People's Counsel v. Public Serv. Comm'n ( 2016 )

REPORTED
IN THE COURT OF SPECIAL APPEALS
OF MARYLAND
No. 1689
September Term, 2014
______________________________________
MARYLAND OFFICE OF PEOPLE’S
COUNSEL
v.
MARYLAND PUBLIC SERVICE
COMMISSION
______________________________________
Meredith,
Arthur,
Sharer, J. Frederick
(Retired, Specially Assigned),
JJ.
______________________________________
Opinion by Arthur, J.
______________________________________
Filed: January 28, 2016
In 2013 the General Assembly enacted legislation enabling regulated gas
companies to recover the estimated costs of certain infrastructure replacement projects
through a surcharge on customer bills. See Md. Code (1998, 2010 Repl. Vol., 2014
Supp.), § 4-210 of the Public Utilities Article (“PUA”). Shortly after the statute took
effect, Baltimore Gas and Electric Company (“BGE”) sought approval of a plan to
accelerate the replacement of outdated gas distribution infrastructure and to begin
imposing a customer surcharge during the initial implementation of the plan. The Public
Service Commission approved the plan, subject to the condition that BGE could not
implement the surcharge until it submitted additional information about the individual
infrastructure projects that were to be undertaken in 2014.
The Circuit Court for Baltimore City affirmed the Commission’s order after the
Office of People’s Counsel (“OPC”) petitioned for judicial review. On appeal, OPC
contends: (1) that the Commission erred by authorizing BGE to collect estimated project
costs before the completion of each project; and (2) that the Commission acted
unlawfully by conditionally approving the plan before the Commission had evaluated the
individual projects. We conclude that OPC has shown no basis for reversing the
Commission’s decisions.
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 (PUA § 2-101(b)), with jurisdiction over public service
companies that operate utility businesses within the State. PUA § 2-112(a). The
Commission’s primary duties are to “supervise and regulate” the companies subject to its
jurisdiction to “ensure their operation in the interest of the public” and to “promote
adequate, economical, and efficient delivery of utility services in the State without unjust
discrimination[.]” PUA § 2-113(a)(1)(i).
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.” PUA § 5-303. BGE provides gas
service to approximately 655,000 customers across 800 square miles in Baltimore City
and central Maryland.
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[.]” PUA § 2-204(a)(2).
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[.]” PUA § 4-102(b). A public service company has a corresponding
duty to “charge just and reasonable rates for the regulated services that it renders.” PUA
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§ 4-201.
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 PUA § 4-101(3)). A public service
company ordinarily is not entitled to recover costs simply because the costs were incurred
prudently; instead, the Commission normally requires the company to show that the costs
relate to an asset “used and useful” in providing service. E.g. Columbia Gas of
Maryland, Inc. v. Pub. Serv. Comm’n of Maryland, 224 Md. App. 575, 584-86 (2015)
(holding that Commission did not err in denying portion of gas company’s request for
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rate increase that sought to recover anticipated remediation costs for property not used
and useful in providing gas service).
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
1
Although the Commission has rejected several requests from utilities to approve
surcharges to recover costs contemporaneously with improvements, in 2013 the
Commission authorized Pepco, an electric distribution company, to impose a “tracker”
surcharge mechanism to finance accelerated projects to improve grid resiliency. On an
appeal resulting from that decision, this Court affirmed the Commission’s order without
reaching the issue of whether the Commission has exceeded its statutory authority in
approving the surcharge, as that issue had not been raised before the Commission.
Maryland Office of People’s Counsel v. Maryland Pub. Serv. Comm’n, ___ Md. App.
___, No. 2173, Sept. Term 2014, slip op. at 26-28 (filed Dec. 15, 2015).
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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 2013 Md. Laws, ch. 161, § 2.
The legislation added section 4-210 to the Public Utilities Article. This new
section includes an express statement of legislative intent: “It is the intent of the General
Assembly that the purpose of this section is to accelerate gas infrastructure improvements
in the State by establishing a mechanism for gas companies to promptly recover
reasonable and prudent costs of investments in eligible infrastructure replacement
projects separate from base rate proceedings.” PUA § 4-210(b).
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. PUA § 4-210(d)(1). A plan filed by a gas company must include: “(i) a time
line for the completion of each eligible project; (ii) the estimated cost of each project; (iii)
a description of customer benefits under the plan; and (iv) any other information the
2
See S.B. 8, 2013 Reg. Sess. (cross-filed as H.B. 89); S.B. 541, 2012 Reg. Sess.
(cross-filed as H.B. 662); S.B. 332, 2011 Reg. Sess. (cross-filed as H.B. 856).
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Commission considers necessary to evaluate the plan.” PUA § 4-210(d)(2).
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. PUA § 4-210(e)(1)(ii). The
Commission “may approve a plan if it finds that the investments and estimated costs of
eligible infrastructure replacement projects are: (i) reasonable and prudent; and (ii)
designed to improve public safety or infrastructure reliability over the short term and long
term.” PUA § 4-210(e)(3).
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.” PUA § 4-210(a)(3).
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. PUA § 4-210(d)(4)(i).
After the approval of a plan, the gas company must 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.” PUA § 4-210(h). A
surcharge established by the cost-recovery schedule “shall be in effect for 5 years from
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the date of initial implementation of an approved plan.” PUA § 4-210(g)(1)(i).
The statute sets forth specific requirements for calculating the “estimated cost” of
each eligible project included in the plan. PUA § 4-210(d)(3). Of central importance to
the instant appeal is a statutory provision that specifies when the estimated project costs
may be recovered through the surcharge. Subparagraph (d)(3)(ii) provides that the
“estimated project costs . . . are collectible at the same time the eligible infrastructure
replacement is made.” PUA § 4-210(d)(3)(ii) (emphasis added).3
FACTUAL AND PROCEDURAL BACKGROUND
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
3
In full, subparagraph (d)(3)(ii) states: “The estimated project costs described in
subparagraph (i) of this paragraph are collectible at the same time the eligible
infrastructure replacement is made.” Subparagraph (i) provides that when calculating the
estimated cost of each project, the gas company shall include the pretax rate of return on
the company’s investment in the project, as well as depreciation and property taxes
associated with the project. PUA § 4-210(d)(3)(i). Subparagraph (i) cross-references
paragraph (2) of the subsection, which states that “[a] plan under this subsection shall
include . . . the estimated cost of each project[.]”
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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 PUA § 3-107 and COMAR 20.07.02.
In support of the application, four BGE executives testified regarding the details of
4
The application identified the assets as: “(1) pre-1982 plastic ‘Ski-Bar’ service
risers, (2) Bare Steel Main, (3) Cast Iron Main, (4) Bare Steel Services, and (5) Copper
Services.” In industry terminology, “mains” are gas distribution lines that serve as a
common source for “service lines” that supply gas to individual customer meters.
“Risers” are components that protect the service line as it transitions upward from below
ground to the customer’s meter above the ground.
5
Maryland Energy Group and W.R. Grace & Co., groups comprised of large
industrial and non-profit energy users, also intervened. Those parties submitted an initial
brief, but presented no witnesses at the eventual hearing.
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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 to collect $3 million from customers that year.
According to BGE, the total charges collected over five years would cover less than 10
percent of BGE’s cumulative investments in the projects. The company would then
recover the remainder of the costs over the useful life of the replaced assets.
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 PUA § 4-210(d)(3)(ii), stating that “estimated
project costs . . . are collectible at the same time the eligible infrastructure replacement is
made,” to mean that “project costs can be included in the surcharge once a project is
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completed.” (Emphasis added.) According to Dr. Pavlovic, the surcharge should not be
based on future cost projections, but “should be calculated on actual historical costs in a
[12] month period and collected over the subsequent 12 month period.” The foundation
of his interpretation was his understanding that cost recovery under the new statute
should be “consistent with the principles underlying the revenue requirement model[.]”
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 PUA §
3-104(e). A staff engineer commented that BGE’s submissions were not detailed enough
for staff to evaluate whether the plan met all statutory requisites for approval, because
BGE had not identified specific projects to be implemented. The staff recommended that
the Commission direct BGE to present a more detailed list of proposed 2014 projects
within 30 days after an initial order, so that the Commission staff could ensure that each
project met eligibility requirements. A BGE representative agreed to supply the
remaining necessary information after the conclusion of the case.
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 PUA § 4-210(e)(1)), the Commission issued Order No. 86147. The
Commission set forth its findings and conclusions in a 40-page opinion that accompanied
the order. The Commission declared: “[W]e find that BGE’s Application meets the
requirements of [s]ection 4-210 and we conditionally grant the Company’s request. . . .
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We approve the proposed cost recovery surcharge subject to the requirements set forth in
[s]ection 4-210 and this Order.”
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 PUA § 4-210(d)(2)(i) and (ii). (Emphasis added.) As a
result, the Commission could not yet determine whether the proposed investments and
estimated costs were “reasonable and prudent” to qualify for approval under PUA §
4-210(e)(3). The Commission wrote:
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
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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.
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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 to be
initiated in 2014, “including project description, location, estimated cost, type of
infrastructure replaced, risk assessment . . . , estimated project completion date[,] and
reasons for replacement.” Citing changed circumstances since the initial application,
BGE estimated a decrease in capital expenditures for 2014 projects. BGE also asked the
Commission to authorize higher surcharges for residential customers and for most
categories of non-residential customers.
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
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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:
1. 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?
2. 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)
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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 entered in a contested proceeding after a
hearing, unsupported by substantial evidence on the record considered as a whole.” PUA
§ 3-203 (emphasis added).
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.”
PUA § 4-210(d)(3)(ii).
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.
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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 applied consistently and for a long period of time,” “the extent to
which the agency engaged in a process of reasoned elaboration in formulating its
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interpretation,” and “the nature of the process through which the agency arrived at its
interpretation[.]” Id. at 17 (quoting Baltimore Gas & Elec. Co. v. Pub. Serv. Comm’n,
305 Md. at 161-62) (quotation marks omitted).
OPC urges this Court to grant little or no weight to the Commission’s
interpretation of PUA § 4-210(d)(3)(ii), because these proceedings presented the
Commission with its “first opportunity” (Wallace H. Campbell & Co., Inc. v. Maryland
Comm’n on Human Relations, 202 Md. App. 650, 671 (2011)) to construe the newly
enacted statute. Although this 2014 interpretation of the 2013 law had not yet been
applied consistently over a long period of time, other relevant considerations indicate that
the Commission’s interpretation deserves deference.
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 . . . PUA § 4-210(d)(3)(ii)” consists of a single
paragraph. We disagree that the Commission’s analysis was so limited. Earlier portions
of the opinion extensively discussed competing interpretations of the provision offered by
the parties. The opinion included analysis of section 4-210 in its entirety, from which the
Commission drew inferences regarding how the legislature intended to motivate gas
companies to accelerate infrastructure replacements. The opinion later cited
subparagraph (d)(3)(ii) to support the conclusion that “estimated project costs may not be
recovered by the surcharge until BGE has begun making its initial STRIDE
replacements[.]” As a whole, the well-considered opinion provided a reasoned
elaboration of this provision within its statutory context.
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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
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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,”
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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 has “clearly demonstrate[d] that it has
focused its attention on the statutory provisions in question, thoroughly addressed the
relevant issues, and reached its interpretation through a sound reasoning process,” its
interpretation should “be accorded the persuasiveness due a well-considered opinion of
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an expert body.” Office of People’s Counsel v. Maryland Pub. Serv. Comm’n, 355 Md. at
17 (quoting Baltimore Gas & Elec. Co. v. Pub. Serv. Comm’n, 305 Md. at 161-62)
(quotation marks omitted). As explained below, however, even upon a plenary review of
this issue, we would arrive at the same answer as the Commission.
B. Meaning of Section 4-210(d)(3)(ii) of the Public Utilities Article
When interpreting a provision of the Public Utilities Article, as with any other
statute, we first examine the ordinary meaning of the enacted language, “reading the
statute as a whole to ensure that no word, clause, sentence or phrase is rendered
surplusage, superfluous, meaningless or nugatory.” Peters v. Early Healthcare Giver,
Inc., 439 Md. 646, 665 (2014) (quoting Nichols v. Suiter, 435 Md. 324, 339 (2013))
(quotation marks omitted). A court may neither add nor subtract words to alter the
meaning of statutory terms and must avoid forced or subtle constructions that limit or
extend a statute’s application. See, e.g., Clipper Windpower, Inc. v. Sprenger, 399 Md.
539, 553 (2007). “In every case, the statute must be given a reasonable interpretation, not
one that is absurd, illogical, or incompatible with common sense.” Espina v. Jackson,
442 Md. 311, 322 (2015) (citations omitted); Lockshin v. Semsker, 412 Md. 257, 276
(2010).
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 PUA § 4-210(d)(3)(ii) (“estimated project costs . . . are collectible at the
same time the eligible infrastructure replacement is made”) and words from the
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conclusion stated in the opinion: “The statute authorizes contemporaneous cost recovery
at the time eligible infrastructure replacement work is being performed.” According to
OPC, the Commission “rewrote” the provision to say that “estimated project costs . . . are
collectible at the time the eligible infrastructure replacement work, including
preconstruction planning, has begun or is being performed.”6
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
PUA § 4-210(d)(3)(ii). According to OPC, subparagraph (d)(3)(ii) means that “STRIDE
Project costs may not be collected from residential ratepayers in the STRIDE surcharge
until (and unless) each STRIDE project for which ratepayers are being charged has been
‘made,’ or completed.” (Emphasis added.)
OPC’s analysis focuses most acutely upon a single word – “made.” OPC asserts
that “the verb ‘made’” was “used in its simple past tense.” Citing online dictionaries,
OPC tells us: “‘Made’ means ‘built, formed, or shaped in a particular way.’ . . . Further,
‘made is the ‘simple past tense and past participle of ‘make,’ which means that it refers to
something that has already been ‘built, formed or shaped in a specified way.”7
6
The opinion does not mention cost recovery during a “preconstruction planning”
phase. OPC’s inaccurate characterization is not based upon the language of the opinion
but upon certain testimony from BGE witnesses. Later in the opinion, the Commission
specifically clarified that estimated costs “may not be recovered by the surcharge until
BGE has begun making its initial STRIDE replacements,” which we interpret to mean
that BGE may not recover the costs until construction work has begun.
7
In support of this proposition, OPC cites a web page accessed on July 20, 2015:
http://dictionary.reference.com/browse/made?s=t. The source does say that the word
“made” is the “simple past tense and past participle of make.” It does not say that the
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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[.]” PUA § 4-210(d)(3)(ii). The statute directs that those
meaning of the word is restricted to “something that has already been” made. Nor does it
discuss the meaning of the phrase “is made,” which is the actual language in the pertinent
statute.
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estimated costs may be collected “at the same the eligible infrastructure replacement is
made.” Id. The Commission interpreted this phrase, within the statutory context, to
mean that costs may be collected once a gas company begins making the infrastructure
replacements. OPC contends that the only permissible reading of this sentence is that the
gas company may not collect the costs until it finishes making the replacements.
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
ongoing projects even after that five-year period. PUA § 4-210(g)(1).
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
-24-
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 PUA § 4-210(d)(3)(ii) does not describe the collection of mere
“costs,” but the collection of “estimated project costs” that are to be included in an
application. Subsection (d), which governs the contents of a plan filed by a gas company,
specifies that a plan must include “a cost-recovery schedule associated with the plan that
includes a fixed annual surcharge on customer bills to recover reasonable and prudent
costs of proposed eligible infrastructure replacement projects.” PUA § 4-210(d)(1)(ii).
Subsection (d) is predominantly forward-looking. The gas company files a “plan” for
“proposed . . . projects” along with “estimated” costs. Overall, this language suggests
8
At the judicial review hearing, the circuit court judge proposed the following
hypothetical: “Suppose I said to my granddaughter, ‘Be quiet while the fudge is made.’”
Counsel for OPC replied that “in that context,” he “would concede” that the word
“while” is a “durational term,” which implies that that the sentence refers to the time the
fudge “is being made.” Much like the word “while,” the phrase “at the same time”
conveys the duration of the action.
-25-
that a surcharge reflecting estimated costs may be recovered before the gas company has
completed all of the work and before the actual costs are known.
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.” PUA §
4-210(h) (emphasis added). This feature of the statute strengthens the implication that
the gas company can begin to recover its costs before it has completed all of the work and
before the actual amount of the costs are known.
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.” PUA § 4-210(g)(1)(i). Under the most
reasonable reading of this sentence, a customer surcharge begins to take effect on the date
that the gas company initially implements its plan. Under OPC’s interpretation, the
surcharge would not be “in effect” from the initiation of the approved plan, but would
take effect much later, after the completion of projects.
At best, OPC’s reading is in substantial tension with many features of the statute.
OPC’s interpretation would render the word “same” in PUA § 4-210(d)(3)(ii) essentially
meaningless; it struggles to explain why the provision refers to “estimated” costs that
would need to be adjusted to reflect the “actual” costs at the end of the year; and it
substantially undermines the overlapping direction that the surcharge mechanism takes
effect “from the date of initial implementation[.]” PUA § 4-210(g)(1)(i). By contrast,
-26-
the Commission’s interpretation is consistent with section 4-210 in its entirety.
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.” PUA § 4-101. In OPC’s view, the
language that “estimated project costs are collectible . . . at the same time the eligible
infrastructure replacement is made” should be treated as restating the requirement of
PUA § 4-101(3) that a public service company is authorized to earn a return on property
that is “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.
-27-
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
PUA § 4-210 makes it “quite clear” that “the STRIDE Act was intended as an exception
to traditional ratemaking.”
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 subject
usually indicates that legislature intends two different meanings).
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.”
PUA § 4-210(b) (emphasis added). The statute ensures this separation by prohibiting the
Commission from “consider[ing] a revenue requirement or rate-making issue that is not
related to the plan when reviewing a plan for approval or denial unless the plan is filed in
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conjunction with a base rate case.” PUA § 4-210(e)(5).
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.” PUA § 4-210(d)(1)(ii) (emphasis added). The
“investments and estimated costs” recovered through the surcharge must be: “(i)
reasonable and prudent; and (ii) designed to improve public safety or infrastructure
reliability over the short term and long term.” PUA § 4-210(e)(3) (emphasis added).
Section 4-210 does not guarantee the gas company a reasonable return on the fair value
of assets used and useful in providing service, as in the traditional rate-of-return model;
instead, it merely permits the gas company, between base rate cases, to recover certain
“reasonable and prudent” costs through surcharges that do not exceed a statutory
maximum. The adjustments to scrutinize the replaced infrastructure under a traditional
rate analysis do not occur until a post-approval rate case. See PUA § 4-210(d)(5)-(6);
PUA § 4-210(g); PUA § 4-210(i).
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
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provided by the traditional recovery model. Id. at 9. The 1995 statute (currently codified
at PUA § 4-301) provided that, notwithstanding the statutory definition of just and
reasonable rates, the Commission could regulate telephone companies through alternative
forms of price regulation to ensure “affordable and reasonably priced” service. Pursuant
to that statute, the Commission established telecommunications rates through a price-cap
regulatory plan, which it considered to be a “‘broader and more forward-looking measure
of rate reasonableness’” than the traditional rate-of-return measures. Office of People’s
Counsel v. Maryland Pub. Serv. Comm’n, 355 Md. at 7, 11.
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 service
company . . . yielding . . . a reasonable return upon the fair value of the company’s
property used and useful in rendering service to the public.’” Id. at 8-9 (quoting former
art. 78, § 69(a)). The Court reasoned that this defined term “requires a traditional rate
analysis to be made from a specified comparison of costs, rates[,] and profits[.]” Id. at
23. Those enumerated criteria for evaluating justness and reasonableness do not apply
when the Commission regulates a utility by means of an alternative mode of regulation
that does not use a traditional rate-of-return methodology. Id. at 23-24. The new
statute’s guarantee of “‘affordable and reasonably priced’” service acted as the
“equivalent” of the general mandate that a utility charge “‘just and reasonable rates.’” Id.
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at 24.
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 PUA § 4-101 did not apply to another form of regulation “outside the
realm of traditional rate-of-return ratemaking.” In that case, this Court construed a 1999
statute that obligated electricity suppliers to offer certain customers “‘backstop’
electricity supply, known as Standard Offer Service[.]” Id. at 605. The statute required
the service to be offered “at a market price that permits recovery of the verifiable,
prudently incurred costs to procure or produce the electricity plus a reasonable return.”
PUA § 7-510(c)(3)(ii)(2). In addition, the statute gave the Commission limited oversight
to ensure that the price was procured “in a manner that is designed to obtain the best price
for residential and small commercial customers[.]” PUA § 7-510(c)(4)(ii)(1).
Ultimately, this Court concluded that the Commission erred when it attempted to graft
elements of a traditional rate case onto this more abbreviated oversight process,
controlled by statutory criteria other than section 4-101. Severstal Sparrows Point, 194
Md. App. at 622-26.
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
-31-
undoubtedly mandates that BGE charge “just and reasonable” rates for its gas service.
See PUA § 4-201; Office of People’s Counsel v. Maryland Pub. Serv. Comm’n, 355 Md.
at 25. Yet, in this context, the requirements that costs recovered through the surcharge be
reasonable, prudent, and otherwise in accordance with section 4-210 serve as the
“equivalent” of that standard. Office of People’s Counsel v. Maryland Pub. Serv.
Comm’n, 355 Md. at 24. The Commission here correctly declined OPC’s invitation to
overwrite the STRIDE methodology with elements of the traditional rate-of-return
methodology where neither the statutory language, nor the statutory scheme, nor logic
compels the application of those principles here.9
D. Confirmation Through Other Indicia of Legislative Intent
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
9
BGE argues that the “used and useful” component of the “just and reasonable
rate” definition does not prohibit the Commission from authorizing concurrent surcharges
before assets are placed in service. BGE points out that “[t]he meaning and the concept
of the words ‘used and useful in rendering service to the public’ have been held to have a
certain elasticity since the phrase first came into use.” Baltimore Gas & Elec. Co. v.
McQuaid, 220 Md. 373, 379 (1959). Thus, even in an ordinary rate case, the rate-setting
body might be able to consider certain assets that, although not currently in use, are
“likely to be placed in service within the period for which the rates are fixed.” Id. at 380.
According to BGE, the surcharges approved by the Commission comport with PUA § 4-
101(3) because there is “some measure of certainty” that the assets not currently in use
“will in fact be coming into use shortly[.]” Bldg. Owners & Managers Ass’n of Metro.
Baltimore, Inc. v. Pub. Serv. Comm’n of Maryland, 93 Md. App. 741, 770-71 (1992). As
a result of our holding that PUA § 4-210 authorizes a surcharge separate from the
ordinary rate setting process, it is unnecessary to decide the extent to which the
Commission, pursuant to its ordinary ratemaking powers, may approve contemporaneous
surcharges based on cost projections.
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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.” PUA § 4-210(b) (emphasis added).
OPC’s construction of the statute would do little to accomplish the General Assembly’s
stated aims. In contrast to OPC’s, the Commission’s interpretation represents a more
reasonable method of accelerating a gas system overhaul because it allows substantially
more prompt cost recovery than previously available under base rate proceedings.
Although there is little need to look beyond the pages of the Maryland Code to
ascertain the meaning of this provision, other materials associated with this statute’s
legislative history confirm the Commission’s interpretation.10 A summary of the law
prepared by the Department of Legislative Services states: “The estimated project costs
approved in the surcharge are collectible during the same time the eligible infrastructure
replacement is being made.” Fiscal and Policy Note for S.B. 8 (2013 Reg. Sess.), at 2.
10
Even where the words of a statute make its meaning clear, courts may consider
legislative history and other external manifestations of legislative intent to confirm the
correctness of the interpretation. See, e.g., Guttman v. Wells Fargo Bank, 421 Md. 227,
239-40 (2011).
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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
11
An audio recording of the hearing can be accessed through a link at
http://mgaleg.maryland.gov/webmga/frmMain.aspx?id=sb0008&stab=01&pid=billpage&
tab=subject3&ys=2013rs (last visited Dec. 7, 2015).
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“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
-35-
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. PUA § 3-203. To some extent, OPC’s challenge
concerns whether the Commission exceeded the regulatory powers vested in it by the
General Assembly, powers which are “truly awesome[.]” Baltimore Gas & Elec. Co. v.
Pub. Serv. Comm’n of Maryland, 75 Md. App. 87, 99 (1988). The Commission not only
has powers “specifically conferred by law” but also “the implied and incidental powers
needed or proper to carry out its functions,” and those powers must be “construed
liberally.” PUA § 2-112.
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 PUA § 4-210(d)(1)(i) and (e)(3) by authorizing BGE to begin
recovering estimated costs for an eligible infrastructure replacement even though it
determined the plan had no ‘projects.’” OPC relies on subparagraph 4-210(d)(1)(i),
which authorizes a gas company to file “a plan to invest in eligible infrastructure
replacement projects[.]” (Emphasis added.) OPC also points to paragraph (e)(3), which
authorizes the Commission to approve a plan based on findings about “the investments
and estimated costs of eligible infrastructure replacement projects[.]” (Emphasis added.)
OPC argues that the STRIDE law “requires the Commission to review ‘projects’ prior to
approving a ‘plan.’” The Commission, by contrast, granted a preliminary approval of
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BGE’s broader program, conditioned on subsequent annual reviews of those projects.12
Although paragraph (a)(3) enumerates criteria for evaluating whether a project is
an “eligible infrastructure replacement project,” the statute does not describe what
constitutes a “project.” Instead, the definitions subsection states: “‘Project’ means an
eligible infrastructure replacement project proposed by a gas company in a plan filed
under this section.” PUA § 4-210(a)(5). The statute defines a “[p]lan” within section
4-210 to mean “a plan that a gas company files under subsection (d) of this section.”
PUA § 4-210(a)(4). By using these vague and self-referential definitions for “project”
and “plan,” the General Assembly indicated that it “intended to entrust the formulation of
specific standards to the technical expertise” of the Commission. Baltimore Gas & Elec.
Co. v. Pub. Serv. Comm’n of Maryland, 305 Md. at 159. This contested proceeding
presented the Commission with its first opportunity to articulate those standards.
In its opinion, the Commission expanded upon the meaning of the term “project.”
12
In its brief, BGE has argued that this Court should not reach the merits of the
second question on appeal. BGE contends that any issues related to approval of the 2014
project list are now moot because the Commission failed to take a second “appeal” after
the Commission issued the March 26, 2014, letter order. This argument is misplaced.
Order No. 86147, which expressly contemplated further proceedings before the ultimate
approval of the surcharge, “was at least arguably not a final reviewable order without the
implementing Letter Order.” Mid-Atlantic Power Supply Ass’n v. Maryland Pub. Serv.
Comm’n, 143 Md. App. 419, 458 (2002). The arguably premature filing of OPC’s
petition, however, did not limit the circuit court’s jurisdiction. Because a petition for
judicial review is not an “appeal” but an original action, the time requirements for filing a
petition for judicial review are not jurisdictional. Kim v. Comptroller of Treasury, 350
Md. 527, 535 (1998). Consequently, the circuit court had the power to grant appropriate
relief from both orders, even if the January 29 order was not a final order for the purpose
of judicial review, because the Commission issued the letter order before any proceedings
took place in the circuit court. See id. at 534-36; see also ABF Freight Sys., Inc. v.
Gilchrist, 125 Md. App. 419, 424-26 (1999).
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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 something more specific, concrete[,] and practical than a
broadly outlined plan.” Put differently, the Commission concluded that BGE had
provided information for five categories of projects, without identifying the individual
projects within those categories.
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
13
If the Commission had failed to take action on January 29, 2014, the last day of
the 180-day statutory review period, BGE would have been authorized to implement the
plan even without an approval. See PUA § 4-210(f)(1).
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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
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considering an amendment, not a 120-day minimum. See PUA § 4-210(e)(2) (“Within
120 days after a gas company files an amendment to an approved plan, the Commission
shall take final action to approve or deny the amendment”). The statute includes no
specific requirement of a hearing on an amendment to a plan. In general, the Public
Utilities law directs the Commission to “institute and conduct proceedings reasonably
necessary and proper to the exercise of its powers or the performance of its duties.” PUA
§ 3-104(a)(1).
As illustrated by this Court’s opinion in Building Owners and Managers Ass’n of
Metropolitan Baltimore, Inc. v. Pub. Serv. Comm’n of Maryland, 93 Md. App. 741, 764-
72 (1992) (“BOMA”), the Public Service Commission has considerable discretion in
deciding whether to require separate proceedings for reviewing different elements of a
rate request. In BOMA, at the conclusion of a conventional rate case, the Commission
had authorized a “two-step increase” in BGE’s electricity rates, granting an immediate
rate increase and also authorizing BGE to file an amended rate schedule several months
later when a new plant was expected to begin operation. Id. at 746. The Commission
directed the company to file revised tariff schedules, along with data necessary for the
Commission to verify the reasonableness of the second rate increase. Id. at 766-77. The
Commission determined that it was unnecessary and against the public interest to require
a separate and expensive proceeding that would only repeat much of the presentation
from the first hearing. Id. at 766. For that reason, the Commission accepted the final
submissions as a compliance filing for an administrative meeting, giving the parties the
opportunity to express their views without formal testimony. Id. at 767.
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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 PUA §
4-210(e)(3). Having already reviewed the company’s overarching program, the
Commission decided to make those remaining determinations through a series of
abbreviated proceedings, first by reviewing the projects and estimated costs for 2014,
followed by review of annual filings in each of the subsequent four years.
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
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concludes: “if BGE wishes to proceed again under § 4-210 for recovery of these costs,
the parties should be provided an opportunity to determine what, if any, of BGE’s
projects meet the statutory requirements, and then, and only then, may the Commission
determine if it wishes to approve a plan and whether a surcharge crafted in accordance
with § 4-210 may be imposed upon customers.”
The Commission has already provided that relief (“an opportunity to determine
what, if any, of BGE’s projects meet the statutory requirements”) through its multi-step
approval. The process devised by the Commission eliminated unnecessary delay, while
also ensuring that ratepayers would not pay surcharges in 2014 and in subsequent years
until after the Commission had determined that the proposed projects and estimated costs
were reasonable and prudent. We see no unlawfulness or abuse of discretion in the
Commission’s informed decision to invite BGE to amend its proposals and to review
those amendments at an informal administrative meeting, rather than to require an
entirely new proceeding.
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.
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