeding showed that
the rate changes taking effect on January 1, 2006
related exclusively to the removal of supply-related
bad-debt cost from base distribution rates (i.e.,
there was no other reason for distribution rates to
change on January 1, 2006, except to remove supply-
related bad-debt cost from the distribution rates last
set on July 1, 2005 as a result of the D.T.E. 03-88A-F
Settlement). JA 210-217.
On May 28, 2010, the Department issued its
Reconsideration Order, denying the Company’s Motion
16 The columns in these exhibits denote the rate
level in place as of December 30, 2005, and the
changes taking effect on January 1, 2006 and May 1,
2006, as a result of the D.T.E. 05-85 Rate Settlement.
The rows in these exhibits denote the type of rate
being changed on each date. JA 257-303.
-15-

for Reconsideration and renewing the directive for the
Company to reduce its distribution rates by the amount
of supply-related bad-debt cost to be recovered
through the Basic Service Adder. JA 62. The
Department’s directive followed from a finding that
the Company failed on reconsideration to demonstrate
that supply-related bad debt was removed from the
distribution revenue requirement approved as part of
the D.T.E. 05-85 Settlement. JA 62.
However, in reaching this determination, the
Department did not put forth any type of analysis of
the plain language of the D.T.E. 05-85 Rate
Settlement, nor of the tariffs and supporting
workpapers implementing the settlement and
incorporated by reference in paragraph 2.5 of the
D.T.E. 05-85 Rate Settlement. Instead, the
Department’s findings rest on the premise that, absent
a settlement provision explicitly stating that supply-
related bad-debt cost was removed from base
distribution rates, the removal cannot be demonstrated
to have occurred. JA 57-58.
In addition, the Department summarily dismissed
all of the evidence submitted by the Company on
reconsideration on the basis that it was
“illustrative,” with no evidentiary significance. JA
53-54. The testimony and explanatory schedules
submitted by the Company on reconsideration provided
-16-

detailed explanation of the computations underlying
the distribution rate change implemented on January 1,
2006 by the tariffs and supporting workpapers
referenced in paragraph 2.5 of the D.T.E. 05-85 Rate
Settlement. However, because the Department
arbitrarily rejected this evidence as “illustrative”
and of no evidentiary significance, the Department did
not undertake any analysis in its Reconsideration
Order as to the merits of the testimony and
explanatory schedules in providing the specific
computations underlying the distribution rate change
taking place on January 1, 2006.
On June 18, 2010, the Company filed a Petition
for Appeal of the Department’s Orders with the
Massachusetts Supreme Judicial Court for Suffolk
County, pursuant to G.L. c. 25, § 5. The Company’s
appeal is made necessary by the Department’s lack of
analysis of the D.T.E. 05-85 Rate Settlement
provisions, and disregard for the substantial evidence
in the record showing that the D.T.E. 05-85 Rate
Settlement effected a distribution rate change on
January 1, 2006 that had no other purpose than to
remove supply-related bad-debt cost from base
distribution rates.
SUMMARY OF ARGUMENT
The Court should set aside the Department’s
decision in D.T.E/D.P.U. 07-04-B finding that NSTAR
-17-

Electric failed to demonstrate that supply-related
bad-debt costs were removed from distribution rates
prior for three reasons.
First, the Department has failed to analyze or
adhere to the plain language of the D.T.E. 05-85 Rate
Settlement in rendering its finding that the Company
failed to demonstrate that supply-related bad-debt
cost was removed from distribution rates put in place
by the D.T.E. 05-85 Rate Settlement. Paragraph 2.5
(and paragraph 1.4) of the D.T.E. 05-85 Rate
Settlement specifically incorporates by reference
Exhibits NSTAR-3 (Settlement) through NSTAR-22
(Settlement), and therefore, these exhibits constitute
an indivisible component of the D.T.E. 05-85 Rate
Settlement, as approved by the Department. The
tariffs and supporting workpapers encompassed within
these exhibits set forth the calculations supporting
the rates to become effective upon the Department’s
approval of the D.T.E. 05-85 Rate Settlement. These
exhibits also specifically identify the rate
adjustments made on January 1, 2006 to remove supply-
related bad-debt cost from base distribution rates.
The terms of the D.T.E. 05-85 Rate Settlement allow
for no other change in distribution rates to take
effect January 1, 2006. Therefore, the Department’s
failure to consider the plain language of the D.T.E.
05-85 Rate Settlement, and the operation of these and
-18-

supporting workpapers, constitutes an error of law and
is arbitrary and capricious. Pages 23 to 33.
Second, the Department asserts that NSTAR
Electric was “on notice” that the actual level of
supply-related bad debt that remained in base
distribution rates would be “an issue” that needed to
be addressed with a “specific and explicit” settlement
provision in any distribution rate settlement
following D.T.E. 03-88A-F Settlement. JA 56-57. The
Department’s conclusion that NSTAR Electric was
required to include a “specific and explicit”
provision in the D.T.E. 05-85 Rate Settlement, and
that the absence of such a provision precludes a
demonstration that supply-related bad debt was removed
from base distribution rates on January 1, 2006,
constitutes an error of law and is arbitrary and
capricious. Page 33 to 41.
Third, the Department has failed to address the
evidence presented on reconsideration in rendering its
finding that the Company failed to demonstrate that
supply-related bad-debt cost was removed from
distribution rates through the D.T.E. 05-85 Rate
Settlement. In the reconsideration proceeding, the
Company’s expert witness provided both pre-filed
testimony and oral testimony at an evidentiary
hearing, along with supporting schedules and
workpapers detailing each step of the computational
-19-

process that occurred to remove supply-related bad
debt cost from base distribution rates on January 1,
2006. However, the Department’s Reconsideration Order
excludes any discussion whatsoever of the merits of
the detailed evidence presented in the D.T.E./D.P.U.
07-4 proceeding to elucidate the computations of the
distribution rate change taking effect on January 1,
2006. This omission constitutes an error of law and
is arbitrary and capricious. Pages 41 to 49.
Because the Department’s decision is based on an
error of law, is unsupported by substantial evidence,
is unwarranted by substantial evidence on the record,
is arbitrary and capricious, and an abuse of
discretion, the Department’s decision should be set
aside by the Court. Pages 49-50.
ARGUMENT
The standard of review established by the Court
under G.L. c. 25, § 5, which governs proceedings of
the Department, is well settled:
We shall uphold an agency’s decision unless
it is based on an error of law, unsupported
by substantial evidence, unwarranted by
facts found on the record as submitted,
arbitrary and capricious, an abuse of
discretion, or otherwise not in accordance
with law. G.L. c. 30A, § 14(7). . . . In
order to make possible our determination of
these questions of law, we ‘carefully review
the department’s findings for error’. . . .
[I]n that respect . . . G.L. c. 30A, § 11(8)
requires the decision of the department to
‘be accompanied by a statement of reasons .
-20-

. . including determination of each issue of
fact or law necessary to the decision.’
Massachusetts Inst. of Tech. v. Department of Pub.
Utils., 425 Mass. 856, 867-68 (1997), quoting Costello
v. Department of Pub. Utils., 391 Mass. 527, 533
(1984).
In reviewing agency decisions, the Court
generally gives substantial deference to the
Department’s expertise and experience in areas where
the Legislature has delegated to it decision making
authority. G.L. c. 30A, § 14; Wolf v. Department of
Pub. Utils., 407 Mass. 363, 367 (1990). However, the
Court has held that the deference normally accorded to
an agency decision is not appropriate when that agency
commits an error of law. Tabroff v. Contributory
Retirement Appeal Board, 69 Mass.App.Ct. 131, 134
(2007); see, Providence and Worcester Railroad Company
v. Energy Facilities Siting Board, 453 Mass. 135, 140-
141 (2009).
The Court has also found that G.L. c. 30A
requires agency decisions to be accompanied by a
statement of reasons, including determination of each
issue of law or fact necessary to the decision. Town
of Hamilton v. Department of Public Utilities, 346
Mass. 130, 137 (1963). Furthermore, the Court has
held that deference is not required in relation to
Department decisions construing the plain language of
-21-

settlement agreements it has approved, where the
Department has committed an error of law in rendering
that decision. Southern Union Co. v. Department of
Public Utilities, 458 Mass. 812, at 819 (2011).
Therefore, as shown below, this Court should set aside
the Department’s Reconsideration Order, D.T.E./D.P.U.
07-04-B, because it constitutes an error of law, is
not based on substantial evidence, and is arbitrary
and capricious and an abuse of discretion.
I. THE DEPARTMENT’S FAILURE TO APPLY THE PLAIN
LANGUAGE OF THE D.T.E. 05-85 RATE SETTLEMENT IN
REACHING ITS DETERMINATION ON BAD-DEBT RECOVERY
IS AN ERROR OF LAW.
In its Reconsideration Order, the Department
denied the Company’s request to recovery supply-
related bad-debt cost on a fully reconciling basis
(without a corresponding reduction to base
distribution rates) based on a central determination
that the D.T.E. 05-85 Rate Settlement “does not
contain, on its face, any provisions regarding bad
debt.” JA 54. The Department further asserted that
the settling parties “did not identify the level of
expenses for bad debt or any specific cost categories”
and “did not include any description or specific
breakdown of the cost components in base rates and did
not contain any discussion of bad debt.” JA 56. The
Department also contends that “all signatories to the
D.T.E. 03-88A-F Settlement were put on notice that the
-22-

actual level of supply-related bad debt that remained
in base distribution rates was an issue” and, thus,
NSTAR Electric “should have been aware that a specific
and explicit provision removing supply-related bad
debt from base distribution rates should be included
in any settlement provision.” JA 56-57.
However, in reaching the determination that the
D.T.E. 05-85 Rate Settlement did not address supply-
related bad debt, nor establish the level of expenses
for bad debt, the Department has failed to consider
the plain language of the D.T.E. 05-85 Rate
Settlement, including paragraph 2.5, which expressly
incorporates a series of rate tariffs and supporting
workpapers identifying the change to base distribution
rates made to remove supply-related bad-debt as of
January 1, 2006. Instead of addressing the settlement
provisions that were incorporated into the D.T.E. 05-
85 Rate Settlement, the Department relies on the
faulty premise that, without an express settlement
provision explaining the removal of supply-related bad
debt from base distribution rates, the removal did not
occur, or at least, cannot be demonstrated to have
occurred. This is not the case.
Under Massachusetts law and Department precedent,
the Department is obligated to address the plain
language of the D.T.E. 05-85 Rate Settlement rather
than simply resting its determination on the absence
-23-

of language that it would prefer to see in the
settlement agreement. Moreover, there is no legal
basis for the parallel conclusion that the recovery of
supply-related bad-debt cost through Basic Service
rates had to be expressly addressed within the D.T.E.
05-85 Rate Settlement in order to have effect, or that
the D.T.E. 03-88A-F Settlement put NSTAR Electric “on
notice” that a “specific and explicit provision”
addressing the recovery of supply-related bad debt was
necessary. JA 56-57.
A. The Department Is Legally Obligated to
Examine the Express Language of the D.T.E.
05-85 Rate Settlement in Rendering Its
Determination in D.T.E./D.P.U. 07-04.
The Department has previously found it necessary
to construe the D.T.E. 05-85 Rate Settlement in order
to resolve a dispute regarding the type and amount of
cost recovery allowed under its provisions. NSTAR
Electric Company, D.T.E./D.P.U. 06-107-B at 36-37
(2009). In D.T.E./D.P.U. 06-107-B, the Department
denied a request by NSTAR Electric for recovery of
$33.5 million, which represented its share of customer
savings achieved by NSTAR Electric in relation to
electric generation-related reliability costs. Id. at
1. The recovery of “shared” customer savings was a
concept established in certain provisions included in
the D.T.E. 05-85 Rate Settlement (paragraphs 2.32
through 2.36). As in this case, the Attorney General
-24-

disputed NSTAR Electric’s proposed recovery under
those provisions.
In resolving the dispute between NSTAR Electric
and the Attorney General regarding the provisions of
the D.T.E. 05-85 Rate Settlement, the Department
stated:
To make these determinations, the Department
must construe the terms of the [D.P.U. 05-85
Settlement] and our Order approving it.
When reviewing a settlement, the Department
seeks, wherever possible, to give effect to
its plain language and give terms their
usual and ordinary meaning. FN.35
FN35 states: “Such treatment is consistent
with how the Massachusetts courts apply
contract law principles. 116 Commonwealth
Condominium Trust v. Aetna Casualty & Surety
Co., 433 Mass. 373, 376 (2001) (citations
omitted).”
D.T.E./D.P.U. 06-107-B at 37.
Thus, the Department has established that it will
construe settlement terms, including the terms of
D.T.E. 05-85 Rate Settlement, by applying contract law
principles in the manner applied by Massachusetts
courts. Id.; Southern Union Company v. Dep’t of
Public Utilities, 458 Mass. at 820, citing,
D.T.E./D.P.U. 06-107-B, at 37, fn.34-36. Under
Massachusetts law, the Court gives effect to the plain
language of a contract and will give terms used within
the settlement agreement their usual and ordinary
meaning. See, e.g., Southern Union Company v. Dep’t
-25-

of Public Utilities, 458 Mass. at 820, citing
Freelander v. G. & K. Realty Corp., 357 Mass. 512, 516
(1970).
Moreover, the Court will presume that each word
has been “employed with a purpose and must be given
meaning and effect whenever practicable," without
according undue emphasis to any particular part over
another. Boston Gas Company v. Century Indemnity
Company, 454 Mass. 337, 355 (2009), quoting Allmerica
Fin. Corp. v. Certain Underwriters at Lloyd's, London,
449 Mass. 621, 628 (2007); see also Morse v. Boston,
260 Mass. 255, 262 (1927) (court must construe all
words that are plain and free from ambiguity according
to their usual and ordinary sense).
Pursuant to the D.T.E. 03-88A-F Settlement, the
transfer of bad-debt recovery from base distribution
rates to Basic Service rates must be accomplished on a
revenue-neutral basis (i.e., through a fixed amount
with a corresponding reduction to base distribution
rates), until “the next general distribution rate case
in which a Distribution Company proposes or the
Department directs the removal of Default Service-
related costs, or unless otherwise proposed to be
adjusted by the Distribution Company.” D.T.E. 03-88A-
F Settlement, at paragraph 2.4. There is no dispute
that the proceeding in D.T.E. 05-85 represented the
-26-

“next general distribution rate proceeding” for NSTAR
Electric under the D.T.E. 03-88A-F Settlement. JA 29.
Thus, as repeatedly identified by the Department
in its Orders, the fundamental question in the
D.T.E./D.P.U. 07-4 proceeding was whether supply-
related bad-debt cost was removed from the base
distribution rates taking effect as a result of the
D.T.E. 05-85 Rate Settlement. JA 4-6, 52-61. Based
on its precedent regarding the application of contract
law principles in construing settlement provisions,
the Department’s first priority in resolving the issue
of cost recovery on reconsideration should have been
to examine the express provisions of the D.T.E. 05-85
Rate Settlement, including the tariffs and supporting
workpapers implementing the settlement provisions.
The Department did not perform this necessary
exercise.
Because there was no other provision of the D.T.E.
05-85 Rate Settlement that provided for a distribution
rate change on January 1, 2006, and because the
tariffs and supporting workpapers referenced in
paragraph 2.5 of the D.T.E. 05-85 Rate Settlement show
that the removal of supply-related bad debt was the
reason for the distribution rate change taking effect
on January 1, 2006, the Department’s failure to
analyze the settlement provisions resulted in a faulty
conclusion constituting an error of law.
-27-

B. The D.T.E. 05-85 Rate Settlement Expressly
Incorporates Exhibits Showing the Removal of
Supply-Related Bad Debt.
Paragraph 2.5 of the D.T.E. 05-85 Settlement
states as follows:
The Settling Parties agree that rate changes
(and resulting net rate reductions) to take
effect on January 1, 2006 and May 1, 2006,
shall be accomplished, to the maximum extent
possible, on a uniform, per-kWh basis. The
tariffs that would be implemented on January
1, 2006 and May 1, 2006, and supporting
workpapers are set forth as Exhibit NSTAR-3
(Settlement) through NSTAR-22 (Settlement).
JA 342 (emphasis added).
Although completely ignored by the Department in
its Reconsideration Order, the record in D.T.E./D.P.U.
07-4 shows that the “tariffs” referred to in Paragraph
2.5 expressly describe that recovery of actual supply-
related bad debt will be accomplished on an annual
basis through the Basic Service Adder without a
corresponding reduction to base distribution rates.
JA 369, 378, 387. The “supporting workpapers”
referred to in paragraph 2.5 include rate-design
worksheets to support distribution rate changes on
January 1, 2006 and May 1, 2006. 17 JA 210 (lns. 16-
21). Specifically, within the range of exhibits
17 The provisions of the D.T.E. 05-85 Rate
Settlement implemented several changes to various
rates charged by NSTAR Electric to customers. JA 210-
211. However, the bulk of these changes, including an
increase to base distribution rates of $30 million,
took place on May 1, 2006. Id.
-28-

eferenced in paragraph 2.5 (i.e., Exhibits NSTAR-3
(Settlement) through NSTAR-22 (Settlement)), the
settling parties submitted Rate Design Worksheets in
Exhibit NSTAR-5 (Settlement), Exhibit NSTAR-12
(Settlement) and Exhibit NSTAR-22 (Settlement) for
Boston Edison, Cambridge and Commonwealth,
respectively. JA 214 (lns. 4-8). These exhibits are
indivisible components of the D.T.E. 05-85 Rate
Settlement.
In the Rate Design Worksheets for Boston Edison,
Commonwealth and Cambridge, there are six columns
shown. JA 214 (lns. 9-13). The first column is
entitled “WO Settle, 1-Jan-06” and shows the per kWh
distribution rates that were in effect as of December
31, 2005. Id. The distribution rates in effect as of
December 30, 2005 reflected the removal of an
aggregate amount of $8.3 million in Basic Service-
related bad-debt cost on July 1, 2005, as a result of
the D.T.E. 03-88A-F Settlement. 18 JA 214-216.
The next column entitled “Change” lists the
incremental change that would take effect on January
1, 2006, if the Department approved the D.T.E. 05-85
Rate Settlement. JA 214 (lns. 14-21). The
18 The amount of bad-debt cost removed on July 1,
2005 as a result of D.T.E. 03-88A-F was determined
based on the Company’s actual bad-debt cost
experienced in 2003. JA 206.
-29-

adjustments to distribution rates shown in the first
row, second column of numbers, under the heading
“Change,” are $0.00004 per kilowatt-hour (“kWh) for
Boston Edison, ($0.00003) per kWh for Cambridge and
($0.00001) per kWh for Commonwealth. Id. These
changes were designed to eliminate 100 percent of
actual Basic Service-related bad-debt cost in the
test-year period from base distribution rates going
forward. 19 JA 214-216. The remaining columns are
designed to implement the changes in distribution and
transition rates taking effect on May 1, 2006. Id.
In combination, these exhibits demonstrated that
the base-distribution rate change made on January 1,
2006 was made solely to give effect to the transfer of
Basic Service-related bad-debt cost to Basic Service
rates under the D.T.E. 05-85 Rate Settlement. JA 211
(lns. 8-13). No other change to distribution rates
19 These two columns show the removal of supplyrelated
bad-debt cost from base distribution rates in
two steps. First, the actual amount of supply-related
bad-debt cost experienced in 2003 was removed from
base rates on July 1, 2005 as a result of the D.T.E.
03-88A-F Settlement. JA 206. The base distribution
rates put into place on July 1, 2005 remained in
effect on December 30, 2005. The amount of bad debt
experienced in the test-year for the D.T.E. 05-85
proceeding differed from the amount experienced in
2003. JA 211-217. Therefore, it was necessary to make
an adjustment to base distribution rates on January 1,
2006 to “true-up” the amount of bad-debt removed to
the test-year amount. JA 211-217.
-30-

occurred on January 1, 2006. Id. This point is
significant because the Department’s conclusion in the
Reconsideration Order that supply-related bad-debt
cost was not removed from distribution rates by a
provision of the D.T.E. 05-85 Rate Settlement implies
that the Department would have allowed a rate change
to take effect on January 1, 2006, for no reason.
This is an absurd result if the Department is to be
given deference for its technical expertise.
Thus, in failing to examine paragraph 2.5 and the
exhibits to the D.T.E. 05-85 Rate Settlement expressly
incorporated therein, the Department failed to fulfill
its legal obligation to examine the plain language of
the settlement terms and to identify the meaning of
the provisions in the “usual and ordinary sense” of
the Department’s ratemaking practices. Nor has the
Department attached any import to the “fair and
reasonable meaning of the words in which the agreement
of the parties is expressed," as set forth in those
tariffs and supporting workpapers. This constitutes
reversible legal error, which should be set aside.
C. There Is No Requirement or Imperative to
Address the Recovery of Supply-Related Bad
Debt in a Separate Settlement Provision.
In its Reconsideration Order, the Department
rests heavily on the notion that the D.T.E. 05-85 Rate
Settlement should have included a more “specific and
-31-

explicit” provision allowing for the transfer of
supply-related bad debt from base distribution rates
to the Basic Service Adder. JA 58. The Department
asserts that “all signatories to the D.T.E. 03-88A-F
Settlement were put on notice that the actual level of
supply-related bad debt that remained in base
distribution rates was an issue” and, thus, NSTAR
Electric “should have been aware that a specific and
explicit provision removing supply-related bad debt
from base distribution rates should be included in any
settlement provision.” JA 56-57. However, there are
several reasons that the Department’s conclusions are
in error on this point.
First, there is no legal or regulatory
requirement that prescribes the elements to be
addressed within a comprehensive rate-plan settlement,
which is devised by settling parties and proposed to
the Department for its review and consideration. The
Department’s Reconsideration Order cites to no law,
regulation or case precedent establishing such a
requirement, nor could it. As stated in its approval
of the D.T.E. 05-85 Rate Settlement, the Department
reviews proposed settlements on a case-by-case basis
to assess the reasonableness of an offer of
settlement, and to allow for a review of all available
information to ensure that the settlement is
consistent with Department precedent and the public
-32-

interest. D.T.E. 05-85, at 15. Thus, the
identification of settlement issues and the
presentation of the resolution of those issues within
a settlement agreement is left to the discretion of
the settling parties, subject to the Department’s
determination that the resulting agreement represents
a just and reasonable outcome. Id. at 16.
Second, there is no basis for the conclusion that
the lack of a “specific and explicit settlement
provision” transferring supply-related bad debt to
from base distribution rates to Basic Service left the
Department with “no means to assess the level of bad
debt that was ultimately included in the base
distribution rates approved in the D.T.E. 05-85 Rate
Settlement.” JA 57. As discussed above, paragraph
2.5 of the D.T.E. 05-85 Rate Settlement set forth a
series of tariffs and supporting workpapers setting
forth the removal of supply-related bad-debt cost from
distribution rates taking effect on January 1, 2006 in
terms and format constituting a “usual and ordinary”
manner within the Department’s ratemaking practices.
The Department has ignored these incorporated exhibits
throughout both the D.T.E. 05-85 and D.T.E./D.P.U. 07-
4 proceedings based on the faulty premise that these
exhibits are “illustrative” and have no import in
implementing the settlement provisions.
-33-

Third, the notion that NSTAR Electric was on
“notice” that a “specific and explicit” settlement
provision was necessary to accomplish the removal of
supply-related bad debt as a result of the D.T.E. 03-
88A-F Settlement cannot be substantiated. That result
is neither found within the plain language of the
D.T.E. 03-88 Settlement, nor within the general
framework of the settlement process, which necessarily
involves a range of ratemaking mechanics that are not
required to be separately identified in order to have
effect.
The “plain language” of Paragraph 2.4 of the
D.T.E. 03-88A-F Settlement states as follows:
Such costs shall be fixed until the next
general distribution rate case in which a
Distribution Company proposes or the
Department directs the removal of Default
Service-related costs, or unless otherwise
proposed to be adjusted by the Distribution
Company, subject to approval by the
Department . . . .
D.T.E. 03-88 Settlement, at Paragraph 2.4 (emphasis
added).
Thus, not only does the plain language of the
D.T.E. 03-88 Settlement Agreement omit any language
describing or prescribing the format or “explicitness”
of a distribution company proposal in the next general
distribution rate proceeding (especially within the
context of a settled proceeding), but in addition, the
-34-

“plain language” clearly vests the distribution
company with a level of discretion in “otherwise”
structuring its proposal to the Department. In D.T.E.
05-85, the Company made a separately identified base-
rate adjustment on January 1, 2006 to allow for the
removal of supply-related bad-debt cost from base
distribution rates and the exhibits showing this
adjustment were explicitly incorporated into Paragraph
2.5 of the D.T.E. 05-85 Settlement, which was proposed
to the Department as an integrated whole. There is no
“plain language” in Paragraph 2.4 of the D.T.E. 03-
88A-F Settlement that would disqualify this type of
proposal from the “proposal” requirements set forth
therein. Moreover, even if a requirement for
“explicitness” is implied in the use of the term
“proposal,” there is no legally defensible reading of
Paragraph 2.4 of the D.T.E. 03-88A-F Settlement that
would disregard the “plain language” providing the
distribution company with the flexibility to
“otherwise propose,” or to exercise some level of
discretion over the presentation and form of the
proposal.
Fourth, the issue of the transfer of supply-
related bad-debt cost from distribution rates to the
Basic Service rate is a basic, well-established
ratemaking practice of the Department, which does not
in any way engender the need for separate and explicit
-35-

treatment in a rate-settlement context. Although not
acknowledged by the Department in its Orders, the
Department’s policy differentiating between “delivery”
bad debt and “supply-related” bad debt was first
implemented in 1996, when the Department provided for
the recovery of natural gas, supply-related bad-debt
cost through the reconciling, supply-related “Cost of
Gas Adjustment Clause” instead of through base
distribution rates. Boston Gas Company, D.P.U. 96-50,
at 72-73 (1996). The methodology of removing supply-
related bad-debt cost from base distribution rates
first established in D.P.U. 96-50 remains the same
today for both gas and electric companies. 20
Therefore, when the transfer of supply-related
costs to the competitive supply rate (i.e., the Basic
Service rate) was approached through the D.T.E. 03-
88A-F Settlement, the process followed the
Department’s established policy of effecting this
transfer on a revenue neutral basis until such time
that supply-related bad-debt could be removed from
base distribution rates in a general distribution rate
proceeding. D.T.E. 03-88, at 9; D.T.E. 03-88
Settlement at paragraph 2.4. When it came time for
20 See, e.g., National Grid, D.P.U. 09-139, at 164-
167 (2009); Bay State Gas Company, D.T.E. 05-27, at
189 (2005); Fitchburg Gas and Electric Light Company,
D.T.E. 02-24/25, at 170-172 (2003); Boston Gas
Company, D.P.U. 96-50, at 70-73 (1996).
-36-

NSTAR Electric’s next general distribution rate
proceeding, there was simply no mystery surrounding
the existence, applicability and methodology involved
with the Department’s ratemaking requirement to remove
supply-related bad debt from base distribution rates
before reconciling recovery can occur.
Fifth, the D.T.E. 05-85 Rate Settlement
established a comprehensive 7-year rate plan for NSTAR
Electric, which instituted a number of ratemaking
conventions applicable under the Department’s
ratemaking practices, without the need for explicit
provision in the D.T.E. 05-85 Rate Settlement. For
example, as a result of the implementation of the
D.T.E. 05-85 Settlement, the Company permanently
changed the ratemaking treatment of a $35.4 million
“wholesale revenue credit” for Boston Edison, which
had been approved by the Department as part of the
Boston Edison Restructuring Settlement in Boston
Edison, D.P.U./D.T.E. 96-23 (1997). The wholesale
revenue credit was transferred for recovery from the
transition charge to distribution rates as part of the
D.T.E. 05-85 Rate Settlement. The transfer was
accomplished through the settlement exhibits
incorporated into paragraph 2.5 (Exhibit NSTAR-2
(Settlement) and Exhibit NSTAR-4 (Settlement)), and
was not referenced as an express provision within the
-37-

D.T.E. 05-85 Rate Settlement. 21 Despite the fact that
there was no explicit provision contained in the
D.T.E. 05-85 Settlement Agreement, the Department
treated the transfer as part and parcel of the D.T.E.
05-85 Rate Settlement in rendering its approval of
that agreement. D.T.E. 05-85, at 4.
Thus, given that the removal of supply-related
bad-debt cost from base distribution rates as a
prerequisite to reconciling cost recovery was a
longstanding, well-established ratemaking practice,
there is no reason that the settling parties would
have accorded any different treatment to the transfer
of supply related bad debt for cost-recovery purposes.
The Department’s premise that a “specific and
explicit” settlement provision was needed to effect
the transfer is designed only to alleviate the need to
examine (and adhere to) the evidence that the Company
has presented demonstrating that supply-related bad-
debt cost was, in fact, removed from base rates as of
January 1, 2006 as a result of the Department’s
approval of the D.T.E. 05-85 Rate Settlement.
II. THE DEPARTMENT’S FAILURE TO ADDRESS THE EVIDENCE
IN THE RECORD CONSTITUTES AN ERROR OF LAW AND IS
ARBITRARY AND CAPRICIOUS
In its Reconsideration Order, the Department
summarily rejected the evidence presented by the
21 This transfer was implemented as part of the
distribution rate adjustments made on May 1, 2006.
-38-

Company on reconsideration, and therefore, failed to
address the merits of the evidence in any manner. The
errors inherent in the Department’s perspective
regarding the evidence submitted to the record on
reconsideration are demonstrated in the following
passage from the Department’s Reconsideration Order:
The majority of the additional evidence
provided by the Company had been prepared to
support the $89.3 million increase to base
distribution rates NSTAR Electric claims it
would have requested if the Department were
to have rejected the D.T.E. 05-85
Settlement, not the $30 million base
distribution rate increase submitted by the
settling parties in D.T.E. 05-85. . . The
D.T.E. 05-85 Settlement [sic] outlined that
in lieu of the proposed $89.3 million
increase, the Company would be permitted to
increase its base distribution rates on May
1, 2006, by approximately $30 million. . . .
While the Department relied on the
illustrative schedules supporting an $89.3
million increase as one of the pieces of
information considered to analyze the
reasonableness of the D.T.E. 05-85
Settlement, the schedules are not evidence
of the components, agreements, or
understandings built into the $30 million
base distribution rate increase contained in
the D.T.E. 05-85 Settlement.
JA 52-53 (emphasis added).
These findings reveal three errors underlying the
Department’s understanding of the evidence presented
in both the D.T.E. 05-85 and D.T.E./D.P.U. 07-4
proceedings.
First, the evidence presented by the Company to
-39-

demonstrate that supply-related bad-debt cost was
removed from the base rates established by the D.T.E.
05-85 Rate Settlement is not “illustrative,” as
claimed by the Department. In D.T.E./D.P.U. 07-4, the
Company presented the exhibits expressly incorporated
into paragraph 2.5 of the D.T.E. 05-85 Rate
Settlement, as explained by the Company’s witness in
pre-filed and oral testimony submitted on
reconsideration. Because these exhibits are
incorporated to the D.T.E. 05-85 Settlement and
operate to implement the settlement provisions, the
exhibits are not “illustrative,” nor devoid of
evidentiary value, as the Department has suggested. 22
Second, the rate tariffs and supporting
workpapers referenced in paragraph 2.5 of the D.T.E.
05-85 Rate Settlement and relied on by the Company to
demonstrate the removal of supply-related bad debt
from distribution rates show are not designed to be
“evidence of the components, agreements, or
understandings built into the $30 million base
distribution increase,” as claimed by the Department.
JA 52-53. The $30 million increase to base
distribution rates allowed by the D.T.E. 05-85 Rate
Settlement is unrelated to the removal of supply-
22 As described above, the Department entered those
very exhibits into the evidentiary record in D.T.E.
05-85. D.T.E. 05-85, at 1, fn.1
-40-

elated bad debt. The Department’s confusion arises
from the fact that, in a litigated base-rate
proceeding, the removal of supply-related bad debt is
typically demonstrated through computation of the
revenue requirement proposed for recovery through
rates. However, under the terms of the D.T.E. 05-85
Rate Settlement, distribution rates were first
adjusted on January 1, 2006 to remove supply-related
bad-debt cost, and then second, were increased on May
1, 2006 by the $30 million settlement amount.
Therefore, different evidence would support these two
separate adjustments.
Third, the Department’s findings declare that the
Company failed to show that supply-related bad debt
was removed on May 1, 2006. JA 210-211. However, it
was the $30 million base-rate increase that took
effect on May 1, 2006. The removal of supply-related
bad-debt cost from base rates was effected through the
distribution rate change that took place on January 1,
2006, and no other change to base distribution rates
occurred on that date. JA 210-211. Therefore, the
Department’s reference to the need to tie the bad-debt
removal to the May 1, 2006 date is erroneous under the
plain terms of the D.T.E. 05-85 Rate Settlement.
These errors arise primarily from the fact that
the Department has failed to differentiate between:
(1) the evidence submitted in D.T.E. 05-85 in support
-41-

of the Department’s approval of a $30 million
distribution rate increase on May 1, 2006, within the
D.T.E. 05-85 Rate Settlement (i.e., the so-called
“illustrative tariffs, testimony and schedules,” which
were designed to show that the Company’s overall
revenue requirement would be $89.3 million in the
absence of the settlement); (2) the exhibits expressly
incorporated into the D.T.E. 05-85 Rate Settlement to
effect implementation of the settlement provisions
(i.e., the tariffs and supporting workpapers
referenced in paragraph 2.5); and (3) the evidence
submitted for the first time on reconsideration in
D.T.E./D.P.U. 07-4, showing the detailed computations
underlying the rate changes taking effect on January
1, 2006.
As to the first category constituting the
“illustrative schedules” referenced by the Department,
the Department appears to be referring to exhibits
that were filed in the D.T.E. 05-85 proceeding to show
that an overall revenue requirement of $89.3 million
would have been proposed in the absence of a
settlement. However, there are only two exhibits
filed in D.T.E. 05-85 that related to the calculation
of the revenue requirement that would apply in the
absence of the settlement. Specifically, in D.T.E.
05-85, the settling parties submitted a series of
exhibits along with the proposed D.T.E. 05-85 Rate
-42-

Settlement in order to support the Department’s
approval. See, D.T.E. 05-85, at 1, fn.1, citing,
Joint Motion for Approval of Settlement, at Appendix A
(see, Petitioner’s Add. 63-70). The largest of the
two exhibits that related to the non-settlement
revenue-requirement calculation was Exhibit NSTAR-1
(Settlement), which was comprised of a full
distribution rate-case filing, including pre-filed
witness testimony, supporting schedules and rate
tariffs supporting a total revenue requirement
increase of $89.3 million, based on a twelve-month
test-year period ending June 30, 2005. This exhibit
was denoted in D.T.E. 05-85 as Exhibit NSTAR-1
(Settlement). D.T.E. 05-85, at 1, fn. 1 (Petitioner’s
Add. 63-70). Exhibit NSTAR-2 (Settlement) also
pertained to the non-settlement documentation. Id.
Significantly, the record on reconsideration
shows that, in addition to Exhibit NSTAR-1
(Settlement) and Exhibit NSTAR-2 (Settlement), the
settling parties filed Exhibit NSTAR-3 (Settlement)
through Exhibit NSTAR-22 (Settlement), which provided
the supporting schedules and proposed tariffs
implementing the various rate changes taking place on
January 1, 2006 and May 1, 2006. JA 210-211. These
exhibits comprise the second category of evidentiary
materials presented to the Department in D.T.E. 05-85
and D.T.E./D.P.U. 07-4. These schedules and tariffs
-43-

were not “illustrative” in any way, but instead set
forth the supporting calculations for the rates and
rate tariffs to be effective under G.L. c. 164, § 94,
based on the Department’s approval of the D.T.E. 05-85
Settlement Agreement (and, in fact, were given effect
by the Department’s approval thereof). The
Department’s Reconsideration Order does not address
the fact that these exhibits were expressly
incorporated into the D.T.E. 05-85 Rate Settlement.
The third category of evidence presented to the
Department solely in the D.T.E./D.P.U. 07-4 proceeding
was new evidence not previously presented to the
Department in relation to the transfer of supply-
related bad debt from base distribution rates to the
Basic Service Adder. This evidence includes (1) the
pre-filed and oral testimony of the Company’s witness,
Mr. Henry C. LaMontagne, Director of Regulatory Policy
and Rates for NSTAR Electric (JA 195-219, 308-328);
(2) the computations of the removal of bad-debt
occurring on July 1, 2005, as a result of the D.T.E.
03-88A-F proceeding, which pertain to the computations
necessary as of January 1, 2006 (JA 220-249); (3) an
Excel spreadsheet showing the amount of supply-related
bad-debt underlying the rate-design models
incorporated to the D.T.E. 05-85 Rate Settlement in
paragraph 2.5 (JA 256); (4) an expanded version of the
rate-design models incorporated to the D.T.E. 05-85
-44-

Rate Settlement in paragraph 2.5, showing the January
1, 2006 change in the bad-debt adjustment to base
rates reflecting the complete removal of supply
related bad-debt from base rates (JA 301-303), and
(5) responses to five record requests posed at the
evidentiary hearing (JA 392-411).
Therefore, the Department’s erroneous conclusion
regarding the “illustrative” nature of the evidence
presented on reconsideration (and the lack of
evidentiary significance as a result) creates patent
legal deficiencies in the Reconsideration Order that
cannot be overcome on review. It is apparent, even
from a cursory review of the Department’s
Reconsideration Order, that the Department did not
render findings on the significance of the tariffs and
supporting workpapers incorporated in paragraph 2.5 of
the D.T.E. 05-85 Rate Settlement, nor did it consider
the evidence existing in the record, which
demonstrated conclusively that supply-related bad-debt
cost was removed from the Company’s distribution rates
as of January 1, 2006, pursuant to the operation of
the D.T.E. 05-85 Rate Settlement. The Department’s
reference to the evidence is muddled and confused and
omits any discussion how the detailed testimony
provided by Mr. LaMontagne in support of his
calculations, failed to make the requisite
demonstration.
-45-

In that regard, the record evidence shows that
there was no other reason for distribution rates to be
changing on January 1, 2006, and this fact alone
attests to the deficiencies of the Department’s
Reconsideration Order given that the Department has
articulated no rationale whatsoever as to how this
rate change would take place if not for the purpose of
removing supply-related bad-debt cost from base
distribution rates. Therefore, if careful attention
is paid to the actual provisions of the D.T.E. 05-85
Rate Settlement and the nature of the evidence
produced and the role that it plays in elucidating
those settlement provisions, there can be no other
result in this proceeding than to conclude that
supply-related bad-debt cost was removed from base
distribution rates on January 1, 2006, which therefore
renders NSTAR Electric eligible for reconciling
recovery of its supply-related bad debt costs in
accordance with the currently effective rate tariffs
approved by the Department in D.T.E. 05-85.
III. THE DEPARTMENT’S DECISION IN D.P.U. 07-04-B IS
NOT ENTITLED TO DEFERENCE, NOR SHOULD THE CASE BE
REMANDED FOR FURTHER DELIBERATION.
The Department’s decision in D.P.U. 07-04-B
refusing to allow NSTAR Electric Company to recover
its supply-related bad-debt costs through the Basic
Service rate on the basis that NSTAR Electric had not
-46-

emoved supply-related bad-debt costs from its
distribution rates in 2006 is based on an error of
law. In failing to perform the examinations required
by law, the Department has surrendered its privilege
of deference from the Court. See, e.g., Providence and
Worcester Railroad Company v. Energy Facilities Siting
Board, 453 Mass. 135, 141 (2009); Hogan v. Labor
Relations Com’n, 430 Mass. 611, 613 (2000), and
Raytheon Co. v. Director of Div. of Employment Sec.,
364 Mass. 593, 595 (1974).
The tariffs approved by the Department in D.T.E.
05-85 allow the Company to recover supply-related bad-
debt cost through the Basic Service Adder, without a
corresponding reduction to base distribution rates.
JA 369, 378, 387. The Department rejected the
Company’s request for cost recovery in accordance with
these tariffs on the basis that the Company did not
demonstrate that supply-related bad-debt cost was
removed from the distribution rates put into effect as
a result of the D.T.E. 05-85 Rate Settlement. Thus,
once the threshold determination is made that supply-
related bad-debt cost was removed from base
distribution rates on January 1, 2006, cost recovery
would move forward on a fully reconciling basis in
accordance with the Company’s currently effective rate
tariffs.
-47-

If the plain terms of the D.T.E. 05-85 Rate
Settlement are considered and adhered to, it is
demonstrated that supply-related bad debt was removed
from base distribution rates through an adjustment
made on January 1, 2006. Thus, under the
circumstances of this case, the appropriate remedy is
for the Court to reverse and vacate the Department’s
decision as a matter of law, and to direct the
Department to allow the Company to recover its supply-
related bad debt expense pursuant to its currently
effective rate tariffs, and without any corresponding
reduction to its distribution rates.
The Court has found that a remand is not
appropriate where the agency has made an error of law
or where the Court is convinced that a remand to the
Department would be futile or unwarranted in the
circumstances. Boston Gas v. Department of
Telecommunications and Energy 436 Mass. 233, 242
(2002); see Cobble v. Commissioner of the Department
of Social Services, 430 Mass. 385, 395-396 (1999). In
addition to the errors of law regarding the provisions
of the D.T.E. 05-85 Rate Settlement, the manner in
which the Department has simply ignored the evidence
presented by the Company in the D.T.E./D.P.U. 07-04-B
shows that the Department’s decision was arbitrary and
capricious and that, on remand, the Department will
simply develop new rationales to justify its claim
-48-

that the Company cannot prove it removed its supply-
related bad debt from distribution rates. Therefore,
putting the matter back in the hands of the Department
for further delay and adjudication would cause
substantial injustice to the Company.
CONCLUSION
For the foregoing reasons, the Company requests
that this Court reverse and vacate the Department’s
decision in D.P.U. 07-04-B.
Dated: May 11, 2011
Respectfully submitted,
NSTAR ELECTRIC COMPANY
By its attorneys,
Robert J. Keegan, BBO# 263900
Cheryl M. Kimball, BBO# 629655
Keegan Werlin LLP
265 Franklin Street
Boston, Massachusetts 02110
(617) 951-1400
-49-

CERTIFICATE OF SERVICE
I hereby certify that I have served a true copy of the
Brief of NSTAR Electric Company to counsel of record, as set
forth below, on the 11th day of May, 2011.
Service List
David Guberman, Esq.
Assistant Attorney General
Office of Attorney General
One Ashburton Place
Boston, MA 02108
Kenneth W. Salinger, Esq.
Assistant Attorney General
Office of Attorney General
One Ashburton Place
Boston, MA 02108
Annapurna Balakrishna, Esq
Assistant Attorney General
Office of Attorney General
One Ashburton Place
Boston, MA 02108
Respectfully submitted,
NSTAR ELECTRIC COMPANY
By its attorneys,
Cheryl M. Kimball, BBO# 629655
Keegan Werlin, LLP
265 Franklin Street
Boston, Massachusetts 02110
(617) 951-1400

Laura S. Olton, Esq.
General Counsel
Department of Public Utilities
One South Station, 2nd Floor
Boston, MA 02110

CERTIFICATE OF COMPLIANCE PURSUANT TO R.A.P. 16(k)
I, Cheryl Kimball, counsel for NSTAR Electric Company,
hereby certify that the Brief for the Petitioner, New England
Gas Company complies with the Rules of Court that relate to the
filing of briefs, including, but not limited to, R.A.P. 16(k).
Dated: May 11, 2011
Respectfully submitted,
NSTAR ELECTRIC COMPANY
By its attorneys,
Cheryl M. Kimball, BBO# 629655
Keegan Werlin, LLP
265 Franklin Street
Boston, Massachusetts 02110
(617) 951-1400