In re Md. Off. of People's Couns.

310 A.3d 1083

486 Md. 408

In the MATTER OF the Petition of the MARYLAND OFFICE OF PEOPLE’S COUNSEL

No. 11, Sept. Term, 2023

Supreme Court of Maryland.

February 23, 2024

Circuit Court for Baltimore City, Case No.: 24-C-21-003749, Kendra Y. Ausby, Judge.

Argued by David S. Lapp, People’s Counsel (Juliana Bell, Deputy People’s Counsel, Brock L. Miller, Asst. People’s

Counsel, and Mollie Soloway Woods, Asst. People’s Counsel, of Maryland Office of People’s Counsel, Baltimore, MD), on brief, for Petitioner.

Argued by Joseph M. English, Asst. Gen. Counsel (H. Robert Erwin, Jr., Gen. Counsel, of Public Service Commission of Maryland, Baltimore, MD) and Megan Roberts-Satinsky (Spencer S. Nichols of Washington Gas Light Company, Washington, DC), on briefs, for Respondents.

Argued before: Fader, C.J., Watts, Hotten, Booth, Biran, Gould, Eaves, JJ.

Booth, J.

The General Assembly has provided for judicial review of [decisions of the Public Service] Commission, but that review is to be deferential to the Commission’s expertise and findings. The role of the courts is to ensure that the Commission has exercised its discretion in carrying out this important responsibility within the bounds prescribed by the General Assembly and the Constitution.

Office of People's Counsel v. Md. Public Service Commission, 461 Md. 380, 384, 192 A.3d 744 (2018)

In Maryland, the General Assembly has determined that an acquisition of a public service company by another public service company should be reviewed by the Maryland Public Service Commission ("Commission"), an administrative body with specialized knowledge of Utility markets. The Commission must determine whether the proposed transaction is "consistent with the public interest, convenience, and necessity, including benefits and no harm to consumers."¹ The Legislature has identified certain factors for the Commission to consider and has also vested considerable discretion in the Commission to consider other matters that it may find pertinent when undertaking its assessment One factor that the Commission is required to consider is the potential impact that the acquisition will have on rates and charges paid by Maryland customers, and the services, and conditions of operation of the public service company after the merger or acquisition. After it completes its analysis, the Commission must either approve or reject the transaction, or approve it with conditions.

The Legislature has also granted the Commission the authority to set rates charged by a public service company to Maryland customers. In undertaking this duty, the Commission is required to utilize its expertise to establish a rate that enables a utility company to cover prudent expenses and earn a reasonable profit.

When the Commission exercises any of the above-described powers or duties, it does so within the context of an administrative proceeding. And, as we discuss in detail herein, the General Assembly has set forth specific parameters for judicial review of Commission decisions.

This case concerns the Commission’s approval of an application for a base rate increase filed by Washington Gas and Light Company ("Washington Gas")² in August 2020 (the "rate administrative proceeding"). The rate administrative proceeding occurred approximately two and one-half years after the Commission con- cluded an administrative proceeding in which it approved the acquisition of Washington Gas by AltaGas Limited ("AltaGas") (the "merger administrative proceeding").³ The Office of People’s Counsel ("OPC")⁴ participated in the merger administrative proceeding, as well as the rate administrative proceeding.

This appeal centers on a determination that the Commission made in the rate administrative proceeding concerning the proper interpretation of a condition the Commission had included in its final order approving the merger. That condition required that Washington Gas customer rates reflect "merger-related savings" of "not less than $800,000 per year over the five years" following the merger’s closing. The Commission interpreted that requirement to mean that Washington Gas’s post-merger costs must be $800,000 per year less than they would have been but for the merger. Washington Gas agrees. OPC, by contrast, contends that the condition required Washington Gas’s post-merger costs to be $800,000 per year less than they were the year before the merger.

OPC did not file a petition for judicial review of the Commission’s final order approving the merger, but it did file a petition for judicial review of the Commission’s order approving Washington Gas’s request for a rate increase. After the circuit court affirmed the Commission’s rate increase decision, which was then affirmed by the Appellate Court of Maryland, OPC filed a petition for writ of certiorari, which we granted.

OPC raises the question of whether the Commission erred in its interpretation of the condition in its merger order that provided the method by which Washington Gas was required to compute its "merger-related savings" when applying for a rate increase. We are also asked to determine the standard of review that a court must apply when reviewing the Commission’s interpretation of its own prior decision or order. For the reasons we set forth more fully herein, we hold that a court is to apply the "arbitrary or capricious" standard of review. Applying that standard here, we conclude that the Commission’s interpretation of its own order was not arbitrary or capricious.

I Statutory Framework

The jurisdiction and powers of the Commission extend to all public service companies operating a utility business in Maryland, to the full extent permitted by the Constitution and the laws of the United States. Md. Code Ann., Public Utilities Article ("PU") § 2-112 (2020 Repl. Vol., 2023 Supp.). Generally, the Commission has supervisory and regulatory authority over public service companies 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[.]" Id. § 2-113(a)(1)(i). The Commission also has broad enforcement authority to ensure compliance with laws, "including requirements with respect to financial condition, capitalization, franchises, plant, manner of operation, rates, and service." Id. § 2-113(a)(1)(ii).

A. The Commission's Authority Over Public Service Company Mergers

In general, one may not acquire a public gas or electric company that operates in Maryland without prior authorization from the Commission. Id. § 6-105(e)(1). To obtain that authorization, the applicant must file an application with the Commission containing detailed information concerning the transaction and provide certain documentation. Id. § 6-105(f).

The Commission is then required to "examine and investigate each application" and to conduct any necessary administrative proceedings for review of the application. Id. § 6-105(g)(1). The applicant has the burden of persuading the Commission that the "acquisition is consistent with the public interest, convenience, and necessity, including benefits and no harm to consumers." Id. § 6-105(g)(3)(i), (5). In connection with its review, the Commission is required to consider a list of 12 statutory factors.⁵ Id. § 6-105(g)(2)(i)–(xii). The Legislature has granted the Commission considerable discretion in connection with its decision to approve an acquisition. Specifically, the Commission may consider "any other issues" that it "considers relevant to the assessment of acquisition in relation to the public interest, convenience, and necessity." Id. § 6-105(g)(2)(xii).

At the conclusion of the proceeding, the Commission is to issue a written decision that is based on the record and that states the grounds for its conclusions. Id. § 3-113(a). If the Commission is satisfied that the applicant has borne its burden, it is required to issue an order granting the application. Id. § 6-105(g)(3)(i). The Commission, however, has the discretion to "condition an order authorizing the acquisition on the applicant’s satisfactory performance or adherence to specific requirements." Id. § 6-105(g)(3)(ii). If the Commission concludes that the applicant has failed to meet its burden, it shall issue an order denying the application. Id. § 6-105(g)(4). An interested party that is dissatisfied with the Commission’s final decision may file a petition for judicial review. Id. § 3-202.

B. The Commission's Rate-Making Authority

Under PU § 4-201, a public service company has a duty to "charge just and reasonable rates for the regulated services that it renders," and the Commission retains the power to set rates that comply with the statute. Id. § 4-102(b). A "just and reasonable rate" is a rate that, among other things, is "consistent with the public good" and "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." Id. § 4-101(2), (3).⁶ In undertaking its statutory duties, the "Commission’s role is to determine what rates the utility should be allowed to charge in future years to cover prudent expenses and earn a reasonable profit." Office of People's Counsel v. Md. Public Service Comm'n, 355 Md. 1, 8, 733 A.2d 996 (1999). The Commission is required to enter an order when setting a "just and reasonable rate," PU § 4-102(c), which is subject to judicial review. PU § 3-202(a).

We turn to the Commission’s merger administrative proceeding that resulted in its decision to approve AltaGas’s acquisition of Washington Gas, as well as the Commission’s subsequent rate case administrative proceeding that resulted in its approval of a rate increase—the latter proceeding being the subject of OPC’s contentions in this matter.

II Background and...