Appeal of Lakes Region Water Company, Inc.

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THE SUPREME COURT OF NEW HAMPSHIRE

___________________________

Public Utilities Commission
No. 2017-0452

APPEAL OF LAKES REGION WATER COMPANY, INC.
(New Hampshire Public Utilities Commission)

Submitted: April 12, 2018
Opinion Issued: November 28, 2018

Upton & Hatfield, LLP, of Portsmouth (Justin C. Richardson on the brief),
for the petitioner.

Gordon J. MacDonald, attorney general (Laura E. B. Lombardi, senior
assistant attorney general, on the brief), for the New Hampshire Public Utilities
Commission.

HICKS, J. The petitioner, Lakes Region Water Company, Inc. (Lakes
Region), appeals an order of the New Hampshire Public Utilities Commission
(Commission) requiring Lakes Region to refund a second base charge it had
imposed on its customer, Robert Mykytiuk, and prohibiting it from “imposing
such charges unless and until they are included in the company’s tariff.” We
affirm.

The following facts are taken from the Commission’s orders or recount
testimony given at the hearing on the merits. In March 2016, Lakes Region
learned that Mykytiuk had constructed an additional structure on his property.
To supply the new structure with water, Mykytiuk had tapped into his primary
residence’s service connection. Shortly after learning of the new construction,
Lakes Region sent Mykytiuk an application for new service for the additional
structure and requested to inspect the water service connection.

Lakes Region sent an inspector to Mykytiuk’s property in May. Despite
concluding that the new structure required a separate service connection,
Lakes Region chose not to install one at that time. Rather, Lakes Region began
billing Mykytiuk for an additional “base charge,” which refers to the
“[m]inimum charge per customer per quarter” scheduled in Lakes Region’s
tariff. Mykytiuk complained to the Commission, asserting that he was not
required to have a second service connection. The Commission treated the
matter as a formal complaint and held a hearing on the merits.

At the hearing, Mykytiuk argued that Lakes Region could not charge him
a separate base charge or require him to install a separate meter for the
additional structure because neither was provided for in Lakes Region’s tariff.
He testified that his additional structure is a “garage[] with bunkhouse” and
that, according to his definition, a bunkhouse “is subordinate to a primary
residence, [and] . . . contain[s] sleeping facilities, and may contain sanitary
facilities, but does not contain cooking facilities.” He further testified that he
rents out his primary residence by the week as a vacation rental, during which
times he stays in the bunkhouse.

Lakes Region’s utility manager testified that she considered Mykytiuk’s
service to his additional structure to be a “tandem connection” — which she, in
turn, understood to mean a connection from the service line to a second place
of consumption after the meter — prohibited by New Hampshire Administrative
Rules, Puc 606.04(h). According to her testimony, as summarized in the
Commission’s order, Lakes Region’s tariff contains “no specific working
definition about what tandem service is.” Furthermore, notwithstanding the
conclusion that Mykytiuk had installed a prohibited tandem service, Lakes
Region “decided not to disconnect [him] in April 2016 after being satisfied that
there were no health concerns and that [he] had not bypassed recording water
usage on the meter. Moreover, Lakes Region did not want to cause an undue
hardship on [him].”

Following the hearing, the Commission issued its order, finding that
Lakes Region had no basis under its current tariff to impose the second base
charge on Mykytiuk. It ordered Lakes Region to refund those charges and
further ordered that “Lakes Region shall not impose a second base charge on
[Mykytiuk’s] property . . . , until such time as Lakes Region receives approval
to impose a second charge under the terms of a properly filed tariff
amendment.” Lakes Region now appeals, arguing that the Commission erred
in failing to: (1) apply both RSA 378:1 (2009) and its own rules; (2) explain its
rules on rehearing; and (3) reconsider a new issue determined in its order.

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 We first set forth our standard of review. “A party seeking to set aside an
order of the [Commission] has the burden of demonstrating that the order is
contrary to law or, by a clear preponderance of the evidence, is unjust or
unreasonable.” Appeal of Northern New England Tele. Operations, LLC, 165
N.H. 267, 270 (2013); see RSA 541:13 (2007). The Commission’s findings of
fact “are presumed prima facie lawful and reasonable.” Northern New England
Tele., 165 N.H. at 270; see RSA 541:13. We give the Commission’s “policy
choices considerable deference,” but review its statutory interpretations de
novo. Northern New England Tele., 165 N.H. at 271 (quotation omitted).

Lakes Region first challenges the Commission’s determination that it
could not charge an additional base charge for the service to Mykytiuk’s garage
and bunkhouse. Lakes Region concedes that its tariff “does not contain an
express provision authorizing a second base charge for an additional
residence.” Nevertheless, it attempts to justify Mykytiuk’s second base charge
through the interplay of several statutes and regulations. For ease of reference,
we set forth the relevant provisions here. First, RSA 378:1 provides, in
pertinent part:

Every public utility shall file with the [Commission], and
shall print and keep open to public inspection, schedules showing
the rates, fares, charges and prices for any service rendered or to
be rendered in accordance with the rules adopted by the
commission pursuant to RSA 541-A . . . .

RSA 378:1. Next, New Hampshire Administrative Rules, Puc 606.04 provides,
in part, that “[n]o tandem services shall be permitted.” N.H. Admin R., Puc
606.04(j). Finally, RSA 378:14 provides:

No public utility shall grant any free service, nor charge or
receive a greater or lesser or different compensation for any service
rendered to any person, firm or corporation than the compensation
fixed for such service by the schedules on file with the commission
and in effect at the time such service is rendered.

RSA 378:14 (2009).

Lakes Region’s argument begins with the assertion that its tariff, which
applies to “all water service in the franchise area,” specifically applies to water
service “‘rendered in accordance with the rules adopted by the commission.’”
(Quoting RSA 378:1.) Lakes Region then points out that the Commission’s
rules specifically prohibit tandem services, N.H. Admin R., Puc 606.04(j)(2),
which, according to Lakes Region, explains why its tariff does not include a
rate for such service. Nevertheless, Lakes Region argues, it must charge
Mykytiuk a second service charge because his tandem service “carries a

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significantly greater cost” than would be accounted for in the tariff’s metered
rate for actual water usage.

Specifically, Lakes Region cites the hearing testimony of the Director of
the Commission’s Gas and Water Division, Mark A. Naylor, who opined that
“adding a second unit to an existing service . . . creates demand cost.” Naylor
explained that Lakes Region, like all utilities, is required “to be able to provide
[its] peak demand, plus a safety factor over that, on a 365 day basis,” and,
thus, must have “facilities to meet its peak demand[].” According to Naylor:

When you add additional places of consumption, when you
add additional customers, which is what [Mykytiuk’s situation] is,
it adds to the peak demand. And that may not have an out-of-
pocket cost today or tomorrow, [but] it will result in cost that the
Company will have to face.

Lakes Region elaborates on the foregoing concepts in explaining the
importance of the fixed customer charge or base charge in its scheduled rates:

Lakes Region’s systems, being located in New Hampshire’s
Lakes and White Mountain Regions, serve[] primarily seasonal
customers who own second homes that may be unoccupied for
prolonged periods. During off-peak seasons, use is low. However,
during peak holiday periods such as during weekends in July and
August, demand is high which requires larger storage tanks, larger
pipe diameters, and larger treatment and production (wells and
pumps) facilities. As a result, Lakes Region’s rates are designed to
recover the fixed capital costs to make service available during
periods of peak demand. Its base per customer charge is high
while its metered consumption is correspondingly low. . . . The
addition of a summer vacation rental . . . places significant
additional peak demand. Lakes Region does not recover the costs
to serve this additional peak demand in the absence of an
additional fixed customer charge.

Based upon all of the foregoing assertions, Lakes Region concludes that,
in Mykytiuk’s case, “allowing a second dwelling without a second customer
charge would result in free or discounted service in violation of law.” See RSA
378:14. More specifically, Lakes Region contends that “the Commission
allowed [Mykytiuk] to maintain a second use in violation of Rule . . . 606.04
while paying rates that are less than required by RSA 378:1.” It asserts that
“[t]he Commission . . . fail[ed] to address the central issue in the proceeding” by
failing to apply RSA 378:1 and its own rules as outlined above. We conclude,
however, that the statutes and administrative rules at issue do not support
Lakes Region’s construction of them.

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 First, we note that the Commission made no finding as to whether the
service to Mykytiuk’s bunkhouse was or was not a tandem connection
prohibited by Rule 606.04(j). The lack of such a finding, however, is immaterial
to the disposition of this appeal, as we hold that, in any event, RSA 378:14
does not authorize the sort of self-help employed by Lakes Region here. To
construe the statute as Lakes Region urges would render it internally
inconsistent.

No public utility shall grant any free service, nor charge or
receive a greater or lesser or different compensation for any service
rendered to any person, firm or corporation than the compensation
fixed for such service by the schedules on file with the commission
and in effect at the time such service is rendered.

RSA 378:14 (emphases added). Here, in an ostensible attempt to avoid
providing free or discounted service, Lakes Region charged a fee different from
the rates scheduled in its tariff. Thus, rather than being authorized by RSA
378:14, the second base charge billed to Mykytiuk actually violates it. If, as
Lakes Region contends, “allowing a second dwelling without a second customer
charge would result in free or discounted service in violation of law,” then its
remedy would be, as the Commission suggested, to “propose revisions to its
tariff to address [such] situations.”

Our cases make clear that the Commission is responsible for ensuring
that a utility’s rates are not discriminatory, preferential, or unfair. See Granite
State Alarm Inc. & a. v. New England Tel. & Tel., 111 N.H. 235, 237 (1971) (“It
is the duty of the commission . . . to see that under the tariff proposed by the
company no class of service is discriminated against or receives preferential
treatment.”); Chicopee Mfg. Co. v. Company, 98 N.H. 5, 19 (1953) (“The
complex and difficult task of distributing a rate increase among the ratepayers
so as to eliminate discriminations and unfairness has been entrusted to the
commission.”). That responsibility is discharged in the ratemaking process.
See Company v. State, 95 N.H. 353, 364 (1949) (“[A]n important step in rate
making is ‘the adjustment of a rate schedule conforming to [the general
revenue] level so as to eliminate discriminations and unfairness from its
details.’” (quoting Power Comm’n v. Pipeline Co., 315 U.S. 575, 584 (1942)));
see also Granite State Alarm, 111 N.H. at 237; Chicopee Mfg. Co., 98 N.H. at
19. By negative implication, and in accordance with statutory provisions
prohibiting utilities from imposing charges that deviate from the tariffed rates,
see RSA 378:14, Lakes Region is not empowered to adjust its charges outside
its tariffed rates unilaterally in order to ensure that Mykytiuk pays his fair
share of Lakes Region’s capacity costs.

Lakes Region, nevertheless, argues that its tariff “assumes and the
Commission’s rules require that separate and distinct uses or buildings have
separate service lines (and meters) ‘except in unusual situations such as

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service to an apartment or to a condominium.’” (Quoting N.H. Admin. R., Puc
606.04(g)). The rule Lakes Region quotes, however, does not explicitly require
separate service lines for separate and distinct uses or structures, but, rather,
provides that “[c]urb stops shall be placed at the customer’s property line
except in unusual situations such as service to an apartment or to a
condominium.” N.H. Admin. R., Puc 606.04(g); see N.H. Admin. R., Env-Dw
504.02(c) (defining “[c]urb stop” to mean “the valve between the water
distribution system and the service customer’s premises which controls the
flow of water to the premises”).

Indeed, Rule 606.04(g)’s reference to “the customer’s property line”
highlights the problem Naylor noted at the hearing. N.H. Admin. R., Puc
606.04(g) (emphasis added). As the Commission summarized his testimony,
Naylor “agreed with the suggestion that ‘customer’ and ‘dwelling unit’ should
be treated synonymously.” Lakes Region’s tariff, however, does not define the
term “customer” despite describing its base charge as a “[m]inimum charge per
customer per quarter.” The Commission’s regulations define “[c]ustomer” to
mean “any person, firm, corporation, cooperative marketing association, utility
or governmental unit or subdivision of a municipality or of the state or nation
supplied with water service by a utility.” N.H. Admin R., Puc 602.05 (emphasis
added); see also N.H. Admin R., Puc 602.18 (defining "[w]ater service" to
“mean[] the furnishing of water to a customer in this state by a utility”).

The Commission argues that “[t]he ‘customer’ in this case is Mr.
Mykytiuk, not the physical structures on his property. Connecting his
bunkhouse to the water line in his home, after the meter, did not service a
second customer.” We agree. Because Mykytiuk is only one person, Lakes
Region’s tariff, as now written, subjects him to only one base charge.
Accordingly, the Commission’s order properly noted that Lakes Region’s
remedy would lie in a tariff amendment. The Commission recounted Naylor’s
testimony on this point: “To rectify the situation, Mr. Naylor suggested that
what is needed is a clear definition of what a customer is and what a place of
consumption is, and a clear definition of how service is formally requested. He
thinks a tariff change is in order to make it clearer.” (Citation omitted.)

Lakes Region further contends that the Commission erred in determining
that Mykytiuk’s “burden of proof was only to prove that Lakes Region’s decision
to impose a second customer charge on him is not authorized under its current
tariff.” (Quotation omitted.) Lakes Region argues that Mykytiuk’s “burden of
proof was to demonstrate that the rate charged by Lakes Region was unjust [or]
unreasonable or in violation of the law.” (Quotation omitted.) It then asserts
that “[t]he Commission did not find that Lakes Region’s charges were unjust or
unreasonable or that Lakes Region had violated any law.” We disagree.

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 In denying Lakes Region’s motion for rehearing, the Commission ruled
that “[b]ecause a second base charge is not in Lakes Region’s tariff, the
imposition of one on Mr. Mykytiuk is ‘in violation of [a] provision of law’ under
RSA 378:7.” (Quoting RSA 378:7.) Our law on this issue is well settled:

[T]he vehicles by which utility rates are set, the tariffs or rate
schedules required to be filed with the [Commission], do not simply
define the terms of the contractual relationship between a utility
and its customers. They have the force and effect of law and bind
both the utility and its customers. As such, the customers of a
utility have a right to rely on the rates which are in effect at the
time that they consume the services provided by the utility, at least
until such time as the utility applies for a change.

Appeal of Pennichuck Water Works, 120 N.H. 562, 566 (1980) (citations
omitted). Accordingly, the Commission properly ruled that Lakes Region’s
deviation from its tariffed rate was a violation of law and that Mykytiuk had
met his burden.

Lakes Region next argues that the Commission erred “in denying Lakes
Region’s motion for rehearing because it failed to explain how its rules applied
or did not apply under RSA 378:1.” In essence, Lakes Region asserts that the
Commission failed to address its argument that its “approved rates for water
service under RSA 378:1 do not allow it to provide service to multiple
dwellings” except in “unusual” cases such as apartments or condominiums
“where it is understood, if not stated, that separate charges apply for each
use.” (Quotation omitted.) Relying upon Appeal of City of Nashua, 138 N.H.
261, 263-64 (1994), Lakes Region argues:

New Hampshire law is clear that when the Commission
structures its decision solely by summarizing evidence presented
by the contending parties and describing the parties’ opposing
views, without making specific factual findings in support of its
own conclusions, it fails to meet its statutory obligation to make a
concise and explicit statement of the underlying facts supporting
its findings and its order will therefore be vacated and remanded
for a new hearing.

(Quotations, brackets, and ellipses omitted.)

We disagree that the Commission’s decision is contrary to the above-
stated proposition of law. The Commission’s essential finding of fact — not
disputed by Lakes Region — was that “Lakes Region’s tariff does not
specifically address the situation presented here . . . . The tariff refers to
‘customer(s)’ throughout, but there is nothing in the tariff about when a second
meter or separate service must be installed, or what is or is not a tandem

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service as prohibited by our rules under [Rule] 606.04(j).” This finding was, as
we concluded above, sufficient to support the Commission’s legal ruling that,
“[u]nder the terms of its present tariff, there is no basis for Lakes Region to
require Mr. Mykytiuk to pay a second base charge every month for his newly
constructed unit.” Lakes Region cites no authority for the proposition that an
order of the Commission providing both factual findings and legal reasoning
sufficient to support its rulings must, nevertheless, be vacated because it fails
to explain why the Commission found the non-prevailing party’s contrary
arguments unpersuasive.

Finally, Lakes Region argues that the Commission erred by failing to
reconsider a new issue decided in its order. Specifically, Lakes Region argues
that “[i]n the last sentence of [its order], the Commission determined a new
issue that was not previously noticed for the hearing when it ordered that: ‘In
the event its tariff is revised, [Lakes Region] shall not require Mr. Mykytiuk to
install a second meter in the future so long as he undertakes no further
renovations to the structures on his property.’” Lakes Region argues that
“[b]ecause the Commission did not provide notice of this issue, Lakes Region
did not present evidence or arguments as to significant operational problems
that would arise if the Commission did not apply Rule . . . 606.04,” including
risk of water loss and property damage due to leaks when one or both
structures are unoccupied and the inability to disconnect service from one
building without also disconnecting the other.

We disagree that Lakes Region lacked notice of the issue. By letter dated
November 10, 2016, the Commission notified the parties that because its rules
“do not specifically address separate dwelling units and separate structures
under [Rule] 600 et seq.[,] . . . [t]he Commission believes that a hearing on this
matter will be useful in determining whether a separate base charge should be
implemented and/or a separate meter installed.” In its order on Lakes Region’s
motion to deny complaint and exclude evidence, the Commission noted that
“[t]he thrust of Mr. Mykytiuk’s complaint is that Lakes Region is not permitted
to charge him a separate base charge and/or install a separate meter under
the terms of [Lakes Region’s] tariff.” We conclude that Lakes Region had
adequate notice that the issue of whether it could or could not require
Mykytiuk to install a separate service to his bunkhouse was an issue to be
decided in the proceeding. We also note that notwithstanding Lakes Region’s
contention that the alleged lack of notice precluded it from presenting evidence
or arguments as to certain “operational problems,” those problems were
discussed in testimony by its utility manager and Naylor, and were also
discussed in the summation by its counsel.

To the extent the parties’ arguments address whether the service to
Mykytiuk’s bunkhouse is or is not a tandem connection, we decline to consider
them. As previously noted, the Commission made no finding on that issue and
it was not specifically asked to do so in Lakes Region’s motion for rehearing.

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Accordingly, we also decline Lakes Region’s request that we “vacate and
remand . . . with instructions to interpret and apply the Commission’s water
service rules to the facts of this case” as that request is not properly before us.
See RSA 541:4 (2007) (providing that “no ground not set forth [in a motion for
rehearing] shall be urged, relied on, or given any consideration by the court”).

Affirmed.

LYNN, C.J., and BASSETT, J., concurred.

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