Baltimore Gas & Electric Co. v. Public Service Commission

MURPHY, Chief Judge. Maryland Code (1957, 1980 Repl.Vol.) Article 78, 1 § 54F provides a procedure through which large electric utility companies may obtain expedited review by the Public Service Commission (the “Commission”) of applications for adjustment of their fuel rates. 2 In this case, we are called upon to consider for the first time the manner in which the Commission has implemented § 54F. I. An electric utility company is authorized by statute to charge its customers “just and reasonable rates,” as determined by the Commission. §§ 28(d), 68(a). These rates must enable the company to recover its “necessary and proper expenses” and to provide a “reasonable return” to the company’s investors. § 69(a); see Potomac Edison Co. v. PSC, 279 Md. 573, 579-82 , 369 A.2d 1035 (1977); Public Serv.

Comm’n v. Baltimore Gas & El., 273 Md. 357, 363-64 , 329 A.2d 691 (1974); C. & P. Tel. Co. v. Public Service, 230 Md. 395, 400-01 , 187 A.2d 475 (1963). See generally E. Nichols, Ruling Principles of Utility Regulation 1-9 (1955 & Supp.1964). Prior to 1955, changes in a company’s expenses, including its fuel costs, were reviewed by the Commission only as part of a lengthy base rate proceeding.

As a result, a substantial regulatory lag generally existed between the ¹⁵¹ time increased or decreased costs were incurred by a company and the time those costs were reflected in customer rates. As part of its comprehensive revision of the Public Service Commission Law in 1955, the General Assembly acted to alleviate this regulatory lag with regard to fuel cost recovery by enacting chapter 441 of the Acts of 1955. This statutory provision, now codified as part of § 54, provided that “[a]ny ... electric company may establish a sliding scale for the automatic adjustment of charges for ... electricity ____” Under the authority of this provision, most electric utility companies, including the Baltimore Gas and Electric Company (“BG & E”), amended their tariff schedules to include fuel rate adjustment clauses. A fuel rate adjustment clause permits a company to adjust its rates automatically, subject to later Commission approval, to reflect changes in fuel costs.

As fossil fuel prices increased dramatically during the mid-1970s, the General Assembly acted to subject the rising fuel costs experienced by electric utility companies, and ultimately paid by consumers, to closer scrutiny by the Commission. By chapter 418 of the Acts of 1975, the legislature enacted § 54D, which required companies using fuel rate adjustment clauses “to verify and justify the adjusted fuel costs to the Commission” on a monthly basis. Section 54D was amended by chapter 695 of the Acts of 1977 to direct the Commission to disallow any charge a company had passed on to its customers through a fuel rate adjustment clause if the company “has improperly calculated the charge, has failed to use proper fuel procurement practices, or has used this charge to the detriment of the public.” In 1978, the General Assembly removed large electric utility companies from the purview of § 54D and enacted ¹⁵² § 54F, which provides a discrete procedure through which these companies may adjust their fuel rates. 3 See Acts of 1978, chapter 173. The procedure provided by § 54F differs from that of § 54D in several significant respects, two of which are particularly relevant here.

First, § 54F furnishes the Commission with more definite standards than does § 54D for evaluating fuel rate adjustment applications. Specifically, § 54F(f) directs the Commission to base its decision in a fuel rate adjustment proceeding upon its findings regarding whether “(1) Only changes in the actual costs of the components of the fuel rate are included in the proposed change; (2) The applicant has used the most economical mix of all types of generation and purchase; (3) The applicant has made every reasonable effort to minimize fuel costs and followed competitive procurement practices; (4) The applicant has maintained the productive capacity of all its generating plants at a reasonable level.” Section 54F(g) authorizes the Commission to disallow recovery of increased fuel costs that were incurred as a result of a company’s failure to comply with these requirements. In addition, while § 54D sets no limit upon the amount of time within which the Commission must review an application and issue a final order, § 54F(c) expressly provides that “[t]he Commission’s final order shall be issued promptly but in no event later than 90 days after the filing of the application.” 4 ¹⁵³ II. This appeal arises from three fuel rate adjustment cases initiated by BG & E and conducted by the Commission under the authority of § 54F.

BG & E filed its application in the first of these cases, Case No. 7238-0 (“Case 0”), on March 2, 1981. In conformance with industry custom, BG & E included among the fuel costs stipulated in its application certain costs it incurred in purchasing supplemental power for its customers during a forced outage that occurred in December 1980 and January 1981 at one of its nuclear generating units. 5 The Commission suspended BG & E’s proposed fuel rate adjustment for 30 days, the maximum suspension permitted by § 54F(c), and authorized BG & E to apply the proposed rate, subject to further review by the Commission, beginning with its April 1981 billings. After conducting evidentiary hearings, the Commission issued its Order No. 65299 on June 1, 1981, 90 days after the application’s filing. In the order, the Commission discussed the circumstances surrounding the forced outage and concluded that, because BG & E had failed to demonstrate that the forced outage was not the result of imprudent management, it had not met its burden of proving that it had maintained the productive capacity of all its generating plants at a reasonable level, as required by § 54F(f)(4).

The Commission also recognized, however, that BG & E had achieved an excellent overall record in maintaining the output of its nuclear units. The Commission therefore concluded that BG & E would be permitted to recover 50% of the purchased power costs occasioned by the outage. ¹⁵⁴ The order further provided that the Commission would retain jurisdiction to consider additional evidence regarding the extent of BG & E’s responsibility for the outage, and indicated that the Commission might reconsider its apportionment of the purchased power costs in light of this additional evidence. The Commission issued its Order No. 66011 in Case 0 on November 22, 1982, 630 days after BG & E filed its application. In its order, the Commission concluded that, in light of the additional evidence it had reviewed, BG & E would be permitted to recover 75% of the purchased power costs resulting from the forced outage.

The order also purported to terminate Case 0 on the Commission’s docket. The second fuel rate adjustment case before us in this appeal, Case No. 7238-T (“Case T”), was initiated by BG & E’s filing of its application on February 1, 1982. The Commission suspended the proposed rate adjustment for the maximum permissible period of 30 days and authorized BG & E to apply the proposed rate, subject to further review by the Commission, beginning with its March 1982 billings. BG & E filed its application in the third proceeding, Case No. 7238-U (“Case U”), on March 1, 1982.

Again, the Commission suspended the proposed adjustment for 30 days and authorized BG & E to apply the proposed rate, subject to further Commission review, beginning with its April 1982 billings. Cases T and U were then consolidated for evidentiary hearings before the Commission. The fuel costs submitted in BG & E’s applications in Cases T and U included certain purchased power costs occasioned by a forced outage at one of the company’s nuclear generating units during July 1981. 6 On April 2, 1982, the hearing examiner issued a proposed order in Case T authorizing BG & E to continue to assess the full amount of the proposed fuel rate adjustment, and ¹⁵⁵ providing that the Commission would retain jurisdiction to further review all the issues in the case. The proposed order became final by its terms as Commission Order No. 65755 on May 3, 1982, 90 days after BG & E had filed its application in Case T. Subsequently, after conducting evidentiary hearings, the Commission issued its Order No. 65800 in the consolidated Cases T and U, by which it allowed the full fuel rate adjustment requested in BG & E’s application in Case U to remain in effect pending further Commission review and indicated that it would retain jurisdiction over the consolidated cases.

Order No. 65800 was issued on May 28, 1982, 88 days after the filing of BG & E’s application in Case U. On November 22, 1982, the Commission issued its Order No. 66012 in the consolidated Cases T and U, 266 days and 294 days, respectively, after BG & E’s filing of its applications in these cases. In the order, the Commission discussed the circumstances surrounding the forced outage in July 1981 and concluded that, in light of the additional evidence it had reviewed, BG & E would be permitted to recover from its customers only 25% of the purchased power costs occasioned by the forced outage. This conclusion was based upon the Commission’s findings that, although BG & E had achieved a superior overall record at the nuclear generating unit during the previous year, the July outage was attributable to managerial imprudence, and the company had therefore failed to prove that it had maintained the productive capacity of all its generating units at a reasonable level, as required by § 54F(f)(4). The order also purported to terminate the consolidated Cases T and U on the Commission’s docket.

On November 29, 1982, BG & E filed a notice of appeal from the Commission’s Order No. 66011 in Case O and Order No. 66012 in the consolidated Cases T and U, seeking full recovery of the disputed purchased power costs. On December 10, 1982, the Maryland People’s Counsel cross-appealed, contending that BG & E was not entitled to recover ¹⁵⁶ any of the disputed costs. These appeals were consolidated and tried before the Circuit Court for Calvert County. BG & E raised numerous issues in the circuit court, challenging the accuracy of the Commission’s interpretation of § 54F(f), the legality of the procedure through which the Commission had evaluated BG & E’s applications, and the correctness of the Commission’s final decisions in the three cases.

The circuit court reversed both of the Commission’s orders on two grounds: (1) that § 54F(f)(4) did not authorize the Commission to inquire into the cause of specific forced outages, and (2) that the standards the Commission had applied in implementing § 54F(f) were rules illegally promulgated by the Commission in violation of the State Documents Law, Maryland Code (1957, 1982 Repl.Vol.) Art. 41, §§ 256B-256T. The court remanded the cases to the Commission for entry of orders allowing BG & E to recover all of the disputed fuel costs. From the judgment of the circuit court, both the Commission and the People’s Counsel filed notices of appeal to the Court of Special Appeals. Judge Bishop, writing for the intermediate appellate court, reversed and remanded the case for affirmance of the Commission’s orders.

Public Serv. Comm’n v. Baltimore Gas & Elec., 60 Md.App. 495 , 483 A.2d 796 (1984). We granted BG & E’s petition for certiorari, and shall affirm the judgment of the Court of Special Appeals.

III

A. The 90-Day Provision of § 54F(c) As a preliminary matter, BG & E maintains that § 54F(c) constitutes a limitation on the Commission’s jurisdiction over fuel rate adjustment proceedings. As BG & E reads the statute, § 54F(c) not only requires the Commission to issue its final order within 90 days of the filing of an application, but also divests the Commission of jurisdiction after the ninetieth day, thereby rendering any further action by the Commission “ineffectual” and a “total nullity.” ¹⁵⁷ From this premise, BG & E concludes that the orders the Commission issued in Cases O, T, and U within the 90-day periods constitute the Commission’s final actions in these cases, and are therefore still in effect. By reading § 54F(e) in isolation from the rest of the Public Service Commission Law, BG & E has misconstrued the nature of the 90-day deadline. As we have indicated frequently, a provision contained within an integrated statutory scheme must be understood in that context and harmonized to the extent possible with the other provisions of the statutory scheme.

See, e.g., Guardian Life Ins. v. Ins. Comm’r, 293 Md. 629, 643-45 , 446 A.2d 1140 (1982); In re Stephen K., 289 Md. 294, 298-99 , 424 A.2d 153 (1981); Comptroller v. John C. Louis Co., 285 Md. 527, 538-39 , 404 A.2d 1045 (1979); Mazor v. State Dep’t of Correction, 279 Md. 355, 361 , 369 A.2d 82 (1977); Blumenthal v. Clerk of Cir. Ct., 278 Md. 398, 403 , 365 A.2d 279 (1976); Parker v. Junior Press Printing, 266 Md. 721, 725-26 , 296 A.2d 377 (1972). To understand the effect of the Commission’s purported exercise of jurisdiction beyond the 90-day period of § 54F(c), we must consider other relevant provisions of the Public Service Commission Law. Section 86(d) provides that “[t]he Commission shall have the authority, on its own motion, to rehear any final order____” Furthermore, § 86(c) states that “[t]he Commission may consider on rehearing facts not presented in the original hearing ... and may by new order abrogate, change, or modify its original order.” Reading these sections in conjunction with § 54F(c), it is clear that the Commission possesses the requisite jurisdiction to rehear a final order issued in a § 54F fuel rate adjustment proceeding, and to consider additional facts on rehearing. 7 ¹⁵⁸ That the Commission did not characterize its actions as final orders followed by rehearings is not dispositive.

Section 1 of the Public Service Commission Law requires that “[t]he powers of the Commission shall be liberally construed,” and to exhalt form over substance would be inconsistent with this mandate. Furthermore, we are satisfied that by issuing orders in each of the three cases by the 90-day deadlines, the Commission accomplished the purpose underlying § 54F(c): providing expedited adjustment of electric utility companies’ fuel rates. We therefore conclude that the orders issued by the Commission in Cases 0, T, and U within the 90-day periods were final orders within the meaning of § 54F(c), and that the subsequent issuance of the two orders on November 22, 1982, was a valid exercise of the Commission’s authority under § 86(d). BG & E places great weight on the introductory phrase in § 54F(c), “[notwithstanding any other provisions of this article,” interpreting it to mean that in construing § 54F we must not look beyond the language of this single section.

As we read it, this phrase simply means that the procedure set forth in § 54F controls within its area of applicability in spite of any apparent conflict with other parts of the Public Service Commission Law. It does not mean that § 54F must be interpreted in a vacuum, without due consideration of other consistent and complementary portions of the article. B. The Commission’s Interpretation of § 54F(f)(4) In reviewing BG & E’s applications in Cases 0, T, and U, the Commission concluded that BG & E had satisfied the requirements of paragraphs (1), (2), and (3) of § 54F(f). In each case, the Commission denied BG & E recovery of a portion of its fuel costs solely on the ground that BG & E had failed to meet its burden of proving that it had “maintained the productive capacity of all its generating plants at ¹⁵⁹ a reasonable level,” as required by § 54F(f)(4).

BG & E argues that the Commission has misinterpreted this statutory language, and that both of the Commission’s orders issued on November 22, 1982, must therefore be vacated. The controversy turns upon the meaning to be ascribed to the term “reasonable level.” In BG & E’s view, these words are susceptible of but a single interpretation: a level of productive capacity that compares favorably with a statistical reference standard accepted by the Commission. The Commission has acknowledged that the overall performance of the nuclear unit that experienced the two forced outages was outstanding compared to industry averages during each of the years in which the outages occurred. BG & E insists that the level of productive capacity at this unit was therefore reasonable as a matter of law, and that the Commission lacked statutory authority to conduct further inquiry into the cause of specific forced outages.

We do not agree that the term “reasonable level” is susceptible of only one interpretation. “Reasonable level” is a vague term, and its presence 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. See Springfield Ed. Ass’n v. Springfield, Etc., 290 Or. 217 , 621 P.2d 547, 555-57 (1980); Brix v. City of San Rafael, 92 Cal.App.3d 47, 50-51 , 154 Cal.Rptr. 647 (Cal.Ct.App.1979); Roberts v. Police & Firemen’s Retirement, Etc., 412 A.2d 47, 50 (D.C.1980); Kopp v. State, 100 Idaho 160 , 595 P.2d 309, 312 (1979); WIPE v. Illinois Pollution Control Bd., 55 Ill.App.3d 475 , 13 Ill.Dec. 149, 152 , 370 N.E.2d 1176, 1179 (Ill.App.Ct.1977). The Commission has interpreted “reasonable level” to mean a level that compares favorably with a statistical reference standard and that has not been reduced as a result of managerial imprudence. In its Order No. 66011 ¹⁶⁰ issued in Case 0, the Commission summarized the procedure through which it implements § 54F(f)(4) as follows: “[T]he first step in determining whether the requirements of Section 54F(f)(4) have been met is to measure the plant’s performance on the basis of equivalent availability factors which take into account outages, partial outages and deratings.

The productive capacity of the plant will be measured by a comparison of the performance for the most recent 12-month period against (a) the plant’s own performance record averaged over the last three years, or (b) the availability factor, such as compiled by the North American Electric Reliability Council (‘NAERC’), for similar size units, whichever is higher. If the plant’s actual performance equals or exceeds the higher of the two standards, then there is a rebuttable presumption that the Company has complied with Section 54F(f)(4). “However, if the actual performance falls below the higher of the two standards or if evidence indicates that a specific outage or series of outages may be the result of imprudent management, the Commission will review the facts and circumstances surrounding the specific outages at the generating plant in question. In reviewing the factual circumstances associated with a particular outage, the Commission recognizes that forced outages cannot be completely eliminated or controlled____ “... Therefore, an outage occasioned by human error is not a per se violation of this statutory standard.

However, a decision must be made by the Commission as to whether the facts and decisions associated with the incident constituted mismanagement. In making this determination, the Commission will examine the extent to which the increased costs for replacement generation could have been avoided through better planning, preventive maintenance, more diligent efforts, closer supervision, and more prudent management. Specifically, in reviewing a particular outage, the Commission will examine whether the Company had instituted reasonable and appropriate procedures to prevent human error or equip ¹⁶¹ ment failure and to minimize the consequences of those occurrences. “The Commission recognizes that as more review and monitoring steps are added to a plant’s maintenance procedures, the cost of maintenance will increase as will the length of planned outages thereby lowering the plant’s operating factor and efficiency. Thus, in determining whether the Company’s management has taken reasonable steps to prevent employee error or equipment failure and to minimize the consequences of such occurrences, the Commission will weigh the costs associated with the additional control procedures against the foreseeable cost consequences of operating the plant without those procedures.” The weight to be accorded an agency’s interpretation of a statute depends upon a number of considerations.

Although never binding upon the courts, the contemporaneous interpretation of a statute by the agency charged with its administration is entitled to great deference, especially when the interpretation has been applied consistently and for a long period of time. See National Asphalt v. Prince Geo’s Co., 292 Md. 75, 80 , 437 A.2d 651 (1981); Holy Cross Hosp. v. Health Services, 283 Md. 677, 685 , 393 A.2d 181 (1978); Demory Brothers v. Bd. of Pub. Works, 273 Md. 320, 327 , 329 A.2d 674 (1974); Farber’s, Inc. v. Comptroller, 266 Md. 44, 50-51 , 291 A.2d 658 (1972); see also 5 K. Davis, Administrative Law Treatise § 29.16 (2d ed. 1984); 2A N. Singer, Sutherland on Statutes and Statutory Construction § 49.05, .07, .08 (rev. 4th ed. 1984). Another important consideration is the extent to which the agency engaged in a process of reasoned elaboration in formulating its interpretation of the statute.

When an agency clearly demonstrates 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, the agency’s interpretation will be accorded the persuasiveness due a well- ¹⁶² considered opinion of an expert body. See SEC v. Sloan, 436 U.S. 103, 117-18 , 98 S.Ct. 1702, 1711 , 56 L.Ed.2d 148 (1978); Adamo Wrecking Co. v. United States, 434 U.S. 275 , 287 n. 5, 98 S.Ct. 566 , 574 n. 5, 54 L.Ed.2d 538 (1978); John C. Louis, supra, 285 Md. at 544 , 404 A.2d 1045 . In addition, the nature of the process through which the agency arrived at its interpretation is a relevant consideration in assessing the weight to be accorded the agency’s interpretation. If the interpretation is the product of neither contested adversarial proceedings nor formal rule promulgation, it is entitled to little weight.

See John C. Louis, supra, 285 Md. at 544 , 404 A.2d 1045 ; 2A N. Singer, Sutherland on Statutes and Statutory Construction § 49.05 (rev. 4th ed. 1984). The Commission’s interpretation of § 54F(f)(4) originated in a series of public proceedings conducted shortly after the statute’s enactment. On June 19, 1978, by its Order No. 63190, the Commission instituted proceedings to develop guidelines and procedures to implement § 54F. Separate proceedings were instituted for each of the four electric utility companies affected by this section. 8 During the proceedings, representatives of the electric companies, the People’s Counsel, and the Commission staff testified and presented evidence in support of their views regarding the implementation of § 54F.

Public hearings were also conducted to elicit the views of the companies’ customers. 9 On August 23, 1978, the Commission issued virtually identical interim orders in each of the four cases. 10 In these ¹⁶³ orders, the Commission adopted standards and procedures for the evaluation of the companies’ initial applications filed in response to § 54F. Appended to each order were several uniform reporting forms. One of these forms, Md. PSC Form No. 3, required that each company provide the Commission with information regarding individual outages at generating plants. Each order further provided that “if the information which is provided [in Form No. 3] raises questions, more detailed information can then be requested.” On August 31, 1978, each of the four electric companies filed its initial application under § 54F.

On November 29, 1978, after conducting additional adjudicatory proceedings, the Commission issued orders in which it concluded that each company had maintained the productive capacity of all its generating plants at a reasonable level, in compliance with § 54F(f)(4). 11 In evaluating the levels of productive capacity of the companies’ plants, the Commission considered relevant industry statistics as well as evidence regarding specific outages and other incidents of reduced generation at the companies’ plants. For example, in its Order No. 63453, the Commission based its approval of BG & E’s initial application in part upon evidence that “the availability of the company’s generating units is well above industry averages.” However, in the same order, the Commission observed that the Keystone and Conemaugh plants, of which BG & E was a joint owner, “seem to