MARYLAND OFFICE OF PEOPLE‘S COUNSEL v. MARYLAND PUBLIC SERVICE COMMISSION
No. 1689
IN THE COURT OF SPECIAL APPEALS OF MARYLAND
January 28, 2016
REPORTED; September Term, 2014; Meredith, Arthur, Sharer, J. Frederick (Retired, Specially Assigned), JJ.
Opinion by Arthur, J.
The Circuit Court for Baltimore City affirmed the Commission‘s order after the Office of People‘s Counsel (“OPC“) petitioned
LEGISLATIVE BACKGROUND
A. Parties to this Appeal
This appeal involves three entities established by or regulated under the Public Utilities Article of the Maryland Code.
The Maryland Public Service Commission is an independent unit in the executive branch of State government (
BGE is a public service company regulated by the Commission. In general, public service companies have a duty to “furnish equipment, services, and facilities that are safe, adequate, just, reasonable, economical, and efficient, considering the conservation of natural resources and the quality of the environment.”
OPC is an agency that acts independently of the Public Service Commission. OPC has a duty to “appear before the Commission and courts on behalf of residential and noncommercial users in each matter or proceeding over which the Commission has original jurisdiction, including a proceeding on the rates, service, or practices of a public service company[.]”
B. Traditional Rate-Making Procedures
Title 4 of the Public Utilities Article governs the Commission‘s rate regulation authority. The Commission has “the power to set a just and reasonable rate of a public service company[.]”
In ordinary ratemaking proceedings, the Commission analyzes data from a prior “test year” to project a utility‘s future income and expenses:
The [Public Service Commission] establishes [just and reasonable] rates by examining the utility‘s income and expenses during a test year, calculating the rate base (the fair value of the property used and useful in rendering service) during that year, determining the utility‘s cost of capital (its required rate of return), and then multiplying that rate of return against the rate base. The result is the amount of income to which the utility is entitled. To the extent that level of income significantly differs from the test year‘s net income, the Commission orders an adjustment in the utility‘s rates – an increase or a decrease, as the case may be.
Bldg. Owners & Managers Ass‘n of Metro. Baltimore, Inc. v. Pub. Serv. Comm‘n of Maryland, 93 Md. App. 741, 753 (1992); see Office of People‘s Counsel v. Maryland Pub. Serv. Comm‘n, 355 Md. 1, 8 (1999) (citing Pub. Serv. Comm‘n of Maryland v. Baltimore Gas & Elec. Co., 273 Md. 357, 360 n.2 (1974)); Maryland People‘s Counsel v. Heintz, 69 Md. App. 74, 84-85 (1986).
In a conventional proceeding to set rates, the Commission will “calculate the test year‘s rate base, i.e., ‘the fair value of the company‘s property used and useful’ in rendering the service.” Severstal Sparrows Point, LLC v. Pub. Serv. Comm‘n of Maryland, 194 Md. App. 601, 620 (2010) (quoting
A recent rate case, In the Matter of the Application of the Washington Gas Light Company for Authority to Increase Its Existing Rates and Charges and to Revise Its Terms and Conditions for Gas Service, Order No. 84475, 102 Md. PSC 332 (2011), illustrates limits on this traditional recovery model. Along with a rate increase application, Washington Gas Light sought approval of an “Accelerated Pipe Replacement Plan,” by which it would finance replacement of its aging gas infrastructure through a customer surcharge. Id. at 341, 378-79. The Commission declined to approve that proposed surcharge, commenting that approving a surcharge merely because a company plans to increase its infrastructure investments “would represent a fundamental shift from long-standing rate-making principles[.]” Id. at 342; see also id. at 383. The Commission determined that the gas company could recover the costs of its plan by filing “more frequent rate cases” to adjust the rate “in smaller increments” after the assets were placed in service. Id. at 342.1
C. Enactment of the 2013 STRIDE Law
Between 2011 and 2013, the General Assembly considered a series of bills that would empower the Public Service Commission to authorize gas companies to promptly recover infrastructure replacement costs through a customer surcharge.2 The 2013 General Assembly enacted “An Act Concerning Gas Companies – Rate Regulation – Infrastructure Replacement Surcharge.” The proposal was commonly referred to as the Strategic Infrastructure Development and Enhancement (STRIDE) law. The law took effect on June 1, 2013. See
Pursuant to this section, a gas company may file “a plan to invest in eligible infrastructure replacement projects” accompanied by “a cost-recovery schedule . . . that includes a fixed annual surcharge to recover reasonable and prudent costs” of those projects.
The Commission is required to “take a final action to approve or deny the plan” within 180 days after the gas company files the plan.
The term “[e]ligible infrastructure replacement” is defined as “a replacement or an improvement in an existing infrastructure of a gas company that: (i) is made on or after June 1, 2013; (ii) is designed to improve public safety or infrastructure reliability; (iii) does not increase the revenue of a gas company by connecting an improvement directly to new customers; (iv) reduces or has the potential to reduce greenhouse gas emissions through a reduction in natural gas system leaks; and (v) is not included in the current rate base of the gas company as determined in the gas company‘s most recent base rate proceeding.”
The cost-recovery schedule associated with a plan must include a fixed annual surcharge, which may not exceed $2 per month for each residential customer, and which is capped pursuant to a formula for non-residential customers.
The statute sets forth specific requirements for calculating the “estimated cost” of each eligible project included in the plan.
A. BGE‘s Application
On August 2, 2013, one month after the effective date of the statute, BGE submitted an “Application . . . for Approval of a Gas System Strategic Infrastructure Development and Enhancement Plan and Accompanying Cost Recovery Mechanism.” According to the application, BGE wished to “accelerate significantly” the replacement of “gas system assets that have reached the end of their useful life,” in order to “enhance safety and reliability for its customers.”
BGE proposed to completely replace the oldest and most leak-prone components of its gas distribution system over a period of 30 years. The application stated that BGE planned to replace the entire population of five “asset classes.”4 According to BGE, those assets had been installed many decades ago, in most cases more than 50 years earlier.
BGE planned to invest a total of $400 million during the initial five-year period from 2014 to 2018. BGE proposed a monthly surcharge of $0.32 per residential customer and $1.87 per non-residential customer, beginning February 2014. The surcharge would then increase each year until 2017, when it would be capped at $2 per month for residential customers and $11.55 per month for non-residential customers.
Upon receiving the application, the Commission suspended the proposed rates and initiated proceedings to evaluate the plan. OPC participated in the proceedings to represent the interests of ratepayers.5
B. Hearing Before the Commission
The parties presented testimony and arguments at an evidentiary hearing on November 12, 13, and 14, 2013, in accordance with
In support of the application, four BGE executives testified regarding the details of the proposed infrastructure replacements, the expected customer benefits, and the customer surcharge. According to BGE‘s witnesses, the five “asset classes” described in the application represented only 21 percent of BGE‘s gas distribution system mileage, but had accounted for 73 percent of all gas leak repairs in 2012. BGE estimated that the plan would roughly double the existing rate at which BGE had been replacing its pipelines.
BGE‘s proposal envisioned that customers would begin paying a surcharge on their monthly bills contemporaneously with, and in many cases after, its upgrades of the gas-delivery infrastructure. For example, the company expected to invest $65 million in its STRIDE projects in 2014 and
OPC offered testimony from Dr. Karl Pavlovic, an energy industry consultant, who recommended that the Commission deny the application. Among other things, Dr. Pavlovic contended that BGE‘s plan was deficient in that it did “not identify or specify the investment costs” for replacing the targeted assets.
Dr. Pavlovic opined that BGE‘s proposed cost-recovery mechanism would contravene the established ratemaking principle that “investment cost recovery from rate payers does not begin until the associated assets are placed in service and used and useful.” He interpreted language from
Disputing Dr. Pavlovic‘s interpretation, BGE and its witnesses contended that the intent of the legislation was to accelerate improvements by providing for prompt cost recovery contemporaneously with the implementation of the projects.
The Commission‘s staff also participated in the hearing pursuant to
C. The Commission‘s Conditional Approval of the Application
On January 29, 2014, the final day of the 180-day period for consideration of the application (see
The Commission nevertheless found BGE‘s submissions to be lacking in a few important respects. Specifically, the Commission found that the BGE had not sufficiently identified the “time line for completion of each eligible project” and the “estimated cost of each project” pursuant to
According to BGE, the initial five year (2014-2018) estimated cost for its STRIDE Plan will be $400 million. BGE takes the position that each vintage asset class represents a “project.” Thus, according to BGE, the timeline for each project ranges from three years for the Ski-Bar risers to 30 years for cast iron main and copper services. However, we conclude that the term “project” in Section 4-210(d)(2) means something more specific, concrete and practical than a broadly outlined plan. In fact, the Company essentially concedes as much, since BGE agreed to file a detailed list of 2014 projects within 30 days of a Commission order approving its Plan, as Staff recommended, with the same level of detail as is found in the Company‘s annual gas distribution system report. In order for the Commission to conclude that each project is reasonable and prudent both from an infrastructure and cost standpoint, we condition approval of BGE‘s Plan . . . upon a Commission review of the time line and costs for each of BGE‘s projects.
The Commission directed BGE to file a list of projects to be initiated in 2014, along with the time lines and estimated costs for each project. The Commission gave BGE 30 days to file the list. It ordered that BGE could not implement the 2014 surcharge until after the Commission had approved the 2014 project list, time lines, and cost estimates. The Commission required BGE, each year thereafter, to submit information about projects for the upcoming year.
Addressing the question of statutory interpretation that had dominated much of the proceeding, the Commission concluded that BGE would not be required to await the completion of each infrastructure project before collecting the surcharge. The Commission recognized that “the new STRIDE statute represents a departure from traditional ratemaking principles.” The Commission emphasized that the express legislative purpose was that “reasonable and prudent costs” could be “recovered ‘separate from base rate proceedings.‘” Consistent with that reading, the Commission determined that the statutory provision “that estimated project costs ‘are collectible at the same time the eligible infrastructure replacement is made’ . . . authorizes contemporaneous cost recovery at the time eligible infrastructure replacement work is being performed.”
The Commission clarified, however, that “estimated project costs may not be recovered by the surcharge until BGE has begun making its initial STRIDE replacements.” In a footnote, the Commission added that it anticipated that approval of those submissions would be completed “at an Administrative Meeting after Staff and the Commission have had a reasonable time to review BGE‘s project filing.”
At the conclusion of Order No. 86147, the Commission ordered that BGE‘s STRIDE plan was “approved, subject to the acceptance by BGE of the conditions contained in this Order[.]” The Commission also ordered BGE to notify the Commission within 30 days whether it would accept all conditions contained in the order. Finally, the Commission ordered that the plan would be denied if BGE failed to do so.
D. Developments after the Conditional Approval
On February 21, 2014, BGE formally notified the Commission that it had accepted the conditions imposed by Order No. 86147. BGE submitted a list of 55 projects
Shortly thereafter, on February 27, 2014, OPC filed a petition for judicial review in the Circuit Court for Baltimore City. Both the Commission and BGE filed responses.
Meanwhile, OPC submitted comments to the Commission regarding BGE‘s 2014 projects. The parties again appeared at the Commission‘s administrative meeting on March 26, 2014, at which the Commission heard arguments, but did not receive any new sworn testimony. The Commission‘s staff announced that it had reviewed the project list and recommended that the Commission approve the completed application. The commissioners voted to approve the projects and to authorize BGE to impose the requested surcharges effective April 2014. The Commission issued a letter order after the meeting to formalize its decision.
In the action for judicial review in the circuit court, OPC challenged aspects of both Order No. 86147 and the March 26, 2014, letter order. Among other things, OPC contended that the Commission had erred by concluding that the statute authorized BGE to collect estimated project costs before the proposed projects were completed and by conditionally approving the plan before the Commission had received a list of projects. At a hearing on September 5, 2014, the circuit court issued an oral decision denying OPC‘s petition. On September 12, 2014, the circuit court entered an order affirming Order No. 86147.
OPC noted a timely appeal from the circuit court‘s judgment.
QUESTIONS PRESENTED
OPC presents the following two questions, which we quote:
- Did the Commission act unlawfully and in contravention of
PUA § 4-210(d)(3)(ii) , when it issued Order No. 86147, in which the Commission authorized BGE to begin collection of the estimated cost of each eligible infrastructure replacement before it was made? - Did the Commission act unlawfully when it issued Order No. 86147, in which the Commission approved BGE‘s STRIDE Plan even though the Commission found that the Plan did not consist of “projects” as expressly required by
PUA §§ 4-210(d)(1) and(e)(3) ?
As discussed below, OPC has failed to show that the Commission erred or otherwise acted unlawfully.
DISCUSSION
I.
The Public Utilities Article “sets forth the limited ‘scope of review’ . . . over decisions by the Public Service Commission.” Town of Easton v. Pub. Serv. Comm‘n, 379 Md. 21, 30 (2003). It states: “Every final decision, order, or regulation or the Commission is prima facie correct and shall be affirmed unless clearly shown to be: (1) unconstitutional; (2) outside the statutory authority or jurisdiction of the Commission; (3) made on unlawful procedure; (4) arbitrary or capricious; (5) affected by other error of law; or (5) if the subject of review is an order
The appellate court‘s task is to review the Commission‘s decision, not the decision of the circuit court. See Mid-Atlantic Power Supply Ass‘n v. Maryland Pub. Serv. Comm‘n, 143 Md. App. 419, 432 (2002).
A. Commission‘s Interpretation of Cost Collection Provisions
As the primary issue in this appeal, OPC contends that an “error of law” affected the Commission‘s order. OPC specifically contends that the Commission erred when it interpreted the statute as authorizing a gas company to recover estimated project costs after the initial implementation of the projects and before the completion of each project. OPC‘s challenge concerns the language of a provision describing the “estimated costs” included with a gas company‘s infrastructure replacement plan: “The estimated project costs . . . are collectible at the same time the eligible infrastructure replacement is made.”
In a section of the opinion titled “OPC‘s Objections,” the Commission wrote:
OPC argued that project costs may not be included in the surcharge until projects are completed. The traditional rate base recovery models have only allowed utilities to collect revenues based upon assets that are currently used and useful. However, in this case there is legislation that specifically states that the estimated project costs “are collectible at the same time the eligible infrastructure replacement is made,” and that reasonable and prudent costs shall be recovered “separate from base rate proceedings.” The statute authorizes contemporaneous cost recovery at the time eligible infrastructure replacement work is being performed.
The parties disagree over the appropriate weight that should be given to this interpretation.
Generally, “[a] great deal of discretion is necessarily vested in the Commission in order that it may properly discharge its important and complex duties.” People‘s Counsel v. Pub. Serv. Comm‘n, 52 Md. App. 715, 722 (1982). “Because the Commission is well informed by its own expertise and specialized staff, a court reviewing a factual matter will not substitute its own judgment on review of a fairly debatable matter.” Communications Workers of Am. v. Pub. Serv. Comm‘n, 424 Md. 418, 433 (2012) (citing Pub. Serv. Comm‘n of Maryland v. Baltimore Gas & Elec. Co., 273 Md. 357, 362 (1974)). In contrast to administrative findings of fact, questions of law, including the proper construction of a statute, are subject to more plenary review by the courts. Office of People‘s Counsel v. Maryland Pub. Serv. Comm‘n, 355 Md. 1, 14 (1999). An agency‘s interpretation of a statute that it administers “may be entitled to some deference,” but “[t]hat deference is, by no means, dispositive” and not as great as the deference owed to factual findings. Id.
“The weight to be accorded an agency‘s interpretation of a statute depends upon a number of considerations.” Id. at 17 (quoting Baltimore Gas & Elec. Co. v. Pub. Serv. Comm‘n, 305 Md. 145, 161 (1986)) (quotation marks omitted). These considerations include whether agency officials adopted their view “soon after its passage” (Office of People‘s Counsel v. Maryland Pub. Serv. Comm‘n, 355 Md. at 16), whether the interpretation “has been
OPC urges this Court to grant little or no weight to the Commission‘s interpretation of
OPC asserts that the Commission provided “little (if any) elaboration in formulating its interpretation.” According to OPC, “the Commission‘s discussion and interpretation – in its entirety – of . . .
Further examination of the record reveals that the adversarial presentation of this issue sharpened the Commission‘s statutory analysis. In addition to written testimony regarding the meaning of the subparagraph, one of the commissioners examined OPC‘s witness, Dr. Pavlovic, regarding OPC‘s preferred interpretation. OPC‘s expert testified that the statute‘s reference to the “time” when a gas company makes a replacement could refer to a number of things, including “when the underlying asset is in the process of being put in the ground” or “not until . . . the asset is in the ground and functioning.” He opined that the Commission should equate the time the eligible infrastructure replacement “is made” with the time that the replacement has been “placed in service.”
The commissioner asked Dr. Pavlovic to explain why the statute would refer to the recovery of “estimated” costs if the gas company could not collect the costs until the replacement had been “placed in service,” when the actual costs would already be known. Dr. Pavlovic commented that the reference to a cost estimate amounted to “an inconsistency or ambiguity as it were in the legislation.” He encouraged the Commission to use its own expertise where the statute was “unclear” and to resolve the question by applying principles of the conventional recovery model. The commissioner, by contrast, expressed doubt that there would be any need for the new statute if the traditional cost-recovery principles continued to apply:
[COMMISSIONER:] But coming back to your testimony, you would have liked the statute to have said placed in service before cost could be recovered?
DR. PAVLOVIC: I would like the statute to have said placed in service, recovery – this provision is talking about the recovery. Recovery will begin when the asset is placed in service. [COMMISSIONER:] I know you‘re not a lawyer, but a lot of your testimony deals with your view of the statute. . . . That‘s why I‘m trying to clarify in my mind, if the statute wanted to say placed in service, it could have easily said placed in service. That‘s a pretty common phrase in utility regulation; is it not?
DR. PAVLOVIC: Yes.
[COMMISSIONER:] Are you familiar at all with the concept that if somebody thinks part of the statute is ambiguous, that you have to try to read the statute as a whole so that no terms are rendered meaningless or incorrect?
DR. PAVLOVIC: Yes.
[COMMISSIONER:] So if we took your reading of the statute that the recovery only occurs after the asset is placed in service, what do we do with the estimated budget cost of that same subsection of the statute?
After reading the language once more, Dr. Pavlovic commented, “the statute, it‘s difficult here.” He concluded his answer by saying: “I mean to square this provision with, as I said, what I understand to be the overall intent, which is to apply the traditional revenue requirement model to the recovery of this investment, but to – in a more timely manner, I can‘t make these completely consistent and I certainly admit that.”
Like the Commission‘s written explanation of its decision, the hearing transcript demonstrates that the agency engaged in a thorough reasoning process in formulating its interpretation. Normally, this Court owes deference when an agency has “carefully considered the statutory language during an adversarial adjudicatory proceeding and issued [a] formal, written opinion[] that detail[s] the reasons for reaching its conclusion,”
as long as the agency‘s interpretation does not clearly violate the wording of the statute. Injured Workers’ Ins. Fund v. Subsequent Injury Fund, 222 Md. App. 347, 357 n.7 (concluding that this Court normally would defer to an interpretation expressed by the Workers’ Compensation Commission in written opinion after adversarial hearing, but ultimately holding that the relevant language unambiguously supported the agency‘s interpretation), cert. granted, 443 Md. 234 (2015).
Giving weight to the Commission‘s interpretation would be particularly appropriate here where even OPC, the party challenging the Commission‘s interpretation, advanced the position that the statute was ambiguous and encouraged the agency to use its expertise to determine the meaning of potentially ambiguous terms. See Baltimore Gas & Elec. Co. v. Pub. Serv. Comm‘n, 305 Md. at 159 (stating that the presence of a vague term susceptible to more than one interpretation “in an administrative statute such as the Public Service Commission Law suggests that the General Assembly intended to entrust the formulation of specific standards to the technical expertise of those charged with enforcing the statute“). As compared to this Court, the Commission certainly possesses far greater expertise in deciding how to accomplish the legislative purpose of accelerating infrastructure improvements through a surcharge.
We are unconvinced that the Commission‘s interpretation carries minimal or no authoritative weight. Because the Commission
B. Meaning of Section 4-210(d)(3)(ii) of the Public Utilities Article
When interpreting a provision of the
OPC contends that the Commission violated these principles by “improperly substitut[ing] its own preferred words, phrases, and tenses that the Commission believed the General Assembly should have chosen.” OPC highlights some differences between the words of
But even as it criticizes the Commission for rewriting (or, more precisely, paraphrasing) the statutory language, OPC then goes on to offer its own paraphrase of
OPC‘s analysis focuses most acutely upon a single word - “made.” OPC asserts
OPC‘s parsing of the sentence is flawed. An example of the verb “to make” used in the “simple past tense” is: “The gas company made a replacement.” Subparagraph (d)(3)(ii), however, does not employ that formulation. Instead, the subparagraph uses the word “made” as a participle along with the present tense verb “is” - the estimated costs become collectible at the same time the replacement “is made.” In other words, subparagraph (d)(3)(ii) uses the verb “to make” in the present tense, but in the passive voice. A simplified example of that passive formulation is: “The replacement is made by the gas company.” The active-voice equivalent of that sentence is: “The gas company makes the replacement,” using the present tense. Translated from the passive to the active voice, the meaning of “at the same time the eligible infrastructure replacement is made” is substantially similar to “at the same time the gas company makes the eligible infrastructure replacement.”
OPC‘s interpretation might be accurate if the statutory language had employed the passive voice and the present perfect tense, so that it provided that estimated project costs become collectible at the same time “the eligible infrastructure replacement has been made.” That reading, however, would not reflect the language as actually enacted, in the passive voice and present tense.
Our ultimate question of interpretation is to determine when the “estimated project costs . . . are collectible[.]”
Depending on the context, a reference to the “time” something “is made” could refer to either the period of time during which something is being made (“we‘ll listen to music while dinner is made“) or the point in time when the process of making something has been completed (“dinner is made; let‘s eat“). In subparagraph (d)(3)(ii), the potential ambiguity is resolved by the clarifying phrase “at the same time.” Under OPC‘s interpretation, the “time” an infrastructure replacement “is made” represents a discrete instant: after that moment, the gas company may recover a surcharge, but before that moment, the company may not recover anything. The statute, however, contemplates that the surcharge will be paid not at one discrete time, but over a long period of time. Specifically, the surcharge “shall be in effect for 5 years from the date of initial implementation of an approved plan,” and the surcharge may continue for certain
Under OPC‘s reading, a gas company would never be permitted to collect the costs “at the same time” the replacement “is made“; it could recover costs only after the replacement has been made or completed. The timing of the two actions (replacement and collection) would always be different and would never be “the same.” OPC‘s interpretation at worst contradicts the meaning of the phrase “at the same time,” and at best renders that term meaningless.8 Under fundamental principles of construction, we must reject OPC‘s interpretation because it fails to account for the General Assembly‘s use of the word “same.” See, e.g., Chow v. State, 393 Md. 431, 453-55 (2006) (rejecting interpretation of statute that would render word “transfer” in statute meaningless or nugatory).
Of course, to understand the meaning of statutory language, we must look beyond individual words and clauses to the larger context, including other surrounding provisions and the apparent purpose of the enactment. See, e.g., Williams v. Peninsula Regional Med. Ctr., 440 Md. 573, 580-81 (2014) (citing Lockshin, 412 Md. at 275-76). This additional context casts further doubt upon OPC‘s suggested interpretation.
This sentence in
Other portions of the statute are explicitly backward-looking. Most notably, the statute requires a gas company, after the approval of a plan, to file an annual reconciliation “to adjust the amount of a surcharge to account for any difference between the actual cost of a plan and the actual amount recovered under the surcharge.”
Subsection (d) is not the only provision to address cost collection. Elsewhere, the statute directs: “A surcharge under this section shall be in effect for 5 years from the date of initial implementation of an approved plan.”
At best, OPC‘s reading is in substantial tension with many features of the statute. OPC‘s interpretation would render the word “same” in
C. Effect of “Just and Reasonable Rate” Definition of PUA § 4-101
OPC largely ignores the tension between its strained interpretation of subparagraph (d)(3)(ii) and the surrounding provisions. OPC does, however, encourage this Court to look beyond the statute and to infuse the reading of section 4-210 with other factors usually considered in the traditional rate-of-return regulatory model. We reject that approach because, by all objective indications, the STRIDE law represents a departure from that conventional model.
OPC posits that, because a surcharge is a “rate,” the surcharge must also meet the enumerated requirements of a “just and reasonable rate.” Within the rate regulation title, the term “‘just and reasonable rate’ means a rate that: (1) does not violate any provision of [the Public Utilities A]rticle; (2) fully considers and is consistent with the public good; and (3) . . . will result in an operating income to the public service company that yields, after reasonable deduction for depreciation and other necessary and proper expenses and reserves, a reasonable return on the fair value of the public service company‘s property used and useful in providing service to the public.”
In response, the Commission argues that it makes little sense to attempt to “reconcile” the new STRIDE surcharge mechanism with traditional recovery models. The Commission concedes that, in the traditional ratemaking context, the Commission “disfavors tracker surcharges” that permit a utility to begin recovering costs from ratepayers immediately upon expenditure. The Commission argues, however, that the General Assembly “has expressed a clear desire that the Commission deviate from that position” when evaluating surcharges under the STRIDE law because the language of
OPC‘s argument has a number of infirmities. First and foremost, the defined term “just and reasonable rate” does not appear in section 4-210. The General Assembly easily could have incorporated the “used and useful” component by adding the defined term “just and reasonable rate” to surcharge provisions of the STRIDE law. We must respect the legislature‘s choice not to do so. See, e.g., Toler v. Motor Vehicle Admin., 373 Md. 214, 223-24 (2003) (explaining that decision to employ defined term in one section but different term in another part of statute dealing with same overall
The statute here conspicuously indicates the opposite of any intention to make the surcharge comport with the methods of traditional base rate cases. The General Assembly expressly stated its intent to “establish[] a mechanism for gas companies to promptly recover reasonable and prudent costs . . . separate from base rate proceedings.”
The General Assembly established new and distinct standards for evaluating a request for a customer surcharge pursuant to the STRIDE law. Specifically, the STRIDE surcharge is designed “to recover reasonable and prudent costs of proposed eligible infrastructure replacement projects.”
The STRIDE law is not the first instance in which the General Assembly has established a rate mechanism procedurally and substantively distinct from conventional ratemaking. In Office of People‘s Counsel v. Maryland Pub. Serv. Comm‘n, 355 Md. 1 (1999), the Court of Appeals rejected the notion that rates set outside the traditional regulatory scheme must strictly satisfy the statutory criteria for “just and reasonable rates.” In 1995, the General Assembly had enacted legislation authorizing an alternative method for setting telecommunications rates, to permit greater price flexibility than was provided by the traditional recovery model. Id. at 9. The 1995 statute (currently codified at
OPC challenged that price regulation, contending that the “affordable and reasonably priced” criterion of the new statute was in addition to, rather than a substitute for, the definition of “just and reasonable rates.” Id. at 20-21. Rejecting that view, the Court focused upon the statutory definition of “just and reasonable rates,” which included the requirement that rates “‘will result in an operating income to the public
Similarly, in Severstal Sparrows Point, LLC v. Pub. Serv. Comm‘n of Maryland, 194 Md. App. 601, 620 (2010), this Court concluded that the definition of a “just and reasonable rate” in
Consistent with these authorities, we conclude that the Commission is not required to evaluate the justness and reasonableness of a customer surcharge under the 2013 STRIDE law based strictly on criteria that are associated with the traditional base rate recovery models. Section 4-210 authorizes a surcharge “outside the traditional ratemaking process.” Severstal Sparrows Point, 194 Md. App. at 619 (citing Office of People‘s Counsel v. Maryland Pub. Serv. Comm‘n, 355 Md. at 23). The Code undoubtedly mandates that BGE charge “just and reasonable” rates for its gas service. See
Even if we agreed that this statute were reasonably susceptible to the alternative interpretation offered by OPC, our next task would be to consult “other indicia of legislative intent . . . , including the relevant statute‘s legislative history, the context of the statute within the broader legislative scheme, and the relative rationality of competing constructions.” Harrison-Solomon v. State, 442 Md. 254, 265-66 (2015) (citing Witte v. Azarian, 369 Md. 518, 525-26 (2002)). OPC‘s reading finds no support in these sources.
The Commission‘s construction is faithful to the express “purpose and intent” of the General Assembly, which was “to accelerate gas infrastructure improvements . . . by establishing a mechanism for gas companies to promptly recover reasonable and prudent costs . . . separate from base rate proceedings.”
Although there is little need to look beyond the pages of the
The report goes on to assess the probable effect of the legislation on ratepayers, operating under that assumption: “[T]here is a mismatch between the recovery of infrastructure costs and the benefits from the infrastructure investment. As a result, it could be said that the risk of recovery for the company is reduced - i.e. shifted to ratepayers by virtue of the fact that ratepayers pay for the costs earlier.” Id. at 8. Because the Court of Appeals has often treated similar materials as persuasive evidence of the apparent intent of the General Assembly (e.g. Gomez v. Jackson Hewitt, Inc., 427 Md. 128, 177-78 (2012); Moore v. State, 388 Md. 623, 635-36 & n.4 (2005)), it would also be appropriate to do so here.
In addition to its “plain language” arguments, OPC rounds out its brief with some criticisms of the policy of allowing utilities to begin recovering costs before assets have been placed in service. OPC and other interested parties presented these and other concerns to members of the General Assembly at a hearing of the Senate Finance Committee on January 7, 2013.11 In our view, OPC‘s policy criticisms should be directed to the General Assembly, not to the Maryland courts.
The essence of OPC‘s argument is that, by enacting these words - “the estimated project costs . . . are collectible at the same time the eligible infrastructure replacement is made” - the General Assembly prohibited gas companies from recovering estimated costs until after each project has been completed. Although OPC argues that that is “plain” to OPC, it was not plain to the Department of Legislative Services, or to the parties who protested to the General Assembly that the legislation would enable gas companies to begin charging customers before benefits accrued to those customers. Even Dr. Pavlovic, OPC‘s expert witness before the Commission, did not contend that the statute “plainly” or unambiguously dictates OPC‘s preferred result.
The statute neither says nor means that “costs may not be collected from residential ratepayers in the STRIDE surcharge until (and unless) each STRIDE project . . . has been ‘made,’ or completed[.]” Properly construed, “[t]he statute authorizes contemporaneous cost recovery at the time eligible infrastructure replacement work is being performed.” The Commission did not err.
II.
As its first issue in this appeal, OPC challenged the correctness of an interpretation of the statute expressed in the Commission‘s opinion. OPC‘s second asserted grounds are nowhere near as clearly defined as the first. Throughout its brief and reply brief, OPC variously accuses the Commission of “act[ing] unlawfully,” “exceed[ing] its statutory authority,” “refus[ing] to follow clear statutory mandates,” ignoring “procedural requirements,” making an “improper reading of the law,” erring in “how it applied [its] interpretations to the facts,” and making a decision based on information that was “not in the evidentiary record[.]”
In considering these arguments, we are again guided by the standard of judicial review, under which “Commission decisions are presumptively correct” (People‘s Counsel v. Pub. Serv. Comm‘n, 52 Md. App. at 722), and the petitioner bears the burden to “clearly show[]” the Commission‘s decision to be unconstitutional, outside statutory authority, made on unlawful procedure, arbitrary or capricious, affected by legal error, or unsupported by substantial evidence.
OPC‘s characterization of this alleged error varies, but OPC does advance one unifying theme. According to OPC, “the Commission erred when it failed to follow the express language in
Although paragraph
In its opinion, the Commission expanded upon the meaning of the term “project.” BGE had taken the position that each “asset class” qualified as a single “project.” Operating on that assumption, BGE submitted time lines ranging from three years to 30 years for the replacement of the different asset classes, while providing total cost estimates for each the initial five years of implementation. The Commission concluded that these general estimates were inadequate, explaining that “the term ‘project’ in [s]ection 4-210(d)(2) means
The Commission “agree[d] with OPC in its interpretation” that the gas company must submit project costs and time lines for each project so that the Commission could “establish the reasonableness and prudence of the projects.” The Commission declared that “BGE must meet the statutory requirements to provide the costs and timeline for completion of each project before surcharge recovery may commence.” Thus, contrary to OPC‘s assertion on appeal, the Commission did not authorize “BGE to begin recovering estimated costs . . . even though it determined the plan had no ‘projects.‘” In fact, the Commission did the opposite. The immediate effect of Order No. 86147 was to prohibit BGE from imposing the surcharge as of January 29, 2014, subject to later review of a list of 2014 projects.13
OPC takes no issue with the Commission‘s conclusions about the level of specificity required for the “projects” included with a gas company‘s plan, and OPC agrees with the conclusion that review of a project list, along with estimated costs and time lines, was necessary before authorizing the surcharge. Moreover, OPC has not disputed that BGE complied with the Commission‘s conditions when it submitted the necessary project list on February 21, 2014, which the Commission subsequently reviewed and approved at the administrative meeting on March 26, 2014. For that reason, by the time that the Commission actually authorized BGE to begin collecting the customer surcharge, the substantive basis for OPC‘s objections no longer existed: BGE had identified “projects” for 2014, and the Commission had reviewed the reasonableness and prudence of those projects as required by the statute. The same characteristic of Order No. 86147 to which OPC objects - the Commission‘s multi-step process for reviewing the plan - was precisely the feature that ensured that the ultimate decision would comport with the statute.
OPC protests, however, that by inviting BGE to make “after-the-fact changes to its plan,” the Commission “prevent[ed] full review prior to approval of the plan[.]” OPC theorizes that “the project modifications and surcharge changes” from BGE‘s filing on February 21, 2014, “amounted to amendments that should have been treated under the 120-day schedule provided for in paragraph (e)(2).” Yet assuming that the Commission should have treated BGE‘s updated project list as an amendment, the Commission was not necessarily required to wait any particular period of time or to conduct a full hearing before acting on those amendments. The statute sets a 120-day maximum period for considering an amendment, not a 120-day minimum. See
On appeal in BOMA, OPC contended that the Commission had acted arbitrarily, acted without substantial evidence, and deprived ratepayers of due process when it approved the second rate increase without a new proceeding and a full hearing. Id. at 768-69. This Court rejected those arguments, holding that the Commission did not abuse its discretion or act unlawfully by refusing to require an entirely new, and largely duplicative, rate case. Id. at 771-72. In light of the reasoning of BOMA, there is nothing inherently objectionable about the type of multi-step procedure used here by the Commission.
After a contested hearing in this case, the Commission had already determined, based on BGE‘s initial submissions, that projects to replace assets in the categories targeted by BGE would qualify as eligible infrastructure replacement projects and would improve public safety and infrastructure reliability. The Commission required more information to reach a conclusion as to whether “each proposed project [wa]s reasonable and prudent both from an infrastructure and cost standpoint,” in accordance with
OPC argues that, under these circumstances, such a “conditional approval” was unlawful, and that the Commission‘s only option was to deny BGE‘s application. In essence, OPC asks this Court to invalidate the Commission‘s approval of the 2014 projects and surcharge and to send all parties back to the beginning of the process. OPC concludes: “if BGE wishes to proceed again under
The Commission has already provided that relief (“an opportunity to determine what, if any, of BGE‘s projects meet the
CONCLUSION
For the reasons stated in this opinion, we affirm the judgment of the circuit court, which affirmed the decision of the Public Service Commission. OPC has not clearly shown that the Commission based its decision on an error of law or that the decision was otherwise unlawful.
JUDGMENT OF THE CIRCUIT COURT FOR BALTIMORE CITY AFFIRMED. COSTS TO BE PAID BY APPELLANT.