In re The Md. Office of People's Counsel

1

IN THE MATTER OF THE PETITION OF THE MARYLAND OFFICE OF PEOPLE'S COUNSEL

No. 775-2022

Court of Special Appeals of Maryland^[**]

May 9, 2023

Circuit Court for Baltimore City Case No. C-24-C-21-003749

Wells C.J., Berger, Albright, JJ.

OPINION ^[*]

Berger, J.

This case is before us on appeal from an order of the Circuit Court for Baltimore City affirming a decision of the Maryland Public Service Commission ("PSC" or "Commission"). We are asked to determine whether the Commission acted arbitrarily and capriciously when it approved an August 28, 2020 "Application for Authority to Increase its Existing Rates and Charges and to Revise Its Terms and Conditions for Gas Services" (the "Application") filed by Washington Gas Light Company ("Washington Gas"). The Maryland Office of People's Counsel ("OPC") urges this Court to conclude that the Commission's approval of the Application was arbitrary and capricious because, in OPC's view, the Application did not comply with the requirements set forth by the Commission in 2018 when the Commission approved a merger application of AltaGas Ltd. ("AltaGas") and Washington Gas.

OPC presents one issue for our consideration on appeal, which we set forth verbatim as presented in OPC's brief:

Does the Rate Order arbitrarily and capriciously approve Washington Gas's request to recover from its Maryland customers corporate costs allocated from AltaGas when (1) the AltaGas Order prohibited Washington Gas from recovering corporate costs that exceeded merger savings and required $800,000 in reduced corporate costs for five years following the merger; and (2) it is undisputed that overall corporate costs increased following the merger?

For the reasons explained herein, we shall affirm.

FACTS AND PROCEEDINGS

In 2017, AltaGas and Washington Gas jointly filed an application seeking authorization from the PSC for AltaGas to acquire Washington Gas as required by Md Code (1998, 2020 Repl. Vol.), § 6-105 of the Public Utilities Article ("PU").^[1] After considering written testimony and exhibits filed in support of the merger, the Commission issued Order No. 88631 authorizing the merger on April 4, 2018. The Commission's approval of the merger was subject to fifty-two commitments. In this appeal, OPC focuses on Commitments No. 28 and 44, which OPC asserts were violated in the rate order at issue in this appeal.

Commitment 28 required Washington Gas to provide the Commission with a "side-by-side comparison by function of the pre-merger corporate and shared-services costs incurred by Washington Gas as compared to the post-merger corporate and shared-services costs incurred by Washington Gas for the five years after Merger Close." "For purposes of [Commitment 28], per-Merger mean[t] calendar year 2016."

Commitment 44 required Washington Gas to "track and account for merger-related savings, and transition costs to enable those savings, in its next two base rate cases in which the test year in question includes transition costs." Commitment 44 required that Washington Gas "amortize the transition costs over five years," "not seek recovery in rate proceedings over those five years of any amortized transition costs or corporate costs allocated from AltaGas to Washington Gas in excess of merger-related savings," and "ensure that customer rates reflect an annual net benefit to Washington Gas's Maryland customers of not less than $800,000 per year over the five years following Merger Close commencing with the first post-Merger base rate case."

The Commission's Order did not define "corporate costs allocated from AltaGas" or "net benefit," but the Commission did explain the reasoning underlying Commitment 44:

Although some parties have contended here, and in prior cases under § 6-105, that post-merger synergy savings are too vague to quantify, we conclude that [Commitment 44] ensures that customer rates will decline or otherwise be lower than they would have been absent the merger and therefore complies with this portion of our statute. Also, as Applicants observe, unlike in most merger situations which do not realize synergy savings for years after closing, the Applicants are applying these savings to rate payers beginning in the first year. Therefore, we find that the synergy savings will result in direct ratepayer benefits.

On August 28, 2020, Washington Gas filed the application to increase rates that ultimately gave rise to this appeal. The Commission delegated the matter to a public utility law judge ("PULJ") to conduct evidentiary proceedings. After three days of evidentiary hearings, the PULJ issued a proposed order on February 12, 2021, which approved a rate increase but at a lower rate than Washington Gas had requested. Both Washington Gas and OPC each filed appeals to the Commission.^[2] OPC appealed the PULJ's decision on six grounds, one of which focused upon Commitment 44.

On April 9, 2021, the Commission issued Order No. 89799 (the "Rate Order"), which resolved all of the issues raised by the parties. With respect to the issue regarding Commitment 44, the Commission credited the expert testimony of Robert Tuoriniemi, Chief Regulatory Accountant for Washington Gas, who addressed post-merger savings in the context of Commitment 44. OPC filed a petition for rehearing on two grounds, one of which focused upon Commitment 44. Specifically, OPC sought rehearing on the issue of whether Washington Gas satisfied its obligations to demonstrate $800,000 in annual synergy savings pursuant to the Commission's 2018 approval of the AltaGas merger.^[3] The Commission denied the petition for rehearing on July 29, 2021 in Order No. 89893.

OPC subsequently filed a petition for judicial review in the Circuit Court for Baltimore City. The circuit court issued its initial order on February 28, 2022, reversing the Commission's conclusion that Washington Gas had sufficiently complied with Commitment 44. Washington Gas filed a motion to alter or amend on March 10, 2022, which the circuit court granted on May 31, 2022. The circuit court explained that "it is clear this [c]ourt erred, factually, by using the wrong numbers in its calculation as to whether Commitment 44 was, or was not, violated by the PSC's decision." The circuit court, therefore, affirmed the Commission's decision that Washington Gas had complied with Commitment 44. This appeal followed.

Additional facts shall be discussed as necessitated by our consideration of the issues before us on appeal.

STANDARD OF REVIEW

We recently set forth the particularly discretionary standard of review applicable to decisions of the Public Service Commission in the case of Matter of SmartEnergy Holdings, LLC, 256 Md.App. 20 (2022), cert. granted, __ Md. __, Case No. 1, Sept. Term 2023 (March 7, 2023). We explained:

"The Public Utilities Article 'sets forth the limited "scope of review" . . . over decisions by the Public Service Commission.'" Md. Off. of People's Couns. v. Md. Pub. Serv. Comm'n, 226 Md.App. 483, 499, 130 A.3d 1061 (2016) (quoting Town of Easton v. Pub. Serv. Comm 'n, 379 Md. 21, 30, 838 A.2d 1225 (2003)). "It states: 'Every final decision, order, or regulation [of] 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 (6) 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.'" Id. at 499-500, 130 A.3d 1061 (quoting PUA § 3-203 (emphasis added)).

The Commission is vested with a great deal of discretion in discharging its "important and complex duties." People's Couns. v. Pub. Serv. Comm'n, 52 Md.App. 715, 722, 451 A.2d 945 (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." Commc'ns Workers of Am. v. Pub. Serv. Comm'n, 424 Md. 418, 433, 36 A.3d 449 (2012). In contrast, an agency's interpretation of a statute that it administers "may be entitled to some deference," but the weight to be accorded to that interpretation depends upon a number of considerations:

whether the agency adopted its view soon after the statute's passage, 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 interpretation," and "the nature and process through which the agency arrived at its interpretation." Md. Off. of People's Couns., 226 Md.App. at 501, 130 A.3d 1061 (quotation marks and citations omitted). When the Maryland Public Service Commission has "clearly demonstrated that it has focused its attention on the statutory provisions in question, thoroughly addressed the relevant issues, and reached its interpretations through a sound reasoning process, its interpretation should be accorded the persuasiveness due a well-considered opinion of an expert body." Id. at 505, 130 A.3d 1061 (quotation marks and citations omitted).

Id. at 39-40 (emphasis in original).

DISCUSSION

With this applicable discretionary standard in mind, we turn to the OPC's assertion that the Commission erred when it determined that Washington Gas had demonstrated compliance with Commitment 44. OPC asserts that the side-by-side comparison of corporate and shared-services costs referenced in Condition 28 is the "only means by which one can objectively compare pre- to post-merger costs to determine" merger-related savings when determining whether Commitment 44 has been satisfied. In...