<SEC-DOCUMENT>0001193125-11-295306.txt : 20111103
<SEC-HEADER>0001193125-11-295306.hdr.sgml : 20111103
<ACCEPTANCE-DATETIME>20111103165834
ACCESSION NUMBER:		0001193125-11-295306
CONFORMED SUBMISSION TYPE:	8-K
PUBLIC DOCUMENT COUNT:		2
CONFORMED PERIOD OF REPORT:	20111102
ITEM INFORMATION:		Regulation FD Disclosure
ITEM INFORMATION:		Financial Statements and Exhibits
FILED AS OF DATE:		20111103
DATE AS OF CHANGE:		20111103

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			UNITIL CORP
		CENTRAL INDEX KEY:			0000755001
		STANDARD INDUSTRIAL CLASSIFICATION:	ELECTRIC & OTHER SERVICES COMBINED [4931]
		IRS NUMBER:				020381573
		STATE OF INCORPORATION:			NH
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		8-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-08858
		FILM NUMBER:		111178364

	BUSINESS ADDRESS:	
		STREET 1:		6 LIBERTY LANE WEST
		CITY:			HAMPTON
		STATE:			NH
		ZIP:			03842
		BUSINESS PHONE:		6037736504

	MAIL ADDRESS:	
		STREET 1:		6 LIBERTY LANE WEST
		CITY:			HAMPTON
		STATE:			NH
		ZIP:			03842
</SEC-HEADER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>d251735d8k.htm
<DESCRIPTION>FORM 8-K
<TEXT>
<HTML><HEAD>
<TITLE>Form 8-K</TITLE>
</HEAD>
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 <P STYLE="line-height:3px;margin-top:0px;margin-bottom:0px;border-bottom:0.5pt solid #000000">&nbsp;</P>
<P STYLE="line-height:3px;margin-top:0px;margin-bottom:2px;border-bottom:0.5pt solid #000000">&nbsp;</P> <P STYLE="margin-top:4px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="5"><B>UNITED STATES </B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="5"><B>SECURITIES AND EXCHANGE COMMISSION </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="3"><B>Washington, D.C. 20549 </B></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center>
<P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center> <P STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="5"><B>FORM 8-K
</B></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center>
<P STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="4"><B>CURRENT REPORT </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="3"><B>Pursuant to Section&nbsp;13 or 15(d) of the </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="3"><B>Securities Exchange Act 1934
</B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="3"><B>Date of Report (Date of earliest event reported): November&nbsp;2, 2011 </B></FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center>
<P STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="6"><B>UNITIL CORPORATION </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>(Exact name of registrant as specified in its charter) </B></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center>
<P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>New Hampshire</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>1-8858</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>02-0381573</B></FONT></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>(State or other jurisdiction</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="1"><B>of incorporation)</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>(Commission</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="1"><B>File Number)</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>(IRS Employer</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="1"><B>Identification No.)</B></FONT></P></TD></TR>
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<TD VALIGN="top" COLSPAN="3" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>6 Liberty Lane West, Hampton, New Hampshire</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>03842-1720</B></FONT></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>(Address of principal executive offices)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>(Zip Code)</B></FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Registrant&#146;s telephone number, including area code: (603)&nbsp;772-0775 </B></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>N/A </B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>(Former name or former address, if changed since last report) </B></FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: </FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><FONT STYLE="FONT-FAMILY:WINGDINGS">&#168;</FONT></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><FONT STYLE="FONT-FAMILY:WINGDINGS">&#168;</FONT></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><FONT STYLE="FONT-FAMILY:WINGDINGS">&#168;</FONT></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><FONT STYLE="FONT-FAMILY:WINGDINGS">&#168;</FONT></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) </FONT></TD></TR></TABLE>
<P STYLE="font-size:8px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="line-height:3px;margin-top:0px;margin-bottom:0px;border-bottom:0.5pt solid #000000">&nbsp;</P>
<P STYLE="line-height:3px;margin-top:0px;margin-bottom:2px;border-bottom:0.5pt solid #000000">&nbsp;</P>

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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Item&nbsp;7.01 Regulation FD Disclosure </B></FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">On November&nbsp;2, 2011, the Massachusetts Supreme Judicial Court (&#147;SJC&#148;) issued its decision (the &#147;Decision&#148;) vacating an order (the &#147;Order&#148;) issued on November&nbsp;2,
2009 by the Massachusetts Department of Public Utilities (&#147;MDPU&#148;) in which the MDPU ordered Unitil Corporation&#146;s Massachusetts electric and natural gas distribution utility, Fitchburg Gas and Electric Light Company d/b/a Unitil (the
&#147;Company&#148;) to refund $4.6 million of natural gas costs, plus carrying charges. The SJC&#146;s Decision vacates the MDPU&#146;s penalty of $4.6 million, plus interest, in favor of a penalty of $0.2 million, plus interest. The Company had
previously recorded a pre-tax charge to earnings and recognized a Regulatory Liability of $4.9 million in the fourth quarter of 2009 based on the MDPU&#146;s original Order. As a result of the Decision, the Regulatory Liability will be adjusted and
the Company expects to recognize a gain, net of litigation costs, of approximately $4.3 million in the fourth quarter of 2011. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The
MDPU&#146;s original Order issued in 2009 found that the Company had engaged in certain price stabilization practices for the 2007 / 2008 and 2008 / 2009 heating seasons without the MDPU&#146;s prior approval and that the Company&#146;s natural gas
purchasing practices were imprudent. The Company appealed the MDPU&#146;s decision to the SJC. The SJC concluded that no statute or precedent required the Company to seek preapproval of its natural gas purchasing plan and that the MDPU&#146;s order
to the contrary was an error of law. The SJC also reversed the MDPU&#146;s imprudence findings with respect to the price-locking purchases of natural gas made during the summer of 2007 and during February through August 2008, finding that this
determination was unsupported by record evidence. The SJC upheld the MDPU&#146;s finding of imprudence with respect to a single purchase of natural gas made on November&nbsp;25, 2008, finding that, while well-intentioned, the type of purchase
undertaken by the Company was improperly designed to take advantage of one-time market conditions. The SJC calculated that, as a result of this purchase, the Company incurred $0.2 million in unreasonable natural gas costs and required the Company to
refund this amount, with interest, to customers. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Attached as Exhibit 99.1 is the Slip Opinion of the SJC. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Item&nbsp;9.01 Financial Statements and Exhibits </B></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(d)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Exhibits </FONT></TD></TR></TABLE> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD VALIGN="bottom" NOWRAP ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Number</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Exhibit</B></FONT></TD></TR>


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<TD VALIGN="top" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="2">99.1</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">SJC Slip Opinion</FONT></TD></TR>
</TABLE>

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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>SIGNATURES </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. </FONT></P>
<P STYLE="margin-top:18px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">UNITIL CORPORATION </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="2">/s/ Mark H. Collin</FONT></P></TD></TR>
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<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mark H. Collin</FONT></TD></TR>
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<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Senior Vice President, Chief Financial Officer and Treasurer</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Date: November&nbsp;3, 2011 </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>EXHIBIT INDEX </B></FONT></P>
<P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
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<TD VALIGN="top" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="2">99.1</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">SJC Slip Opinion</FONT></TD></TR>
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<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>2
<FILENAME>d251735dex991.htm
<DESCRIPTION>SJC SLIP OPINION
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<HTML><HEAD>
<TITLE>SJC Slip Opinion</TITLE>
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 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Exhibit 99.1 </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B><I>Slip Opinion </I></B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">FITCHBURG GAS AND ELECTRIC LIGHT COMPANY [FN1]
<I>vs.</I> DEPARTMENT OF PUBLIC </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">UTILITIES. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2">SJC-10855. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">September&nbsp;7, 2011. - November 2, 2011. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>Department of Public Utilities. Public Utilities,</I> Fuel charges, Rate setting. <I>Gas Company. </I> </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">CIVIL ACTION commenced in the Supreme Judicial Court for the county of Suffolk on November&nbsp;20, 2009. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The case was reported by <I>Cordy,</I> J. <I> </I></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><I>Robert J. Keegan</I> (<I>Cheryl M. Kimball</I> with him) for the plaintiff. <I> </I></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>David
A. Guberman,</I> Assistant Attorney General, for the defendant. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Present: Ireland, C.J., Spina, Cordy, Botsford, Gants, Duffly,&nbsp;&amp;
Lenk, JJ. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">CORDY, J. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Fitchburg Gas
and Electric Light Company (Fitchburg or company) appeals from a ruling of the Department of Public Utilities (department) [FN2] requiring it to reimburse its customers over $4.6 million in gas supply costs incurred during the 2007-2008 and
2008-2009 purchasing seasons. In its ruling, the department determined that Fitchburg had failed to seek preapproval of its gas purchasing plans for those years as it had been required to do, because the plans were intended to stabilize gas supply
prices through the use of forward contracts. [FN3] The department separately found that Fitchburg acted imprudently when executing its gas purchasing plans. An appeal was filed with a single justice of this court, pursuant to G.L. c. 25, &#167; 5,
and was reserved and reported, without decision, to the full court. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">We conclude that the department&#146;s determination that
Fitchburg&#146;s purchasing plans required preapproval was erroneous, as the plans incorporated only traditional risk management techniques that had previously never been subject to the department&#146;s preapproval. Penalizing Fitchburg for failing
to seek preapproval, when such preapproval was never required, exceeds the department&#146;s authority and amounts to an error of law. With respect to the allegedly imprudent purchases, we agree with the department that one of the purchases at
issue, made in November, 2008, was unreasonable and imprudent, but hold that the department&#146;s findings of imprudence with regard to the balance of the purchases in 2007 and 2008 were not supported by substantial evidence. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">1. <I>Regulatory background.</I> The department supervises rate setting by natural gas local distribution companies (LDCs). G.L. c. 164, &#167; 94. The
department reviews gas procurement contracts and rate setting consistent with the legislative policy &#147;to provide a reliable energy supply for the commonwealth with a minimum impact on the environment at the lowest possible cost.&#148; G.L. c.
164, &#167; 69H. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">A natural gas bill consists of two components: a supply cost and a distribution cost. Bay State Gas Co., D.T.E. 01-09 at 3
(2001). The supply cost refers to the expense involved in purchasing and transporting gas on the interstate pipeline to Massachusetts. <I>Id.</I> Distribution costs refer to an LDC&#146;s operating costs for bringing gas from the interstate pipeline
to a customer&#146;s meter. <I>Id.</I> The present case concerns only supply costs. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Supply costs are recovered from customers on a
dollar-for-dollar basis, through a reconciliation mechanism known as the cost of gas adjustment clause (CGAC). <I>Id.</I> That is, LDCs do not profit from the supply portion of a gas bill, and the cost of purchasing gas is a
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straight pass-through to the customer. <I>Id.</I> See 220 Code Mass. Regs. &#167;&#167; 6.00 (2008). The rate that LDCs bill customers for gas supply is called the gas adjustment factor (GAF).
220 Code Mass. Regs. &#167; 6.06. LDCs recalculate GAFs on a semiannual basis, once for the peak season of November&nbsp;1 to April&nbsp;30 and once for the off-peak period of May&nbsp;1 to October&nbsp;31. See 220 Code Mass. Regs. &#167; 6.11. In
addition, LDCs are required to submit revised GAFs any time their deferred gas-cost balances at the end of a period are projected to be greater or less than five per cent of the total seasonal gas costs stated in their effective GAF. Investigation
Concerning the Cost of Gas Adjustment Clause, D.T.E. 01-49-A at 8 (2001). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">For supply costs to be recovered, the expenditures must have been
reasonably and prudently incurred. G.L. c. 164 &#167; 94G. &#147;It is well-settled that while public utilities should be permitted to charge rates which are compensatory of the full cost incurred by efficient management, they may not recover costs
which are excessive, unwarranted, or incurred in bad faith.&#148; <I>Boston Gas Co.</I> v. <I>Department of Pub. Utils.,</I> 387 Mass. 531, 539 (1982), and cases cited. When conducting a prudence review, the department determines whether a
utility&#146;s actions, based on all that it knew or should have known at the time, were reasonable and prudent in light of the circumstances which then existed. <I>Hingham v. Department of Telecomm.&nbsp;&amp; Energy,</I> 433 Mass. 198, 202 (2001).
Such a determination may not be made on the basis of hindsight judgments, nor is it appropriate for the department merely to substitute its own judgment for the judgments made by the management of the utility. <I>Attorney Gen.</I> v. <I>Department
of Pub. Utils.,</I> 390 Mass. 208, 229 (1983). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The present case concerns risk management techniques used in the procurement of natural gas.
During the 1980&#146;s and 1990&#146;s, the price of natural gas remained essentially stable, at between two dollars and $2.50 per Dekatherm (DTh). [FN4] Bay State Gas Co., D.T.E. 01-09 at Executive Summary (2001). LDCs would purchase approximately
one-third of their winter needs during the off-peak season, and would store the gas in underground reservoirs. The balance of the purchasing would take place during the peak winter season, using either &#147;first of the month&#148; or
&#147;spot&#148; (i.e., daily) pricing. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The winter of 2000-2001 was the coldest nationwide in the 105 years of United States Weather Bureau
records. After fifteen years of essentially stable prices, the price of gas nearly quintupled. Bay State Gas Co., D.T.E. 01-09, <I>supra.</I> This sharp increase was passed directly to consumers through the CGAC. Both LDCs and the department
recognized the desirability of shielding consumers from such dramatic price fluctuations. <I>Id.</I> at 10-11. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">In December, 2001, the
department opened an investigation concerning the use of risk management techniques to mitigate gas price volatility. Investigation of Risk-Management Techniques, D.T.E. 01-100-A (2002)&nbsp;(Order). The investigation considered, in pertinent part,
whether LDCs should be allowed or required to implement a risk management program, and what standard of review the department should use when reviewing a proposed program. <I>Id.</I> at 1-2. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">The department issued its findings in the October, 2002, Order. Order, <I>supra.</I> The Order permitted risk management programs that incorporated financial derivatives, [FN5] subject to certain
conditions. See Order, <I>supra</I> at 3- 8. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Order evaluated numerous concerns relating to the use of financial derivatives to manage
risk and stabilize the price of gas. At the outset, the Order highlighted the distinction between derivatives trading and traditional forms of risk management, including forward contracting: </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">&#147;A distinction should be made regarding traditional forms of risk-management, which include the use of storage to offset winter demand, through the use of physical gas
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purchases and forward contracts, and modern risk-management functions, which use financial futures and option contracts to effectuate various forward pricing strategies. <I>For purposes of this
Order, both &#145;risk-management&#146; and &#145;hedging&#146; are used interchangeably to mean the use of financial derivative products in combination with physical gas purchases to mitigate commodity price volatility</I><I>&#148;</I> (emphasis
added). (Footnotes omitted.) </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Order, <I>supra</I> at 2. The Order then explained why derivatives could be risky. Purchasing derivatives can be
costly; and, while the use of derivatives may dampen volatility, it is unlikely to produce prices below index levels averaged over time. See Order, <I>supra</I> at 5-6. Additionally, LDCs that attempt to &#147;beat the market&#148; may engage in
speculative purchases that result in over-all higher risk. <I>Id.</I> at 6<B>.</B> Further, overhead expenditures, such as professional staffing, information technology, and consulting, may render the use of financial derivatives prohibitive,
especially for small companies. <I>Id. </I> </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Nevertheless, the department refused to bar categorically risk management plans that use
financial derivatives, finding that the risks of such plans &#147;can appropriately be reviewed on a case-specific basis, and in unison with an LDC&#146;s supply design, size, and position in the market, before any determination could be made as to
whether the risks are too high.&#148; Order, <I>supra</I> at 7. Therefore, the department concluded that it would &#147;allow, but not require, Massachusetts LDCs to use financial risk-management instruments to mitigate commodity price
volatility,&#148; and would &#147;review and approve LDC risk-management proposals on a case-specific basis.&#148; <I>Id.</I> at 8. At the end of the Order, the department set out the standard of review for such risk management plans. [FN6]
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I></I>Between 2002 and 2009, three LDCs sought preapproval of risk management plans. Only one of the plans specifically incorporated
financial risk management instruments. In each case, the department applied the standard elucidated in the Order but failed to clarify whether the Order had mandated the companies to seek preapproval.<I> </I></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I></I>On August&nbsp;25, 2003, KeySpan Energy Delivery New England (KeySpan) [FN7] sought approval of a risk management plan. KeySpan, D.T.E. 03-85
(2003). KeySpan had already been purchasing approximately thirty-two per cent of its winter gas requirements during the preceding spring and summer months, storing the gas in underground storage facilities or in liquefied natural gas tanks. <I>Id.
</I>KeySpan proposed to &#147;lock in&#148; the price of an additional quantity of gas through the use of forward contracts, so that the price would be locked in for approximately two-thirds of KeySpan&#146;s winter requirements. KeySpan would lock
in prices for equal quantities of gas, once a month, over the twelve months preceding a given winter. [FN8] <I>Id.</I> at 1-2. KeySpan did not propose to use financial derivatives. [FN9] <I>Id.</I> at 4 n. 1.<I> </I></FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I></I>The department applied the standard of review articulated in the Order, even though KeySpan&#146;s proposal did not incorporate financial
derivatives. It explained:<I> </I></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I></I>&#147;For the sake of accuracy, we note that the standard of review established in D.T.E. 01-100-A,
at 28-29 was for &#145;risk-management plans.&#146; [KeySpan&#146;s] proposal here addresses only timing of gas purchases and not derivatives. Despite some terminological blurring when discussing &#145;risk-management&#146; and &#145;hedging,&#146;
(<I>id.</I> at 2, n. 5 and n. 6) <I>the Department did distinguish &#145;financial derivative products&#146; and &#145;physical gas purchases,&#146; even where both might be used to manage or hedge risks.
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<I>The conceptual or analytic difference is worth preserving. [KeySpan&#146;s] proposal amounts to only part of a risk-management plan such as that contemplated in [the Order].</I> Nonetheless,
the six criteria in [the Order] provide a useful framework for analyzing this gas purchasing plan.&#148; (Emphasis added.) </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">KeySpan, D.T.E.
03-85, <I>supra</I> at 4 n. 1. The department approved KeySpan&#146;s plan on November&nbsp;13, 2003. It did not address whether KeySpan had been required to seek preapproval for this plan, but did specify that, &#147;[i]n the event that [it]
intends to use financial derivatives, KeySpan must seek department approval prior to entering into this type of transaction.&#148; KeySpan, D.T.E. 03-85, <I>supra</I> at 5 n. 2. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">In June, 2004, NStar Gas Company (NStar) sought approval of a similar purchasing plan. NStar, D.T.E. 04-63 (2005). Like KeySpan, NStar had already been purchasing and storing approximately one-third of
its winter gas needs in underground reservoirs and liquefied gas facilities. <I>Id.</I> at 1. NStar proposed to lock in the prices of an additional one-third of its anticipated winter demand. It would make these purchases in equal increments over
the course of twelve months. <I>Id.</I> at 2. However, NStar also proposed to resolve discrepancies between the locked-in prices and the date of delivery prices by entering into swap arrangements with large financial institutions. The department
approved NStar&#146;s plan on February&nbsp;28, 2005, including its contracts with financial institutions. <I>Id.</I> at 5. The purpose of the arrangement was not to beat the market, explained the department, and the contracts would not cause NStar
to incur transaction costs. <I>Id. </I> </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Last, in January, 2006, New England Gas Company (New England Gas) sought approval to purchase up to
fifty per cent of its winter gas supply, at even increments over a twenty-month period. New England Gas Co., D.T.E. 06-3 (2006). New England Gas had previously been purchasing and storing twenty-eight per cent of its winter gas needs. The department
approved the plan. <I>Id.</I> at 1, 5. As in the previous two cases, the department did not comment on whether New England Gas had been required to seek preapproval for its plan. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">2. <I>Fitchburg&#146;s gas purchase plans and the present enforcement proceedings.</I> a. <I>Fitchburg&#146;s gas purchase plans.</I> Following the winter of 2000-2001, Fitchburg developed its own risk
management program. Fitchburg had already been storing approximately twenty-two per cent of its winter peak period gas requirements in underground tanks. Fitchburg supplemented this strategy by executing forward contracts. Fitchburg did not lock in
prices using derivative products, such as futures, options on futures, or swap contracts. Fitchburg initially operated this risk management strategy without specific goals as to the quantity of gas or the number of times in which to lock in prices.
The company made its price-locked purchases based on a number of market indicators, such as weather, forward-looking price trends, and anticipated market volatility. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">In order to secure a stable price of gas for the 2007-2008 peak period, Fitchburg began locking in prices after it executed a supply contract on June&nbsp;29, 2007. The company locked in the 2007-2008
peak winter period supply requirements by making nine purchases, evenly spaced over a nine-week period from June&nbsp;29, 2007, through August&nbsp;27, 2007. These purchases amounted to 69.3&nbsp;per cent of the company&#146;s total peak winter
period requirements, of which 17.9&nbsp;per cent was planned storage volumes and 51.4&nbsp;per cent was price-lock purchases. The amounts of these purchases varied from week to week, from a low of 68,647 DTh to a high of 98,662 DTh. </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">In January, 2008, Fitchburg promulgated internal purchasing guidelines for risk management. The purchasing
guidelines called for Fitchburg to lock in one-tenth of its peak period baseload [FN10] requirements each month over a ten-month period, from the previous November through August. [FN11] Having missed making purchases in the first three months of
the program&#151;November, December, and January&#151;Fitchburg consolidated its purchases into seven months, locking in prices at eight points, approximately evenly spaced, between February and August, 2008. [FN12] The monthly amounts of these
purchases varied from 90,000 DTh to 127,855 DTh. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">In addition to these preplanned price locks, Fitchburg executed an unplanned price-lock on
November&nbsp;25, 2008, purchasing 107,846 DTh at $6.52 per DTh for delivery during January through April, 2009. This price-lock followed a rapid and unprecedented decline in the price of gas between July and November, 2008. [FN13] Fitchburg based
its decision to lock in the additional supply on the following factors: (1)&nbsp;the New York Mercantile Exchange (N.Y.MEX) prices had declined by approximately fifty per cent since July, 2008; (2)&nbsp;Fitchburg estimated that it could reduce its
total peak period costs by an additional ten to fifteen per cent when combined with the price-locks already in effect; (3)&nbsp;temperatures for the next thirty to sixty days were forecasted to be below normal; and (4)&nbsp;market indices indicated
an upward price trend for December, 2008, through April, 2009. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">However, gas prices continued to plummet throughout the winter of 2008-2009.
On February&nbsp;1, 2009, the price went down to $4.49 per DTh; by April&nbsp;1, it was $3.65 per DTh. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">In response to this dramatic decrease
in prices, a number of LDCs sought department approval in January, 2009, to decrease their GAFs from those currently in effect. Fitchburg was not among them. On January&nbsp;21, 2009, the department requested Fitchburg to demonstrate that its
projected gas cost balance at the end of the peak winter period would be within five per cent of its projections as of October&nbsp;31, 2008. As a result of Fitchburg&#146;s response to that inquiry, the department commenced an investigation into
Fitchburg&#146;s gas procurement practices. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">b. <I>The department&#146;s investigation and findings.</I> At the conclusion of its
investigation, the department made the following findings: (1)&nbsp;Fitchburg had been required to seek preapproval of its risk management plan; (2)&nbsp;Fitchburg engaged in gas purchasing methods that were unreasonable and imprudent; (3)&nbsp;the
proper measure of damages was the difference between what Fitchburg actually paid and what it would have paid had it purchased all its gas without any risk management plan whatsoever, buying each month&#146;s supply on the first day of the month.
[FN14] The department ordered Fitchburg to repay its customers $4,648,075, plus interest, in gas supply costs. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">i. <I>Preapproval.</I>
According to the department, both the Order and prior regulatory history [FN15] required Fitchburg to seek preapproval for its gas procurement strategy. The department rejected Fitchburg&#146;s argument that it was exempt from preapproval because it
did not use derivatives, concluding that the Order never restricted the requirement of preapproval to companies using financial derivatives. The department concluded that Fitchburg should also have taken notice of the subsequent regulatory history,
during which two of the three companies that had submitted requests for preapproval had not used financial instruments of any kind. Finally, Fitchburg&#146;s plan raised concerns similar to derivatives, because Fitchburg incurred transaction costs
in its price-lock contracts. [FN16] </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">ii. <I>Prudence.</I> The department found that Fitchburg&#146;s gas purchasing costs were not reasonably and
prudently incurred. In support, the department adduced the following evidence: (1)&nbsp;In the November&nbsp;25, 2008, purchase, Fitchburg engaged in speculation in an attempt to &#147;beat the market,&#148; which the company should have known not
to have done, based on the policy directives in the Order. (2)&nbsp;The purchases made during 2007 and 2008 were spread out over a shorter time period than previously approved risk management programs. The KeySpan, NStar, and New England Gas plans
had spread out purchases over twelve to twenty months. By contrast, Fitchburg locked in its prices for the 2007-2008 period over just nine weeks. The seven-month purchasing period of the 2008-2009 period was longer, but it was &#147;nonetheless
inconsistent with Department findings on the period of time needed to effectively mitigate price volatility.&#148; [FN17] (3)&nbsp;Fitchburg had varied its increments of time and volume for the price-locked purchases. According to the department, a
reasonable and prudent risk management plan would have locked in precisely equivalent amounts, in uniform intervals. Moreover, the department found that Fitchburg failed to lock in sufficient price points for each individual winter month. For
example, for the month of November, 2008, Fitchburg had locked in only one price point, taken the previous February. [FN18] </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">iii.
<I>Remedy.</I> The department barred Fitchburg from recovering from customers supply costs that, due to Fitchburg&#146;s price-lock plan, were in excess of reasonable and prudent prices. The parties submitted alternative baseline prices against
which to compare Fitchburg&#146;s gas purchases. Fitchburg suggested comparing its actual purchases to the prices it would have paid for the same amount of gas purchased under its own proposed ten-month guidelines. Under that analysis, Fitchburg
actually spent $282,844 <I>less</I> than a &#147;prudent plan.&#148; The Attorney General suggested comparing Fitchburg&#146;s average prices to the average costs of the three companies that had utilized preapproved risk management plans. Under this
analysis, Fitchburg overpaid by $863,368. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The department rejected both of these approaches. The department concluded that Fitchburg could not
enjoy the benefit of comparison to preapproved plans when it had failed to seek preapproval. Moreover, Fitchburg could not assume that the department would have found its ten-month purchasing plan prudent. The only types of purchasing that Fitchburg
was permitted to use without prior approval were first of the month and spot market prices. Applying this benchmark, Fitchburg overcharged its customers by $4,648,075. The department ordered Fitchburg to refund this amount to its customers, with
interest, and Fitchburg timely appealed pursuant to G.L. c. 25, &#167; 5. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">3. <I>Analysis.</I> a. <I>Standard of review.</I> Because
Fitchburg&#146;s petition raises no constitutional questions, we review the department&#146;s decision to determine whether it is &#147;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.&#148; <I>Massachusetts Inst. of Tech.</I> v. <I>Department of Pub. Utils.,</I> 425 Mass. 856, 868 (1997), citing G.L. c. 30A, &#167; 14(7).
&#147;&#145;[W]e give deference to the department&#146;s expertise and experience in areas where the Legislature has delegated to it decision-making authority, pursuant to G.L. c. 30A, &#167; 14,&#146; and &#145;we have acknowledged that the
department has broad authority to determine ratemaking matters in the public interest.&#146;&#148; <I>Southern Union Co.</I> v. <I>Department of Pub. Utils.,</I> 458 Mass. 812, 819 (2011), quoting <I>Massachusetts Inst. of Tech.</I> v. <I>Department
of Pub. Utils., supra</I> at 867, 868. </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The question whether Fitchburg was required to seek preapproval turns on the interpretation of prior
department rulings, and in particular, the Order. Ordinarily courts grant great weight to an agency&#146;s interpretation of its own rulings. However, as we have noted in the context of interpreting statutes and regulations, this principle is
&#147;&#145;one of deference, not abdication,&#146; and this court will not hesitate to overrule agency interpretations of statutes or rules when those interpretations are arbitrary or unreasonable.&#148; <I>Moot v. Department of Envtl.
Protection,</I> 448 Mass. 340, 346 (2007), <I>S. C.,</I> 456 Mass. 309 (2010), quoting <I>Boston Preservation Alliance, Inc.</I> v. <I>Secretary of Envtl. Affairs,</I> 396 Mass. 489, 498 (1986). We have recently refused to defer to the
department&#146;s interpretation of a rate settlement contract approved under its jurisdiction, when the plain language of the contract unambiguously led to the opposite conclusion. <I>Southern Union Co.</I> v. <I>Department of Pub. Utils.,
supra</I> at 820. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">With respect to the prudence review, the department&#146;s factual findings are governed by the substantial evidence test.
G.L. c. 30A &#167; 14(7) (<I>e</I>). See <I>Hingham v. Department of Telecomm.&nbsp;&amp; Energy,</I> 433 Mass. 198, 209-211 (2001). We will uphold the decision so long as &#147;the findings by the authority are supported by substantial evidence in
the record considered as a whole.&#148; <I>Id.</I> at 210, quoting <I>1001 Plays, Inc.</I> v. <I>Mayor of Boston,</I> 387 Mass. 879, 885 (1983). See G.L. c. 30A, &#167; 14(7). Substantial evidence is &#147;such evidence as a reasonable mind might
accept as adequate to support a conclusion.&#148; G.L. c. 30A, &#167; 1(6). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Agencies are required to make adequate subsidiary findings,
including determination of each issue or fact necessary to the decision, so that this court may properly exercise its function of appellate review. <I>Costello v. Department of Pub. Utils.,</I> 391 Mass. 527, 533 (1984), citing G.L. c. 30A &#167;
11(8). When an agency bases its decision on specialized or expert knowledge, it must delineate the basis for that knowledge. &#147;While the board is free to evaluate evidence in light of its expertise, it cannot use its expertise as a substitute
for evidence in the record.&#148; <I>Arthurs v. Board of Registration in Med.,</I> 383 Mass. 299, 305 (1981). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">b. <I>Requirement of
preapproval.</I> The company argues that neither the Order nor any other department regulation required it to seek preapproval for risk management plans that utilized only forward contracting. We agree. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Order expressly limits its application to &#147;the use of financial derivative products in combination with physical gas purchases to mitigate
commodity price volatility.&#148; Order, <I>supra</I> at 2. All the arguments submitted to the department during the proceedings that led to the issuance of the Order, in opposition to risk management techniques, focused on the dangers of derivative
transactions. See <I>id.</I> at 3-7. The concluding portion of that section of the Order stated that the &#147;Department will allow, but not require, Massachusetts LDCs to use <I>financial</I> risk-management instruments to mitigate commodity price
volatility,&#148; subject to case-by-case department review (emphasis added). <I>Id.</I> at 8. Based on the plain language of the Order, there was no obligation to seek preapproval for risk management plans such as Fitchburg&#146;s plan. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The regulatory history subsequent to the Order also failed to establish an obligation on Fitchburg to seek preapproval. Nowhere in the KeySpan, NStar, or
New England </FONT></P>

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Gas orders did the department expand the scope of the preapproval requirement. To the contrary: in the KeySpan order, the department reaffirmed the &#147;conceptual or analytic difference&#148;
between forward contracting and financial derivative products. KeySpan, D.T.E. 03-85, <I>supra</I> at 4 n. 1. While two of the three requests for preapproval did not involve financial transactions, the decisions by its competitors to seek
preapproval did not bind Fitchburg to do the same. [FN19] </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">On appeal to this court, the department argues that attempting to mitigate price
volatility without department approval is inconsistent with Fitchburg&#146;s statutory obligation to purchase gas at the least possible cost. See G.L. c. 164, &#167; 69H. This premise is flawed for two reasons. First, the Order itself recognizes
that &#147;the primary objective of a risk-management program is to mitigate price volatility, not to reduce the overall cost of gas.&#148; Order, <I>supra</I> at 2 n. 6. When articulating the standard of review for risk management plans, the
department ordered companies to &#147;maintain the objective of volatility mitigation and price stability rather than the objective of procuring prices below indices.&#148; <I>Id.</I> at 28. Plainly, the department views the objectives of lowest
price and mitigation of volatility to be compatible, because the department may not take action or render decisions that are inconsistent with statutory provisions. See, e.g., <I>Providence&nbsp;&amp; Worcester R.R.</I> v. <I>Energy Facilities
Siting Bd.,</I> 453 Mass. 135, 144 (2009). Second, the traditional way for a company to satisfy its least cost obligation is to use competitive solicitations for market supply. See <I>Hingham v. Department of Telecomm.&nbsp;&amp; Energy, supra</I>
at 211; <I>Boston Gas Co.</I> v. <I>Somerville,</I> 420 Mass. 702, 704-705 (1995). An LDC can thus satisfy its least cost obligation by engaging in competitive bidding, while simultaneously mitigating price volatility through forward contracting.
The record contains ample evidence that Fitchburg did so. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">In sum, no statute or department precedent required Fitchburg to seek preapproval
of its gas purchasing plan. The department&#146;s conclusion to the contrary was an error of law. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">c. <I>Prudence.</I> The department
concluded that all of Fitchburg&#146;s price-locked purchases&#151;from summer, 2007;&nbsp;February-August, 2008; and November&nbsp;25, 2008&#151; were unreasonable and imprudent. Fitchburg argues that this conclusion was not based on substantial
evidence. We agree in part and disagree in part. With respect to the summer, 2007, and February-August, 2008, price-lock programs, we reverse the department&#146;s finding as not based on substantial evidence. Concerning the November&nbsp;25, 2008,
purchase, however, we find that the department has amply supported its findings. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The department found that the summer, 2007, and
February-August, 2008, purchases were imprudent because they were spaced too closely together. As stated by the department, &#147;A nine-week purchasing period could not allow for a sufficient number of pricing points to smooth prices and, thus,
mitigate price volatility.&#148; While the seven-month purchasing period of 2008 &#147;allowed the Company to obtain more pricing points &#133;, it is nonetheless inconsistent with Department findings on the period of time needed to effectively
mitigate price volatility.&#148; In support of this contention, the department pointed to risk management plans that other companies had submitted, which were for twelve months. See KeySpan, D.T.E. 03-85, <I>supra</I> at 4-5; NStar, D.T.E. 04-63,
<I>supra</I> at 3-4. See also New England Gas Co., D.T.E. 06-3, <I>supra</I> at 2-3 (twenty months). In each of those cases, the department had found that the plans would limit the exposure of ratepayers to price volatility. </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">The flaw in the department&#146;s analysis is that while the department did find that twelve months of
price-locking is <I>sufficient</I> to achieve price stabilization, it never held that twelve months of price-locking is the <I>minimum</I> necessary to achieve rate stabilization. Nor did the department ever produce expert opinion in support of such
a contention. Ultimately, the department seems to assert that any price-locking plan not strictly following its own precedents cannot be exercised in proper business judgment, and therefore must be deemed unreasonable and imprudent. Such a sweeping
contention must be supported by expert testimony in the record; otherwise, it is unsupported by substantial evidence and must be rejected. <I>Arthurs v. Board of Registration in Med.,</I> 383 Mass. 299, 305 (1981). [FN20] </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">By contrast, the department&#146;s finding of imprudence with respect to the November&nbsp;25, 2008, purchase, was amply supported by substantial
evidence. The November&nbsp;25, 2008, purchase was not done pursuant to any price-lock program. Fitchburg conceded that it made that purchase in an effort to take advantage of one-time market conditions. While well intentioned, Fitchburg&#146;s
executives engaged in speculative purchasing practices in an attempt to obtain below market prices. This practice was expressly forbidden in the Order. See Order, <I>supra</I> at 6. We therefore leave the department&#146;s finding of imprudence
undisturbed as to that purchase. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">d. <I>Remedy.</I> Applying the department&#146;s method for determining a proper remedy, the calculation of
the remedy is straightforward. Fitchburg must repay its customers for gas supply costs incurred on the November&nbsp;25, 2008, purchase, over and above the prices that it would have paid had it purchased the same gas at the first of each month in
which the gas was to be delivered. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Applying the first of the month standard to Fitchburg&#146;s November&nbsp;25, 2008, purchase, Fitchburg
incurred $198,227 in unreasonable and imprudent gas costs. [FN21] Fitchburg must refund this amount, with interest, to its customers. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Finally, we note the dispute between the department and Fitchburg over whether Fitchburg incurred transaction costs when executing its price-locking
program. See note 16, <I>supra.</I> This dispute is best addressed by the department in the first instance. See <I>Southern Union Co.</I> v. <I>Department of Pub. Utils.,</I> 458 Mass. 812, 826 (2011)&nbsp;(remanding to department to decide new
factual issues resulting from this court&#146;s decision). If the department intends to pursue these costs on remand, it must reopen the record to allow Fitchburg to respond to these allegations. If Fitchburg imprudently contracted for higher prices
than the market, the department may order Fitchburg to refund the difference between the market price and the lock-in price. [FN22] </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">4.
<I>Conclusion.</I> We remand the case to the single justice, who is directed to remand the matter to the department. On remand, the department shall vacate its penalty of $4,648,075, plus interest, in favor of a penalty of $198,227, plus interest.
The department may also reopen its investigation into whether Fitchburg incurred unreasonable and imprudent transaction costs. If the department finds that Fitchburg did incur such costs, it may take action as it deems appropriate and not
inconsistent with this opinion. <I> </I></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2"><I>So ordered.</I> </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">FN1. Doing business as Unitil. </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">FN2. In 1997, the Legislature reorganized the Department of Public Utilities into the
Department of Telecommunications and Energy. St.1997, c. 164, &#167; 28. General Laws c. 25, &#167; 1, as amended through St.2007, c. 19, &#167; 21, reverted its designation to the Department of Public Utilities. The present case references
decisions issued both before and after 2007, and we shall refer to &#147;the department&#148; throughout. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">FN3. Forward
contracts, also known as &#147;price-locks,&#148; are agreements to buy or sell a quantity of gas, at the price as of the date of the contract, that is to be delivered on a certain date in the future. &#147;If a forward contract contains a fixed
price provision, the seller and the purchaser know exactly what the price will be upon delivery of the commodity and have, therefore, eliminated the risk of adverse price fluctuations on a certain quantity of gas.&#148; S.P. Geurin&nbsp;&amp; D.J.
May, The Use and Regulation of Financial Risk Management Products in the Natural Gas Industry, Natural Gas Contracting: Strategies for the New Marketplace 23 (A.J. Wright&nbsp;&amp; C.J. Sharpe eds.1998). </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">FN4. A dekatherm (also spelled decatherm) is a unit of heat energy equivalent to ten therms or one million British Thermal Units (BTUs).
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">FN5. &#147;Derivatives are financial instruments that derive their value from the price of another product. Some examples of
derivative products are: futures, options on futures, and swap contracts.&#148; Investigation of Risk-Management Techniques, D.T.E. 01-100-A at 2 n.5 (2002)&nbsp;(Order). </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">FN6. Proposed plans had to: &#147;(1) allow customers to volunteer to participate in the plan; (2)&nbsp;maintain the objective of volatility mitigation and price stability rather than the objective of
procuring prices below indices; (3)&nbsp;ensure fair competition in the gas supply market; (4)&nbsp;allocate all costs to program participants only; (5)&nbsp;demonstrate the effect that the plan would have on the reliability and transparency of the
commodity price; and (6)&nbsp;contain no incentive mechanisms.&#148; Order, <I>supra</I> at 28. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">FN7. KeySpan Energy Delivery
New England (KeySpan) became a wholly owned subsidiary of National Grid USA (National Grid) on August&nbsp;24, 2007. See Massachusetts Elec. Co., D.P.U. 09-39 at 263-264 (2009). The parties have represented that, at all times relevant to this
proceeding, National Grid continued to operate the plan set up by KeySpan. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">FN8. In a July, 2006, letter to the department,
KeySpan subsequently sought to extend the duration of its forward contracts from twelve months to sixteen months. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">FN9. In a
subsequent filing, KeySpan claimed to use &#147;financial &#145;swap&#146; arrangements&#148; to lock in prices in advance of the 2005-2006 winter season. KeySpan, D.T.E. 06-65 at 2 (2006). However, no mention was made of such arrangements during
the initial request for approval. </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">FN10. Baseload refers to the minimum amount of gas an LDC expects to need to fulfil customer
gas requirements over a given period of time regardless of changes in temperature. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">FN11. Fitchburg chose a ten-month duration,
rather than a twelve-month or longer period, due to the expected demands of its gas suppliers. Because Fitchburg distributes a relatively small quantity of gas annually, about one per cent of the total gas supply in the Commonwealth, Fitchburg
expected that its suppliers would be unwilling to lock-in prices for smaller quantities than one-tenth increments. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">FN12.
Specifically, the purchases took place on February&nbsp;15,&nbsp;March&nbsp;17,&nbsp;April&nbsp;17,&nbsp;May&nbsp;19,&nbsp;June&nbsp;27,&nbsp;July&nbsp;18,&nbsp;July&nbsp;25, and August&nbsp;14. </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">FN13. In July, 2008, gas prices on the New York Mercantile Exchange (N.Y.MEX) were approximately $13.30 per DTh; by November, they had
plunged to below seven dollars per DTh. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">FN14. The department also found that Fitchburg&#146;s mention of its gas procurement
strategies in other regulatory filings did not suffice to meet its disclosure and preapproval requirement. Because we hold that preapproval was not required, we need not reach the substance of this point. </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">FN15. The department expanded on prior regulatory history in the underlying proceeding. Prior to 2002, it reasoned, LDCs had not been
permitted to engage in risk management at all, including forward contracting. The Order enabled LDCs to engage in risk management for the first time, but only if the LDCs sought approval. We have examined the cited precedents and we find no examples
of express disapproval of forward contracting prior to 2002. In any case, the department has abandoned this portion of its argument on appeal. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">FN16. The department reached this conclusion by comparing the prices paid by Fitchburg with the NYMEX prices. NYMEX publishes three sets of daily prices&#151; high, low, and settlement (i.e., average).
According to the department, Fitchburg&#146;s locked-in prices exceeded the NYMEX prices on fourteen of the eighteen dates on which it contracted. The department identified these prices by taking judicial notice of the NYMEX futures prices published
in Platts Gas Daily. Fitchburg did not object to the taking of judicial notice, but it requested a hard copy of the data, which the department supplied. On appeal, Fitchburg claims that the department misapplied the numbers in Platts Gas Daily, a
subscriber-only publication, and that Fitchburg was unable to correct the error because the department conducted this analysis only after the record was closed. The data were not added to the record, in respect of the proprietary rights of Platts
Gas Daily. We therefore do not have enough information to determine whether there were transaction costs. </FONT></P>

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 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">FN17. The department did not analytically justify, or cite any expert opinion, explaining
why a minimum of twelve months is necessary in order to mitigate price volatility. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">FN18. The department did not provide an
analytical explanation, or cite any expert opinion, suggesting the minimum number of lock-in points that are needed to mitigate price volatility. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">FN19. We need not decide whether KeySpan and New England Gas sought preapproval out of a genuine belief that preapproval was necessary, or whether preapproval would have been necessary based on other
features of their plans. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">FN20. In addition to its failure to support its findings adequately, the department also appears to
have ignored data in the record that suggested that Fitchburg&#146;s price-lock program was indeed mitigating price volatility. For example, during the peak winter seasons between 2002 and 2009, the ten Massachusetts LDCs applied for a total of 101
interim GAF changes during the peak season. Fitchburg applied for just five interim price changes during that period, the lowest of any of the gas suppliers. The department failed to address the import of this data at all. </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">FN21. On November&nbsp;25, 2008, Fitchburg purchased 107,846 DTh at $6.52 per DTh, for $703,156. This gas was delivered in the following
increments (first of the month cost in parentheses): January, 2009, 30,000 DTh ($6.16 per DTh); February, 2009, 27,846 DTh ($4.49 per DTh); March, 2009, 30,000 DTh ($4.07 per DTh); April, 2009, 20,000 DTh ($3.65 per DTh). Total costs based on the
first of the month standard would have been $504,929. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">FN22. The department presumed that Fitchburg was not entitled to engage
in risk management at all. For this reason, the department calculated the $4,648,075 penalty as if Fitchburg had not entered into any forward contracts. The department did not, and would not have needed to, calculate the extra expense arising
specifically from transaction costs. We have rejected the department&#146;s fundamental premise and held that Fitchburg was entitled to engage in its risk management program. In light of our ruling, the question thus arises whether Fitchburg acted
imprudently when executing its price-locks, and, if yes, how much it overcharged its customers. </FONT></P>
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