Washington Gas Light Co. v. Maryland Public Service Commission

172 A.3d 927, 234 Md. App. 367
CourtCourt of Special Appeals of Maryland
DecidedNovember 1, 2017
Docket0117/16
StatusPublished
Cited by2 cases

This text of 172 A.3d 927 (Washington Gas Light Co. v. Maryland Public Service Commission) is published on Counsel Stack Legal Research, covering Court of Special Appeals of Maryland primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Washington Gas Light Co. v. Maryland Public Service Commission, 172 A.3d 927, 234 Md. App. 367 (Md. Ct. App. 2017).

Opinion

Opinion by

Kehoe, J.

Washington Gas Light Company (“WGL”) has appealed from a judgment of the Circuit Court for Montgomery County which affirmed a decision of the Maryland Public Service Commission. At issue was the Commission’s decision to deny portions of WGL’s proposed 2015 amendment to its Strategic Infrastructure Development and Enhancement Plan. WGL asserts to us that both the circuit court and the Commission misinterpreted Public Utility Article (“PUA”) § 4-210 of the Maryland Code. The statute sets out a procedure by which a natural gas utility company can recover, on an accelerated basis, certain kinds of expenses incurred by the company in making improvements to its gas transmission and distribution infrastructure in order to improve public safety and system reliability.

The appellees are the Office of People’s Counsel (the “OPC”) and the Commission. They assert that the Commission’s understanding of PUA § 4-210 was correct.

I. Background

A. The STRIDE Law

A public service company in Maryland may charge its customers a rate which is intended to yield to the company a reasonable return only upon the company’s assets that are “ ‘used and useful in providing service to the public.’ ” Columbia Gas of Maryland, Inc. v. Pub. Serv. Comm’n of Maryland, 224 Md.App. 575, 587, 121 A.3d 224, cert. denied, 445 Md. 488, 128 A.3d 52 (2015) (quoting PUA § 4-101(3)). This means that the company ordinarily bears the cost of system improvements until the projects are completed. WGL’s “rate base,” that is, the conglomeration of assets whose values are used to calculate a reasonable return, includes assets located outside of Maryland.

Most of the analytical heavy lifting in this case was performed by Judge Kevin F. Arthur in People’s Counsel v. Public Service Commission, 226 Md.App. 483, 489-90, 130 A.3d 1061 (2016) (“STRIDE I”). He explained (footnotes and some citations omitted):

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 [614 A.2d 1006] (1992)[.]
In a conventional proceeding to set rates, the Commission will “calculate the test year’s rate base, ie„ ‘the fail’ 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 [5 A.3d 713] (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.

In 2013, and in order to establish an incentive for gas companies to make much-needed safety and reliability-related improvements to their systems, the General Assembly enacted PUA § 4-210. This statute is often referred to as the “STRIDE law”—an acronym for “Strategic Infrastructure Development and Enhancement.” Section 4-210 authorizes the Commission to allow gas companies to recover costs for system improvements through a fixed annual surcharge that is collectible from customers as the work is performed. This makes it possible for the companies to recover costs for eligible projects more quickly than is possible through the typical ratemaking process. Judge Arthur’s summary of the way that the STRIDE law works is more than adequate for our purposes.

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 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)(l)(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 “[eligible 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).

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Bluebook (online)
172 A.3d 927, 234 Md. App. 367, Counsel Stack Legal Research, https://law.counselstack.com/opinion/washington-gas-light-co-v-maryland-public-service-commission-mdctspecapp-2017.