PEPCO v. PSC of DC

District of Columbia Court of Appeals·Decided August 1, 2024·No. 23-AA-0987·Published

Opinion

Notice: This opinion is subject to formal revision before publication in the Atlantic and Maryland Reporters. Users are requested to notify the Clerk of the Court of any formal errors so that corrections may be made before the bound volumes go to press.

DISTRICT OF COLUMBIA COURT OF APPEALS No. 23-AA-0987

POTOMAC ELECTRIC POWER COMPANY, PETITIONER, v.

PUBLIC SERVICE COMMISSION OF THE DISTRICT OF COLUMBIA, RESPONDENT, and

OFFICE OF THE PEOPLE’S COUNSEL, INTERVENOR.

Petition for Review of Orders of the Public Service Commission of the District of Columbia (FC-1156-23)

(Argued March 6, 2024 Decided August 1, 2024)

Dennis P. Jamouneau, with whom Anne Bancroft, Kimberly A. Curry, Taylor W. Beckham, Kunle Z. Adeyamo, Sherry F. Bellamy, Nicholas S. Penn, and Eric J. Murdock were on the brief, for petitioner Potomac Electric Power Company.

Brian O. Edmonds, with whom Christopher G. Lipscombe, Angela L. Lee, Kimberly Lincoln-Stewart, and Robert A. Weishaar, Jr. were on the brief, for respondent Public Service Commission of the District of Columbia.

Scott H. Strauss, with whom Sandra Mattavous-Frye and Amanda C. Drennen were on the brief, for intervenor Office of the People’s Counsel for the District of Columbia.

Before BECKWITH, EASTERLY, and MCLEESE, Associate Judges.

MCLEESE, Associate Judge: Petitioner Potomac Electric Power Company (“Pepco”) challenges the determination of the Public Service Commission of the District of Columbia (the “Commission”) precluding Pepco from recovering from rate-paying customers Pepco’s pre-2018 costs incurred in connection with an investigation into environmental conditions at Pepco’s Benning Road facility. We vacate and remand for further proceedings.

I. Factual and Procedural Background

Except as noted, the following basic facts appear to be undisputed. Pepco operates the Benning Road facility, which occupies an approximately seventy- seven-acre site in the District of Columbia, bordering the Anacostia River. Approximately twenty percent of the site was once occupied by a Pepco electrical generating station. The generating station ceased operations in 2012 and was subsequently demolished. Most of the site is now occupied by a service center engaged in activities related to the construction, operation, and maintenance of Pepco’s electric-power transmission and distribution system.

In 1999, Pepco applied to the Commission for approval to divest its generation assets. Pepco reached a settlement with the parties to that proceeding, and the Commission approved the settlement. The settlement agreement provided that if Pepco decided not to sell the Benning Road generating station, Pepco would be

barred from recovering “stranded costs associated with” that generating station. “Stranded costs” are infrastructure investments that a utility is unable to recover due to changes in regulatory or market conditions. See, e.g., Cent. Vt. Pub. Serv. Corp. v. Fed. Energy Regul. Comm’n, 214 F.3d 1366, 1367-68 (D.C. Cir. 2000) (describing different varieties of stranded costs).

In 2008, a contractor working for the United States Environmental Protection Agency (“EPA”) assessed the Benning Road site to determine whether action needed to be taken on the site pursuant to the federal Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq. The contractor reviewed the history of the site, physically examined the site, and took soil and water samples on a specific date.

The contractor’s subsequent report noted that Pepco had conducted generation and distribution activities on the site. The report described “numerous known spills and leaks” of polychlorinated biphenyls (“PCBs”)—a contaminant of concern—at the Benning Road site. Some of those known spills and leaks appear to have arisen from generation activities and some appear to have arisen from distribution/transmission activities. For some known spills and leaks, the nature of the activity causing the spill is not clear from the description in the report.

The report explained that high levels of PCB contamination were found in the Anacostia River downstream from the site. Although the site was properly managed at the time of inspection and PCB spills were addressed promptly, the report concluded that the PCB contamination of the Anacostia River was likely attributable to activities on the site. The report identified the “sludge dewatering area” adjacent to the former generation-station cooling towers as the only remaining potential “uncontained” source of contaminants to the environment at the site. The report indicated that the sludge dewatering area could “release [PCBs and other] compounds via overland flow . . . into the storm water system that eventually discharges into the Anacostia River.” The report also noted, however, that other “historical releases of . . . hazardous substances from the site contributed to the contamination documented in [the] Anacostia River.”

After the report was issued, the District of Columbia Department of the Environment, now known as the Department of Energy and Environment (“DOEE”), notified Pepco that it intended to sue Pepco for abatement of the hazardous conditions identified in the report. The DOEE notice letter asserted that the conditions DOEE sought to have abated resulted “from the disposal and management of solid wastes at [the Benning Road] facility,” which the notice letter stated was “used by Pepco to manage all operations and maintain all equipment associated with its electrical distribution system.” The letter cited six “documented

releases of PCBs” described in the EPA report as the basis for the intended lawsuit against Pepco. As previously noted, some of those known spills and leaks appear to be attributable to generation activities and some appear to be attributable to distribution/transmission activities.

In 2011, the District of Columbia sued Pepco and related companies seeking abatement of conditions and recovery of costs relating to environmental contamination on and near the Benning Road site. The complaint does not appear to be in the record before the Commission, but the complaint is described in a subsequent consent decree that is in the record. According to the consent decree, the complaint relied on the EPA report, referred to the six documented releases of PCBs, and alleged that “PCBs that have been released at the Facility over time may have migrated from the property into the sediment of the adjacent Anacostia River.” In the consent decree, Pepco agreed to conduct a remedial investigation and feasibility study (“RI/FS”) to inform future remedial actions at the Benning Road site.

The stated purposes of the consent decree included “determin[ing] the nature and extent of contamination and any threat to the public health, welfare, or the environment caused by the release or threatened release of hazardous substances, pollutants[,] or contaminants at or from the Facility, by obligating Pepco to conduct a remedial investigation,” and “identify[ing] and evaluat[ing] alternatives for

remedial action (if any) to prevent, mitigate[,] or otherwise respond to or remedy any release or threatened release of hazardous substances, pollutants, or contaminants at or from the Facility, by obligating Pepco to conduct a feasibility study” (emphasis added). The consent decree described in some detail the nature of the required RI/FS. The study was to “form the basis for the District’s selection of a remedial action for the Facility, and for the Anacostia River sediment associated with the Facility.” The study was to be conducted so as to provide enough information to document, among other things, “whether releases of hazardous substances have occurred,” “whether natural resources have been or are likely to have been adversely affected by the discharge or release of hazardous substances,” and “whether the quantity and concentration of the released hazardous substances are sufficient to potentially cause injury to natural resources.”

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