By Timothy C. Barmann, Providence Journal Staff Writer

The state Public Utilities Commission spent about $351,000 to hire a private law firm to help it decide a recent utilities case, even though the commission has traditionally used its own staff attorneys for similar matters.

The PUC hired Partridge Snow & Hahn to help the three-member panel decide the recently concluded proceeding that set dominant utility company National Grid’s natural-gas rates that went into effect Dec 1. All the expenses associated with the case are paid for by National Grid’s customers.

By contrast, the PUC spent only $11,000 on an outside consultant in a similar natural-gas rate case it decided in 2002.

Elia Germani, chairman of the PUC, said it was his decision to hire the firm, and he said he did so to ensure the commission had the best possible representation in an important case.

“Number one, our internal lawyers were quite busy,” Germani said. “Secondly, I wanted a higher level of expertise. Not to diminish our internal lawyers, but I wanted the best lawyers that I could find, knowing that eventually the company and the ratepayers would pay for this.”

While the actual amount of money that customers will have to pay is relatively small, the expense goes well beyond the $250,000 limit, set by state law, of how much money regulators can charge a utility company for proceedings in a single calendar year. The PUC apparently averted violating the law by voting to spreading out the expenses over a three-year period.

The proceeding before the PUC was known as a “rate case” in which National Grid sought to increase natural-gas distribution rates, which cover the cost of operating its gas network, as well as the overall cost of doing business, including salaries and profits. These rates make up about one-third of a typical customer’s bill. The rest of the bill covers taxes and the cost of the gas itself.

National Grid proposed the increase in April, filing volumes of materials with the PUC to back up the claims that the cost of doing business had risen, and that the company was due for a distribution-rate increase. The last time these rates went up was in 2002.

These cases are handled much like a court proceeding, with the company on one side and representatives of ratepayers and other interested parties, called “interveners,” on the other. The participants can all submit written testimony about the company’s proposal, and can request that the company clarify or answer additional questions not addressed in the proposal. And they can cross-examine witnesses who give testimony. A stenographer records all the testimony.

The Division of Public Utilities and Carriers is the state agency that represents ratepayers, and is usually the main adversary to the company’s proposals. The DPUC hires its own experts who pore through the company filings and make their own recommendations.

In addition, the PUC’s attorneys typically ask their own questions of company witnesses during the proceeding. The PUC has two staff attorneys, Cynthia Frias-Wilson and Patricia Lucarelli.

All this evidence is presented to the PUC, which is then charged with deciding whether to grant a rate increase, and if so, how much it should be.

In the end, the PUC granted a rate increase. But it was more than offset by a decline in energy prices. The overall change was a rate decrease for a typical customer of 4.1 percent, as of Dec. 1.

What was unusual about this case was the decision by Germani to hire an outside law firm to assist the commission.

State law allows the PUC to hire consultants and attorneys, but the law limits how much regulators can charge a utility company for these services to $250,000 in any calendar year.

Germani submitted a “request to retain legal counsel” to the state’s department of administration on July 15 in which he asked to hire Jeffrey H. Gladstone, an attorney with from Partridge Snow & Hahn.

Under “reason for services needed,” Germani wrote, “Because of the significance to ratepayers, it is imperative that the Commission have the best counsel available to represent it in this proceeding.”

An attached letter explained what it would cost: “The total amount, under no circumstances, will not exceed the annual statutory limit of $250,000.” These costs will be picked up by ratepayers, not taxpayers, the letter notes.

The request was approved by Kernan F. King, executive counsel to the governor.

The two attorneys who worked on the case were Gladstone, whose hourly rate was $324, and Robert K. Taylor, whose rate was $310.50. These rates include a 10-percent discount.

The invoices the firm submitted to the PUC for work performed, and for anticipated work to be completed in the case, totaled $350,887.

That amount, combined with the amount the DPUC spent on its own consultants and experts –– $113,000 –– put the total amount regulators spent on outside attorneys and consultants at about $464,000. That was well beyond the $250,000 that state law allows.

The PUC decided to bill National Grid for that amount over three years, bringing the annual amount to about $155,000.

However, by doing so, the PUC has effectively limited how much it can spend on outside attorneys over the next two years for other regulatory matters concerning National Grid’s gas operations.

In an interview, Germani defended his decision to hire an outside firm. At the time, one of the two commission attorneys was working part-time after a maternity leave. The other attorney, he said, was busy on another case.

In addition, Germani said that discussions with staff members about pending cases could no longer take place as freely as they had in the past because of a recent state Supreme Court decision, Arnold v. Lebel. The decision had implications across state government, and Germani sought a legal opinion from the office of Attorney General Patrick C. Lynch on how it might affect practices at the PUC.

Based on that opinion, Germani decided that any conversations with staff attorneys and analysts involving a pending case would have to be documented in memos and then distributed to all parties in the pending case, he said. Those staff members could also be called to testify in the case. The new restrictions would have added an additional burden on the staff, he said.

“I thought that the ratepayers’ interest was well served by what we did here,” he said.

He noted that National Grid’s initial proposal sought a rate increase that totaled $20 million. The PUC decided to grant an increase of about $13 million instead.

“I do believe that the case could not have been properly handled without the assistance we received,” he said.

Commissioner Robert Holbrook said yesterday that he and the third commissioner, Mary Bray, were not involved in the decision to hire an outside law firm.

Bray could not be reached yesterday for comment.

“I would have thought we would have had plenty of expertise in-house,” Holbrook said.

Had he been involved in the discussions, his advice would have been to “stick to internal staff,” he said.

If it turned out to be too much work, the PUC could have hired outside help to assist as needed, rather than to take over the whole case, he said.

“I’m disappointed it turned out the way it did,” Holbrook said.

tbarmann@projo.com