OFFICE OF THE PEOPLE‘S COUNSEL FOR THE DISTRICT OF COLUMBIA, PETITIONER, v. D.C. PUBLIC SERVICE COMMISSION, RESPONDENT, and POTOMAC ELECTRIC POWER COMPANY, INTERVENOR.
Nos. 21-AA-0684, 21-AA-0869
DISTRICT OF COLUMBIA COURT OF APPEALS
Decided November 10, 2022
Argued September 15, 2022
Notice: This opinion is subject to formal revision before publication in the Atlantic and Maryland Reporters. Users are requested to notify the Clerk of the Court of any formal errors so that corrections may be made before the bound volumes go to press.
On Petition for Review of a Decision of the D.C. Public Service Commission (Formal Case No. 1156)
Scott H. Strauss, with whom Sandra Mattavous-Frye, Karen R. Sistrunk, Laurence C. Daniels, and Amanda C. Drennen were on the brief, for petitioner.
Kimberly Lincoln-Stewart, with whom Christopher G. Lipscombe, Angela L. Lee, Richard S. Herskovitz, Emil Hirsch, Emily Green, Frederick A. Douglas, Curtis A. Boykin, and Nausheen Gaznabi were on the brief, for respondent.
Nicholas S. Penn, with whom Anne Bancroft, Kimberly A. Curry, Andrea H. Harper, Dennis P. Jamouneau, Taylor W. Beckham, and Sherry F. Bellamy were on the brief, for intervenor.
Before EASTERLY, MCLEESE, and HOWARD, Associate Judges.
We vacate the Commission‘s orders as to both issues and remand for further proceedings consistent with this opinion.
I. OPC‘s Challenge to Pepco‘s Recovery of Remedial Investigation Costs
A. Facts and Procedural History
Pepco‘s Benning Road site is a 77-acre lot bordered by the Anacostia River on its western side. The site contains a service center used to support its transmission and distribution operations. The site also contains a power plant that began operating in or around 1906, consisting of structures including a generating station, cooling towers, and storage facilities. The generating station shut down in 2012.
In 1999, attempting to step back from its then-active energy production business, Pepco applied to the Commission in Formal Case No. 945 for authorization to divest its generating assets according to its proposed plan. The D.C. Council, however, had “concerns“—the exact nature of which is not clear from the record—about the proposed sale of two generating stations, including the one at Benning Road, and thus it requested that the Commission hold the divestiture in abeyance. In order to move its divestiture application forward, and after engaging in “comprehensive negotiations,” Pepco agreed to comply with specific conditions regarding those stations. These conditions were memorialized in Section 1.05 of the resulting settlement agreement, hereinafter the “FCN 945 Settlement,” which provided:
Nothing in this Settlement Agreement shall be construed as requiring Pepco to include in the sale of the [generating a]ssets, the Company‘s generating stations located at Benning Road and Buzzard Point in the District of Columbia; provided, however, that if the Benning Road and Buzzard Point generating stations are not included in the sale of the [generating a]ssets, the Company shall be thereafter barred and estopped from asserting or exercising any legal right that it might otherwise have to recover from customers located in the District of Columbia any stranded costs associated with those generating stations. In connection with any Pepco base rate proceeding in the District of Columbia instituted after June 30, 2000, the Benning Road and Buzzard Point generating stations shall not be included in the cost of service for purposes of determining the Company‘s District of Columbia jurisdictional revenue requirement.
The Commission approved this settlement agreement pursuant to its rules and procedures. See
Ten years later, the United States Environmental Protection Agency (“EPA“) released a report detailing environmental toxins found on and around the Benning Road site. The report concluded that chemical contaminants known as PCBs1 “have
been released from the site to the Anacostia River,” tracing one release of PCBs to “the generating station‘s cooling tower basins,” which discharge into the river. It further concluded that “[t]he only potential uncontained potential source [of PCBs] identified on the site” was a sludge dewatering area previously used in association with the cooling towers.
In response to the report, the District Department of Energy and Environment (“DOEE“)2 notified Pepco that it intended to sue the company for abatement of hazardous conditions resulting from the Benning Road site. To settle the intended suit, Pepco entered into a consent decree in 2011 with the DOEE, which in part bound Pepco to conduct a remedial investigation and feasibility study (“RI/FS“) that would inform any future remedial actions.3 As of the time of Pepco‘s application in this case, the company‘s work on the RI/FS was ongoing.
In 2018, Pepco entered into a settlement agreement to resolve its 2017 rate application, Formal Case No. 1150, before the Commission (hereinafter the “FCN
1150 Settlement“). OPC was also a party to the settlement. Pepco had unsuccessfully sought to place its RI/FS costs in a “regulatory asset”4 in previous rate cases, but finally secured it in this settlement. In
The Parties agree that Pepco will receive regulatory asset treatment in the total amount of $3.3 million in actual costs incurred to conduct a remedial investigation (“RI“) at the Benning facility. Pepco will begin to recover the $3.3 million over a 10-year amortization period, with carrying costs based on the Company‘s Commission-authorized rate of return. This recovery relates only to the RI costs that have already been incurred as a result of the [DOEE] Consent Decree ... and does not relate to, or have any precedential effect on, the recovery of additional RI costs incurred as a result of the [DOEE] Consent Decree. ... Notwithstanding the foregoing provision, the Parties agree that all Parties retain the right to challenge in future rate cases Pepco‘s entitlement to any further recovery from ratepayers of this $3.3 million regulatory asset.
The Commission approved this settlement pursuant to its rules and procedures. See
In 2019, Pepco applied to the Commission for authority to establish its distribution rates for 2020 to 2022 through a multiyear rate plan, initiating Formal Case No. 1156. A multiyear rate plan is an alternative form of regulation that permits the utility to avoid the traditional annual rate application process. In its application, Pepco requested that the Commission approve recovery of a portion of its amortized RI/FS costs that were included in the regulatory asset established in the FCN 1150 Settlement. Specifically, Pepco asked for permission to include approximately $1.9 million of its actual RI/FS costs incurred through December 31, 2017, in its calculation of the rates it would charge its distribution customers under the plan. It also requested similar recovery of its actual RI/FS costs incurred from January 1, 2018, through June 30, 2019, approximately totaling an additional $3 million.
The Commission received testimony and briefing from the various parties, including argument from OPC that Section 1.05 of the FCN 945 Settlement barred recovery of any RI/FS costs from the Benning Road site. The Commission subsequently issued an order approving a modified version of Pepco‘s multiyear rate plan that reflected some concessions to objections raised by OPC and others, but granted Pepco‘s request to include in its rates the $1.9 million in pre-2018 RI/FS costs. After restating the relevant language from the FCN 1150 Settlement, the Commission noted that “[a] review of the Company‘s request raises concerns about
the past uses of the site and how costs for the RI/FS . . . should be allocated among generation, transmission, and distribution, and ultimately the amount that should be recovered from District distribution customers.” But the Commission went on to conclude that it was “persuaded by Pepco that the [RI/FS] costs were prudently incurred and are recoverable consistent with Commission precedent.” Without further explanation or any reference to the FCN 945 Settlement, the Commission stated that it would permit the recovery “as the costs were approved in Formal Case No. 1150.” It then deferred Pepco‘s related request for recovery of RI/FS costs “incurred after those approved in Formal Case No. 1150” (referring to the post-December 31, 2017, costs), to be considered in a future rate case “once the Benning Road environmental costs and future use of the property [are] determined.”
OPC filed a request for reconsideration of the Commission‘s order, challenging among other decisions the Commission‘s approval of the RI/FS cost recovery from distribution customers. The Commission
Agreement,” which “on its face . . . did not bar recovery of Pepco‘s costs for future environmental remediation, only stranded costs and future operating costs.” Because in its view the “plain language” of the FCN 945 settlement agreement did not bar recovery, the Commission reaffirmed that it would allow recovery “because the costs were approved in Formal Case No. 1150.”
This petition for review followed.5
B. Analysis
The Commission did not engage with the possible effects of the FCN 945 Settlement in its initial order, instead stating merely that the “costs were approved” already in the FCN 1150 Settlement, and it repeated this rationale in its clarifying order. Before this court, the Commission rightly concedes that the FCN 1150 Settlement did not, as its orders indicated, guarantee full recovery of the costs allocated to the regulatory asset approved therein and instead permitted OPC to challenge recovery. We therefore focus our analysis here on whether the Commission erred in concluding that the FCN 945 Settlement posed no bar to recovery of the RI/FS costs because, by its “plain language,” the FCN 945 Settlement agreement applied only to stranded costs and “future operating costs.”
Before we engage in this analysis, we address our standard of review. Broadly, our review of the Commission‘s orders is limited. We defer to the Commission‘s “findings of fact ... unless it shall appear that such findings are unreasonable, arbitrary, or capricious.” Apartment & Off. Bldg. Ass‘n of Metro. Wash. v. Pub. Serv. Comm‘n of D.C., 203 A.3d 772, 777 (D.C. 2019) (ellipsis omitted) (quoting
the Commission has given reasoned consideration to each of the pertinent factors” under the circumstances. Id. (brackets and internal quotation marks omitted). In short, our deference is contingent on the Commission “fully and clearly explain[ing] what it does and why it does it.” Id. (quoting Potomac Elec. Power Co. v. Pub. Serv. Comm‘n of D.C., 457 A.2d 776, 783-84 (D.C. 1983)); accord Off. of the People‘s Couns. v. Pub. Serv. Comm‘n of D.C., 163 A.3d 735, 739 (D.C. 2017) (“To permit meaningful judicial review, we require the Commission to explain its actions fully and clearly.” (brackets omitted)).
Focusing more particularly on the FCN 945 Settlement—the basis for OPC‘s challenge to the Commission‘s initial and clarifying orders—the Commission argues that we are obligated to defer to its reading of this agreement. The Commission relies on a decision from the United States Court of Appeals for the D.C. Circuit, National Fuel Gas Supply Corp. v. Federal Energy Regulatory Commission, which states that the D.C. Circuit will “give deference to an agency‘s reading of a settlement agreement even where the issue simply involves the proper construction of language.” 811 F.2d 1563, 1569 (D.C. Cir. 1987). But this decision is not binding
on our court,6 and under our case law, it is far from clear that this court defers to any degree to the Commission‘s interpretations of settlement agreements. See Grand Hyatt Wash. v. D.C. Dep‘t of Emp. Servs., 963 A.2d 142, 146-47 (D.C. 2008) (“Settlement agreements . . . are contractual in nature and are interpreted under the same rules as contracts[,]” meaning “the written language will govern the parties’ rights . . . .“); Dyer v. Bilaal, 983 A.2d 349, 355 (D.C. 2009) (“[W]e review de novo a trial court‘s interpretation of a settlement agreement.“); cf. D.C. Off. of Hum. Rts. v. D.C. Dep‘t of Corr., 40 A.3d 917, 923 (D.C. 2012) (noting that our standard deference to agency interpretation is “based on the agency‘s presumed expertise in construing the statute[s] it administers” (internal quotation marks omitted)). Even accepting for the sake of argument that deference to agency interpretation were warranted in this context, it would only be appropriate where there was ambiguous language and the agency‘s interpretation of that language was reasonable. See MorphoTrust USA, Inc. v. D.C. Cont. Appeals Bd., 115 A.3d 571, 583 (D.C. 2015) (“In accordance with the Supreme Court‘s decision in Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984), before we afford some deference to an agency‘s interpretation of the statute that it administers at least two
conditions must be met: (1) the statutory language in question must be ambiguous, and (2) the agency‘s interpretation must be reasonable.” (internal parallel citation omitted)). We thus turn to the plain language of the settlement to see if we discern ambiguity in its terms. See D.C. Metro. Police Dep‘t v. Pinkard, 801 A.2d 86, 90 (D.C. 2002).
The FCN 945 Settlement states that in future base rate proceedings “the Benning Road and Buzzard Point generating stations shall not be included in the cost of service” to be passed on to its customers. The Commission read this to mean that “the Benning Road and Buzzard Point generating stations[’ future operating costs] shall not be included in the cost of service.” But this provision of the settlement agreement contains no language limiting its application as to time (i.e., costs incurred in the past, present, or future) or as to types of costs that can be attributed to the generating station (i.e., only operating costs). The Commission simply read in language that is not there. At oral argument before this court, the Commission conceded that the plain language of the FCN 945 Settlement did not support its determination that the agreement only applied to future operating costs. The Commission is bound by the plain language of
Even so, interpretive questions remain regarding the scope of the application of the FCN 945 Settlement to the RI/FS costs at the Benning Road site. To the extent that the Commission is asking this court to conclude in the first instance that no RI/FS costs are actually attributable to the Benning Road generating station and thereby to uphold its determination that Pepco could pass on these costs to its distribution customers, we cannot do so. The exact scope of what costs may be attributed to the generating station is a complex and fact-intensive inquiry that cannot be answered on the record before us. For example, the basic question of how much of the 77-acre parcel of land at Benning Road was used for the generating station has yet to be addressed. The Commission seemed to acknowledge the complexity of these questions when it denied for the time being recovery of RI/FS costs incurred after the FCN 1150 Settlement and expressed “concerns about the past uses of the site and how costs for the RI/FS . . . should be allocated among generation, transmission, and distribution, and ultimately the amount that should be recovered from District distribution customers.” Now that the Commission concedes that the FCN 1150 Settlement did not guarantee full recovery of the RI/FS costs discussed therein, see supra, the same concerns would presumably pertain.
We therefore vacate the Commission‘s order as to its approval of recovery of the Benning Road RI/FS costs and remand for the Commission to consider whether
the FCN 945 Settlement bars recovery of some or all of those costs. On remand, the Commission must provide a reasoned interpretation of the scope of the agreement based on substantial evidence and set out why under its interpretation the RI/FS costs are or are not within the settlement‘s reach.
II. OPC‘s Challenge to Inclusion of Energy Efficiency Programs in Pepco‘s Rate Plan for Future Recovery
A. Facts and Procedural History
While Pepco‘s application in Formal Case No. 1156 for a multiyear rate plan including the recovery of RI/FI costs discussed above was still pending, the Covid-19 pandemic broke out. In response, the Commission requested further testimony from the parties to FCN 1156 reflecting the impact of the pandemic. Pepco submitted an “enhanced” plan that featured various revisions and, in pertinent part, proposed new energy efficiency rebate and loan (“EERL“) programs primarily targeting its small commercial customers. Pepco asked the Commission to approve the programs, the $5 million cost of which Pepco could later recover, along with a return at the associated cost of capital,7 via a regulatory asset in a future rate case.
The Commission‘s initial order approved Pepco‘s proposed EERL programs, stating that it was “persuaded [the programs] are reasonable and will provide needed relief to customers during the Covid-19 pandemic.” In its request for reconsideration of the initial order, OPC challenged this decision, arguing that Pepco had failed to comply with a provision of the CleanEnergy DC Omnibus Amendment Act of 2018, which provides:
As of October 1, 2019, the electric company ..., after consultation and coordination with the Department of Energy and the Environment and the District [Sustainable Energy Utility (“SEU“)] and its advisory board, may apply to the Commission to offer energy efficiency and demand reduction programs in the District that the company can demonstrate are not substantially similar to programs offered or in development by the SEU, unless the SEU supports such programs.
In its clarifying order, the Commission rejected this argument on two primary grounds: (1) because “§ 8-1774.07(g)(4) does not contain the words ‘shall’ or ‘must‘” and “does not contain any sanctions or consequences for failing to
coordinate with the SEU,” the statute was “directory” and not mandatory in nature, and (2) “Pepco made the determination that its program did not fall within the purview of this statute,” which the Commission deemed “reasonable” because the “overall intent of these statutory provisions” was to apply to “long-term [energy efficiency] programs primarily aimed at low-to-moderate-income customers,” not the short-term commercial programs proposed.8
This petition for review followed.
B. Analysis
Where, as here, we are confronted with questions of statutory interpretation, we look first to the plain language of the statute and, if that language is ambiguous, then and only then do we defer to the Commission‘s interpretation if reasonable. Pinkard, 801 A.2d at 90; MorphoTrust USA, Inc., 115 A.3d at 583. Section
We first address what programs fall within the scope of
Section
Moreover, the Commission‘s interpretation of
the Department of Energy and the Environment and the Sustainable Energy Utility and its advisory board.” Amendment No. 1 to Bill No. 22-0904, D.C. Council, at 2 (Nov. 27, 2018) (emphasis added). It would be irrational and counterproductive to carve out short-term programs targeting small business consumers from this administrative structure when District-wide coordination of “any” energy efficiency program is the statute‘s manifest goal.
Having determined that the proposed programs fall within the statute‘s ambit, we further conclude that the consultation-with-the-DOEE-and-SEU provision in
In its brief to this court, the Commission takes a new approach and appears to argue that pursuant to its broad ratemaking authority under
marks omitted), alleviating any need to curb one for the benefit of the other. Section
Because Pepco was required by
III. Conclusion
For the foregoing reasons, we vacate the Commission‘s orders in relevant part and remand for further proceedings consistent with this opinion.
So ordered.